How to save on taxes when above IRA income limits

[moustache1979]

This year my income will be coming in above the IRA deduction eligibility limit (Yes, a good problem to have).  Maxing out 401K and HSA.   Won't be eligible for traditional IRA (spouse) or Roth based on my projected income. 

Other than charity donations (I itemize), what other levers are there?

[DMoney]

If you have kids, 529 and dependent care FSA.

[gimp]

I'm seeing the same problem soon... 401k and HSA are good. You can also put money into a limited purpose flexible health account, or some such nonsense; the difference there is 1) only $500 rolls over year to year and 2) the money just sits there, not invested. But it is pre-tax, I believe. I put $500 in mine, since I don't anticipate any/many medical expenses, but I can probably use it to go to the dentist or whatever. But that's peanuts...

Then there're 529 plans for your kids. And something about a dependent care FSA. (I think that includes money for day-care? I don't know. No kids.)

I would also like to know the answer to this question.

[matchewed]

Don't need to have kids for a 529. Just need to be interested in education. You can do a 529 for yourself in order to shelter some money from taxes.

[moustache1979]

I do have a 529 / just helps with state tax though, I believe.  Looking for federal help

[Poorman]

And something about a dependent care FSA. (I think that includes money for day-care? I don't know. No kids.)

Yes, you can shelter up to $5,000 per year in daycare, preschool, and summer camp expenses.  It even shelters you from FICA and Medicare taxes.

[secondcor521]

Best way is to just look at a form 1040 and go down what they'll let you deduct / get credits for.

With higher incomes, off the top of my head you could look at:

Backdoor Roth - Google this
Side business - we had a small one for a while and we were trying to make a go of it but it really was better at generating tax-deductible losses
Having kids - only if you want them otherwise, of course
Having a mortage / property taxes - only if you want a house otherwise, of course

Finally:

Quit your job and live off your investments - this is becoming increasingly tempting for me, since income taxes are currently running 50% of my expenses.  That is to say, over the past six months I have had $40K in expenses - $20K in taxes and $20K for everything else.

[moustache1979]

Thanks all - I do have several kids and will look into Dep. Care and backdoor roth.  Secondcor521 - just. Starting to accumulate some real cash, but living off investments is in the plans.  A few years or so away yet.

[Cheddar Stacker]

Capital losses of up to $3K/year. Sucks to take a loss, but if you have some losers get rid of them and use the deduction.

Talk to your employer if they are flexible about you taking more benefits and less taxable income. Car/mileage, cell phone, insurances, and even deferred compensation. Check out this thread of mine from 2 months ago. It's not something most people can do, but it's going to save me a shitload of taxes this year so it's worth mentioning.

Have you considered switching to part-time or reduced time? Maybe 4 days a week for 80% of the pay? Might be a good test run on your way into ER.

Be careful not to let that taxable income get too high. I don't know exactly where you stand based on the facts given, but there are a lot of phaseouts north of $125K. In 2013 they added the additional medicare taxes for income north of $250K, and they started phasing out exemptions and limiting total itemized deductions as well. I don't remember the threshold for those phaseouts, but somewhere in that range (150K-250K) as well I think.

Good luck. Let us know if you learn any other tricks.

[Rpesek6904]

You need to tell us if you are a W-2  (employee) or 1099 (Self Employed). I can give lots of thoughts for a 1099. W-2? Not so much.

[moustache1979]

W2 employee


Deferred comp eligible but would rather pay taxes than take more risk to my employer

[DMoney]

We max out our 401Ks, also 529s for the kids, do the dependent care FSA.  Not eligible for IRAs anymore.  I may start doing some moonlighting this coming year, would be in a freelancer or independent contractor status - so looking into SEP IRA as a further investment with tax advantages…don't know much about it.  Not sure if anyone else does?

[Roland of Gilead]

Child free and mortgage free, all we can do is 401K, HSA, backdoor Roth, then bend over and spread em around April 15.

[rmendpara]

- 401k
- HSA
- Roth
- flex spending accounts (check with employer, they usually have several different kinds for daycare, commuting, etc)

- dividends (15-20%)
- capital gains (15-20%)
- Real estate investing (lots of tax deferred, but of course not tax-free)

Allocate high tax rate investments into sheltered accounts (e.g. hold REIT stocks in an IRA instead of brokerage), and take advantage of tax loss harvesting in order to shave off another few % off your tax rate (Betterment has a service that will do this for you, so does Personal Capital, I believe).

These are the basic ways. You can get into much more complex methods, but that usually involves people who make many hundreds of thousands per year and have millions in assets.

After that, count your blessings for making so much gosh darn money and stop complaining. :)