IRA Limits for Married Couple?

[burrocrat]

As for the spouse's 401k IRA ROLLOVER (from old job) - that HAS TO just sit there - UNLESS she wants to roll it into her ROTH IRA as a ROTH CONVERSION and pay the income taxes on it now (rather than later).

i can't speak to the investing technicalities of all this stuff, but i can tell you this: if she wants to roll it over or whatever you better let her or else you are going to be in a world of hurt that makes any tax consequences seem tame. perhaps my relationships have worked out differently than yours, but you are definately on your own on this one.

 

[coastalite]

i can't speak to the investing technicalities of all this stuff, but i can tell you this: if she wants to roll it over or whatever you better let her or else you are going to be in a world of hurt that makes any tax consequences seem tame. perhaps my relationships have worked out differently than yours, but you are definately on your own on this one.

Hehehehehe. Yeah, she's a Taurus... I've learned one thing: you DON'T MESS WITH A BULL!!!

 

[Frixxxx]

Part of the advantage of maxing out the TSP contribution is that it lowers our AGI by $18k, right? I'm not sure what the tax brackets are (off the top of my head) - but maxing out the TSP could lower the tax bracket you're in. Correct?

I think people confuse what the brackets represent. Yes, it is great to pay the lowest taxes possible but just because you cross a bracket, doesn't mean you're getting fleeced. Just the money that is in that bracket is taxed at a higher rate.

Are there any disadvantages of maxing out the TSP contribution each year?

Not having enough to pay your bills today? The real issue about maxing out your contributions is how you expect them to paid out when you retire. You have to ask tax-deferred versus/combined tax exempt. Your goals for retirement should paint a good picture for you to determine asset allocation.

I'm thinking maybe some folks would rather contribute enough to get the match, and then invest the rest elsewhere - such as buying non-retirement mutual funds or stocks, etc.

Your goals for retirement should paint a good picture for you to determine asset allocation.
Any thoughts?

 

[k0nkuzh0n]

I think people confuse what the brackets represent. Yes, it is great to pay the lowest taxes possible but just because you cross a bracket, doesn't mean you're getting fleeced. Just the money that is in that bracket is taxed at a higher rate.

Coastalite, what Frixxxx said is exactly right, and is a very common misconception. Heck I'm convinced more people believe in the incorrect way income tax "brackets" work than the correct way.

I always tell people:

Don't think of it like tax brackets... think of it like tax buckets.

If the tax "brackets" were
0-20k at 10%
20k-30k at 15%
30-50k at 20%
50k-100k at 25%
100K+ 30% ... I just picked numbers.

As you earn money, your "tax buckets" fill up from the beginning.

So your first 20k goes into the 1st bucket (and is taxed at 10%). Once that bucket is filled, you start filling up the 15% bucket.
When the 15% bucket is full (You've now earned $30k), you start filling up the 20% bucket.
When the 20% bucket is full (You've now earned $50k), you start filling up the 25% bucket.

The money in each bucket is only taxed at its associated percentage and doesn't care about any of the higher-tier buckets or how full/empty they are.

 

[coastalite]

Just the money that is in that bracket is taxed at a higher rate.

Ohhhhhh, okay.

I was under the impression that once you move up into a higher tax bracket... ALL of your income is then taxed at the higher percentage of that bracket. I wasn't aware that just the amount in the next higher bracket is taxed higher.

So, let's say (hypothetically) - that we made $95,000 for 2014 - and the IRS says that all income at or below $100k is taxed at 20% and anything over that is taxed at 25%.

So, we'd pay 20% taxes on the $95k.

However, in 2015 - let's say we make $115,000. We'd pay 20% taxes for the $100k & 25% taxes on $15k.

Am I understanding this right?

 

[k0nkuzh0n]

Ohhhhhh, okay.

I was under the impression that once you move up into a higher tax bracket... ALL of your income is then taxed at the higher percentage of that bracket. I wasn't aware that just the amount in the next higher bracket is taxed higher.

So, let's say (hypothetically) - that we made $95,000 for 2014 - and the IRS says that all income at or below $100k is taxed at 20% and anything over that is taxed at 25%.

So, we'd pay 20% taxes on the $95k.

However, in 2015 - let's say we make $115,000. We'd pay 20% taxes for the $100k & 25% taxes on $15k.

Am I understanding this right?

Yes that is correct. Tax bracket rates are actually marginal tax rates.

 

[coastalite]

Yes that is correct. Tax bracket rates are actually marginal tax rates.

Thank you!

Is your the tax bracket you're in based on gross income - or based on your AGI? I would think the latter - but don't remember.

 

[Frixxxx]

Good site to see it represented based on your filing status:

2014 and 2015 Tax Brackets

Always AGI, because it is after deductions.

 

[Cactus]

Your tax bracket is based on your AGI. The amount you can contribute to a 401K/IRA is based on your earned income. You can't contribute more than you earned. On the other end, they reduce the amount you are allowed to contribute to an IRA/Roth IRA if your AGI is to big. I never had that problem.

On a side note: contributions have to be earned income, but it doesn't have to be your money. If your kid earned $2000 from a summer job and blew it all having fun, he/she can still open a Roth IRA with money you give him/her. There is no minimum age to open an IRA. Even a minor can do it, but it has to be their earned income reported to the IRS. I think it can be the full taxable amount. Not sure about that one. Do you have to subtract out the required deductions like SS? Still, it's a good way to get your children started on the road to saving for retirement if you can afford it and they are responsible enough not to cash it out and run.

 

[coastalite]

Your tax bracket is based on your AGI. The amount you can contribute to a 401K/IRA is based on your earned income. You can't contribute more than you earned. On the other end, they reduce the amount you are allowed to contribute to an IRA/Roth IRA if your AGI is to big. I never had that problem.

On a side note: contributions have to be earned income, but it doesn't have to be your money. If your kid earned $2000 from a summer job and blew it all having fun, he/she can still open a Roth IRA with money you give him/her. There is no minimum age to open an IRA. Even a minor can do it, but it has to be their earned income reported to the IRS. I think it can be the full taxable amount. Not sure about that one. Do you have to subtract out the required deductions like SS? Still, it's a good way to get your children started on the road to saving for retirement if you can afford it and they are responsible enough not to cash it out and run.

Thanks, but no kids... hehehe... we have 3 cats though... maybe we can open a ROTH for each cat... and pay them a salary to sit around the house - that way their "earned income" can fund each of their ROTHs? LOL!

 

[coastalite]

Good site to see it represented based on your filing status:

2014 and 2015 Tax Brackets

Always AGI, because it is after deductions.

Thanks, that is helpful - but it's still confusing trying to figure it all out.

Let's say in 2015 - you gross $100K - but your AGI is exactly $75K (this is after you adjust for TSP & all the other stuff they take out).

So, this means for 2015, if your AGI is $75K - then you are in the 25% Y-1 (2015) tax bracket - because your AGI in this case was just a mere $100 over the $74,900 limit???

Wow. They incentivize you to make less!

 

[Skorcher]

Thanks, that is helpful - but it's still confusing trying to figure it all out.

Let's say in 2015 - you gross $100K - but your AGI is exactly $75K (this is after you adjust for TSP & all the other stuff they take out).

So, this means for 2015, if your AGI is $75K - then you are in the 25% Y-1 (2015) tax bracket - because your AGI in this case was just a mere $100 over the $74,900 limit???

Wow. They incentivize you to make less!

No, it does not work that way. Refer back to the tax bucket post. The amount of tax you paid in each bucket under your AGI (actually taxable income, but just forget that detail) never changes as your AGI goes up. Here is the 2014 federal tax brackets for Married Filing Jointly. At $73,800 taxable income your total tax is $10,162.50. If you earned another $1000 to increase your taxable income to $74,800 your tax would go up by $250 to $10,412.50. So your extra $1000 income was taxed at 25% and the tax on your first $73,800 income stays the same.

[TD="width: 40%, colspan: 2"]

2014 Federal Tax Rate Schedules​

​

​

​

​

​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 20%"][/TD]
[TD="width: 20%"][/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 40%, colspan: 2"]

Married Filing Jointly​

​

​

​

​

​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 40%, colspan: 2"]

If Taxable Income is:​

​

​

​

​

[/TD]
[TD="width: 22%"]

The tax is:​

​

​

​

​

[/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"]

of the amount over:​

​

​

​

​

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[TD="width: 20%"]

Over​

​

​

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[TD="width: 20%"]

Not Over --​

​

​

​

​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"]

Rate​

​

​

​

​

[/TD]
[TD="width: 16%"][/TD]

[TD="width: 20%"]

-​

​

​

​

​

[/TD]
[TD="width: 20%"]

18,150​

​

​

​

​

[/TD]
[TD="width: 22%"]

$ -​

​

​

​

​

[/TD]
[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

10%​

​

​

​

​

[/TD]
[TD="width: 16%"]

0​

​

​

​

​

[/TD]

[TD="width: 20%"]

18,150​

​

​

​

​

[/TD]
[TD="width: 20%"]

73,800​

​

​

​

​

[/TD]
[TD="width: 22%"]

$ 1,815.00​

​

​

​

​

[/TD]
[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

15%​

​

​

​

​

[/TD]
[TD="width: 16%"]

18,150​

​

​

​

​

[/TD]

[TD="width: 20%"]

73,800​

​

​

​

​

[/TD]
[TD="width: 20%"]

148,850​

​

​

​

​

[/TD]
[TD="width: 22%"]

$ 10,162.50​

​

​

​

​

[/TD]
[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

25%​

​

​

​

​

[/TD]
[TD="width: 16%"]

73,800​

​

​

​

​

[/TD]

[TD="width: 20%"]

148,850​

​

​

​

​

[/TD]
[TD="width: 20%"]

226,850​

​

​

​

​

[/TD]
[TD="width: 22%"]

$ 28,925.00​

​

​

​

​

[/TD]
[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

28%​

​

​

​

​

[/TD]
[TD="width: 16%"]

148,850​

​

​

​

​

[/TD]

[TD="width: 20%"]

226,850​

​

​

​

​

[/TD]
[TD="width: 20%"]

405,100​

​

​

​

​

[/TD]
[TD="width: 22%"]

$ 50,765.00​

​

​

​

​

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[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

33%​

​

​

​

​

[/TD]
[TD="width: 16%"]

226,850​

​

​

​

​

[/TD]

[TD="width: 20%"]

405,100​

​

​

​

​

[/TD]
[TD="width: 20%"]

457,600​

​

​

​

​

[/TD]
[TD="width: 22%"]

$109,587.50​

​

​

​

​

[/TD]
[TD="width: 5%"]

+​

​

​

​

​

[/TD]
[TD="width: 16%"]

35%​

​

​

​

​

[/TD]
[TD="width: 16%"]

405,100​

​

​

​

​

[/TD]

[TD="width: 20%"]

457,600​

​

​

​

​

[/TD]
[TD="width: 20%"]

-----------​

​

​

​

​

[/TD]
[TD="width: 22%"]

$127,962.50​

​

​

​

​

[/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"]

39.6%​

​

​

​

​

[/TD]
[TD="width: 16%"]

457,600​

​

​

​

​

[/TD]

 

[coastalite]

No, it does not work that way. Refer back to the tax bucket post. The amount of tax you paid in each bucket under your AGI (actually taxable income, but just forget that detail) never changes as your AGI goes up. Here is the 2014 federal tax brackets for Married Filing Jointly. At $73,800 taxable income your total tax is $10,162.50. If you earned another $1000 to increase your taxable income to $74,800 your tax would go up by $250 to $10,412.50. So your extra $1000 income was taxed at 25% and the tax on your first $73,800 income stays the same.

[TD="colspan: 2"]

2014 Federal Tax Rate Schedules​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 20%"][/TD]
[TD="width: 20%"][/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 40%, colspan: 2"]

Married Filing Jointly​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"][/TD]

[TD="width: 40%, colspan: 2"]

If Taxable Income is:​

[/TD]
[TD="width: 22%"]

The tax is:​

[/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"][/TD]
[TD="width: 16%"]

of the amount over:​

[/TD]

[TD="width: 20%"]

Over​

[/TD]
[TD="width: 20%"]

Not Over --​

[/TD]
[TD="width: 22%"][/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"]

Rate​

[/TD]
[TD="width: 16%"][/TD]

[TD="width: 20%"]

-​

[/TD]
[TD="width: 20%"]

18,150​

[/TD]
[TD="width: 22%"]

$ -​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

10%​

[/TD]
[TD="width: 16%"]

0​

[/TD]

[TD="width: 20%"]

18,150​

[/TD]
[TD="width: 20%"]

73,800​

[/TD]
[TD="width: 22%"]

$ 1,815.00​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

15%​

[/TD]
[TD="width: 16%"]

18,150​

[/TD]

[TD="width: 20%"]

73,800​

[/TD]
[TD="width: 20%"]

148,850​

[/TD]
[TD="width: 22%"]

$ 10,162.50​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

25%​

[/TD]
[TD="width: 16%"]

73,800​

[/TD]

[TD="width: 20%"]

148,850​

[/TD]
[TD="width: 20%"]

226,850​

[/TD]
[TD="width: 22%"]

$ 28,925.00​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

28%​

[/TD]
[TD="width: 16%"]

148,850​

[/TD]

[TD="width: 20%"]

226,850​

[/TD]
[TD="width: 20%"]

405,100​

[/TD]
[TD="width: 22%"]

$ 50,765.00​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

33%​

[/TD]
[TD="width: 16%"]

226,850​

[/TD]

[TD="width: 20%"]

405,100​

[/TD]
[TD="width: 20%"]

457,600​

[/TD]
[TD="width: 22%"]

$109,587.50​

[/TD]
[TD="width: 5%"]

+​

[/TD]
[TD="width: 16%"]

35%​

[/TD]
[TD="width: 16%"]

405,100​

[/TD]

[TD="width: 20%"]

457,600​

[/TD]
[TD="width: 20%"]

-----------​

[/TD]
[TD="width: 22%"]

$127,962.50​

[/TD]
[TD="width: 5%"][/TD]
[TD="width: 16%"]

39.6%​

[/TD]
[TD="width: 16%"]

457,600​

[/TD]

Whew... okay, thanks!