Additional Tax Savings for Employed High Earner?

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danielnash
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Additional Tax Savings for Employed High Earner?

Post by danielnash » Fri May 19, 2017 8:55 am

Hi All - here is my current situation:
- 32 years old, married w/no kids (and no plans to change that)
- Wife and I are both employed and make approximately $415k combined annually (wife makes $140/I make $275)
- We file our taxes as married filing jointly (not sure this even matters)
- I contribute the max $18k annually to my 401k & my wife, who does not have a 401k program at her work, contributes $5.5k through a backdoor Roth IRA.
- I have a ~$200k IRA account that I rolled over an old 401k from a previous employer so I don't think I could do a backdoor Roth IRA contribution without taking a significant tax hit (could be wrong about this).

We continue to save a significant portion of our income but most of it goes into a taxable account where any dividends or realized capital gains are taxed. So my question is - is there any way to save more in a tax advantaged account? We are only contributing $23.5k annually to a 401k/roth IRA and >$100k goes into a taxable investment account.

Thanks for any help!

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BolderBoy
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Re: Additional Tax Savings for Employed High Earner?

Post by BolderBoy » Fri May 19, 2017 9:12 am

danielnash wrote:- I have a ~$200k IRA account that I rolled over an old 401k from a previous employer so I don't think I could do a backdoor Roth IRA contribution without taking a significant tax hit (could be wrong about this).
Can you roll this into your current employer's 401k? That would clean the tIRA slate so you can do a backdoor Roth, too.
We continue to save a significant portion of our income but most of it goes into a taxable account where any dividends or realized capital gains are taxed.
On the taxable side you should be doing "tax efficient" investing - using tax-exempt bond funds and total market index stock funds. That should minimize your tax hit there.
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livesoft
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Re: Additional Tax Savings for Employed High Earner?

Post by livesoft » Fri May 19, 2017 9:18 am

HSA if you have an HDHP.

Deferred compensation plan provided by your employer.

Tax-efficient investing is the easiest. You should have less than $10 of income reported on the top half of your Form 1040 Schedule B. And all income on the lower half of your Schedule B should be qualified dividend income as opposed to non-qualified dividend income.
Last edited by livesoft on Fri May 19, 2017 9:18 am, edited 1 time in total.
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EHEngineer
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Re: Additional Tax Savings for Employed High Earner?

Post by EHEngineer » Fri May 19, 2017 9:18 am

Hi danielnash,

Congratulations on having such a huge income. That's impressive.

Several things you can do.

0) Have you read the guide on tax efficient fund placement? https://www.bogleheads.org/wiki/Tax-eff ... _placement

1) Is your 401k decent? Ie. low cost broad index funds and low account fees? Will your new employer's 401k plan allow an incoming rollover? If it will, then you can get rid of the IRA account and start doing backdoor roth contributions for yourself. Here's a how-to guide. https://thefinancebuff.com/the-backdoor ... ow-to.html

2) I-bonds. You can buy them through Treasurydirect.gov. They are not super attractive now, but they're tax deferred may be a good diversifier for inflation in years to come. You can only buy $10k/ssn each year, so it can take many years to accumulate a decent proportion of your portfolio. Personally, I am targeting 10% allocation.

3) 529. If you want to have kids and pay for college, you can start a 529 now. Put wife or yourself as beneficiary. Change beneficiary to kid(s) later.

4) Vanguard's municipal money market (federal tax exempt) is paying 0.7%. At your income level and tax rate,This likely beats a 1% saving account with a small increase in risk (money markets are not FDIC insured).
Or, you can ... decline to let me, a stranger on the Internet, egg you on to an exercise in time-wasting, and you could say "I'm probably OK and I don't care about it that much." -Nisiprius

adptnt
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Re: Additional Tax Savings for Employed High Earner?

Post by adptnt » Fri May 19, 2017 9:22 am

Agree with BoulderBoy - Move the IRA into your current employer's 401k which opens you up for the Backdoor Roth. It won't provide any immediate tax savings but yields the benefit of contributing to the Roth.

Also, are there any HSA options at yours or your wife's place of employ relating to Health plan choices? May want to consider that as well.

Lastly, tax efficient Index Funds and State specific muni bond funds will ease the tax bite on dividends/ capital gains.

Good luck!

aristotelian
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Re: Additional Tax Savings for Employed High Earner?

Post by aristotelian » Fri May 19, 2017 9:22 am

Seems like you are doing everything you can at your income level. It's too bad for folks like your wife that you can only do individual 401k's if you are self employed.

Only options I can think of:
-I-Bonds and EE-Bonds are tax deferred until redeemed.
-You could do 529's for other family members.
-Donor Advised Fund for any funds you would already be giving to charity

soccerdad12
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Re: Additional Tax Savings for Employed High Earner?

Post by soccerdad12 » Fri May 19, 2017 9:23 am

I am in the same boat and have asked this very question for years. I don't think there is a great answer for you. I contribute significant after-tax money to my retirement every month. I try to keep it tax efficient by using VTSAX and VTIAX.

If you have access to an HSA, make sure to max that out and just let it sit and grow.

Radjob4me
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Re: Additional Tax Savings for Employed High Earner?

Post by Radjob4me » Fri May 19, 2017 11:51 am

Agree with seeing if you can roll your IRA into your 401k in order to start the backdoor Roth. Honestly, at your salary and current savings rate, you could consider taking the tax hit and converting the whole 200k into a Roth IRA, although you would have to run some math to see if it would be worth it.

Your wife should ask her employers why no 401k plan? She could push for it and see what happens. Or she could ask to be a 1099 employee if you get good benefits (health, etc...). Then she could open a solo 401k and put away up to 53k on her own with a salary of $140k.

Raabe34
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Re: Additional Tax Savings for Employed High Earner?

Post by Raabe34 » Fri May 19, 2017 2:17 pm

I know this is not popular on this forum but you really ought to think about using a non-qualified variable annuity from Vanguard. It's 30bps for the cost which seems like a heck of a deal in situation. It allows tax deferral into perpetuity and allows you to manage the account without thinking about taxable gains. It's the perfect money to buy a SPIA with in retirement also.

Negatives are no step-up in basis and ordinary taxation amongst others.

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Meg77
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Re: Additional Tax Savings for Employed High Earner?

Post by Meg77 » Fri May 19, 2017 2:27 pm

My husband and I are in a very similar situation. I've owned rental properties for years, and real estate does offer some tax advantages. It's not worth getting into just for tax reasons though if you have no interest. And since we make too much (as do you) to recognize any of the passive losses each year, the tax losses only come in handy when we have other passive gains to offset or when we sell an asset.

We've thought of buying a rental in Salt Lake City so that we can expense our annual ski trip (the allowable flights/hotel portion to check up on our property, not the skiing itself per se). If there is any business you or your wife can start (a legitimate one of course), you can not only get access to a SIMPLE IRA or solo 401k, but you can deduct all kinds of things - car, home office, many meals, cell phone plan, etc. Whenever I retire I will become a full time real estate investor and be able to do a lot more to that end.
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