What's your marginal tax rate?

[Lizard Queen]

Do you make efforts to lower it/stay below the next step, or do you just let the chips fall where they may?

[Lizard Queen]

So, just wondering how hard I should try to stay at 12 vs 22%. I've got a Roth available through work, which is nice, but if my DH gets a new position at work, it might require more shuffling with retirement accounts.

[minnesotapaintlady]

Well, I would fight to stay in the 12, but I'm in the 10 and still max out pre-tax accounts, so...

But, there are other reasons you might want to stay in the 12.  For one your capital gains tax rate is then 0% if you are, so if you have any money in a taxable account that might matter.  I don't have much in taxable, but my kids do and they pay capital gains based on my rate.  Also, you might want to look at any credits you get and the cutoffs for them. 

[Rukh O'Rorke]

24%

I am maxing 401k and hsa - if anyone has advice on how to do more to lower taxes ..... me and frazier crane - I'm listening!

[jeffreymo]

12% this year with 401ks and HSA maxed. 22% next year with the possibility of pulling it down to 12% with Dependent Care FSA to pay for summer day camps.

[jerseygirl]

Unfortunately with consulting income varying greatly I have difficulty determining tax brackets from year to year.
I only take consulting jobs with interesting projects , some have lots of work. Last two have had the drugs being studied fail so work stopped.
Sometimes 12% other years 24%

I’ve decided to stop consulting so stop being tempted by interesting projects, just delete emails and quickly stop phone calls about projects . Last two took lots of research snd studying and unfortunately cancelled. I’ve really been lucky as maybe 90% of experimental drugs fail . I’ve had 5 drugs approved during my 30 year career.
So our tax bracket should start being predictable now.

[Deleted]

22%.

Much of my income is capital gain distributions from mutual funds although I'm gradually moving to ETFs.  While I can control when I buy and sell funds or individual stocks, I get estimates of capital gain distributions only around November or so, making it very hard to "manage" my AGI, so I don't even try.  I can keep track of realized gains and losses during the year from my own moves but I can't predict which, if any, might throw me into a higher bracket.

First world problems.

[Tiny]

I'm single and always have been. For many years all the pretax stuff I could do - I did. I flirted with the next highest bracket for years (as I was bumping up my retirement savings each year). And then a handful of years ago I got a large unexpected raise - and it blew all my "carefully made" future plans about taxes out of the water. OK, it pushed me over the limit and into a new tax bracket and I didn't have any way to get back under the limit.   I'm just over into the 24% bracket these days. 

On the plus side it started out being a relatively small amount of income taxed at the higher rate. But of course my income kept going up, but so did the amount I could do pretax... so I'm just kind of stuck. It's not a bad thing. It's a good problem to have.

At this point I just let the cards fall where they will. I am taking advantage of all the pretax goodness I can. Pretty much ALL the pretax $$ I save would have been taxed at my new higher level bracket - so it's still a win for me. I contribute the max to a Roth Ira as well.  


Do you anticipate needing the flexibility of drawing from your Roth during some of your retirement (or FI years) to help control your future income so you can take advantage of stuff (I guess like ACA limits or with Medicare or SS limits)?? Paying the taxes on money going into a Roth now might make up for it later down the road. I'm not sure how this works exactly but I've seen it mentioned on line.  That might make contributing what would be higher taxed money to a Roth more advantageous.

Depending on how you structure your retirement you may have some years when you can do Roth conversions to build up your roth balances... especially if you will have lower income years before SS kicks in. 

[Tiny]

Sept 3, 2021 18:07:02 GMT -5 Rukh O'Rorke said:

24%

I am maxing 401k and hsa - if anyone has advice on how to do more to lower taxes ..... me and frazier crane - I'm listening!

make use of any flex spending account (if you can) 
Can you get some of your transit expenses taken out PreTax? 

Buy a rental property that loses tons of money on paper?     OK, the rental just kicks the "taxable income" down the road...(well, you can do a starker exchange and buy a nicer "in kind" place in the future - and then/or you could move into the rental and convert it back to a primary residence  and then sell it or just live in it (that starker exchange to a nicer place).   It's complicated.  And I may have some parts of that wrong.    It's also a long game. And it's got stress and drama involved.  

 

[Lizard Queen]

Sept 3, 2021 19:15:32 GMT -5 Tiny said:

I'm single and always have been. For many years all the pretax stuff I could do - I did. I flirted with the next highest bracket for years (as I was bumping up my retirement savings each year). And then a handful of years ago I got a large unexpected raise - and it blew all my "carefully made" future plans about taxes out of the water. OK, it pushed me over the limit and into a new tax bracket and I didn't have any way to get back under the limit.   I'm just over into the 24% bracket these days. 

On the plus side it started out being a relatively small amount of income taxed at the higher rate. But of course my income kept going up, but so did the amount I could do pretax... so I'm just kind of stuck. It's not a bad thing. It's a good problem to have.

At this point I just let the cards fall where they will. I am taking advantage of all the pretax goodness I can. Pretty much ALL the pretax $$ I save would have been taxed at my new higher level bracket - so it's still a win for me. I contribute the max to a Roth Ira as well.  


Do you anticipate needing the flexibility of drawing from your Roth during some of your retirement (or FI years) to help control your future income so you can take advantage of stuff (I guess like ACA limits or with Medicare or SS limits)?? Paying the taxes on money going into a Roth now might make up for it later down the road. I'm not sure how this works exactly but I've seen it mentioned on line.  That might make contributing what would be higher taxed money to a Roth more advantageous.

Depending on how you structure your retirement you may have some years when you can do Roth conversions to build up your roth balances... especially if you will have lower income years before SS kicks in. 

I inherited an ira and have had to take mrd's from it for the last 10 years. Prior to this year, it seemed to make more sense just to stick to the minimum to take advantage of other credits.

So this MRD is getting larger every year, and I anticipate it could become a problem in the future. It is a complication, regardless, so after getting a boost to our income beyond any credits, I decided to max out the 12% tax bracket this year by taking more out of the inherited IRA. Then I got a bigger raise than expected, and my husband might, too, so that isn't leaving us room to take much more if anything this year.

I suppose I could max out pretax instead of Roth, but I've never had the option to put away more than the $6000 in a separate Roth IRA before. As it is, I think I'll have to do a traditional IRA to stay in the 12%.

Putting the max in a Roth 457 seems awesome, though. I dunno.

Anyway, paying 10% less is like an extra 10% roi, but then you have future taxes and MRDs to consider. Even if they get rid of most of those, they won't get rid of the MRDs on the inherited IRA, which is grandfathered in now.

[Rukh O'Rorke]

Sept 3, 2021 19:25:18 GMT -5 Tiny said:

Sept 3, 2021 18:07:02 GMT -5 Rukh O'Rorke said:

24%

I am maxing 401k and hsa - if anyone has advice on how to do more to lower taxes ..... me and frazier crane - I'm listening!

make use of any flex spending account (if you can) 
Can you get some of your transit expenses taken out PreTax? 

Buy a rental property that loses tons of money on paper?     OK, the rental just kicks the "taxable income" down the road...(well, you can do a starker exchange and buy a nicer "in kind" place in the future - and then/or you could move into the rental and convert it back to a primary residence  and then sell it or just live in it (that starker exchange to a nicer place).   It's complicated.  And I may have some parts of that wrong.    It's also a long game. And it's got stress and drama involved.  

 

Too much already!

[pooks]

We are in the 24%.  Not much difference between the 22 and 24 to me, plus all the money taxed at 24% isn't getting hit with social security, so that is a bonus.  All this to say I let the chips fall after maxing out the easy tax advantage accounts we have.  I would like to move to a state without state income tax, that 7% to this shithole state bothers me.  

[giramomma]

Our marginal rate is 12%. We do not take steps to lower, because our effective tax rate is 0%.

Once our older two kids age out of the CTC, then we'll have to pay more attention and figure things out.

Our dividend income gets taxed once we get above the 12% tax bracket. Last year it was about 10% of our income, and could more in the future.

The Bush tax cuts did more for us than having a kid did, tax wise.

I find my mid-late 40s to be a funny time of trying to balance our current  situation vs the future, meaning what taxes are going to look like when we are retired.

Between my pension, SS, etc, we'll likely be in a higher tax bracket than we are now. I suppose I should have put more in our Roths. I may do that this tax year.

But, who knows what the tax codes are going to be like 2, 5, 10, 20 years from now, so there's that.

[Deleted]

Sept 4, 2021 6:50:49 GMT -5 giramomma said:

I find my mid-late 40s to be a funny time of trying to balance our current  situation vs the future, meaning what taxes are going to look like when we are retired.

Between my pension, SS, etc, we'll likely be in a higher tax bracket than we are now. I suppose I should have put more in our Roths. I may do that this tax year.

But, who knows what the tax codes are going to be like 2, 5, 10, 20 years from now, so there's that.

If I had it to do over I'm not sure I would have put so much in the 401(k)s.  Every dime that comes out is taxed as ordinary income even if it's dividends or long-term capital gains.  And then, of course, it triggers other taxes such as the IRMAA adjustment to Medicare that are based on your AGI, and reduces the amount you can deduct for medical expenses since you can deduct only those that exceed X% of your AGI.  I haven't started making withdrawals form my IRAs (rolled over from 401(k)s) but it's not gonna be pretty.

[Lizard Queen]

OK, I have our fed taxable income projected to be $81,782, and it needs to be <=$81050 to stay at 12%. Then, I have my bonus coming in October, plus my husband's bonus also comes out late in the year. Oh, and my purchased pto week, too, unless I start taking a lot will come back to me EOY. My husband has about $2000 left to max his 401k, but is hesitant to bring his paychecks down even further (he carries all the benefits). I can still do a traditional Ira for $6k. DH could, too, but he wants a Roth.

It's not that we make that much, it's just a lot of shuffling around to do. I turn 50 next year, so that will help. My DH is 1.5 years younger and with much smaller balances all around, so trying to shift the pretax balance to him more. For example, if he increases his 401k, we can offset that by taking more out of the inherited Ira, and it shifts mrds on that money out 20+ years.

[Rukh O'Rorke]

Sept 3, 2021 23:24:46 GMT -5 pooks said:

We are in the 24%.  Not much difference between the 22 and 24 to me, plus all the money taxed at 24% isn't getting hit with social security, so that is a bonus.  All this to say I let the chips fall after maxing out the easy tax advantage accounts we have.  I would like to move to a state without state income tax, that 7% to this shithole state bothers me.  

lol - what is that shithole state?

[Rukh O'Rorke]

Sept 4, 2021 12:33:45 GMT -5 Lizard Queen said:

OK, I have our fed taxable income projected to be $81,782, and it needs to be <=$81050 to stay at 12%. Then, I have my bonus coming in October, plus my husband's bonus also comes out late in the year. Oh, and my purchased pto week, too, unless I start taking a lot will come back to me EOY. My husband has about $2000 left to max his 401k, but is hesitant to bring his paychecks down even further (he carries all the benefits). I can still do a traditional Ira for $6k. DH could, too, but he wants a Roth.

It's not that we make that much, it's just a lot of shuffling around to do. I turn 50 next year, so that will help. My DH is 1.5 years younger and with much smaller balances all around, so trying to shift the pretax balance to him more. For example, if he increases his 401k, we can offset that by taking more out of the inherited Ira, and it shifts mrds on that money out 20+ years.

but you'd only be 22% at what - $700?

I think it's good to keep it as low as you can, but I wouldn't sweat it if you take all reasonable actions and don't make it to absolute cut point.


For DH - it doesn't have to tIRA or Roth - you can do some here and some there, right? So if you put 3k in tira to get the taxable income belwow your threashold, then can do 3k into roth. roth does make good sense at 12% tax. At 22% tax, not nearly as attractive.

But, it is hard to complain about having more money! And get sympathy for it..

[plugginaway22]

We are in the 24% this year, but next year when retired with zero income, we will convert to Roth enough to keeping us in the 12% bucket and qualifying for subsidized ACA coverage.
I need an accountant to verify all this before next year, makes my head spin.

[pooks]

Sept 4, 2021 12:36:58 GMT -5 Rukh O'Rorke said:

Sept 3, 2021 23:24:46 GMT -5 pooks said:

We are in the 24%.  Not much difference between the 22 and 24 to me, plus all the money taxed at 24% isn't getting hit with social security, so that is a bonus.  All this to say I let the chips fall after maxing out the easy tax advantage accounts we have.  I would like to move to a state without state income tax, that 7% to this shithole state bothers me.  

lol - what is that shithole state?

Idaho.  They suck at everything and the taxes are high.  All so they can defend draconian laws that their crazy legislature passes.  I am over it. 

[Lizard Queen]

Sept 4, 2021 12:47:11 GMT -5 Rukh O'Rorke said:

Sept 4, 2021 12:33:45 GMT -5 Lizard Queen said:

OK, I have our fed taxable income projected to be $81,782, and it needs to be <=$81050 to stay at 12%. Then, I have my bonus coming in October, plus my husband's bonus also comes out late in the year. Oh, and my purchased pto week, too, unless I start taking a lot will come back to me EOY. My husband has about $2000 left to max his 401k, but is hesitant to bring his paychecks down even further (he carries all the benefits). I can still do a traditional Ira for $6k. DH could, too, but he wants a Roth.

It's not that we make that much, it's just a lot of shuffling around to do. I turn 50 next year, so that will help. My DH is 1.5 years younger and with much smaller balances all around, so trying to shift the pretax balance to him more. For example, if he increases his 401k, we can offset that by taking more out of the inherited Ira, and it shifts mrds on that money out 20+ years.

but you'd only be 22% at what - $700?

I think it's good to keep it as low as you can, but I wouldn't sweat it if you take all reasonable actions and don't make it to absolute cut point.


For DH - it doesn't have to tIRA or Roth - you can do some here and some there, right? So if you put 3k in tira to get the taxable income belwow your threashold, then can do 3k into roth. roth does make good sense at 12% tax. At 22% tax, not nearly as attractive.

But, it is hard to complain about having more money! And get sympathy for it..

No, it'll be $700 + maybe $4000, maybe more.

Definitely agree it's nothing to complain about. It's simply a quick 180 in our circumstances now. It's just weird for me/trying to figure out if this is the correct approach.

[TheOtherMe]

Sept 4, 2021 14:21:01 GMT -5 pooks said:

Sept 4, 2021 12:36:58 GMT -5 Rukh O'Rorke said:

lol - what is that shithole state?

Idaho.  They suck at everything and the taxes are high.  All so they can defend draconian laws that their crazy legislature passes.  I am over it. 

Same in Iowa

[tallguy]

Sept 4, 2021 14:21:01 GMT -5 pooks said:

Sept 4, 2021 12:36:58 GMT -5 Rukh O'Rorke said:

lol - what is that shithole state?

Idaho.  They suck at everything and the taxes are high.  All so they can defend draconian laws that their crazy legislature passes.  I am over it. 

You do know that Washington is right next door, don't you?  

[pooks]

Sept 4, 2021 19:03:33 GMT -5 tallguy said:

Sept 4, 2021 14:21:01 GMT -5 pooks said:

Idaho.  They suck at everything and the taxes are high.  All so they can defend draconian laws that their crazy legislature passes.  I am over it. 

You do know that Washington is right next door, don't you?  

We are seriously considering Washington, just need to decide exactly where.

[gs11rmb]

Well this is embarrassing to admit on a money board ... I couldn't tell you our marginal tax rate  .  How do I work it out?

[minnesotapaintlady]

Sept 7, 2021 8:23:41 GMT -5 gs11rmb said:

Well this is embarrassing to admit on a money board ... I couldn't tell you our marginal tax rate  [img alt="" src="//storage.proboards.com/forum/images/smiley/embarrassed.png" class="smile"] .  How do I work it out?

What's your taxable income? (Gross minus any pre-tax deductions and the standard deduction).  Then find where you are on the chart.

[Deleted]

Sept 4, 2021 17:14:42 GMT -5 TheOtherMe said:

Sept 4, 2021 14:21:01 GMT -5 pooks said:

Idaho.  They suck at everything and the taxes are high.  All so they can defend draconian laws that their crazy legislature passes.  I am over it. 

Same in Iowa

My eventual plan when I can no longer live independently will be to find a good place (at whatever level I need) near DS and his family in Des Moines. I figured I'd be in great shape because, unlike KS and MO, my SS won't be taxed. I looked at what I'd pay in state taxes in IA on my income excluding SS- it would be over $3,000 higher per year.

[gs11rmb]

Sept 7, 2021 8:28:08 GMT -5 minnesotapaintlady said:

Sept 7, 2021 8:23:41 GMT -5 gs11rmb said:

Well this is embarrassing to admit on a money board ... I couldn't tell you our marginal tax rate  [img alt="[img class="smile" src="//storage.proboards.com/forum/images/smiley/embarrassed.png" alt=""]" src="//storage.proboards.com/forum/images/smiley/embarrassed.png" class="smile"] .  How do I work it out?

What's your taxable income? (Gross minus any pre-tax deductions and the standard deduction).  Then find where you are on the chart.

Thanks!  

[TheOtherMe]

If I were still in Colorado, $24000 of my pension would be tax free.  In Iowa, it's only $6000, not to mention the tax rates are much lower in Colorado.

[buystoys]

We have bounced between 12% and 24% the last couple of years.  I think this year we'll be at 12% again due to the deductions we get on the rental and how much work we've had done.  Two years ago we barely popped into the 24% bracket.

Now that we're on Medicare, I don't try to manage it nearly as much as I used to.  If we're in the 24% bracket, we've had a good year and I can't complain.  There's not much income that gets taxed at the rate anyway.

[jerseygirl]

Also between 12 to 24% depending on my consulting income. I track how much the dreaded IRMA cost to Medicare . That can really add up even if not much come is taxed at the 24% rate