2018 Lower Taxes and Higher Marginal Rate for those with children

[rkhusky]

Regarding tax planning for 2018, are those with children aware of the potential that, although their taxes may be going down, their marginal rates may be going up? This might affect decisions such as Roth vs Traditional, capital gain/loss harvesting, size of IRA/401K contributions, etc. The reason for the change is that the exemptions for children that were eliminated by the new tax law were subtracted from income before taxes were computed, whereas the increased child tax credit is subtracted after taxes are computed. Thus, those in the 2017 15% bracket, but not too far from the 25% bracket, may find that they will be in the 22% bracket in 2018, unless they make adjustments.

As an example, a family with 4 children and a taxable income of $70,000 (well within the 15% bracket) with standard deduction and exemptions owes about $5600 in taxes. The same family in 2018 with the same income and with standard deduction would have a taxable income of $83,000 (well into the 22% bracket) and would owe about $2100 in taxes.

[FiveK]

Excellent point. Charts below assume $107K gross income, MFJ with 4 children under age 17. In that situation, one could make a 2018 case to put $5500 into one tIRA, and any other 401k/IRA contribution into Roth for 2018. Or $5600 into t401k and any other contribution into Roth, etc.

For 2017:


For 2018: