I am currently making probably $60k once you figure in bonuses. I am trying to stay in 15% tax (approx $37k income) bracket as long as I can. I know we can deduct mortgage interest so next year I'll buy a house with a mortgage of approx $100k with let's say 5% interest (Thanks Yellen!) so that's $5k reduction (rounding I know). Also I believe you can contribute up to $18k to 401k tax free correct? Then this is where I need clarification: is it true that in addition to this $18k I could then contribute and ADDITIONAL $5,500 to a traditional IRA bringing my total taxable income to $31,500 a year?? The problem with us early retirees then becomes getting the money out. I heard you can take money out of your retirement in equal monthly buckets until your 59.5 penalty free if it's an unchanging, periodic withdrawal... Is this true? Where do my fellow mustachians put their early retirement savings (401k, etc.) and how do you pull it back out starting in early to mid 30's? (I'm currently 25 if that matters for tax questions)
OP: This might not be the answer you're looking for, and I hope I'm not insulting your intelligence here, but this sentence caught me off guard:
I am trying to stay in 15% tax (approx $37k income) bracket as long as I can.
Just to make sure, you know tax brackets are marginal, right? In other words, if you cross the 15% threshold, your entire income isn't taxed at a higher rate--just the amount that exceeds the tax threshold.
So let's say you gross $70,000 one year, and (hypothetically) $40-60,000 incomes are taxed at 15%, while $60-100,000 incomes are taxed at 18%.
If you made $70,000, your first $60,000 would be taxed at the 15% rate, while the remainder would be taxed at 18%.
If you already knew this, I apologize. But it just seemed to me like you were trying to avoid a higher tax bracket for fear of paying all of your income at a higher tax rate, and that's not how it works.
In short: always, always, always try to make more income and don't worry about the tax liability. Hopefully somebody learned something new today haha.