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2009 Tax planning

December 29th, 2008 at 02:18 pm

As the year draws to an end it's time for a little 2009 tax planning. We are not planning any major changes unless we get pregnant with #2. If that happens early in 2009 we'll have to make some substantial changes, but as my dad likes to say, we'll burn that bridge when we get to it.

In 2008, we did a fair amount of jumping around with our retirement contributions, initially starting out very low, then increasing them as the year went on. My goal for 2009 is to keep a more "averaged" path, so we are setting my wife's 403b contributions to approximately 25% of gross. I am again planning to max out my SIMPLE IRA. Since the 2009 max has gone up to $11,500, that equals out to $442 every 2 weeks, or about 14% of my gross. Together it comes out to around 17% of total gross, with everything going in pre-tax. This is about the same as what we did last year on average.

We will probably not max out our Roths this year because the above strategy keeps us very close to the top of the 15% tax bracket. If we wanted to fully fund the Roths we would have to cut back on our pre-tax savings, and those Roth dollars would be taxed at 25% going in. We plan to put about $2K into the Roths this year, which could end up being either college money for our daughter or retirement money, depending on how things go.

Additional extra cash flow will go towards paying down our HELOC so we can keep our 6 month emergency fund in place.

Of course, if #2 will end up being born in 2009, the extra exemption will allow us to contribute less pre-tax and still stay in the 15% bracket, so the Roth contributions would get adjusted upwards. The extra $1K child tax credit wouldn't hurt either.

5 Responses to “2009 Tax planning”

  1. Petunia Says:

    "We'll burn that bridge when we get to it"

    LOL!

  2. jIM Says:

    The bridges I burned behind me light the road in front of me. It also makes turning back impossible.

    I like the Roth-401 strategy. You should look for more tax savings somewhere. HSA or something similar. Then get that 2k-8k of tax savings into the Roth. If you are close to top of bracket now, as you get raises you will be over the top- so work on getting both 401k and Roth maxed within 3-7 years is my advice for a short term goal.

  3. noppenbd Says:

    @jIM,
    Preliminary federal tax estimate for 2009 is $8400 on $123K gross, so I'm not sure there's much more blood to squeeze from this turnip. That said, as raises come in, we will get bumped out of 15% bracket unless we do something.

    I'm planning on the exemption for hypothetical child #2 creating some room at least in 2010. In 2011 my wife may go back to work full time (she's 30 hrs a week now) which will probably make it difficult to stay in 15% bracket. We may be able to offset it by putting $5K in a dependent care FSA. We will probably upsize in house in 2012 so that will help with mortgage interest deduction. As far as HSA, my daughter has a medical condition so I don't care to look into private health insurance.

    If we max both my SIMPLE and her 403b, we would be at 22% savings rate, so I doubt we will get to max both pretax and Roth accounts for awhile. Probably either/or depending on tax situation.

  4. noppenbd Says:

    @jIM,
    By the way, I thought you'd like the strategy, since I basically stole it from you Smile

  5. mesa accountants Says:

    you want to make more income by investing in a mutual fund, and you want to do it in a way that you pay less in taxes.
    The more income you get, the more taxes you pay (that’s why they call it “income” tax).

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