I think you husband did the math with the assumption that you would pay 15% tax on the IRA. That is unlikely. You are more likely to pay 0 or 10%.

Ding ding ding! In our calculations, we forgot that the standard deduction exists. Can you see why we're afraid of messing up supposedly simple things? =)

Thanks to everyone for encouraging us to go ahead with the IRA. That made us do more research, find our errors, and better understand the process. We have a new spreadsheet now and can definitely see the huge benefits!

For our 2013 taxes, we will max out a Traditional IRA for me. Hopefully next year I'll make enough to do SEP instead, and we're going to max out the husband's 401k next year for sure. Thanks again for all of the helpful advice, we can use all the help we can get.

Now I have a new question. After maxing out my 2013 IRA, we'll still have about $10k of savings that have been accumulating that we were just going to put into index funds. Is there anything else we should use that for instead to improve our 2013 taxes?

(Notes to questions from other posts: My self-employment is freelance web design. I'm sort of "on board" doing regular contract work for one client, and then odd design jobs here and there. Not sure where I would begin learning about whether that is eligible to be an S or C corp.

Also, we are 26 and 27 years old, so there will hopefully be a non-trivial gap between FI and age 59.)