Author Topic: Maxing accounts...how?  (Read 11753 times)

VioletVixen

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Maxing accounts...how?
« on: February 18, 2015, 10:22:16 PM »
I keep reading about people maxing all of their accounts around here. I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something? Then I hear about taxable accounts, which you open after you max everything else out...

Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?

Allen

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Re: Maxing accounts...how?
« Reply #1 on: February 18, 2015, 10:36:12 PM »
Part of maxing out is reducing expenses to free more cash. Do you have any debt payments? Paying those off first will help.

Second, it costs you less than it seems to invest in tax sheltered accounts because of the tax savings. A dollar saved is not a dollar lost from your paycheck.

Finally, ease into it. Don't max it all at once. Start with what you can then try to crank it up 1% a month.  If it hurts ease off, get leaner and meaner then keep cranking. Eventually you'll hit the caps.

Finally #2, keep working on increasing your income.

Rube

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Re: Maxing accounts...how?
« Reply #2 on: February 18, 2015, 10:46:03 PM »
Well, maxing a 401k could mean the maximum income percentage of 25% but I tend to think most are in the $18,000 a year maxing. I'm the latter.

MDM

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Re: Maxing accounts...how?
« Reply #3 on: February 18, 2015, 10:52:33 PM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

Quote
I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?

Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA.  But I may have misinterpreted the OP.  You can download and enter your own numbers from this post, then come back with more specific questions.  Note that Allen's post is likely to be applicable no matter what.

CategoryMonthlyCommentsAnnual
Salary/Wages$4,833$58,000
HSA/Pension$554At maximum$6,650
FICA base salary/wages$4,279$51,350
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Federal Adj. Gross Inc.$2,779$33,350
Federal tax$0Zero due to Saver's Credit$0
State/City tax$97Guess, using 3.50% * Fed. AGI$1,167
Soc. Sec.$265Assumes 1 earner paying$3,184
Medicare$62$745
Total income taxes$425$5,100
Income before other expenses  $2,354$28,250
Monthly Expenses:
Mortgage$573$6,875
Property Tax$167$2,000
Miscellaneous$1,260$15,120
Non-mortgage total$1,427$17,120
Other tax-advantaged investments:
Roth IRA$350$4,200
Total Expense$2,350$28,195
Total to invest in taxable accounts$5$55

wtjbatman

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Re: Maxing accounts...how?
« Reply #4 on: February 19, 2015, 06:04:34 AM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

The wash sale statute (26 USC 1091) doesn't say anything that would limit its application to securities held in taxable accounts.

IRS Publication 550 says that a wash sale occurs if you timely "acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA". The publication does not mention other tax-sheltered accounts. Note that IRS publications "do not necessarily cover all positions for a given issue" and are nonbinding: Internal Revenue Manual, 4.10.7.2.8.

According to IRS Rev. Ruling 2008-5, the reason that the IRS considers IRAs and Roth IRAs to be within the scope of the wash sale statute is that they are trusts organised by the taxpayer.

The Ruling does not address the plans commonly referred to as "401(k) plans", but a review of the literal wording of 26 USC 401 suggests that a 401(k) is also a trust organised for the exclusive benefit of the employee, suggesting it would also be in scope of the wash rule. However, no extant IRS ruling addresses that topic so far as I can find.

In conclusion, you do need to pay attention to transactions in tax-sheltered accounts when conducting tax-loss harvesting because your tax-sheltered transactions may still result in the full or partial nondeductibility of the losses.

I think she meant the actual practice of tax-loss harvesting, which (obviously) there is no advantage to doing in tax advantaged accounts.

Of course I could be wrong, and maybe she wanted to know all about wash sale rules. In which case you seem to have that covered ;)

VioletVixen

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Re: Maxing accounts...how?
« Reply #5 on: February 19, 2015, 07:51:58 AM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

Quote
I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?

Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA.  But I may have misinterpreted the OP.  You can download and enter your own numbers from this post, then come back with more specific questions.  Note that Allen's post is likely to be applicable no matter what.

CategoryMonthlyCommentsAnnual
Salary/Wages$4,833$58,000
HSA/Pension$554At maximum$6,650
FICA base salary/wages$4,279$51,350
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Federal Adj. Gross Inc.$2,779$33,350
Federal tax$0Zero due to Saver's Credit$0
State/City tax$97Guess, using 3.50% * Fed. AGI$1,167
Soc. Sec.$265Assumes 1 earner paying$3,184
Medicare$62$745
Total income taxes$425$5,100
Income before other expenses  $2,354$28,250
Monthly Expenses:
Mortgage$573$6,875
Property Tax$167$2,000
Miscellaneous$1,260$15,120
Non-mortgage total$1,427$17,120
Other tax-advantaged investments:
Roth IRA$350$4,200
Total Expense$2,350$28,195
Total to invest in taxable accounts$5$55

Is there any advantage to maxing the 403b over the IRA? I have better funds in the IRA and I want to max that before the 403b...

terran

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Re: Maxing accounts...how?
« Reply #6 on: February 19, 2015, 08:01:20 AM »
403b's are said to have better legal protection, but if your's doesn't have very good investment options I would max the IRA first.

dandarc

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Re: Maxing accounts...how?
« Reply #7 on: February 19, 2015, 08:05:06 AM »

Is there any advantage to maxing the 403b over the IRA? I have better funds in the IRA and I want to max that before the 403b...
If your employer offers a match, then yes there is an advantage.  If not, then whichever you prefer.

One thing to consider - does your employer offer a Roth 403B option?  Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point.  Also - do you have kids?  Didn't see it mentioned, but single income, and married households often have children in them.  That dramatically impacts your tax-bill for the better.

QueenAlice

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Re: Maxing accounts...how?
« Reply #8 on: February 19, 2015, 08:45:37 AM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

Quote
I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?

Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA.  But I may have misinterpreted the OP.  You can download and enter your own numbers from this post, then come back with more specific questions.  Note that Allen's post is likely to be applicable no matter what.

CategoryMonthlyCommentsAnnual
Salary/Wages$4,833$58,000
HSA/Pension$554At maximum$6,650
FICA base salary/wages$4,279$51,350
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Federal Adj. Gross Inc.$2,779$33,350
Federal tax$0Zero due to Saver's Credit$0
State/City tax$97Guess, using 3.50% * Fed. AGI$1,167
Soc. Sec.$265Assumes 1 earner paying$3,184
Medicare$62$745
Total income taxes$425$5,100
Income before other expenses  $2,354$28,250
Monthly Expenses:
Mortgage$573$6,875
Property Tax$167$2,000
Miscellaneous$1,260$15,120
Non-mortgage total$1,427$17,120
Other tax-advantaged investments:
Roth IRA$350$4,200
Total Expense$2,350$28,195
Total to invest in taxable accounts$5$55

Just had to comment to say this post is beautiful. Clear math breakdown + beautiful formatting. A+, My OCD Engineer heart is swooning haha

MDM

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Re: Maxing accounts...how?
« Reply #9 on: February 19, 2015, 06:28:37 PM »
Just had to comment to say this post is beautiful. Clear math breakdown + beautiful formatting. A+, My OCD Engineer heart is swooning haha
Shucks, ma'am, here at the MMM forums we just aim to please - glad you like it.

VioletVixen

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Re: Maxing accounts...how?
« Reply #10 on: February 20, 2015, 08:22:16 PM »
If your employer offers a match, then yes there is an advantage.  If not, then whichever you prefer.

One thing to consider - does your employer offer a Roth 403B option?  Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point.  Also - do you have kids?  Didn't see it mentioned, but single income, and married households often have children in them.  That dramatically impacts your tax-bill for the better.

My employer gives me 5% of my salary regardless of whether or not I participate in the 403b. Yes, they offer a Roth 403b option. I'm not sure I follow about the 0 Federal tax bill. How does that work? How do I find the point when that happens, and why switch to Roth accounts at that point? No kids.

JLee

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Re: Maxing accounts...how?
« Reply #11 on: February 20, 2015, 09:05:44 PM »
If your employer offers a match, then yes there is an advantage.  If not, then whichever you prefer.

One thing to consider - does your employer offer a Roth 403B option?  Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point.  Also - do you have kids?  Didn't see it mentioned, but single income, and married households often have children in them.  That dramatically impacts your tax-bill for the better.

My employer gives me 5% of my salary regardless of whether or not I participate in the 403b. Yes, they offer a Roth 403b option. I'm not sure I follow about the 0 Federal tax bill. How does that work? How do I find the point when that happens, and why switch to Roth accounts at that point? No kids.
Roth accounts are post-tax and you do not have to pay tax on withdrawals. So, if you're reducing your federal tax burden to zero, all of your money is post-tax so you might as well put it in a Roth so you don't pay taxes when you withdraw it.  If you put it into a traditional account (which is normally pre-tax income), you pay taxes when you withdraw it.

Cheddar Stacker

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Re: Maxing accounts...how?
« Reply #12 on: February 20, 2015, 09:07:08 PM »
If your employer offers a match, then yes there is an advantage.  If not, then whichever you prefer.

One thing to consider - does your employer offer a Roth 403B option?  Since maxing out a traditional 403B likely puts your federal tax bill at 0 per MDM's post, you'll want to find the point where that happens and for sure switch further investments to Roth accounts at that point.  Also - do you have kids?  Didn't see it mentioned, but single income, and married households often have children in them.  That dramatically impacts your tax-bill for the better.

My employer gives me 5% of my salary regardless of whether or not I participate in the 403b. Yes, they offer a Roth 403b option. I'm not sure I follow about the 0 Federal tax bill. How does that work? How do I find the point when that happens, and why switch to Roth accounts at that point? No kids.

You want to find the sweet spot where you pay under 15% tax, maybe under 10%. If you pay 0%, you are mssing an opportunity. Every $ you put in traditional becomes taxable income later when you pull it out. Every $ you put in roth is taxed now (possibly at 0% or 10%) and is not income later when you pull it out.

Read this post. It will help explain this concept very well:
http://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/

VioletVixen

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Re: Maxing accounts...how?
« Reply #13 on: February 20, 2015, 09:27:18 PM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

Quote
I made 58K gross this year, single income + married, and I've done the math. It doesn't seem possible to max my 403b, HSA and IRA. How are people doing this? I have ~$2000 in bills every month (mortgage, etc.). Maxing out the HSA and not touching the 403b, I take home about $3000/mo. I just don't have enough for everything and basic living expenses. Am I missing something?

Agree with your general conclusion, although the table below (taking inputs from your OP) shows that you can maximize the 403b and HSA - just not the IRA.  But I may have misinterpreted the OP.  You can download and enter your own numbers from this post, then come back with more specific questions.  Note that Allen's post is likely to be applicable no matter what.

CategoryMonthlyCommentsAnnual
Salary/Wages$4,833$58,000
HSA/Pension$554At maximum$6,650
FICA base salary/wages$4,279$51,350
401(k) / 403(b) / TSP / etc.$1,500At maximum$18,000
Federal Adj. Gross Inc.$2,779$33,350
Federal tax$0Zero due to Saver's Credit$0
State/City tax$97Guess, using 3.50% * Fed. AGI$1,167
Soc. Sec.$265Assumes 1 earner paying$3,184
Medicare$62$745
Total income taxes$425$5,100
Income before other expenses  $2,354$28,250
Monthly Expenses:
Mortgage$573$6,875
Property Tax$167$2,000
Miscellaneous$1,260$15,120
Non-mortgage total$1,427$17,120
Other tax-advantaged investments:
Roth IRA$350$4,200
Total Expense$2,350$28,195
Total to invest in taxable accounts$5$55

Thanks MDM and Allen. So I plugged my numbers into the spreadsheet according to what I would like to do (Max my HSA, my Traditional IRA and husband's Roth IRA without touching my 403b because I can't afford it...). My taxes seem wonky. According to my most recent paystub, I am paying 216.64/mo State Tax and 249.38/mo Federal Tax. Are the numbers on the spreadsheet modified by my hypothetical plan to save more in the IRAs and HSA? I entered the Oregon State tax I paid in 2014, although the gross wages I am entering for 2015 will be less because I had a shift change and lost my shift differential. My total mortgage payment is actually 943/mo and I think it has something to do with escrow shortage, but I'm not sure how to account for that in the spreadsheet.

I also don't understand the "Time to FIre" Chart and calculations. Why is the "Stash needed @ Retirement" in parentheses and in red? What is the "Have $795,584 extra"? Why does the chart start at $400,000 at year 0? What does it all mean?!

CategoryMonthlyCommentsAnnual
Salary/Wages$4,326$51,912
Pretax Health Ins.$85$1,020
Pretax Vision/Dental Ins.$25$300
HSA/Pension$471$5,649
FICA base salary/wages$3,745$44,943
Traditional IRA$458Room to increase?$5,500
Employer Non-Match Contribution (5%)$216$2,596
Income subject to IRS tax$3,287$39,443
Federal Adj. Gross Inc.$3,287$39,443
Federal tax$832015 rates, stand. ded., 3 exempt.$997
State/City tax$283Guess, using 8.60% * Fed. AGI$3,392
Soc. Sec.$232Assumes 1 earner paying$2,787
Medicare$54$652
Total income taxes$652$7,824
Income before other expenses  $2,635$31,619
Monthly Expenses:
Mortgage$733$8,801
Property Tax$15$180
Mortgage Insurance$39$462
Hazard Insurance$33$397
Cable TV$140$1,680
Car Insurance (2 Cars)$55$660
Car Gas (2 Cars)$150$1,800
Electricity$35$420
Gas/Oil for heating$50$600
Groceries$200$2,400
Phone (cell)$17$204
Recycling/Trash$15$184
Water/Sewer$25$300
Non-mortgage total$774$9,287
Loans:
Shed Loan$387$4,639
Student Loan$146$1,746
Other tax-advantaged investments:
Roth IRA$458$5,500
Total Expense$2,498$29,973
Total to invest$137$1,646
Summary:
"Gross" income$4,326$51,912
Income taxes$652$7,824
After-tax income$3,674$44,088
IRA+401k/403b/TSP/457 (Savers' credit)$917$11,000
Living expenses$2,088$25,057
Non-mortgage loans$532$6,385
After-tax investable$137$1,646
Time to FIRE?:
Income after RE (pension, SS, etc.)25000/year
Time to FIRE15years
Safe Withdrawal Rate4.00%percent
Real return on tax-deferred investments6.67%percent
Real, after tax, return on taxable investments5.00%percent
Current Savings
Tax-deferred (e.g. trad. IRA/401k)$8,875
Roth$4,125
Projected Savings at Retirement
Taxable$35,529
Tax-deferred (e.g. trad. IRA/401k)$221,653
Roth$145,572
Total projected stash$402,754
Projected Expenses in Retirement
Non-loan, non-work expenses$9,287
Total$9,287
Stash needed for retirement @4.0% SWR-$392,830
Have $795,584 extra.

MDM

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Re: Maxing accounts...how?
« Reply #14 on: February 20, 2015, 09:29:26 PM »
You want to find the sweet spot where you pay under 15% tax, maybe under 10%. If you pay 0%, you are mssing an opportunity. Every $ you put in traditional becomes taxable income later when you pull it out. Every $ you put in roth is taxed now (possibly at 0% or 10%) and is not income later when you pull it out.

Read this post. It will help explain this concept very well:
http://forum.mrmoneymustache.com/welcome-to-the-forum/optimize-your-taxable-income/
Good points, and the referenced thread is also good.  One caveat: the income tax calculator linked in the referenced thread's OP does not account for the saver's credit.  The saver's credit could have a significant impact on the taxes of this thread's OP.

Cheddar Stacker

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Re: Maxing accounts...how?
« Reply #15 on: February 20, 2015, 09:40:20 PM »
Right, it doesn't. But read on. The savers credit is discussed at great length there. It's a pretty eye opening thread, particularly for those who haven't figured out the tax code yet.

MDM

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Re: Maxing accounts...how?
« Reply #16 on: February 20, 2015, 09:51:19 PM »
Yep, read the whole thread and it is good.  Would be even better if the saver's credit were included in the referenced tool.

VioletVixen

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Re: Maxing accounts...how?
« Reply #17 on: February 20, 2015, 09:52:12 PM »
I will read that thread after my brain has had a chance to rest, haha. What IS the Saver's Credit?

Cheddar Stacker

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Re: Maxing accounts...how?
« Reply #18 on: February 20, 2015, 10:01:23 PM »
I will read that thread after my brain has had a chance to rest, haha. What IS the Saver's Credit?

A credit of up to $2k I think? Maybe 1k per person, 2k per couple. Make a certain amount of money, you get a 10% credit. Make a lot less, get a 20% credit. Make even less, get a 50% credit.

It's the IRS subsidizing retirement savings for people they think can't afford to save. But they don't know about the MMM community yet I guess.

Read the thread and you'll learn a lot more.

MDM

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Re: Maxing accounts...how?
« Reply #19 on: February 20, 2015, 10:51:00 PM »
Thanks MDM and Allen. So I plugged my numbers into the spreadsheet according to what I would like to do (Max my HSA, my Traditional IRA and husband's Roth IRA without touching my 403b because I can't afford it...). My taxes seem wonky. According to my most recent paystub, I am paying 216.64/mo State Tax and 249.38/mo Federal Tax. Are the numbers on the spreadsheet modified by my hypothetical plan to save more in the IRAs and HSA? I entered the Oregon State tax I paid in 2014, although the gross wages I am entering for 2015 will be less because I had a shift change and lost my shift differential. My total mortgage payment is actually 943/mo and I think it has something to do with escrow shortage, but I'm not sure how to account for that in the spreadsheet.
State taxes vary a lot.  Some are straight percentages, some have multiple brackets, etc.  With a brief glance at Oregon's, for your income range the calculation seems to be ($4,320 is the standard deduction, $16,300 is the beginning of the 9% bracket, and 5%*6500+7%*(16300-6500) is the tax for the lower brackets):
(Federal AGI - Federal Tax - $4,230)*9% + 5%*6500 + 7%*(16300-6500) - (No. of Exemptions) * $191.

In the spreadsheet, with 9% in cell H23, you could enter "=H23*(G5-D34-4320-16300)+5%*6500+7%*(16300-6500)-G9*191" in cell G23.  You'll also have to enable iterations, because in theory the federal tax could depend on the state tax (if you itemize) and Oregon's state tax depends on your federal tax...or you could enter some estimate as you did.

The federal tax calculations are pretty good, and do reflect whatever you have input for IRA, HSA, etc.  The amount withheld on your paycheck is determined by what you tell your employer on your W-4.  If you change your IRA, HSA, etc., do change your W-4 also so you get the cash due you throughout the year.

The spreadsheet calculates "mortgage payment" as the principal plus interest you pay each month.  This is the amount you stop paying when the mortgage is over.  You might be including a property tax escrow, and maybe insurance, in your monthly payment to the loan holder.  Those expenses will continue after the mortgage is paid and should be listed in separate lines on the spreadsheet.  You might be undercounting the property tax...$180/yr seems very low...?

Quote
I also don't understand the "Time to FIre" Chart and calculations. Why is the "Stash needed @ Retirement" in parentheses and in red? What is the "Have $795,584 extra"? Why does the chart start at $400,000 at year 0? What does it all mean?!
Because you entered $25000/yr as "Income after RE (pension, SS, etc.)", and your "Non-loan, non-work expenses" are only $9,288/yr, the spreadsheet figures you already have more than enough (from a pension, SS, etc.) to retire and don't need any investment income.  If you aren't counting on a pension, Soc. Sec., etc. then enter $0 for the "Income after RE."

With that change, it shows ~10 years until you have the $232,200 needed to cover $9,288 in annual expenses.  That is a very low annual expense - great for you if true, but "user beware" if you have overlooked something.

Make sense?  If not, post back.
« Last Edit: February 20, 2015, 11:02:02 PM by MDM »

dunhamjr

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Re: Maxing accounts...how?
« Reply #20 on: February 20, 2015, 10:54:07 PM »
I would also argue that most people maxing the 401k/403b, hsa, ira... are not doing so on a household income of 58k gross.

Not saying it doesnt happen but it's a bit harder at that income level.

VioletVixen

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Re: Maxing accounts...how?
« Reply #21 on: February 20, 2015, 11:29:35 PM »
State taxes vary a lot.  Some are straight percentages, some have multiple brackets, etc.  With a brief glance at Oregon's, for your income range the calculation seems to be ($4,320 is the standard deduction, $16,300 is the beginning of the 9% bracket, and 5%*6500+7%*(16300-6500) is the tax for the lower brackets):
(Federal AGI - Federal Tax - $4,230)*9% + 5%*6500 + 7%*(16300-6500) - (No. of Exemptions) * $191.

In the spreadsheet, with 9% in cell H23, you could enter "=H23*(G5-D34-4320-16300)+5%*6500+7%*(16300-6500)-G9*191" in cell G23.  You'll also have to enable iterations, because in theory the federal tax could depend on the state tax (if you itemize) and Oregon's state tax depends on your federal tax...or you could enter some estimate as you did.

The federal tax calculations are pretty good, and do reflect whatever you have input for IRA, HSA, etc.  The amount withheld on your paycheck is determined by what you tell your employer on your W-4.  If you change your IRA, HSA, etc., do change your W-4 also so you get the cash due you throughout the year.

The spreadsheet calculates "mortgage payment" as the principal plus interest you pay each month.  This is the amount you stop paying when the mortgage is over.  You might be including a property tax escrow, and maybe insurance, in your monthly payment to the loan holder.  Those expenses will continue after the mortgage is paid and should be listed in separate lines on the spreadsheet.  You might be undercounting the property tax...$180/yr seems very low...?

Thanks for the calculation for Oregon State tax, I updated that cell and enabled iterations. Okay, so the amount withheld is obviously not exactly what I'm paying in taxes, since I could be getting a refund or paying more tax at the end of the year? Currently I have "3" on my W-4. This gives me more money throughout the year than 2, right?

My 1098 shows mortgage interest at 5739.99 in box 1 and Mortgage Insurance premiums at 462.24 in box 4. My Tax and Insurance Activity list: Property Tax: 179.23, Hazard Insurance: 397.07, Mortgage Insurance: 462.24, Escrow Refund: 111.01. I'm not sure why my property tax is so low...? I had a new shed built on the property this year, so maybe that is where my "escrow shortage" of $98 came from? Maybe my property tax went up this year?

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With that change, it shows ~10 years until you have the $232,200 needed to cover $9,288 in annual expenses.  That is a very low annual expense - great for you if true, but "user beware" if you have overlooked something.

Make sense?  If not, post back.

Makes sense. But why is my mortgage not included in the annual expense? Is it assumed that it will be paid off before FI? Without loans and mortgage, my monthly expenses are pretty much what the spreadsheet is showing. I don't think I've forgotten anything, but I will double check. This amount doesn't include "fun money" or extra savings, though, so I can add that in.

VioletVixen

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Re: Maxing accounts...how?
« Reply #22 on: February 20, 2015, 11:30:11 PM »
I would also argue that most people maxing the 401k/403b, hsa, ira... are not doing so on a household income of 58k gross.

Not saying it doesnt happen but it's a bit harder at that income level.

That's what I was wondering! I was starting to think I was doing something wrong! :)

MDM

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Re: Maxing accounts...how?
« Reply #23 on: February 20, 2015, 11:33:44 PM »
I will read that thread after my brain has had a chance to rest, haha. What IS the Saver's Credit?

A credit of up to $2k I think? Maybe 1k per person, 2k per couple. Make a certain amount of money, you get a 10% credit. Make a lot less, get a 20% credit. Make even less, get a 50% credit.

It's the IRS subsidizing retirement savings for people they think can't afford to save. But they don't know about the MMM community yet I guess.

Read the thread and you'll learn a lot more.

See IRS Form 8880.  The Saver's Credit actually does have "income cliffs" where $1 difference in AGI can mean a huge difference in tax. 

E.g., for MFJ w/ no kids making $48,000/yr, contributing $12,000 to a 401k gives a $1,540 saver's credit and a total federal tax of $0.  For the same income, contributing $11,999 to a 401k gives an $800 saver's credit and a total federal tax of $740.

The spreadsheet you downloaded does the calculation in cell G18.  It's in Excel-ese, but seems accurate (thanks to sharp-eyed reader dandarc).

MDM

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Re: Maxing accounts...how?
« Reply #24 on: February 20, 2015, 11:46:32 PM »
Thanks for the calculation for Oregon State tax, I updated that cell and enabled iterations. Okay, so the amount withheld is obviously not exactly what I'm paying in taxes, since I could be getting a refund or paying more tax at the end of the year? Currently I have "3" on my W-4. This gives me more money throughout the year than 2, right?
Yes to both questions.

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My 1098 shows mortgage interest at 5739.99 in box 1 and Mortgage Insurance premiums at 462.24 in box 4. My Tax and Insurance Activity list: Property Tax: 179.23, Hazard Insurance: 397.07, Mortgage Insurance: 462.24, Escrow Refund: 111.01. I'm not sure why my property tax is so low...? I had a new shed built on the property this year, so maybe that is where my "escrow shortage" of $98 came from? Maybe my property tax went up this year?
Don't know what to say about your property tax.  Based on http://www.tax-rates.org/propertytax.php?state=oregon it seems it ought to be higher, but you pay whatever you pay.

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Makes sense. But why is my mortgage not included in the annual expense? Is it assumed that it will be paid off before FI? Without loans and mortgage, my monthly expenses are pretty much what the spreadsheet is showing. I don't think I've forgotten anything, but I will double check. This amount doesn't include "fun money" or extra savings, though, so I can add that in.
Yes, that is the assumption this tool makes.  You could add back the mortgage payment in the "Change in spending after RE" box near the bottom for a more conservative look. 

As noted the FI part of the spreadsheet is a "quick 'n' dirty" calculation and needs to be taken with some assumptions.  When you want to get really serious, see www.cfiresim.com where you can have more time-dependent entries.

VioletVixen

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Re: Maxing accounts...how?
« Reply #25 on: February 21, 2015, 09:16:59 PM »
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My 1098 shows mortgage interest at 5739.99 in box 1 and Mortgage Insurance premiums at 462.24 in box 4. My Tax and Insurance Activity list: Property Tax: 179.23, Hazard Insurance: 397.07, Mortgage Insurance: 462.24, Escrow Refund: 111.01. I'm not sure why my property tax is so low...? I had a new shed built on the property this year, so maybe that is where my "escrow shortage" of $98 came from? Maybe my property tax went up this year?
Don't know what to say about your property tax.  Based on http://www.tax-rates.org/propertytax.php?state=oregon it seems it ought to be higher, but you pay whatever you pay.

So I discovered something interesting while investigating the property tax conundrum...my mortgage lender listed the property tax on the 1098 as $179.23. However, when I actually logged into the lender's website and looked at the transactions, I noticed that they had actually paid $1775.95 for property tax. I verified this by digging out the property tax statement sent to me from my county tax office. The county billed my lender, the lender paid $1775.95, and then they reported on the 1098 that they only paid $179.23. I'm not sure what to do. I guess I'll contact them and see what's up, but I should definitely report the $1775.95 on my tax return as the amount I paid, correct? 
« Last Edit: February 21, 2015, 09:19:02 PM by violetvixen »

MDM

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Re: Maxing accounts...how?
« Reply #26 on: February 21, 2015, 09:31:11 PM »
So I discovered something interesting while investigating the property tax conundrum...my mortgage lender listed the property tax on the 1098 as $179.23. However, when I actually logged into the lender's website and looked at the transactions, I noticed that they had actually paid $1775.95 for property tax. I verified this by digging out the property tax statement sent to me from my county tax office. The county billed my lender, the lender paid $1775.95, and then they reported on the 1098 that they only paid $179.23. I'm not sure what to do. I guess I'll contact them and see what's up, but I should definitely report the $1775.95 on my tax return as the amount I paid, correct?

Correct!  See http://www.irs.gov/taxtopics/tc503.html:
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If a portion of your monthly mortgage payment goes into an escrow account...deduct the amount actually paid out of the escrow account during the year to the taxing authority.

ETA: This matters if, and only if, you itemize deductions.  If you take the standard deduction then the IRS doesn't care how much property tax you paid.
« Last Edit: February 21, 2015, 09:33:36 PM by MDM »

VioletVixen

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Re: Maxing accounts...how?
« Reply #27 on: February 21, 2015, 09:46:44 PM »
Whew, thanks for helping me figure that one out! I don't itemize on federal, but I do itemize on state because Oregon has a very low standard deduction. I noticed my state refund jumped a few hundred dollars when I entered the correct property tax amount. :)

MDM

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Re: Maxing accounts...how?
« Reply #28 on: February 21, 2015, 10:09:26 PM »
my state refund jumped a few hundred dollars when I entered the correct property tax amount. :)

Pretty good return for your time on the lender's site and checking your county tax statement - well done!

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Re: Maxing accounts...how?
« Reply #29 on: February 22, 2015, 03:01:25 PM »
I would also argue that most people maxing the 401k/403b, hsa, ira... are not doing so on a household income of 58k gross.

Not saying it doesnt happen but it's a bit harder at that income level.

Correct.

I gross $70,000/year and $25,600 goes here:

$17,400 403(b)
$  4,800 pension contributions
$  2,200 health insurance premiums
$  1,200 Flex $$$

At 58K I'd shoot for $1000/month 403(b) savings goal.

My first job earned me about $25K/year. My first order of business was withholding $100/paycheck into the 403(b). That was 18 years ago.

Work your way up towards the max. I'm still working on it!

Murse

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Re: Maxing accounts...how?
« Reply #30 on: February 22, 2015, 04:59:29 PM »
Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?

rpr

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Re: Maxing accounts...how?
« Reply #31 on: February 22, 2015, 05:04:56 PM »

Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?

The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.

That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.


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VioletVixen

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Re: Maxing accounts...how?
« Reply #32 on: February 22, 2015, 08:34:36 PM »
Pretty good return for your time on the lender's site and checking your county tax statement - well done!

Thanks! I'm glad you pointed it out to me, otherwise I wouldn't have known the difference.


VioletVixen

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Re: Maxing accounts...how?
« Reply #33 on: February 22, 2015, 08:38:05 PM »

Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?

The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.

That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.


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Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year?  And what is the 25% vs. $18,000 rule, is it really whichever is less??

rpr

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Maxing accounts...how?
« Reply #34 on: February 22, 2015, 08:50:04 PM »

Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?

The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.

That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.


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Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year?  And what is the 25% vs. $18,000 rule, is it really whichever is less??
NO -- the 18k is the limit for employee contributions. Employer contributions are on top of it. So you can contribute 18k as an employee and the employer contributes $2550 (5%).

And there is no 25% rule from the IRS standpoint, but your employer may have restrictions on how much you can contribute. That is why it is so important to contact your HR department for the rules governing your specific plan. 

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« Last Edit: February 22, 2015, 08:52:40 PM by rpr »

VioletVixen

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Re: Maxing accounts...how?
« Reply #35 on: February 22, 2015, 08:53:14 PM »
Oh, and another question: are these taxable accounts the only ones that you have to worry about tax-loss harvesting?
Answering the easy one first: yes.

The wash sale statute (26 USC 1091) doesn't say anything that would limit its application to securities held in taxable accounts.

IRS Publication 550 says that a wash sale occurs if you timely "acquire substantially identical stock for your individual retirement account (IRA) or Roth IRA". The publication does not mention other tax-sheltered accounts. Note that IRS publications "do not necessarily cover all positions for a given issue" and are nonbinding: Internal Revenue Manual, 4.10.7.2.8.

According to IRS Rev. Ruling 2008-5, the reason that the IRS considers IRAs and Roth IRAs to be within the scope of the wash sale statute is that they are trusts organised by the taxpayer.

The Ruling does not address the plans commonly referred to as "401(k) plans", but a review of the literal wording of 26 USC 401 suggests that a 401(k) is also a trust organised for the exclusive benefit of the employee, suggesting it would also be in scope of the wash rule. However, no extant IRS ruling addresses that topic so far as I can find.

In conclusion, you do need to pay attention to transactions in tax-sheltered accounts when conducting tax-loss harvesting because your tax-sheltered transactions may still result in the full or partial nondeductibility of the losses.

I think she meant the actual practice of tax-loss harvesting, which (obviously) there is no advantage to doing in tax advantaged accounts.

Of course I could be wrong, and maybe she wanted to know all about wash sale rules. In which case you seem to have that covered ;)

Cathy, I appreciate your very detailed information! I'm just more confused now since I know nothing about tax-loss harvesting (yet) and I am only using tax-sheltered accounts at this time. I just wondered if it was something I needed to be concerned with at this point in my journey of discovery, haha.

wtjbatman, I do believe I will return to that post when I am ready to learn about wash sale rules! :)

MDM

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Re: Maxing accounts...how?
« Reply #36 on: February 22, 2015, 08:54:40 PM »
The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.

That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.

Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year?
I think this was covered while I typed but it's already typed, so....

There is an "employee plus employer" limit, but that is somewhere over $50K.  Your $18K limit is yours alone.

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And what is the 25% vs. $18,000 rule, is it really whichever is less??
Yes, you are stuck with whoever (between your employer and the IRS) sets the lower limit.  But it is to the advantage of the company bosses to have the lower paid employees contribute more, so unless said bosses are more obtuse than usual it will be the IRS limit that affects you.

rpr

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Re: Maxing accounts...how?
« Reply #37 on: February 22, 2015, 08:55:25 PM »
If you don't have any taxable accounts, then you can safely ignore tax loss harvesting.


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VioletVixen

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Re: Maxing accounts...how?
« Reply #38 on: February 22, 2015, 08:56:52 PM »

Question, I always thought the max was the dollar amount for the year (this year being 18k I think) I will be getting my first big boy job around June, is it really 25% or 18k whichever is less?? I'll be starting around 60k (most likely) does that mean my max will be 15k? Is this the same for 457's?

The maximum IRS allowed limit for employee contributions is $18000/year for the 401k/403b together. If you have access to a 457b then you may be able to contribute an additional $18000/year.

That said some employers may put caps on employee contributions. Contact your HR/benefits department and look at the plan yourself. Do not rely on the Internet as it will only give you general information. Your plan details contain the specifics you need.


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Oh, I didn't know that the $18000 included the 401k! So, if my employer contributes 5% of my salary (~$2550) per year to the 401k, then I can only contribute $15,450 to the 403b for the year?  And what is the 25% vs. $18,000 rule, is it really whichever is less??
NO -- the 18k is the limit for employee contributions. Employer contributions are on top of it. So you can contribute 18k as an employee and the employer contributes $2550 (5%).

And there is no 25% rule from the IRS standpoint, but your employer may have restrictions on how much you can contribute. That is why it is so important to contact your HR department for the rules governing your specific plan. 

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Thanks for clarifying that. Well, since I can't put much in the 403b anyway if I want to max my other accounts, I guess it's not really a concern yet. But definitely good to know.

rpr

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Re: Maxing accounts...how?
« Reply #39 on: February 22, 2015, 09:22:04 PM »

Well, maxing a 401k could mean the maximum income percentage of 25% but I tend to think most are in the $18,000 a year maxing. I'm the latter.
To the OP -- I can now see your confusion about the 25% number. It is due to the post above. AFAIK, there are no official IRS rules that put a 25% limit.


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