$134,500 earned income
$74,800 AGI
Married filing jointly
...
First, we were ~$500 in AGI away from hitting the 25% tax bracket last year, so any raise is likely to push us over that edge in 2017.
$134,500 earned income
$74,800 AGI
Married filing jointly
...
First, we were ~$500 in AGI away from hitting the 25% tax bracket last year, so any raise is likely to push us over that edge in 2017.
At a quick glance your reasoning seems sound, but one question: is that $74,800 your Adjusted Gross Income (line 37/38 of Form 1040), or Taxable Income (line 43 of Form 1040)?
$134,500 earned income
$74,800 AGI
Married filing jointly
...
First, we were ~$500 in AGI away from hitting the 25% tax bracket last year, so any raise is likely to push us over that edge in 2017.
At a quick glance your reasoning seems sound, but one question: is that $74,800 your Adjusted Gross Income (line 37/38 of Form 1040), or Taxable Income (line 43 of Form 1040)?
$134,500 earned income
$74,800 AGI
Married filing jointly
...
First, we were ~$500 in AGI away from hitting the 25% tax bracket last year, so any raise is likely to push us over that edge in 2017.
At a quick glance your reasoning seems sound, but one question: is that $74,800 your Adjusted Gross Income (line 37/38 of Form 1040), or Taxable Income (line 43 of Form 1040)?
Good eye. Taxable income.
Also I did not mention pretax benefit and FSA deductions.
| Category | Monthly | Comments | Annual |
| Salary/Wages for earner #1 | $5,604 | $67,250 | |
| Salary/Wages for earner #2 | $5,604 | $67,250 | |
| Pretax Health Ins. | $500 | $6,000 | |
| Healthcare Flex Savings Acct. (FSA) | $150 | $1,800 | |
| FICA base salary/wages | $10,558 | $126,700 | |
| 401(k) / 403(b) / TSP / etc. | $3,000 | At maximum | $36,000 |
| Income subject to IRS tax | $7,558 | $90,700 | |
| Schedule C net profit | $917 | $11,000 | |
| Federal Total Income | $8,475 | $101,700 | |
| Federal tax | $855 | 2017 rates, MFJ, item. ded., 2 exempt. | $10,258 |
| State/City tax | $390 | Guess, using 5.00% * (AGI - Exempt'n) | $4,680 |
| Soc. Sec. | $655 | Assumes 2 earners paying | $7,855 |
| Medicare | $153 | $1,837 | |
| Self-employment Tax | $130 | $1,554 | |
| Total income taxes | $2,182 | $26,185 | |
| Add Health + Daycare reimb. | $150 | $1,800 | |
| Income before other expenses | $6,443 | $77,315 | |
| Monthly Average Expenses: | |||
| Mortgage | $1,389 | Input to Itemized Deductions | $16,672 |
| Property Tax | $200 | Input to Itemized Deductions | $2,400 |
| Filing Status | 2 | 1=S, 2=MFJ, 3=HOH | |
| # Exemptions | 2 | ||
| Adult #1 | Adult #2 | ||
| Age | 49 | 49 | |
| # of earners | 2 | ||
| Total Income | $101,700 | ||
| Std. Deduct. | $12,700 | ||
| Act. Deduct. | $18,218 | ||
| Exemption | $8,100 | ||
| Deductible SE tax | $777 | ||
| AGI | $100,923 | ||
| MAGI | $100,923 | ||
| Taxable | $74,605 | ||
| 1040 Tax | $10,258 | ||
| Tax after n-r credit | $10,258 | ||
| Net Tax | $10,258 | ||
| Monthly | $855 | ||
| Mtg. Int. (approx.) | $11,138 | ||
| State tax | $4,680 | 5.00% | |
| Prop tax | $2,400 | ||
| Item. Deduct. | $18,218 | ||
| Version | V8.16 |
| Loans: | Orig. Prin. | Orig. Length | Curr. Prin. | Yrs left | Rate |
| Mortgage | $300,000 | 30 | $300,000 | 30 | 3.750% |
$134,500 earned income
$74,800 AGI
Married filing jointly
...
First, we were ~$500 in AGI away from hitting the 25% tax bracket last year, so any raise is likely to push us over that edge in 2017.
At a quick glance your reasoning seems sound, but one question: is that $74,800 your Adjusted Gross Income (line 37/38 of Form 1040), or Taxable Income (line 43 of Form 1040)?
Good eye. Taxable income.
Also I did not mention pretax benefit and FSA deductions.
In that case, you might save slightly less than 15% using tIRAs, due to lower state tax deduction when you itemize. You could verify that using commercial tax software (or by hand), or make a quick estimate using the case study spreadsheet (http://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/).
E.g., below are some guesses that more or less approximate your situation, and lead to the "slightly less than 15%" conclusion. In that case, it's likely close to a coin flip regarding T vs. R. If you can save ~25%, then traditional should be better.
Category Monthly Annual Salary/Wages for earner #1 $5,604 $67,250 Salary/Wages for earner #2 $5,604 $67,250 Pretax Health Ins. $500 $6,000 Healthcare Flex Savings Acct. (FSA) $150 $1,800 FICA base salary/wages $10,558 $126,700 401(k) / 403(b) / TSP / etc. $3,000 At maximum $36,000 Income subject to IRS tax $7,558 $90,700 Schedule C net profit $917 $11,000 Federal Total Income $8,475 $101,700 Federal tax $855 2017 rates, MFJ, item. ded., 2 exempt. $10,258 State/City tax $390 Guess, using 5.00% * (AGI - Exempt'n) $4,680 Soc. Sec. $655 Assumes 2 earners paying $7,855 Medicare $153 $1,837 Self-employment Tax $130 $1,554 Total income taxes $2,182 $26,185 Add Health + Daycare reimb. $150 $1,800 Income before other expenses $6,443 $77,315 Monthly Average Expenses: Mortgage $1,389 Input to Itemized Deductions $16,672 Property Tax $200 Input to Itemized Deductions $2,400
Filing Status 2 1=S, 2=MFJ, 3=HOH # Exemptions 2 Adult #1 Adult #2 Age 49 49 # of earners 2 Total Income $101,700 Std. Deduct. $12,700 Act. Deduct. $18,218 Exemption $8,100 Deductible SE tax $777 AGI $100,923 MAGI $100,923 Taxable $74,605 1040 Tax $10,258 Tax after n-r credit $10,258 Net Tax $10,258 Monthly $855 Mtg. Int. (approx.) $11,138 State tax $4,680 5.00% Prop tax $2,400 Item. Deduct. $18,218 Version V8.16
Loans: Orig. Prin. Orig. Length Curr. Prin. Yrs left Rate Mortgage $300,000 30 $300,000 30 3.750%
The main difference between my case and the numbers you plugged in as assumptions is that my mortgage interest deduction is only about $5k.Ok, that (having an extra exemption and deducting the FSA) explains things well.
...
Also, we max out a dependent care FSA and send another $1k to a medical FSA.
I'm thinking the move to tIRA makes sense even if I can't pin down the exact savings. After all, in the race to FIRE, this strategy would hit my number sooner. Maybe if I had a huge Roth hoard, I could lower my FIRE number to account for taxes I won't have to pay, but I think earning returns on the taxes I'll eventually pay sounds better in the meantime.If you have to err, erring on the side of "too much traditional" is better. I do encourage you at least to try the spreadsheet that generated the table, using your real numbers. Might not be exact, but it's usually pretty close....