Originally Posted by lrak
If you can get a job that pays more than $21,875/yr, you are limited by the $17,500/yr IRS maximum rather than the 80% contribution limit. But if you are making $21,875 and saving in a 401k, you should get a savers credit and earned income tax credit so the other 20% won't really be taxed. The federal negative tax rate will likely cancel out your state taxes at that point.
I just assume everyone maxing out both their 401k and IRA are making at least $70k/year. At that point you can max out your 401k ($17,500/yr) and Roth IRA ($5500) with no more than 1/3 of your income. Saving 1/3 seems reasonable for the frugal in that income bracket. If you make more than $70k, you can do it while being less frugal.
Please do expand on the Savers credit. I understand the EIC.
See this is the other piece of the puzzle that I am missing. I know this isn't exactly a tax forum, but any help in this department would be of great benefit to me as well.
Tax situation is this, I am not too sure what I will file for AGI but I earned a bit this year, got married, sold real estate, and will earn over 70k this year with our household income. Guys, keep in mind when I say my retirement, I also mean my DH as well, so I have to take things out of my coffer to cover her retirement...or so that is how I have been approaching the strategy but I feel something is wrong...
Sooo if I contribute the max to DH 403(b) not 401k since we all know low-earners do not get 401k lol...well they get screwed out of a ton of benefits but that discussion is not for this forum neither. Long story short my wife will be looking if she grosses 10k this year. So she invests 80% or $8000 of that into her 403(b) and the other $1260 (remaining from her paychecks for next year after taxes) into her Roth IRA (Roth since we won't be in as high a tax bracket as we were this year).
Then we have my income, well with my income...if I invest the 23k for my 401k+roth, and then after taxes make up the difference of $4240 for the DH, that puts me with annual pre-tax income of 57k. Subtract the taxes and insurance from this and we are looking at a cash-flow of about $32,260. This is great, but again my housing costs are 27,600. so this leaves me with 5grand to live off of for 12months or $355/month which just doesn't work for me.
By contributing this heavily I do realize a $315 tax savings dropping .35 in state taxes and another roughly $3000 dropping us from the 25% federal bracket down to 15%.
It was interesting figuring out all of these numbers, but I just don't see how In this 70-90k annual household income bracket with my high cost of housing how I can actually take advantage of the lower tax bracket advantages.
Feel free to poke holes, fun or shine a light on my tax logic.
PS...this thread may turn into a tax thread...or perhaps I may have a more appropriate place to begin this conversation within this forum I am not too sure lol.
PPS...To tie this back to the article, with this "maxed out" version of our 401K+ IRA savings plan we could be saving a total of 17,760 combined as a household or a rate of roughly 19.73% compared to our income which still isn't quite 22%. If you count the tax savings that I COULD realize by not having such a high COL, or roughly $3300 and I could stick that in some taxable account, that would be our 22% right there. So this is the modern-day perspective in relation to that article. I am in like 90+ equities and I plan on riding that wave the next 20+ years or until I am 52, bull or bear with persistence and fortitude but I need to lower my COL, decrease my income taxes or increase my cash flow that is apparent.