Max any employee match on 401k/403b, do a general forecast for AGI for the year, max out Roth IRA if you can, if you can and have go back to 401k/403b contributions and first figure out if you have to increase traditional roth to keep you under the roth contribution AGI limit. After that just contribute more if you can. If you can max out all 401k/403B contributions do that, try to maximize a higher percent of those contributions to Roth if you can. Then consider After-tax brokerage investing.
Reminder that with HSAs just like IRAs you do have until the filing deadline to contribute for the current year (not including extensions) at least if you have a self directed account. If it's through your employer you most likely just have to do it during the calendar year.
I've been wondering for a while should I do 401k or roth, so I thank you for the specific recommendation of 22% vs 24% tax bracket. I usually try to max out the Roth and then the most I can for the 401k. I've seen the money guy show recommend 25% of your gross income, which I think is a good plan but have always found it tough to estimate since roth is after taxed monies. Your recommendation is a lot better than what I've seen ie "do you expect to pay more in taxes before or after retirement?" Thank you for touching on this!
There is nothing complicated about the calculation. 25% of your gross is 25% of your gross,no matter where you put it. If you put your contribution in a Traditional account, it will be deducted from your income, which lowers your adjusted gross income. In retirement, you will have to report withdrawals and you might have to pay tax, depending on how much you take out and your specific circumstances. And once you hit 73, you will incur required minimum deductions (RMDs) each year. If you put your contribution in a Roth account, it does not get reduce your adjusted gross income this year, but in retirement you will pay no taxes your money is withdrawn. There are no RMDs when you hit age 73.
Can you contribute the max to all of your Traditional IRAs, Roth's and HSA? For example maybe someone has more than one Traditional IRA and Roth IRA + a 401K and an HSA.
14:49 Safe harbor is 90% of what actually owe, not your estimated taxes, no? If you pay 90% of what you think you’ll owe, but you mis-calculated, a late mutual fund distribution hits, etc., I don’t think “but it was 90% of what I thought it would be” gets you off the hook. (you have until 1/15 for that final ES, so there’s time to do a final pass, and maybe still pay a bit more to be safe. You’ll be paying it in it 90 days anyway.)
The safe harbor is 90% of current year or 100/110% of previous year, regardless of paying it through estimated taxes or withholding, or both. However, you need to make sure is paid evenly through out the year. withholding is already considered evenly paid but, if you need to top it off with estimated taxes or you don’t have any withholding, the portion paid through estimated taxes also needs to be distributed over the four quarters of the year. If most of the 90% is paid in a fourth quarter estimated payment, you will likely owe a penalty for underpayment in the previous three quarters.
Your assumption on RSU withholding is likely inaccurate. Most payroll systems withhold taxes on based the number of people identified on their withholding form AND how much they are getting (pay, bonus, RSU, etc) on that specific paycheck or event, and annualize the amount and then apply the estimated tax rate. That's why taxes are often different rates for different checks and events.
@@foundryfinancial No, that is not how payroll systems calculate tax withholdings (such as Workaday). Maybe if someone who doesn't use payroll SW and is doing everything by hand they used a fixed %. Employees tell payroll how may people you want to report, and the system automatically adjusts each paycheck tax withholding % based on the annualized amount of that check. It will vary depending on the amount of that specific check. That is why many people see large bonus checks taxed at a higher rate than regular paychecks.
Thank you so much for this video. Can you make a video that is even more simplified about tax loss harvesting. I know you tried to make this as simplified as possible but about three sentences in and Im confused. lol. Or if you have a video that does this, please direct me and I apologize for that.
Terrible advice on the 22% v 24% bracket. If you are willing to pay 22% on a conversion, they should turbo charge their conversion for an incremental 2% if you can afford it. The next marginal rate is over 30%, which is a huge jump. Then it is more likely not worth converting. The earlier you convert has many benefits... esp the 5 yr rule, longer growth tax free, and avoid conversions in the future which may have IRMAA implications.
It depends also on your pre-tax balance. With a high balance pre-tax I agree you should convert up to 24% since it gives a lot more conversion space. However, if you don’t need to convert that much, the 22% bracket might be enough space depending on your situation. You don’t need to convert your entire balance as in the future you may be able to deduct your pre-tax withdrawals through either the standard deduction or itemizing high medical expenses and pay zero taxes on those RMDs if they are low enough.
Terrible is probably a stretch. It’s on the line, but when trying to give a generic framework - I feel 22% is slightly safer. Clearly 24% could make sense for some people, but I often see diminishing returns at 24% (partially because it starts triggering IRMMA).
@@foundryfinancial I would say that each case is different, and the most accurate statement you said is that you are just some guy on the internet, and they should consult a real tax expert.
I thought they recently changed it so standard deduction people COULD deduct charitable donations. Oh, and Dunder Mifflin would probably not have a HSA available and Pam was only unemployed when the kid was born, so they should get a child tax credit too.
Temporarily permitted $300 on 2020 and 2021 returns, but no longer. “For tax years 2020 and 2021, the IRS temporarily allowed tax filers to claim up to $300 in charitable donations as a deduction without itemizing. That's no longer available.”
Are there any strategies you’d add?
Max any employee match on 401k/403b, do a general forecast for AGI for the year, max out Roth IRA if you can, if you can and have go back to 401k/403b contributions and first figure out if you have to increase traditional roth to keep you under the roth contribution AGI limit. After that just contribute more if you can. If you can max out all 401k/403B contributions do that, try to maximize a higher percent of those contributions to Roth if you can. Then consider After-tax brokerage investing.
The example couple is unusually lower income than most examples. Incomes too high to contribute to Roth would be more helpful.
Reminder that with HSAs just like IRAs you do have until the filing deadline to contribute for the current year (not including extensions) at least if you have a self directed account. If it's through your employer you most likely just have to do it during the calendar year.
How are your fees structured
When is the deadline for contributions for SEP IRA? TIA?
Remember a dollar saved today is worth three times the value of a dollar earned thirty years from now.
I've been wondering for a while should I do 401k or roth, so I thank you for the specific recommendation of 22% vs 24% tax bracket. I usually try to max out the Roth and then the most I can for the 401k. I've seen the money guy show recommend 25% of your gross income, which I think is a good plan but have always found it tough to estimate since roth is after taxed monies. Your recommendation is a lot better than what I've seen ie "do you expect to pay more in taxes before or after retirement?"
Thank you for touching on this!
And if you're ever inclined, I'd love to see a video break down like that on roth vs 401k vs brokerage
There is nothing complicated about the calculation. 25% of your gross is 25% of your gross,no matter where you put it.
If you put your contribution in a Traditional account, it will be deducted from your income, which lowers your adjusted gross income. In retirement, you will have to report withdrawals and you might have to pay tax, depending on how much you take out and your specific circumstances. And once you hit 73, you will incur required minimum deductions (RMDs) each year.
If you put your contribution in a Roth account, it does not get reduce your adjusted gross income this year, but in retirement you will pay no taxes your money is withdrawn. There are no RMDs when you hit age 73.
Would you please consider a video on RSUs? And, the tax implications. Thank you.
Thanks so much for the video. Can you share what software you used for the example of Jim and Pam‘s tax bracket?
My pleasure. The software is Holistiplan.
Can you contribute the max to all of your Traditional IRAs, Roth's and HSA? For example maybe someone has more than one Traditional IRA and Roth IRA + a 401K and an HSA.
14:49 Safe harbor is 90% of what actually owe, not your estimated taxes, no? If you pay 90% of what you think you’ll owe, but you mis-calculated, a late mutual fund distribution hits, etc., I don’t think “but it was 90% of what I thought it would be” gets you off the hook. (you have until 1/15 for that final ES, so there’s time to do a final pass, and maybe still pay a bit more to be safe. You’ll be paying it in it 90 days anyway.)
Yes. It’s 90% of what you owe or 100/110% of the previous years tax bill. Did I say something different or are you just clarifying?
The safe harbor is 90% of current year or 100/110% of previous year, regardless of paying it through estimated taxes or withholding, or both. However, you need to make sure is paid evenly through out the year. withholding is already considered evenly paid but, if you need to top it off with estimated taxes or you don’t have any withholding, the portion paid through estimated taxes also needs to be distributed over the four quarters of the year. If most of the 90% is paid in a fourth quarter estimated payment, you will likely owe a penalty for underpayment in the previous three quarters.
Can i make a ira contribution and a roth ira conversion in the same tax year.
Yes
Your assumption on RSU withholding is likely inaccurate. Most payroll systems withhold taxes on based the number of people identified on their withholding form AND how much they are getting (pay, bonus, RSU, etc) on that specific paycheck or event, and annualize the amount and then apply the estimated tax rate. That's why taxes are often different rates for different checks and events.
Yes they ask about households but most companies default to 22%. You can opt for a higher bracket but 22% is the default.
@@foundryfinancial No, that is not how payroll systems calculate tax withholdings (such as Workaday). Maybe if someone who doesn't use payroll SW and is doing everything by hand they used a fixed %. Employees tell payroll how may people you want to report, and the system automatically adjusts each paycheck tax withholding % based on the annualized amount of that check. It will vary depending on the amount of that specific check. That is why many people see large bonus checks taxed at a higher rate than regular paychecks.
Thank you so much for this video. Can you make a video that is even more simplified about tax loss harvesting. I know you tried to make this as simplified as possible but about three sentences in and Im confused. lol. Or if you have a video that does this, please direct me and I apologize for that.
Thanks for the tips! The flashes in this video are distracting. If you could eliminate those in future videos, that'd be helpful.
Noted! I’ll let the editors know.
If you’re planning to get married in 2025 to someone with significantly less income, move the official marriage event up to 2024.
I have a client doing this.
Is there a period in 2025 to convert 401 to Roth and apply to the 2024 tax year? (Similar to that which is allowed for HSA contributions.)
before tax day (just designate it as being for 2024) - but best to do it a bit earlier and not take any chances with something going wrong.
Terrible advice on the 22% v 24% bracket. If you are willing to pay 22% on a conversion, they should turbo charge their conversion for an incremental 2% if you can afford it. The next marginal rate is over 30%, which is a huge jump. Then it is more likely not worth converting. The earlier you convert has many benefits... esp the 5 yr rule, longer growth tax free, and avoid conversions in the future which may have IRMAA implications.
Interesting
It depends also on your pre-tax balance. With a high balance pre-tax I agree you should convert up to 24% since it gives a lot more conversion space. However, if you don’t need to convert that much, the 22% bracket might be enough space depending on your situation. You don’t need to convert your entire balance as in the future you may be able to deduct your pre-tax withdrawals through either the standard deduction or itemizing high medical expenses and pay zero taxes on those RMDs if they are low enough.
Terrible is probably a stretch. It’s on the line, but when trying to give a generic framework - I feel 22% is slightly safer. Clearly 24% could make sense for some people, but I often see diminishing returns at 24% (partially because it starts triggering IRMMA).
@@foundryfinancial I would say that each case is different, and the most accurate statement you said is that you are just some guy on the internet, and they should consult a real tax expert.
I thought you were tax professional
I’m not your tax professional…
@@foundryfinancial A very important distraction since you are providing general information, not advice specific to any individual person.
I thought they recently changed it so standard deduction people COULD deduct charitable donations. Oh, and Dunder Mifflin would probably not have a HSA available and Pam was only unemployed when the kid was born, so they should get a child tax credit too.
I thought my tax return from 2022 and had Charitable contributions
Unfortunately, no. You could deduct $300 as a special COVID provision.
Temporarily permitted $300 on 2020 and 2021 returns, but no longer.
“For tax years 2020 and 2021, the IRS temporarily allowed tax filers to claim up to $300 in charitable donations as a deduction without itemizing. That's no longer available.”