The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: N on August 02, 2015, 01:07:14 AM
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Hi-
I just found out about "catch-up" contributions for persons 50 years and older, for IRAs. How I missed this before, I dont know!
My husband is 51, so he qualifies. He has a Simple IRA, as an employee. Currently he is on schedule to max his contributions at 12,500.
My questions: (and I thank you in advance if you can help answer these)
how much wouldl we save in taxes if he ups to the max of 15,500? ( I dont know how to figure that out)
is it possible to use vacation and sick pay to fund the catch up contributions?
or must catch up contributions be weekly like the regular contributions?
Thanks,
N
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how much wouldl we save in taxes if he ups to the max of 15,500? ( I dont know how to figure that out)
The short answer is that it depends on your current taxable income. The extra $3000 will reduce your taxes by $3000 * X%, where X is your marginal tax bracket. For 2015 with MFJ status the brackets are
$0 10%
$18,450 15%
$74,900 25%
$151,200 28%
$230,450 33%
$411,500 35%
$464,850 40%
Find which dollar amounts are above and below your taxable income (line 43 on the 2014 Form 1040) in the table above. The percentage next to the smaller amount is the value to multiply by $3000. E.g., for a taxable income of $50K, mulitply $3000 * 15% = $450.
See http://forum.mrmoneymustache.com/taxes/best-paycheckwithholding-calculator(s)/ for relatively simple ways to do a more detailed analysis. It is possible that decreasing income by that extra $3000 will allow you to claim credits worth even more than the nominal bracket percentage, but that has to be evaluated case by case.
is it possible to use vacation and sick pay to fund the catch up contributions?
or must catch up contributions be weekly like the regular contributions?
Talk with the company payroll department to find out the specifics for that employer.