Lowering my Adjusted Gross Income

[tricky88]

I"m wondering if there are any tips for lowering my AGI for 2008.
My wife has a non-matching 401k that we'll start contributing to as soon as we're able. I am contributing 15% to my work 401k, which only matches up to the first $1,300.

We will max out our HSA account at her work.

But with all of this, we will still be getting close - too close maybe - to the cut-off for the Roth IRA contribution. Are there any other ways to shield or defer income so that we can lop some of this off the top?

No mortgage deduction and no kids. I assume those are the two biggest ones out there.

thanks

[jIMOh]

Do you run a business?
Can you defer income to another year?
Can you increase your 401k contributions?

[tricky88]

Quote:

Originally Posted by jIMOh Do you run a business? Can you defer income to another year? Can you increase your 401k contributions?

No. Maybe I should start one? Ha!

No. We get bi-weekly paychecks from our companies.

Yes. We will be bumping both contributions up to 15%, even though there will be no matching in one case, and well beyond it in the other.

[FIREd]

Add more money to your 401Ks to bring your AGI well below the cut-off amount, then start contributing to your Roths.

[lucija]

Quote:

Originally Posted by tricky88 ... No mortgage deduction and no kids. I assume those are the two biggest ones out there....

FWIW, mortgage and personal exemptions have no effect on AGI - having such deductions may reduce your taxable income, but not the AGI.

jIMOh made some good suggestions; other than those, do you have access and are you able to contribute to an FSA account? I am not sure you can have FSA & HSA at the same time. Even if you can fund FSA, be careful how much you contribute, you will lose any unused $.

Also, remember that health insurance premiums (through your employer, via payroll deductions) will reduce your AGI.

[jIMOh]

Consider going on a different health plan that your wife. have her max the HSA and you max an HSA in your name, or max an FSA to extent of medical expenses.

[bongo2]

You could lose a bunch of money on investments (or realise losses you may already have) and take the $3k max capital loss. You could also quit your job.

I believe investment real estate also allows for some negative income.

You could get divorced.

As mentioned before, mortgages or other schedule A deductions don't help you (only the few deductions that are "above the line" of AGI on your 1040).

Keep in mind that the income limits for the Roth have gone up in 2008, and they are not all-or-nothing, but phase out over $10k (they phase out fast, but it's still something).

Lastly, as painful as it is to loose Roth eligibility, or any other tax problems, be careful about throwing money away just to save taxes.

[W2R]

Pay enough to your 401K to get your income down to the appropriate level. Put money into your Roth.

If you are making that much money, it shouldn't be THAT hard to do. But then, as the saying goes, I have never walked in your moccasins and I don't know what challenges your life has brought you. So it's kind of unfair for me to say that. But still - - think about it.

It might be possible to borrow the 401K money back if you need to, but that really goes against the grain.

[ziggy29]

Quote:

Originally Posted by tricky88 But with all of this, we will still be getting close - too close maybe - to the cut-off for the Roth IRA contribution. Are there any other ways to shield or defer income so that we can lop some of this off the top?

Probably not. Maxing out the 401Ks and the HSA are probably the only things that can be done. The deductions you mentioned are bottom-line, deducted AFTER the AGI is calculated.

Even with an HSA you may be able to open a *limited* FSA at work to cover things like dental and vision visits (NOT used with medical visits or prescriptions when one also has an HSA). That would also reduce income.

Finally, if you have some loser stocks in taxable accounts, you could sell them to take a loss (up to $3000 against ordinary income).

[boutros]

If your AGI is too high for Roth no matter what you can still contribute to a Roth 401k if your company offers that option. Option 2 is contribute to a non deductible IRA and convert in 2010 (I think) when anyone regardless of AGi is allowed to convert.

[kaneohe]

Do you have a lot of taxable interest? If so and you switch to tax exempt instead,
that should reduce AGI. You would want to compare the after-tax results of both to
make sure that made sense though.

[jazz4cash]

We have an option to 'buy' additional vacation (i.e. trade some salary for more days off). I was never too interested in this until I realized vacation is one of the few benefits that goes totally tax-free. No state, local, or payroll taxes. I did this one year, but I ended up wasting the time off....if only I could save them for ER!

[REWahoo]

Quote:

Originally Posted by jazz4cash We have an option to 'buy' additional vacation (i.e. trade some salary for more days off). I was never too interested in this until I realized vacation is one of the few benefits that goes totally tax-free. No state, local, or payroll taxes. I did this one year, but I ended up wasting the time off....if only I could save them for ER!

Heh. ER is buying 52 weeks of vacation every year - for the rest of your life. Unfortunately the tax-free thing needs a little work...

[tricky88]

Thanks all for the suggestions. Indeed, quitting my job is something I've been considering - and would solve one problem. Well, two problems, since I often don't like my job. Divorce is out.

I do have a lot of interest and dividends being paid out in my taxable account, but I can't just "switch" them to non taxable. Part of my FIRE strategy, silly or no, is a steady stream of growing dividends, reinvested that will eventually replace enough of our salaries that we can downshift to less stressful jobs, and not work 52 weeks / year.

We'll both plow as much as we can into the 401ks I suppose, though I hate not getting the matching and tying up the money for decades only to have it be taxed as normal income 25 or so years from now, when tax rates will probably be huge. We'll see if that does it.
Thanks

[amy5708]

I wouldn't laugh at the starting your own business thing; we did exactly that in order to decrease our AGI.

We do hope to make money off them once up and running. Hopefully by then we will be able to stop working so much for da man.