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tax planning

gmarie

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So I did some tax planning yesterday thinking that with the house purchase maybe we can even reduce our w/h. HA! Boy was I wrong! I don't know what I was thinking. First, the house/itemizing saves us only 2k/ year. But, because there are three jobs between us, our withholding is way, way off. This is our first year with only W2 income, and I assumed it would be fine at married 0, but we need to be at single 0 (and then some). We also took 5k (penalty free) out of traditional IRAs to help with the house, which doesn't help. Another problem is that my insurance is not pretax so that is costing us additional 2k yr. I've been pestering my employer to get a cafeteria plan (from what I understand, it is really just a piece of paper?), but they are pushing back. I am the only one with payroll deductions for the insurance. The only other guy on it is their longtime main sales guy, and they have always paid for it. It's offered to the other employees, but everyone must have coverage through their spouse or the state. (it's actually very good coverage for a great price). It just kills me that it is not pretax.

 

So, there are two ways around this problem - change our w/h and send a huge chunk of money to the IRS, or 2. max out 401k, traditional IRA, and HSAs and be solidly in BS4 by 4/15/15 (will be slighly over 15% gross to retirement). If we go with #2, we will also get our tax rate down to 15% from 25%, so it is a good goal. I know how everyone here feels about traditional IRAs :-) but I think for this year we are going to go that route. I am also going to change my W/H on at least the sales job that fluctuates so that should help. That is also the check w/ the available 401k. I am told I can put as much as 100% of my check in, just can't exceed the yearly max.

 

I'm just glad I looked at this in July rather than in December!! We need to hurry up and save the other 6m expenses so we can get started on this goal!



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There is nothing wrong with traditional IRA's.  And there's nothing wrong with being in BS4.  Where does your FFEF stand?

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We are at 3 months. Our goal is to finish house repairs and then save the other 3m. I have to look at the budget to see if we can do this by 4/15. My tax season overtime will be a huge help. I don't like the idea of being "behind" - funding 2014 in 2015, but I'm fairly certain we won't be able to do all of this by 12/31!  But I do need to start the 401k now.  Also, after Nov my deductible will renew so it is a good goal to fund the HSAs. Mine is empty, and DH has a high deductible and he still hasn't even opened one yet!  That is on my list!  Also, I am still not sure what our new expenses will be for the house- electric, heat in winter (although we do have the wood stove), cost of maintaining, etc for the larger house so that will be a factor.

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I have both a traditional IRA and a ROTH, but I fund the traditional first.  I do it to help lower my tax liability, which is what you're talking about doing.  For me, it makes more sense, just as it seems to in your situation. 

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I agree with funding traditional accounts to get down to the 15% tax bracket if possible.  25% of contributions is a lot of money to save!

 

Also, on the tax withholdings, DH and I withhold at Single-2, for our situation this works out close enough.  Single-0 gave us too big of a refund.  Any married couple where both are working and there are no kids (and few other deductions) is *probably* better off with one of the Single withholding amounts.

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I agree with Allie. Because we have so much we can shelter through work we don't don't do a traditional IRA, but we would if we needed to. ...which I suppose we might next year. 

 

For us, Married-0 and Married Withhold as single was too much withholding because we were directing so much money to tax sheltered accounts (and paying a tithe). We now do Married-0 and Married-0 withhold $28 extra per pay period.

 

Can I ask why you are shooting for 9 months FFEF? Is that something you could slowly work toward while balancing your tax sheltering?

 

Also, just to make sure you know, 401k contributions made up until 4/15 wouldn't count for 2014 taxes. It's only IRAs and the HSA that that works for.

 

Sounds like a good plan to me.

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We are saving 6 months, not 9, sorry to be confusing.

 

The good news is that I am making progress with the pre-tax insurance-  I have permission to talk to their accountant on Friday- they are just clueless and every time they ask they are told it is complicated and expensive, which it is not.

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My company pays 750 a year to the insurance company that keeps the plan in compliance.  So, in order for it to "not cost the company anything" there needs to be $9,803.93 flow through the plan that the ER fica savings offset the cost. 

 

There are other areas that the cafeteria plan is a pain in the tookus.  (Billing grants is a nightmare when that employee is using the cafeteria plan.)

 

I am a huge fan of the cafeteria plan.  I've never said anything negative and used to administer 30 plans for various employers.  Not until the past 6 months have I found a reason o hate them!  (The grant billing) LOL 

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Ok so the cafeteria plan conversation was a total fail. I spoke to their accountant, who acted appalled that the owners felt she said it was complicated or that they needed an attorney, she agreed that the website my boss at my other job (cpa) gave me was fine (coredocuments.com), so I got off the phone thinking all was great, and 5 mins later she emailed the owners said that she does not endorse the website or any similar option and they they should contact an attorney. SO now owners are again saying it's too much trouble, and I'm back to square one. However, their solution is to reduce my salaried part of my pay by the amount of the insurance ($92/week). I think this is a bad idea, I'm not comfortable with it, and I don't even think it's legal?  Wouldn't it be an issue with UI?  I've tried to tell them they should just pay for it (they pay 100% for another employee), but they won't go for that either.  I'm so frustrated!

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I thought one of the changes for the health care law was that all employees had to be treated equally concerning health insurance.  For example, they can't pay 100% for one employee and not for the other employees. 

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Good point. But, technically, I am part-time, so it doesn't apply. I used to work 15 hrs week/ when we changed to commission structure, they wanted me to work around 25 average, but in reality I work anywhere between 8 and 50 hrs depending on the week and what is going on.

 

Maybe I should just be thankful that they allow me to be on it given my hours. It is the best coverage I've had in years, except for the pretax issue costing me an extra 2k yr.

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