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Old 11-15-2013, 05:53 AM   #21
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Originally Posted by kgtest View Post
When you guys say always "maxed" out to the IRS limit, I have no idea how you did this.

My company allows me to contribute 80% and there is no way I could survive off of the other taxed 20%
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.
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Old 11-15-2013, 06:09 AM   #22
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Originally Posted by lrak View Post
....
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.
And don't forget that the maximum contributions to 401(k) and IRAs were not always $17,500 plus $5,500 catch-up. So 25 years ago the limits may have been less than $6,000 but I am not going to go look them up.
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Old 11-15-2013, 03:53 PM   #23
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...They’ve held a relatively high percentage of their assets in equities – with an average equity allocation of 88% at age 45 and of 54% at age 70. Stocks tend to earn higher returns than bonds and cash over time and so make it easier to build wealth.
...
That may sound good, but if you have savings outside your tax-deferred account, you may want to hold your equities there first & then use your tax-deferred accounts. Search for Asset Location on this board for more details.
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Old 11-18-2013, 10:51 PM   #24
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And don't forget that the maximum contributions to 401(k) and IRAs were not always $17,500 plus $5,500 catch-up. So 25 years ago the limits may have been less than $6,000 but I am not going to go look them up.
I am working on getting down to living on 1/3 of my income. Ideally I would love to get down to 1/4 of my income but I am almost certain I would have to all but eliminate my love for V8 Pickups. Quite frankly they are expensive to own and operate, add to that the occasional bad habit and the fact my housing is over $27k/year right now my income doesn't go quite as far in that department. Is that an excuse, no but it's a reality. I am still working on looking at ways to reduce my annual expenses believe me. For the next year, and until either of our income situations changes that is the only other thing I can do. The more I can shave out of expenses, the sooner I can retire.

After the 10% comes out for 401k, and now that I am gearing up to contribute an extra $12,000 next year somehow, someway to cover both me and my wife's annual IRA contributions I have no clue how I will live on 1/3 of my income out here in Maui but I will do my best.

My first attempt is driving the crappy little honda as much as humanly possible lol. I swear the thing gets like 40+ mpg and it only costs me $40 as opposed to $100 to fill the Tractor (pickup).

My second attempt is bringing my lunch which has gone well and my third attempt is to get the DH to quit smoking as they are like $10/pack out here in Maui... hell every extra grand here and there helps I've realized.

Less than a year ago I owned a boat, motorcycle, 2 trucks, and 2 cars so I downsized a bit and that has kind of opened my eyes as to what kind of compound savings can occur when you're not constantly dropping a grand on the hobby-of-the-month. Anywho, a lot of rambling but you can check my other thread on how I am doing financially...having a clear vision helps and I love the input you all are providing back to me. If anything it is giving me some level of confidence. I guess that's what they mean by "knowledge is power."

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Old 11-19-2013, 12:28 AM   #25
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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.
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Old 11-19-2013, 01:47 AM   #26
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I took a second look at my current budget. Yeah, unless we are super frugal I have roughly another 2grand I could save, so that puts a dent in my 15k "pay myself the difference" bucket I need to get to in order to achieve the above 22%.

SO coming up with the other 13k without starting to go negative is the problem that this guy needs to find a solution to. Hmmmmm. Getting the wife to quit smoking or sacrificing/selling the truck is one way, but I just don't see that as "realistic" because of our age and need for one reliable vehicle in our professions. I tried to get the DH to quit smoking when I finally quit a while back and she just about took me out of the equation.

I think I may turn to a small import/export business and I could also fall back on a niche carpentry trade I learned while not going to college to pickup the additional 12k/year easily but I would need to do some marketing, sales and execution and that does come with a price of about an extra 20hrs/week of work but it certainly has the staying power of $15k/year.

I might rather take a hit to my housing then have to work harder to keep our retirement on track... hmm something to think abouit.
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Old 11-19-2013, 08:54 AM   #27
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Please do expand on the Savers credit. I understand the EIC.
It is a tax credit worth up to $2k for a low income couple saving in retirement plans. If you are guys are using Roth IRAs, it sounds like you will certainly make too much for the savers credit. Assuming you are married filing jointly your combined income needs to be less than 59,000 in 2013 to get any credit at all. If you were really making $21,875, it would be a huge boost to income but you wouldn't have enough to put a roof over your heads.

Plan Now to Get Full Benefit of Saver
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