Author Topic: Case Study | Optimizing 70k income for family of 5 - Your Badassery requested  (Read 1441 times)

beardstache

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Essential questions:
 - How do I best optimize my investing strategy to receive all available credits AND save on lifelong taxes?
 - Should I favor Roth or traditional 401k contributions in light of new tax laws?
 - I pay $0 in Federal taxes.  How do I best maximize this rarity?


Life situation: MFJ (me 37 and spouse 34).  Three kids (9,7,6).  One income. 
State of residence:  AR (low COL area)

Gross Salary: $70,000 annually.  No bonus or other income.

Monthly Expenses (discretionary/utilities is averaged over the last 6 months):

Mortgage (3.125 interest rate) - $780
Cell Phone - $26 (two republic phones)
Internet - $26 (teaser rate - but I call annually to keep it)
Natural Gas  - $50 (average)
Electricity/water/trash/sewer - $150 (average)
Groceries + eating out - $700
Gasoline:  $100
Tutoring - $85/month
Misc. - $100

TOTAL Monthly Budget: ($2017 - we aim for $2k total monthly spend)

Additional annual spending (including home/car insurance, property taxes, vacation, and misc. pop up spending):  $5000

Debts:
Mortgage:  $90,347 remaining ($155,000 home value)
Credit Card:  $892 (we run everything on CC and pay off monthly)

Assets:
Checking - $1,400
Roth IRAs - $129,600
401k - $41,032
HSA - $39,896
529's - $24,993
Two paid for cars - $10,000

TOTAL Assets:  $236,921

Other relevant information:
- Our basic strategy has been to max out 401k (traditional) at $18K, HSA at $6,900, and throwing all remaining money into our Roth IRA (sometimes maxing, sometimes not depending on what life stuff comes up).  We typically save $30k - $35k annually. 
 - We only spend $1k annually on health insurance (super lucky)
 - With one income and three children, we never have any federal taxes withdrawn from my paychecks.
- My spouse will be starting a teaching degree this month (will graduate in 2020).
- Overall life goals:  Be a great Dad and Husband.  Retire early around
age 50 - 55

Please help me optimize so I can retire earlier.  Thanks in advance for taking the time to look and share your knowledge. 

MDM

  • Walrus Stache
  • *******
  • Posts: 8163
beardstache, welcome to the forum.

Table and chart below show one set of contributions worth considering.  You could download the case study spreadsheet and refine those with your actual income and expenses.  Note that the marginal rates on the chart are for federal+state taxes.

It also isn't completely clear how the 2018 Child Tax Credit will work, but the values calculated here are at least plausible.

Good luck!


Paycheck frequency:AnnualAnnual
Paycheck ItemsEarner #1Earner #2Annual
Gross Salary/Wages
$70,000$0$70,000
Employer-sponsored HSA$6,900$0$6,900
FICA base salary/wages
$63,100$0$63,100
401(k) / 403(b) / TSP / etc.$18,500$0$18,500
W-2 Box 1
$44,600$0$44,600
Subtractions for AGIAnnualAnnualAnnual
Traditional IRA$3,300$3,300$6,600
1040 AGI
$38,000
Other Specific Investment TypesAnnualAnnualAnnual
Roth IRA$2,200$2,200$4,400
Payroll TaxesAnnualAnnualAnnual
Social Security$3,912$0$3,912
Medicare$915$0$915
Income Taxes
Federal tax-$6,3902018, MFJ, std., 3 dep-$6,390
State+local tax$1,409AR state calc'n$1,409
Total income taxes-$153-$153
Monthly
Income before other expenses$2,813$33,753


Filing Status21=S, 2=MFJ, 3=HOH
# Dependents3
# Children <173
# Children <133
# Children for EIC3
Adult #1Adult #2
Age3734
Full-time student?00
AGI$38,000
Std. Deduct.$24,000
Act. Deduct.$24,000
Exemption$0
Taxable$14,000
1040 Tax$1,400
Saver's credit$2,000
EIC$2,190
Refundable CTC$4,200
Net Tax-$6,390
State tax$1,409AR
Item. Deduct.$1,409
VersionV10.04

« Last Edit: May 30, 2018, 10:00:46 PM by MDM »

beardstache

  • 5 O'Clock Shadow
  • *
  • Posts: 2
MDM, thanks for the warm welcome and taking the time to plug in my numbers.  I will certainly give the spreadsheet a whirl and play with the numbers.  Much appreciated!