New Tax Plan - How to make the most of it?

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rudycreat
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New Tax Plan - How to make the most of it?

Post by rudycreat » Fri Jan 12, 2018 4:15 pm

I thought I'd save a lot of tax thanks to the new tax plan. Turned out not quite true.

I make $142k (single filing, FL), and contribute almost $50k to max all possible accounts (403b, 457, HSA).

My 2017 taxable income is $87k. With my heavy contribution, I bring myself from the 4th (28%) to 3rd (25%) bracket.
My 2018 taxable income is $86k. I'm back to the 4th (24%) bracket.

In 2017, I save 3% tax from contributing 35% of my income to retirement accounts.
In 2018, I save 0% from contributing anything to retirement accounts.

If I somehow can bring my taxable income from $87k to $82.5k, I'll be in the 3rd (22%) bracket. But I've really done what I could. How should I do differently?

JGoneRiding
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Re: New Tax Plan - How to make the most of it?

Post by JGoneRiding » Fri Jan 12, 2018 4:20 pm

I really think you are looking at it all wrong.

I guess I generally view it as on y income owe x tax. Now you should owe x-z. In part because the first three brackets are bigger and the std deduction is a lot bigger. Either way you are still saving 24% on all contributions to retirement

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CAsage
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Re: New Tax Plan - How to make the most of it?

Post by CAsage » Fri Jan 12, 2018 4:22 pm

Your taxes are marginal, so it's a percentage on the last (top) dollar earned. Your final marginal bracket is 24% instead of 25%, so you save 1% on an additional dollar there. But you are saving at least 24% on all the dollars you saved pretax, those dollars come off the top (i.e. higher brackets). The best way to understand this is to study the tax bracket tables, and compare your 2017 return to a good estimate for 2018. Your taxes paid are a smaller % on the first dollars; so it's not 24% of the total.

And, it won't really make much difference for most working people - some losers, some winners. Corporate taxes got seriously reduced.
Salvia Clevelandii "Winifred Gilman" my favorite. YMMV; not a professional advisor.

rudycreat
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Re: New Tax Plan - How to make the most of it?

Post by rudycreat » Fri Jan 12, 2018 4:34 pm

I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

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DaftInvestor
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Re: New Tax Plan - How to make the most of it?

Post by DaftInvestor » Fri Jan 12, 2018 4:52 pm

rudycreat wrote:
Fri Jan 12, 2018 4:15 pm

If I somehow can bring my taxable income from $87k to $82.5k, I'll be in the 3rd (22%) bracket.
You do realize the way marginal tax rates work is that you are ALWAYS paying in the third bracket up until $82.5K even if you clear more than that (actually - you will only pay 22% on the amount of your salary between $38,700 to $82,500; on the amount less than this you are paying 10% then 12%)? It's only on the dollars beyond the $82.5K where you are in the next bracket and only pay more than 22% on the dollars you earn above that. You "effective" tax rate is much lower than 22% whether you make 82K or 87k.
If you do understand this I don't know how you are getting your numbers - Maybe if you share your math someone can make sure you've got it - your numbers aren't working for me.

Dottie57
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Re: New Tax Plan - How to make the most of it?

Post by Dottie57 » Fri Jan 12, 2018 5:06 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
Inexpect your tax on same amount in 2018 will be a bit less.

mega317
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Re: New Tax Plan - How to make the most of it?

Post by mega317 » Fri Jan 12, 2018 5:27 pm

Dottie57 wrote:
Fri Jan 12, 2018 5:06 pm
Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
Inexpect your tax on same amount in 2018 will be a bit less.
Taxable income is after deductions and exemptions. But I calculate 17k. And max 403b, 457, HSA is closer to 40k. I suspect OP has both numbers and concepts confused.

decapod10
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Re: New Tax Plan - How to make the most of it?

Post by decapod10 » Fri Jan 12, 2018 5:30 pm

Dottie57 wrote:
Fri Jan 12, 2018 5:06 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
Inexpect your tax on same amount in 2018 will be a bit less.
for 2018, this is what I get:

86k - standard deduction (12k) = 74k. I believe there is no personal exemptions in 2018.

So:
$9525 @ 10% = $952.5
$38700-9525 @ 12% = $29175 x 12% = $3501
$74000 - $38700 @ 22% = $7766

Total Federal taxes $7766+3501+952 = $12219

Maybe I'm forgetting something though

Edit: I'm also not quite sure what OP's numbers are referring to, so some clarification may help. (i.e. what "taxable income" means to him in this example)

Gray
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Re: New Tax Plan - How to make the most of it?

Post by Gray » Fri Jan 12, 2018 6:17 pm

We bumped up my wife’s 401k savings by 2%. Mine is already maxed. Once we see how the withholding shakes out, we’ll see if any additional withholding is possible.

We’ve been putting salary increases into retirement savings.

I also bumped up our USAA homeowners insurance to the max. It was a nominal cost change so why not.
Last edited by Gray on Fri Jan 12, 2018 6:21 pm, edited 1 time in total.

Katietsu
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Re: New Tax Plan - How to make the most of it?

Post by Katietsu » Fri Jan 12, 2018 6:17 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(


These numbers can not be right since there is not a 25% bracket in 2018. And the tax on $87,000 of taxable income would be 15.2 k. This would be in the 24% marginal tax bracket. These would be for an AGI of $99,000 for a single person with no credits.

An AGI of $99,000 in 2017 would result in tax liability 17.9k for the same person. This would be a $2700 tax savings.

libralibra
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Re: New Tax Plan - How to make the most of it?

Post by libralibra » Fri Jan 12, 2018 8:04 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
Uhm, I've seen some form of this argument in several threads now. E.g. by increasing the standard deduction, people say it makes mortgages or giving to charities less valuable now.

Think of it this way. Say you had a 20% off coupon for a laptop you want. You go to bestbuy and the laptop happens to be $100 off that day! Would you complain that now your coupon is worth less, or be happy that you saved an extra $80?

Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)

Traveler
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Re: New Tax Plan - How to make the most of it?

Post by Traveler » Fri Jan 12, 2018 8:32 pm

libralibra wrote:
Fri Jan 12, 2018 8:04 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
Uhm, I've seen some form of this argument in several threads now. E.g. by increasing the standard deduction, people say it makes mortgages or giving to charities less valuable now.

Think of it this way. Say you had a 20% off coupon for a laptop you want. You go to bestbuy and the laptop happens to be $100 off that day! Would you complain that now your coupon is worth less, or be happy that you saved an extra $80?

Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
I think THIS is what the OP is getting at too. Not the way I would look at the changes, but hey, if OP doesn't want to contribute as much to his retirement accounts, the IRS will surely allow him to pay tax on that income this year.

Silk McCue
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Re: New Tax Plan - How to make the most of it?

Post by Silk McCue » Fri Jan 12, 2018 8:59 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

Please plug your figures into www.taxplancalculator.com and compare what you would have paid under the prior tax law in 2018 and what you will pay under the new tax law 2018. That will give you a more meaningful picture of the impact of the changes and hopefully clear up any confusion as it provides a clear breakdown on taxes paid in each bracket and overall tax benefit.

gilgamesh
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Re: New Tax Plan - How to make the most of it?

Post by gilgamesh » Fri Jan 12, 2018 9:16 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
This is not really the issue, you are still saving taxes...the real problem is if the tax benefit expires in 2026. You could be deferring taxes when you are in a lower tax bracket, then find yourself in a higher tax bracket when you have to pay it (if tax cuts expire).

gilgamesh
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Re: New Tax Plan - How to make the most of it?

Post by gilgamesh » Fri Jan 12, 2018 9:18 pm

Silk McCue wrote:
Fri Jan 12, 2018 8:59 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

Please plug your figures into www.taxplancalculator.com and compare what you would have paid under the prior tax law in 2018 and what you will pay under the new tax law 2018. That will give you a more meaningful picture of the impact of the changes and hopefully clear up any confusion as it provides a clear breakdown on taxes paid in each bracket and overall tax benefit.
He is NOT talking about tax cuts, but DEFERRING taxes with retirement contributions.

WanderingDoc
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Re: New Tax Plan - How to make the most of it?

Post by WanderingDoc » Fri Jan 12, 2018 9:30 pm

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
Invest in real estate. Legally pay no taxes on that income, and use "paper losses" to offset W-2 income. You don't get any income NOW from investing in a 403 or 457. One thing that is guaranteed is, you will be LESS healthy, LESS mobile, and LESS tolerant of new life experience, other people, and taking risks when you are 65. Not all of us will be here at 65 either. I would recommend investing in a vehicle that gives you an option to not have to work for the next 25-30 years, and that doesn't trap your money, etc. Just IMO. Wealthy folks invest in real estate for the wealth preservation and tax benefit.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

WanderingDoc
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Re: New Tax Plan - How to make the most of it?

Post by WanderingDoc » Fri Jan 12, 2018 9:34 pm

libralibra wrote:
Fri Jan 12, 2018 8:04 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
Uhm, I've seen some form of this argument in several threads now. E.g. by increasing the standard deduction, people say it makes mortgages or giving to charities less valuable now.

Think of it this way. Say you had a 20% off coupon for a laptop you want. You go to bestbuy and the laptop happens to be $100 off that day! Would you complain that now your coupon is worth less, or be happy that you saved an extra $80?

Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

gilgamesh
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Re: New Tax Plan - How to make the most of it?

Post by gilgamesh » Fri Jan 12, 2018 10:17 pm

WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
libralibra wrote:
Fri Jan 12, 2018 8:04 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(
Uhm, I've seen some form of this argument in several threads now. E.g. by increasing the standard deduction, people say it makes mortgages or giving to charities less valuable now.

Think of it this way. Say you had a 20% off coupon for a laptop you want. You go to bestbuy and the laptop happens to be $100 off that day! Would you complain that now your coupon is worth less, or be happy that you saved an extra $80?

Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Of course you are correct...but, OP raises an important issue I've been trying to bring to attention

In 2017 my retirement accounts deferred taxes when I'm at a marginal tax rate of 33%

In 2018, thanks to 199A deduction, I'm deferring marginal tax rate of 19.2%

Retirement accounts DEFER taxes...I save taxes now and pay taxes in retirement.

The current tax cuts for individuals and small businesses are set to expire on 2026.

If it expires, I'm deferring 19.2% marginal tax bracket but could face higher tax bracket in retirement. Especially given the weaker inflation adjustment to tax brackets.

This is an important consideration!

Silk McCue
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Re: New Tax Plan - How to make the most of it?

Post by Silk McCue » Fri Jan 12, 2018 10:42 pm

gilgamesh wrote:
Fri Jan 12, 2018 9:18 pm
Silk McCue wrote:
Fri Jan 12, 2018 8:59 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(

Please plug your figures into www.taxplancalculator.com and compare what you would have paid under the prior tax law in 2018 and what you will pay under the new tax law 2018. That will give you a more meaningful picture of the impact of the changes and hopefully clear up any confusion as it provides a clear breakdown on taxes paid in each bracket and overall tax benefit.
He is NOT talking about tax cuts, but DEFERRING taxes with retirement contributions.
This post and subsequent posts you made seem to be based upon your interpretation of the original posters intent which I do not see. He raised no point regarding the longevity of this tax law. The original poster is either confused or has not clearly explained their concern/question. In either case we cannot help until they clarify exactly what the salient issue is.

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bottlecap
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Re: New Tax Plan - How to make the most of it?

Post by bottlecap » Fri Jan 12, 2018 10:44 pm

By your logic, the answer is simple. Don’t contribute anything to retirement accounts and you save twice as much under the new tax plan.

JT

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Rob54keep
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Re: New Tax Plan - How to make the most of it?

Post by Rob54keep » Fri Jan 12, 2018 10:46 pm

Are you eligible for a HSA in 2017 or 2018?

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FiveK
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Re: New Tax Plan - How to make the most of it?

Post by FiveK » Fri Jan 12, 2018 11:08 pm

rudycreat wrote:
Fri Jan 12, 2018 4:15 pm
I make $142k (single filing, FL), and contribute almost $50k to max all possible accounts (403b, 457, HSA).
...
In 2018, I save 0% from contributing anything to retirement accounts.
That is not correct. For a single filer under age 65, gross income $142K and making a $3450 HSA contribution, the marginal saving rate on 403b/457 contributions is ~24%:
Image
Last edited by FiveK on Sun Jul 22, 2018 12:08 pm, edited 1 time in total.

gilgamesh
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Re: New Tax Plan - How to make the most of it?

Post by gilgamesh » Fri Jan 12, 2018 11:31 pm

Silk McCue wrote:
Fri Jan 12, 2018 10:42 pm
gilgamesh wrote:
Fri Jan 12, 2018 9:18 pm
Silk McCue wrote:
Fri Jan 12, 2018 8:59 pm
rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.

In 2017, if I don't make any contributions to retirements, I'm in the 28% bracket and pay $28.3k tax. When I max the contributions, I bring myself from 28% to 25% bracket and pay $17.5k tax. I save $10.8k tax.

In 2018, if I don't make any contributions to retirements, I'm in the 25% bracket and pay $26.7k tax. When I max the contributions, I'm still in the 25% bracket but I pay $16.6k tax. I save $10.1k tax.

It isn't much... :(



Please plug your figures into www.taxplancalculator.com and compare what you would have paid under the prior tax law in 2018 and what you will pay under the new tax law 2018. That will give you a more meaningful picture of the impact of the changes and hopefully clear up any confusion as it provides a clear breakdown on taxes paid in each bracket and overall tax benefit.
He is NOT talking about tax cuts, but DEFERRING taxes with retirement contributions.
This post and subsequent posts you made seem to be based upon your interpretation of the original posters intent which I do not see. He raised no point regarding the longevity of this tax law. The original poster is either confused or has not clearly explained their concern/question. In either case we cannot help until they clarify exactly what the salient issue is.
True!...he did not mention the possibility of tax cuts expiring which is fundamental to what I'm saying...

But, at the same time most of the subsequent replies seems to ignore the fact he is talking about retirement accounts given the new tax bill and not just tax cuts.

OP is definitely talking about tax deferral retirement plans...he did not mention expiring tax cuts, I was just filling that in...

The bigger error is assuming he is talking about tax cuts - he is not...he mentioned 50% of the issue, which is he is not saving as much taxes now with tax deferral plans - all I'm saying is the other 50% is even worse - he may pay more in retirement (especially given the weaker inflation adjustment of tax brackets).

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celia
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Re: New Tax Plan - How to make the most of it?

Post by celia » Sat Jan 13, 2018 12:19 am

rudycreat wrote:
Fri Jan 12, 2018 4:34 pm
I know. But I mean, part of the reason I'm max-ing the retirement contributions is to save tax.
You are NOT saving on taxes. You are just deferring them.

The question should be, how does the tax "saved" on the money that is put into retirement accounts compare to the tax when it is withdrawn?

You can estimate it using dollar amounts or percentages. The older (closer to retirement) you are, the better the estimate becomes.

Dottie57
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Re: New Tax Plan - How to make the most of it?

Post by Dottie57 » Sat Jan 13, 2018 8:10 am

mega317 wrote:
Fri Jan 12, 2018 5:27 pm
Dottie57 wrote:
Fri Jan 12, 2018 5:06 pm
Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
Inexpect your tax on same amount in 2018 will be a bit less.
Taxable income is after deductions and exemptions. But I calculate 17k. And max 403b, 457, HSA is closer to 40k. I suspect OP has both numbers and concepts confused.
I used Tax caster 2016. Only number enter was w2 income. Single, not head of house hold, not retirement age.
I do not have a spreadsheet for calculating taxes.

mega317
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Re: New Tax Plan - How to make the most of it?

Post by mega317 » Sat Jan 13, 2018 9:51 am

Dottie57 wrote:
Fri Jan 12, 2018 5:06 pm
Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
If OP used the correct terminology it would be W2 income minus standard deduction and 1 exemption = 87k (taxable income)

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FiveK
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Re: New Tax Plan - How to make the most of it?

Post by FiveK » Sat Jan 13, 2018 10:53 am

mega317 wrote:
Sat Jan 13, 2018 9:51 am
Dottie57 wrote:
Fri Jan 12, 2018 5:06 pm
Taxcaster says your federal tax on 87k minus std deduction and 1exemption is 14940.
If OP used the correct terminology it would be W2 income minus standard deduction and 1 exemption = 87k (taxable income)
Yes. And if W2 income = $142K gross, minus $44.6K in pre-tax deductions (as implied by "I make $142k (single filing, FL), and contribute almost $50k to max all possible accounts (403b, 457, HSA)", that would leave $87K as taxable income.

Seems reasonable to believe OP did indeed use the correct terminology. Note that "max 403b" etc. changes after age 50....

thx1138
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Re: New Tax Plan - How to make the most of it?

Post by thx1138 » Sat Jan 13, 2018 10:57 am

WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Not even remotely, you clearly don't understand the new tax plan or haven't spent more than five minutes evaluating its impact on a variety of common circumstances.

Consider married, three children, 15k SALT and 12k mortgage interest with 150k income.

Previous deductions plus exemptions was 27K + 20.25K = 47.25K. Previous taxable income was 102.75K.

New there are no exemptions and SALT capped at 10K so it is just standard deduction of 24K. New taxable income is 126K.

So taxable income went up by nearly 25K for this not untypical family. And how about the actual taxes with the new brackets?

Under the old taxes that 102.75K would result in 16,995 in tax. Under the new taxes the 126K results in 19,599 in tax.

So a typical family in CA/NY/MD or a variety of other high population states saw their tax bill go up by $2604. Is that a "minimal effect or tax break"?

---------------

There are a whole bunch of people just like you touting "it'll be a break or small change for everyone" because you haven't actually done the numbers or thought through the impact of the loss of exemptions. Families with three or more kids are going to get hammered unless they are low income enough to get the child tax credit.

It isn't even necessarily a high tax state thing. Try the above math without any SALT and four kids and see what happens.

Do a little bit of math and understand what you are actually posting about before making unsubstantiated claims about the new tax law.

EDIT: This post overlooks the much increased phase out for the CTC so for the example above the income is well away from the phase out and the CTC more than makes up for the loss of exemption. That means a much smaller fraction of larger families see an increase in tax than implied. Thanks for those who pointed out the error! And apologies to WanderingDoc whose general assertion was more accurate than my completely wrong counter example!
Last edited by thx1138 on Sat Jan 13, 2018 11:47 am, edited 2 times in total.

nolesrule
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Re: New Tax Plan - How to make the most of it?

Post by nolesrule » Sat Jan 13, 2018 11:25 am

thx1138 wrote:
Sat Jan 13, 2018 10:57 am
WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Not even remotely, you clearly don't understand the new tax plan or haven't spent more than five minutes evaluating its impact on a variety of common circumstances.

Consider married, three children, 15k SALT and 12k mortgage interest with 150k income.

Previous deductions plus exemptions was 27K + 20.25K = 47.25K. Previous taxable income was 102.75K.

New there are no exemptions and SALT capped at 10K so it is just standard deduction of 24K. New taxable income is 126K.

So taxable income went up by nearly 25K for this not untypical family. And how about the actual taxes with the new brackets?

Under the old taxes that 102.75K would result in 16,995 in tax. Under the new taxes the 126K results in 19,599 in tax.

So a typical family in CA/NY/MD or a variety of other high population states saw their tax bill go up by $2604. Is that a "minimal effect or tax break"?

---------------

There are a whole bunch of people just like you touting "it'll be a break or small change for everyone" because you haven't actually done the numbers or thought through the impact of the loss of exemptions. Families with three or more kids are going to get hammered unless they are low income enough to get the child tax credit.

It isn't even necessarily a high tax state thing. Try the above math without any SALT and four kids and see what happens.

Do a little bit of math and understand what you are actually posting about before making unsubstantiated claims about the new tax law.
I think you may have left out the CTC for your new tax calculation. The phaseout is much much higher than it was.

grettman
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Re: New Tax Plan - How to make the most of it?

Post by grettman » Sat Jan 13, 2018 11:28 am

thx1138 wrote:
Sat Jan 13, 2018 10:57 am
WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Not even remotely, you clearly don't understand the new tax plan or haven't spent more than five minutes evaluating its impact on a variety of common circumstances.

Consider married, three children, 15k SALT and 12k mortgage interest with 150k income.

Previous deductions plus exemptions was 27K + 20.25K = 47.25K. Previous taxable income was 102.75K.

New there are no exemptions and SALT capped at 10K so it is just standard deduction of 24K. New taxable income is 126K.

So taxable income went up by nearly 25K for this not untypical family. And how about the actual taxes with the new brackets?

Under the old taxes that 102.75K would result in 16,995 in tax. Under the new taxes the 126K results in 19,599 in tax.

So a typical family in CA/NY/MD or a variety of other high population states saw their tax bill go up by $2604. Is that a "minimal effect or tax break"?

---------------

There are a whole bunch of people just like you touting "it'll be a break or small change for everyone" because you haven't actually done the numbers or thought through the impact of the loss of exemptions. Families with three or more kids are going to get hammered unless they are low income enough to get the child tax credit.

It isn't even necessarily a high tax state thing. Try the above math without any SALT and four kids and see what happens.

Do a little bit of math and understand what you are actually posting about before making unsubstantiated claims about the new tax law.

The tone isn’t necessary and why all the emotion? The tax plan works great for me ($3K on savings this year which isn’t peanuts for my family). I am thankful I am not in area with over the top excessive SALT.

sadie wess
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Re: New Tax Plan - How to make the most of it?

Post by sadie wess » Sat Jan 13, 2018 11:30 am

thx1138 wrote:
Sat Jan 13, 2018 10:57 am
WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
Not even remotely, you clearly don't understand the new tax plan or haven't spent more than five minutes evaluating its impact on a variety of common circumstances.

Consider married, three children, 15k SALT and 12k mortgage interest with 150k income.

Previous deductions plus exemptions was 27K + 20.25K = 47.25K. Previous taxable income was 102.75K.

New there are no exemptions and SALT capped at 10K so it is just standard deduction of 24K. New taxable income is 126K.

So taxable income went up by nearly 25K for this not untypical family. And how about the actual taxes with the new brackets?

Under the old taxes that 102.75K would result in 16,995 in tax. Under the new taxes the 126K results in 19,599 in tax.

So a typical family in CA/NY/MD or a variety of other high population states saw their tax bill go up by $2604. Is that a "minimal effect or tax break"?

---------------

There are a whole bunch of people just like you touting "it'll be a break or small change for everyone" because you haven't actually done the numbers or thought through the impact of the loss of exemptions. Families with three or more kids are going to get hammered unless they are low income enough to get the child tax credit.

It isn't even necessarily a high tax state thing. Try the above math without any SALT and four kids and see what happens.

Do a little bit of math and understand what you are actually posting about before making unsubstantiated claims about the new tax law.
+10 to thx1138

CT-Scott
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Re: New Tax Plan - How to make the most of it?

Post by CT-Scott » Sat Jan 13, 2018 11:33 am

thx1138 wrote:
Sat Jan 13, 2018 10:57 am
Not even remotely, you clearly don't understand the new tax plan or haven't spent more than five minutes evaluating its impact on a variety of common circumstances.

Consider married, three children, 15k SALT and 12k mortgage interest with 150k income.

Previous deductions plus exemptions was 27K + 20.25K = 47.25K. Previous taxable income was 102.75K.

New there are no exemptions and SALT capped at 10K so it is just standard deduction of 24K. New taxable income is 126K.

So taxable income went up by nearly 25K for this not untypical family. And how about the actual taxes with the new brackets?

Under the old taxes that 102.75K would result in 16,995 in tax. Under the new taxes the 126K results in 19,599 in tax.

So a typical family in CA/NY/MD or a variety of other high population states saw their tax bill go up by $2604. Is that a "minimal effect or tax break"?
Your numbers don't jive with what I'm getting from a spreadsheet I downloaded (via a link in another thread in this forum). I neglected to make a note of where I downloaded it from, and I don't see anything on the spreadsheet itself that gives the author of it any credit, but it's named "2018 federal tax calculator - Public.xlsx" (he also has versions for prior years). Using the 2017 and 2018 versions of these spreadsheets, I get a figure close to what you're showing for 2017, but for 2018 I get a figure of $13,599, so a savings of over $3,000.

Edit: I found the link to the spreadsheets I'm using:
https://www.frugalprofessor.com/model-o ... ompromise/
Last edited by CT-Scott on Sat Jan 13, 2018 11:41 am, edited 1 time in total.

thx1138
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Re: New Tax Plan - How to make the most of it?

Post by thx1138 » Sat Jan 13, 2018 11:38 am

nolesrule wrote:
Sat Jan 13, 2018 11:25 am

I think you may have left out the CTC for your new tax calculation. The phaseout is much much higher than it was.
You are absolutely correct, for the example income the CTC is not in the phaseout. Since the limit is so much higher now a much smaller number or larger families will see a tax increase. Edited post to point out the error but left original text too so people could see and follow the fallacy. Thanks for the correction!

thx1138
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Re: New Tax Plan - How to make the most of it

Post by thx1138 » Sat Jan 13, 2018 11:46 am

CT-Scott wrote:
Sat Jan 13, 2018 11:33 am
Your numbers don't jive with what I'm getting from a spreadsheet I downloaded (via a link in another thread in this forum). I neglected to make a note of where I downloaded it from, and I don't see anything on the spreadsheet itself that gives the author of it any credit, but it's named "2018 federal tax calculator - Public.xlsx" (he also has versions for prior years). Using the 2017 and 2018 versions of these spreadsheets, I get a figure close to what you're showing for 2017, but for 2018 I get a figure of $13,599, so a savings of over $3,000.
nolesrule caught the error - CTC phaseout way higher now so the 150k income in the example gets the full CTC which more than offsets the loss of exemption. I alluded to the CTC in the post saying it only is a benefit if low income enough to get the CTC. Well under 400k is now "low income enough" so my bad!

Worth also noting even for the 440K family that would be entirely phased out the roughly 2 to 3 percent cut in tax rates would make up much of the difference. So the family size impact is not particularly large across incomes. The SALT cap is the biggest effect and thus only effects certain states.

Thanks for putting hard numbers to my error.

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FiveK
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Re: New Tax Plan - How to make the most of it?

Post by FiveK » Sat Jan 13, 2018 11:48 am

CT-Scott wrote:
Sat Jan 13, 2018 11:33 am
Using the 2017 and 2018 versions of these spreadsheets, I get a figure close to what you're showing for 2017, but for 2018 I get a figure of $13,599, so a savings of over $3,000.
Yes, same as the personal finance toolbox spreadsheet. The CTC change is a significant benefit for those affected.

libralibra
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Re: New Tax Plan - How to make the most of it?

Post by libralibra » Sat Jan 13, 2018 2:45 pm

WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
libralibra wrote:
Fri Jan 12, 2018 8:04 pm
Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
You just need to look at the tables yourself. I'm not sure why you don't see it. In fact, there's a 38k band starting at 157.5k that went up even more - 32% now vs 28% before.

Anyway, it kind of comes out in the wash. I.e. the lower bands save money and these higher bands take some back from singles. Makes sense since the overhaul was mainly directed at poor/middle income families. (However, I did notice that Head of Household brackets were hit too - there's even a tiny band at 200-216.7k where the rate went up 7%!)

ps. found a nice side-by-side comparison for you
Image
Last edited by libralibra on Sun Jan 21, 2018 11:00 pm, edited 1 time in total.

WanderingDoc
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Re: New Tax Plan - How to make the most of it?

Post by WanderingDoc » Sun Jan 14, 2018 1:33 am

libralibra wrote:
Sat Jan 13, 2018 2:45 pm
WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
libralibra wrote:
Fri Jan 12, 2018 8:04 pm
Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
You just need to look at the tables yourself. I'm not sure why you don't see it. In fact, there's a 38k band starting at 157.5k that went up even more - 32% now vs 28% before.

Anyway, it kind of comes out in the wash. I.e. the lower bands save money and these higher bands take some back from singles. Makes sense since the overhaul was mainly directed at poor/middle income families. (However, I did notice that Head of Household brackets were hit too - there's even a tiny band starting at 216.7k where the rate went up 7%!)

ps. found a nice side-by-side comparison for you
Image
Thanks for pointing that out. A $38K band is a small band. Looks like it pays to stay BELOW $157.5K or ABOVE $195K.

Don't forget, you are not factoring the bump in the standard deduction to $12K. I have calculated how much I would have payed in taxes (on W-2 income) with the new tax plan in 2016 and 2017:

2016: $3,350 LESS in taxes
2017: $2,310 LESS in taxes

As much as it pains me to say it, the current tax laws incentives one for staying in the military longer. Given that it is pretty easy to stay under $157K in TAXABLE income (with some traditional 401k contributions), enjoy the tax free income, and pay an effective ~10% tax rate.
Don't wait to buy real estate. Buy real estate, and wait. | Rent where you live, buy where others pay your mortgage for you.

libralibra
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Re: New Tax Plan - How to make the most of it?

Post by libralibra » Sun Jan 14, 2018 3:23 am

gilgamesh wrote:
Fri Jan 12, 2018 10:17 pm
Retirement accounts DEFER taxes...I save taxes now and pay taxes in retirement.

The current tax cuts for individuals and small businesses are set to expire on 2026.

If it expires, I'm deferring 19.2% marginal tax bracket but could face higher tax bracket in retirement. Especially given the weaker inflation adjustment to tax brackets.

This is an important consideration!
I guess there was a senator from Delaware who had a solution for people who felt this way. His name was Sen. Roth!

gilgamesh
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Re: New Tax Plan - How to make the most of it?

Post by gilgamesh » Sun Jan 14, 2018 8:55 am

libralibra wrote:
Sun Jan 14, 2018 3:23 am
gilgamesh wrote:
Fri Jan 12, 2018 10:17 pm
Retirement accounts DEFER taxes...I save taxes now and pay taxes in retirement.

The current tax cuts for individuals and small businesses are set to expire on 2026.

If it expires, I'm deferring 19.2% marginal tax bracket but could face higher tax bracket in retirement. Especially given the weaker inflation adjustment to tax brackets.

This is an important consideration!
I guess there was a senator from Delaware who had a solution for people who felt this way. His name was Sen. Roth!
It's only tax deferred plans that needs to be reevaluated, Roth has not changed with the new tax plan, but the old problem of income limits still exists.

Not everyone can just channel their tax deferred contributions to Roth.

MrJones
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Re: New Tax Plan - How to make the most of it?

Post by MrJones » Sun Jan 14, 2018 12:46 pm

FiveK wrote:
Fri Jan 12, 2018 11:08 pm
rudycreat wrote:
Fri Jan 12, 2018 4:15 pm
I make $142k (single filing, FL), and contribute almost $50k to max all possible accounts (403b, 457, HSA).
...
In 2018, I save 0% from contributing anything to retirement accounts.
That is not correct. For a single filer under age 65, gross income $142K and making a $3450 HSA contribution, the marginal saving rate on 403b/457 contributions is ~24%:
Image
FiveK, may I ask where you got this graph from? Is it a spreadsheet that is available in the tool section of the bogleheads? If so could you please point me to it? Thank you.

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FiveK
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Re: New Tax Plan - How to make the most of it?

Post by FiveK » Sun Jan 14, 2018 12:57 pm

MrJones wrote:
Sun Jan 14, 2018 12:46 pm
FiveK, may I ask where you got this graph from? Is it a spreadsheet that is available in the tool section of the bogleheads? If so could you please point me to it? Thank you.
Yes, that's where it is: the personal finance toolbox spreadsheet.

See also viewtopic.php?f=2&t=237823#p3719402 for a little more detail.

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Re: New Tax Plan - How to make the most of it?

Post by LadyGeek » Sun Jan 14, 2018 2:03 pm

I removed several off-topic posts. Continuity is lost. As a reminder, see: Politics and Religion
In order to avoid the inevitable frictions that arise from these topics, political or religious posts and comments are prohibited. The only exceptions to this rule are:
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mouth
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Re: New Tax Plan - How to make the most of it?

Post by mouth » Sun Jan 14, 2018 2:37 pm

libralibra wrote:
Sat Jan 13, 2018 2:45 pm
WanderingDoc wrote:
Fri Jan 12, 2018 9:34 pm
libralibra wrote:
Fri Jan 12, 2018 8:04 pm
Just look at your final tax bill and decide whether you benefited or not. (Note, singles in the 200-424k range actually do see a 2% bump in their bracket! Kind of a hidden surprise.)
Really, where are you seeing that? To me, it looked like benefits all across the board, except in a few personal circumstances based on living in HCOL areas and how certain business structures are set up. There should be a minimal effect ora tax break for basically all taxpapers speaking in generalities.
... In fact, there's a 38k band starting at 157.5k that went up even more - 32% now vs 28% before. ...
Image
Yup, this is me. And you're right when you say I'm benefiting overall despite being the higher marginal bracket. In fact, I benefit from not having to think too hard about Roth vs Traditional. I live in a HCOL, High Tax state with the intent to move to a lower-COL and no-income-tax state just before or at retirement. No gray area for me ;-)

MrJones
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Re: New Tax Plan - How to make the most of it?

Post by MrJones » Mon Jan 15, 2018 1:14 pm

FiveK wrote:
Sun Jan 14, 2018 12:57 pm
MrJones wrote:
Sun Jan 14, 2018 12:46 pm
FiveK, may I ask where you got this graph from? Is it a spreadsheet that is available in the tool section of the bogleheads? If so could you please point me to it? Thank you.
Yes, that's where it is: the personal finance toolbox spreadsheet.

See also viewtopic.php?f=2&t=237823#p3719402 for a little more detail.
Perfect, thank you!

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