Estimated taxes post FIRE: found $1000s/year I forgot to think about!!!

[aperture]

I am pretty much a novice at most of the financial topics discussed here (especially taxes).  Now I have to show you just how dumb I have been: 
Our plan - I will stop working in 2018 and mrs aperture will work her part time job until our daughter is out of High School in 2022. (mrs aperture is super frugal and dreams of world travel etc. but loves her job and is paid well).  Currently, with both of us working, our total income puts our last $ earned at the 33% marginal tax rate. In considering our future plan, I have been thinking of mrs aperture's taxes to be largely unchanged by the reduction in our family income. Yesterday, it occurred to me for the first time to estimate taxes for our household (2 adults and 2 kids <17) with only her single income. (Duh!) I gave mrs aperture a generous raise and did following calculation:

Gross Income: $110,000
403B contribution: ($18,000)
Net Income after 403B: $92,000

Standard deduction: ($12,800)
Personal exemption x 4: ($16,200)

Income that is taxed: $63,000

Tax calculation: 10% x $18,550 + 15% x $44,450 = $8,522
Child tax credit x 2: ($2000)
Final Tax bill: $6,522 = 5.93%

I feel like I put my hand between the couch cushions and pulled out a stacks of $100 bills. I thought I would share my experience in the unlikely event that anyone else has made it to the pull the trigger stage without remembering to re-calculate the change in taxes.  Best wishes from the happiest idiot I know, aperture.

[MDM]

Currently, with both of us working, our total income puts our last $ earned at the 33% marginal tax rate.
...
Final Tax bill: $6,522 = 5.93%

Congratulations on finding that difference!

Your marginal tax rate with the lower income will still be 15%, correct?  It's the marginal rate that matters when deciding traditional vs. Roth, etc.

[better late]

Thank you for this. I love how clearly you've explained your math here. You've given me something to think about!

[aperture]

MDM - marginal tax rate will be 15%. We have always been priced out of Roth/IRA deductions, so I will have to investigate impact of lower income on that as well. Thanks for the additional line of inquiry.

Better Late - thanks for the feedback. I was not sure whether to post or not.
-aperture

[sol]

We have always been priced out of Roth/IRA deductions,

You're not priced out of the Roth IRA until your joint MAGI exceeds $184,000.  That's AFTER 401k or 403b deductions.

[SeattleCPA]

MDM - marginal tax rate will be 15%. We have always been priced out of Roth/IRA deductions, so I will have to investigate impact of lower income on that as well. Thanks for the additional line of inquiry.

Better Late - thanks for the feedback. I was not sure whether to post or not.
-aperture

BTW, the effect you're (very appropriately in my mind) remarking on works in reverse when your income rises. Ouch.

[aperture]

BTW, the effect you're (very appropriately in my mind) remarking on works in reverse when your income rises. Ouch.

Thanks SeattleCPA. I do hope to optimize our holdings before hitting RMDs at 70.5. Part of the plan will be Roth conversion once my wife stops working.

[2Birds1Stone]

very cool!

[Spork]

We have always been priced out of Roth/IRA deductions,

You're not priced out of the Roth IRA until your joint MAGI exceeds $184,000.  That's AFTER 401k or 403b deductions.

If he was paying in the 33% bracket as MFJ... I suspect MAGI might still very well have been over $184k.

[DavidAnnArbor]

And add the 4.63% state income tax rate on federal taxable income

[aperture]

And add the 4.63% state income tax rate on federal taxable income

Yeah - Colorado State taxes don't change with my change in employment.  But I think I found another deduction.  A non-working spouse can make a tax-deductible IRA contribution of $5500 ($6500 because I am >50), so that should reduce the tax bill further:

taxable income1: $63,000
IRA Contribution: $6,500
taxable income2: $56,500

Tax calculation: 10% x $18,550 + 15% x $37,950 = $7,547
Child tax credit x 2: ($2000)
Federal Tax bill: $5,547 = 5.04%
State Tax bill = 4.63% x $56,500 (I think, but don't know, that same deductions apply) = $2,615