2006 TSP changes - Are you taking tax brackets into consideration?

[FatMoneyClip]

imported post

I have contributed the maximum percentage of basic pay authorized since TSP has been offered to military personnel. This year I contributed 10% of my basic pay for a total of @ $3,500 and I am trying to decide on my 2006 contribution percentage.

Since I am no longer single, my 100% (to the $15K limit) dream is no longer viable. I have to choose my contribution based on the tax brackets and other tax advantages.

Single Filing Status
(Tax Rate Schedule X)

• 10% on income between $0 and $7,550
• 15% on the income between $7,550 and $30,650; plus $755.00
• 25% on the income between $30,650 and $74,200; plus $4,220.00
• 28% on the income between $74,200 and $154,800; plus $15,107.50
• 33% on the income between $154,800 and $336,550; plus $37,675.50
• 35% on the income over $336,550; plus $97,653.00

So, to stay out of the 25% tax bracket, my AGIneed to stay below $30,650. I can reduce my AGI to that level, by contributing 13%.

Another thing to take into consideration is the Retirement Savings Contributions Credit. It is difficult to qualify for this credit (unless you are deployed to a tax exempt area), but I could get a small piece of this credit by keeping my AGI below $25,000.
Retirement Savings Contributions Credit

Joint Filers Heads of Households OthersCredit Rate
$0 - $30,000 $0 - $22,500 $0 - $15,000 50%
to $32,500 to $24,375 to $16,250 20%
to $50,000 to $37,500 to $25,000 10%
over $50,000 over $37,500 over $25,000 0%

My AGIcould get below $25k, if I contribute 28% of my basic pay.

Hmm... depending what the BAH rates for 2006,a 28% contribution to TSP might be possible.I have notdecided what my contributionfor 2006 will be, but Iam using taxes brackets/credits to help me decide.Is anyone else using these factors to help them decide their contribution percentage? Is there any other tax factors I should be considering?

 

[trike]

imported post

I should look at my tax exposure for next year as well!I would definitely try to allocate that 13% to TSP to get in the lower tax bracket, but it doesn't sound like that additional 15% gives a huge benefit. You might consider another tax advantaged account like a Roth. If you think (or hope) that you will be in a higher tax bracket when you retire than you are in now, then a Roth is a wise choice.It sounds like you have a new family so consider setting up savings for your (future) children's college education, for a home or setting up an emergency fund.