Tax Optimization-am I doing this right?

[cashstasherat23]

So I have been trying to figure out how to optimize my money this year, and get myself to a lower tax bracket. I *think* I'm understanding it, but would love for someone else to take a look and tell me if I'm actually doing this right! Here's what I've figured out.

GOAL: 37450 AGI or less
Switched jobs midyear
Salary:
$21,489-MJFF (Jan-Mid June)
$2,000 MJFF Bonus
$32,497- NB (Estimated MidJune-December, total annual salary 52000)

$55,986 Total AGI
-$37,450 Needed to qualify for 15% bracket
=$18,536 still need to contribute to lower tax bracket
-$3,000 YTD MJF 401K contribution
=$15,536
-$3,000 NB 401K contribution (just started, but set at 10% contribution, so $400 a month*7.5 months that I'll be contributing this year)
=$12,536
-$1,376 FSA transit
=$11,160 left to contribute to meet goal

I think that the easiest way to meet the rest of the $11K goal is to up the contribution to my 401K, but the question that I am not sure about it, how do I do that/what percentage do I up my contribution to?

Also, I am currently paying down my student loans, so am expecting the $2,500 tax deduction. Would that come out of the $11K remaining, or am I completely wrong here?

Lastly, since I left my previous employer, I plan to roll my 401K over into a t.IRA with Vanguard. Because it's still tax sheltered, I don't think that should affect anything, but am I wrong there?

Any help appreciated! This is my first crack at this :)



 

[MDM]

Have you tried Taxcaster and/or the case study spreadsheet?

[seattlecyclone]

If you're single and your goal is to get down to the 15% bracket, you need a taxable income of $37,450, not an AGI of $37,450. These are different things. You get to subtract your standard deduction ($6,300) and personal exemption ($3,000) from your AGI to calculate your taxable income. This means that it sounds like your goal is actually to get your AGI below $46,750.

The student loan deduction comes out pre-AGI, so that should help, and then contributing more to your 401(k) should get you the rest of the way there.

The pre-tax 401(k) to pre-tax IRA rollover does not affect things at all.

Good luck!

[johnny847]

If you're single and your goal is to get down to the 15% bracket, you need a taxable income of $37,450, not an AGI of $37,450. These are different things. You get to subtract your standard deduction ($6,300) and personal exemption ($3,000) from your AGI to calculate your taxable income. This means that it sounds like your goal is actually to get your AGI below $46,750.

The student loan deduction comes out pre-AGI, so that should help, and then contributing more to your 401(k) should get you the rest of the way there.

The pre-tax 401(k) to pre-tax IRA rollover does not affect things at all.

Good luck!

You've got a typo. The personal exemption is $4k, not $3k. So the target AGI assuming no itemization of deductions is $47750.

OP, if you can itemize deductions that total over $6300, then your AGI target is lowered by the amount your deductions exceed $6300.

[zolotiyeruki]

You may want to double-check what kind of 401(k) you have.  Depending on the fund (and its fees), you may be better off contributing to a traditional IRA invested in some low-cost index fund (like Vanguard).

[cashstasherat23]

Thanks to everyone for their replies! This is exactly the help I was looking for :)

MDM-that's exactly the kind of tool I was looking for, but wasn't having any luck finding one through Google. Thanks for posting!

seattlecyclone and johnny847, thanks for your help! That clears things up for me quite a bit. Looks like I'm not as far off as I thought!

zolotiyeruki-thanks for your suggestion! I have a 401K with MassMutual, and the fees aren't too bad. The two investments I chose have one .20% expense ratio, and one .13%. I don't think for this year that I'm going to contribute any more than the funds that I roll over to the IRA, but I am going to be investing that rolled over money in the Vanguard VTI ETF, with .05% fees.

UPDATE:

I went to the Taxcaster tool that MDM posted, and did all the calculations, and it looks like once all is said and done, I will be way under, and getting back about a $4,500 tax refund. I'd rather be able to adjust to get a smaller refund, but not be giving a free loan to the government until April. Is there any way I can adjust?

[Sibley]

Decrease your payroll withholdings at work via W4 form. You can use the IRS' withholding calculators to figure out what it should be.