The Dreaded W-4

[Philociraptor]

Mornin' y'all! I'm playing around on TaxCaster and it looks like Married with 0 allowances worked out nearly perfectly for keeping us from owing too much or giving the government an interest-free loan. However, next year we are planning on investing in Traditional IRA's instead of Roth IRA's. Am I correct in assuming that we should change our W-4's to read M-1 so that we don't get a huge refund in Spring 2017? If I'm understanding correctly, each allowance tells them not to tax $4k of income, so since we're going to have an $11k deduction we should add 2.75 allowances, rounded down. Is this correct?

[AlwaysLearningToSave]

You are probably not far off but it is worthwhile to be sure, since the results could vary depending upon which person claims the withholding allowances.

See this thread where MDM walked me through creating a spreadsheet that can calculate your situation precisely.

http://forum.mrmoneymustache.com/taxes/best-way-to-calculate-w-4-exemptions-for-2016/

I found creating the spreadsheet to be a very worthwhile exercise which gave me a better understanding of tax calculations and wage withholding.  I like having the spreadsheet to be able to see how different assumptions affect taxes owed and wage withholding. 

[Apples]

Based on what you have written there, yes that seems to be a good plan.  You can fine tune further claiming 3 allowances then having them withhold an "additional" $X per paycheck to bring you down to that 2.75 level.  But this kind of stuff can be wonky if there's two incomes depending on which tax bracket each person falls in individually.  You can try your method with 2 and see how much comes out per paycheck, and if that is too much change your own paycheck so there's a total of 3 allowances and calculate the additional $X/paycheck to be withheld.  This is always a funny game to play.  Good luck!

If you wait a few weeks, the IRS will have a withholding calculator for 2016 on their website so you can more accurately predict exactly what you need to do.