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Learning, Sharing, and Teaching => Case Studies => Topic started by: beardstache on January 07, 2018, 06:36:52 PM

Title: Case Study | Optimizing 70k income for family of 5 - Your Badassery requested
Post by: beardstache on January 07, 2018, 06:36:52 PM
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

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

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 - With one income and three children, we never have any federal taxes withdrawn from my paychecks.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. 
Title: Re: Case Study | Optimizing 70k income for family of 5 - Your Badassery requested
Post by: MDM on January 07, 2018, 08:15:10 PM
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
Employer-sponsored HSA$6,900$0$6,900
FICA base salary/wages
401(k) / 403(b) / TSP / etc.$18,500$0$18,500
W-2 Box 1
Subtractions for AGIAnnualAnnualAnnual
Traditional IRA$3,300$3,300$6,600
1040 AGI
Other Specific Investment TypesAnnualAnnualAnnual
Roth IRA$2,200$2,200$4,400
Payroll TaxesAnnualAnnualAnnual
Social Security$3,912$0$3,912
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
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
Full-time student?00
Std. Deduct.$24,000
Act. Deduct.$24,000
1040 Tax$1,400
Saver's credit$2,000
Refundable CTC$4,200
Net Tax-$6,390
State tax$1,409AR
Item. Deduct.$1,409

Title: Re: Case Study | Optimizing 70k income for family of 5 - Your Badassery requested
Post by: beardstache on January 08, 2018, 07:31:58 AM
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!