Is my math just really wrong here?
I'm a confused about at what income level tax deferred retirement accounts--401ks, 403bs, 457(b) and tIRAs--are worth doing to save tax money.
This year I don't know what my wife and I will make. $75k--$125k (maybe more?), depending on our employment status.
Looking at the 2018 new tax brackets, I'm confused.
Let's say we wound up making $75k. This would put us in the 12% tax bracket. Now, if we maxed out all our possible tax deferred possibilities, she could maybe put away $35k into 403b + 457b and then each could put $5,500 in their tIRAs. That's about $45k into tax deferral which would have been taxed at 12% for the 2018 tax year.
Assuming these brackets stay the same when we retire: In order to see a tax benefit to doing this, we'd have to be in less than the 12% tax bracket when we get that money and pay taxes on it. For 2018, the 10% bracket is up to $19k. So is the idea we'd just be saving 2% on the first 19k we took out at retirement and then pay the same rate on the remaining money. That's a $380 savings. That doesn't seem very good for putting 45k in tax deferral. Plus recordkeeping fees from the 457 plan alone will be $30/year.
For bigger incomes, it seems great: if we made $120k, we'd be in the 22% tax bracket and then put $48k into tax deferred accounts, and later paid 10% on it in retirement, we'd save 12% off that $48k, or $5,760. Huge difference from that $380.
What am I missing or doing wrong here?
Submitted January 23, 2018 at 08:30AM by IBitAChip http://ift.tt/2n4FQXd
