Yes! Just made a...

brij2006 · January 2017

@KAdams767 Thank you for clarifying that!
We seriously were running the numbers thinking that doesn't make any sense. We could work things a bit to keep us in the 15% bracket, but I didn't know only the income above that bracket will be taxed at the higher rate. That makes it much better.
The way things were going to fall, me going back for a couple of weeks after maternity leave to work out my 2 week notice would have bumped us into the next bracket. But if it's only that income that will be taxed at that rate, then it doesn't even matter.

KAdams767 · January 2017

brij2006 said:

@KAdams767 Thank you for clarifying that!
We seriously were running the numbers thinking that doesn't make any sense. We could work things a bit to keep us in the 15% bracket, but I didn't know only the income above that bracket will be taxed at the higher rate. That makes it much better.
The way things were going to fall, me going back for a couple of weeks after maternity leave to work out my 2 week notice would have bumped us into the next bracket. But if it's only that income that will be taxed at that rate, then it doesn't even matter.

No problem, it's a personal pet peeve of mine that the way our tax brackets work is never clarified or explained, so people are always getting upset about "moving into a new bracket", especially higher income people who like to think they are taxed at 39%. Which is silly, since its only income over approx. $460k that gets taxed that high!

So just to use round numbers as an example, if you had taxable income of $100,000, and filed MFJ, this is roughly how the tax would break out:

First $18,550 = taxed at 10% = $1,885 owed

Next $56,750 = (income from $18,550 to $75,300) taxed at 15% = $8,512 owed

Last $25,250 = (income from $75,300 to $151,900) taxed at 25% = $6,312 owed

So the total on $100,000 would be approx. $16,709, which is a blended rate of 16.7%, not $25,000 which is what it would be if it the "tax bracket" of 25% applied to full income.

jtmh2012 · January 2017

KAdams767 said:

No problem, it's a personal pet peeve of mine that the way our tax brackets work is never clarified or explained, so people are always getting upset about "moving into a new bracket", especially higher income people who like to think they are taxed at 39%. Which is silly, since its only income over approx. $460k that gets taxed that high!

So just to use round numbers as an example, if you had taxable income of $100,000, and filed MFJ, this is roughly how the tax would break out:

First $18,550 = taxed at 10% = $1,885 owed

Next $56,750 = (income from $18,550 to $75,300) taxed at 15% = $8,512 owed

Last $25,250 = (income from $75,300 to $151,900) taxed at 25% = $6,312 owed

So the total on $100,000 would be approx. $16,709, which is a blended rate of 16.7%, not $25,000 which is what it would be if it the "tax bracket" of 25% applied to full income.

A lot of people don't even necessarily pay that much by the time you take into any applicable deductions. TurboTax last year or the year before said we paid an effective tax rate of just 11%.

als1982 · January 2017

LillibetteV said:

littlemushroom said:

We got a 30 year mortgage because our jobs are subject to change, so we wanted the flexibility the smaller mandatory monthly payment gave us. This helped when I wound up in the hospital for a week last year with bilateral pulmonary embolii and racked up thousands in medical bills. Our intention was always to pay it off earlier, and save as much in interest as we could.

I guess we are aggressive in paying our mortgage down. Paying $200 extra towards principal a month saves us close to 30k in interest over the life of the loan and we pay it off in just under 18 years. Upping the extra payment to $400 saves us another 9k in interest and we pay it off in under 13 years. The savings in interest alone make the extra payments worth it to us. We are trying the higher extra payments out, but if we are stretched too thin that way we will drop it back to the sweet spot of $200.

Our mortgage interest rate and 401k interest rate are averaging close to even right now, so no major benefit.We both contribute 15% (plus employer match over that) to our Roth 401ks, and are currently saving another $700/mo in various savings accounts (building our e-fund back up, saving for a new car, building up our house fund for projects/inevitable expenses like new roof/appliances, vacation fund, etc). We don't max out our Roth 401k contributions because that would be over 40% of our gross and we just can't afford it.

We are interested in finding other ways to invest our extra money, but haven't found a financial planner that has been able to offer options for us. So far everyone has just said we are doing better than most people our age/salaries and to keep it up. We gross just over 80k/yr combined now.

I was super nervous when I first started investing outside of our retirement accounts and was certain I was somehow going to mess it all up. I did a lot of internet research regarding which funds I wanted to buy (I'm an index fund devotee) and then Fidelity was really awesome and patient and walked me through the process on the phone while I opened the account online.

Now that you're more experienced, have you thought about branching out with individual stocks? In the past three years, our picks have collectively gone up more than 50%.

KAdams767 · January 2017

jtmh2012 said:

KAdams767 said:

No problem, it's a personal pet peeve of mine that the way our tax brackets work is never clarified or explained, so people are always getting upset about "moving into a new bracket", especially higher income people who like to think they are taxed at 39%. Which is silly, since its only income over approx. $460k that gets taxed that high!

So just to use round numbers as an example, if you had taxable income of $100,000, and filed MFJ, this is roughly how the tax would break out:

First $18,550 = taxed at 10% = $1,885 owed

Next $56,750 = (income from $18,550 to $75,300) taxed at 15% = $8,512 owed

Last $25,250 = (income from $75,300 to $151,900) taxed at 25% = $6,312 owed

So the total on $100,000 would be approx. $16,709, which is a blended rate of 16.7%, not $25,000 which is what it would be if it the "tax bracket" of 25% applied to full income.

A lot of people don't even necessarily pay that much by the time you take into any applicable deductions. TurboTax last year or the year before said we paid an effective tax rate of just 11%.

Sorry, to be clear, my calculation above takes that into account - its a rate of 16.7% on taxable income. Taxable income is after all credits and deductions. Effective rate is tax paid on gross income.

LillibetteV · January 2017

als1982 said:

LillibetteV said:

littlemushroom said:

We got a 30 year mortgage because our jobs are subject to change, so we wanted the flexibility the smaller mandatory monthly payment gave us. This helped when I wound up in the hospital for a week last year with bilateral pulmonary embolii and racked up thousands in medical bills. Our intention was always to pay it off earlier, and save as much in interest as we could.

I guess we are aggressive in paying our mortgage down. Paying $200 extra towards principal a month saves us close to 30k in interest over the life of the loan and we pay it off in just under 18 years. Upping the extra payment to $400 saves us another 9k in interest and we pay it off in under 13 years. The savings in interest alone make the extra payments worth it to us. We are trying the higher extra payments out, but if we are stretched too thin that way we will drop it back to the sweet spot of $200.

Our mortgage interest rate and 401k interest rate are averaging close to even right now, so no major benefit.We both contribute 15% (plus employer match over that) to our Roth 401ks, and are currently saving another $700/mo in various savings accounts (building our e-fund back up, saving for a new car, building up our house fund for projects/inevitable expenses like new roof/appliances, vacation fund, etc). We don't max out our Roth 401k contributions because that would be over 40% of our gross and we just can't afford it.

We are interested in finding other ways to invest our extra money, but haven't found a financial planner that has been able to offer options for us. So far everyone has just said we are doing better than most people our age/salaries and to keep it up. We gross just over 80k/yr combined now.

I was super nervous when I first started investing outside of our retirement accounts and was certain I was somehow going to mess it all up. I did a lot of internet research regarding which funds I wanted to buy (I'm an index fund devotee) and then Fidelity was really awesome and patient and walked me through the process on the phone while I opened the account online.

Now that you're more experienced, have you thought about branching out with individual stocks? In the past three years, our picks have collectively gone up more than 50%.

Not really. Mostly because I don't have the time or desire to properly research individual stocks. Before we were married my husband used to buy individual stocks and did pretty well but since we've merged accounts we've just been sticking with the index funds since it's hard to argue with super low fees and solid returns that we don't have to put my brain thought into. Plus with a baby on the way we're leaving the investments alone and switching to beefing up our cash reserve to cover the unpaid portion of my maternity leave without dipping into the emergency fund and also do a few house projects that are necessary for safety (like the front stairs that are going to fall apart any day now).

hoffse · January 2017

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

als1982 · January 2017

LillibetteV said:

als1982 said:

LillibetteV said:

littlemushroom said:

We got a 30 year mortgage because our jobs are subject to change, so we wanted the flexibility the smaller mandatory monthly payment gave us. This helped when I wound up in the hospital for a week last year with bilateral pulmonary embolii and racked up thousands in medical bills. Our intention was always to pay it off earlier, and save as much in interest as we could.

I guess we are aggressive in paying our mortgage down. Paying $200 extra towards principal a month saves us close to 30k in interest over the life of the loan and we pay it off in just under 18 years. Upping the extra payment to $400 saves us another 9k in interest and we pay it off in under 13 years. The savings in interest alone make the extra payments worth it to us. We are trying the higher extra payments out, but if we are stretched too thin that way we will drop it back to the sweet spot of $200.

Our mortgage interest rate and 401k interest rate are averaging close to even right now, so no major benefit.We both contribute 15% (plus employer match over that) to our Roth 401ks, and are currently saving another $700/mo in various savings accounts (building our e-fund back up, saving for a new car, building up our house fund for projects/inevitable expenses like new roof/appliances, vacation fund, etc). We don't max out our Roth 401k contributions because that would be over 40% of our gross and we just can't afford it.

We are interested in finding other ways to invest our extra money, but haven't found a financial planner that has been able to offer options for us. So far everyone has just said we are doing better than most people our age/salaries and to keep it up. We gross just over 80k/yr combined now.

I was super nervous when I first started investing outside of our retirement accounts and was certain I was somehow going to mess it all up. I did a lot of internet research regarding which funds I wanted to buy (I'm an index fund devotee) and then Fidelity was really awesome and patient and walked me through the process on the phone while I opened the account online.

Now that you're more experienced, have you thought about branching out with individual stocks? In the past three years, our picks have collectively gone up more than 50%.

Not really. Mostly because I don't have the time or desire to properly research individual stocks. Before we were married my husband used to buy individual stocks and did pretty well but since we've merged accounts we've just been sticking with the index funds since it's hard to argue with super low fees and solid returns that we don't have to put my brain thought into. Plus with a baby on the way we're leaving the investments alone and switching to beefing up our cash reserve to cover the unpaid portion of my maternity leave without dipping into the emergency fund and also do a few house projects that are necessary for safety (like the front stairs that are going to fall apart any day now).

Gotcha. Well for anyone interested, it's really simple and fairly inexpensive. We personally pick brands we use and know that pay dividends, like Johnson & Johnson, Disney, Comcast, Microsoft and John Deere, plus a few growth like Ulta, Amazon, etc. We've only lost on a single stock and it was an advisor suggestion outside our normal strategy.

LillibetteV · January 2017

als1982 said:

LillibetteV said:

als1982 said:

LillibetteV said:

littlemushroom said:

We got a 30 year mortgage because our jobs are subject to change, so we wanted the flexibility the smaller mandatory monthly payment gave us. This helped when I wound up in the hospital for a week last year with bilateral pulmonary embolii and racked up thousands in medical bills. Our intention was always to pay it off earlier, and save as much in interest as we could.

I guess we are aggressive in paying our mortgage down. Paying $200 extra towards principal a month saves us close to 30k in interest over the life of the loan and we pay it off in just under 18 years. Upping the extra payment to $400 saves us another 9k in interest and we pay it off in under 13 years. The savings in interest alone make the extra payments worth it to us. We are trying the higher extra payments out, but if we are stretched too thin that way we will drop it back to the sweet spot of $200.

Our mortgage interest rate and 401k interest rate are averaging close to even right now, so no major benefit.We both contribute 15% (plus employer match over that) to our Roth 401ks, and are currently saving another $700/mo in various savings accounts (building our e-fund back up, saving for a new car, building up our house fund for projects/inevitable expenses like new roof/appliances, vacation fund, etc). We don't max out our Roth 401k contributions because that would be over 40% of our gross and we just can't afford it.

We are interested in finding other ways to invest our extra money, but haven't found a financial planner that has been able to offer options for us. So far everyone has just said we are doing better than most people our age/salaries and to keep it up. We gross just over 80k/yr combined now.

I was super nervous when I first started investing outside of our retirement accounts and was certain I was somehow going to mess it all up. I did a lot of internet research regarding which funds I wanted to buy (I'm an index fund devotee) and then Fidelity was really awesome and patient and walked me through the process on the phone while I opened the account online.

Now that you're more experienced, have you thought about branching out with individual stocks? In the past three years, our picks have collectively gone up more than 50%.

Not really. Mostly because I don't have the time or desire to properly research individual stocks. Before we were married my husband used to buy individual stocks and did pretty well but since we've merged accounts we've just been sticking with the index funds since it's hard to argue with super low fees and solid returns that we don't have to put my brain thought into. Plus with a baby on the way we're leaving the investments alone and switching to beefing up our cash reserve to cover the unpaid portion of my maternity leave without dipping into the emergency fund and also do a few house projects that are necessary for safety (like the front stairs that are going to fall apart any day now).

Gotcha. Well for anyone interested, it's really simple and fairly inexpensive. We personally pick brands we use and know that pay dividends, like Johnson & Johnson, Disney, Comcast, Microsoft and John Deere, plus a few growth like Ulta, Amazon, etc. We've only lost on a single stock and it was an advisor suggestion outside our normal strategy.

How often do you typically buy/sell?

KAdams767 · January 2017

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

LillibetteV · January 2017

KAdams767 said:

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

I found this neat calculator online that adds in your state tax and estimate sales and property taxes to the effective tax rate. It's not perfect, but I thought it was interesting! It undershot our property a little but it still has us at a total tax rate of 28%

https://smartasset.com/taxes/income-taxes#55hnlTwiIv

als1982 · January 2017

LillibetteV said:

als1982 said:

LillibetteV said:

als1982 said:

LillibetteV said:

littlemushroom said:

We got a 30 year mortgage because our jobs are subject to change, so we wanted the flexibility the smaller mandatory monthly payment gave us. This helped when I wound up in the hospital for a week last year with bilateral pulmonary embolii and racked up thousands in medical bills. Our intention was always to pay it off earlier, and save as much in interest as we could.

I guess we are aggressive in paying our mortgage down. Paying $200 extra towards principal a month saves us close to 30k in interest over the life of the loan and we pay it off in just under 18 years. Upping the extra payment to $400 saves us another 9k in interest and we pay it off in under 13 years. The savings in interest alone make the extra payments worth it to us. We are trying the higher extra payments out, but if we are stretched too thin that way we will drop it back to the sweet spot of $200.

Our mortgage interest rate and 401k interest rate are averaging close to even right now, so no major benefit.We both contribute 15% (plus employer match over that) to our Roth 401ks, and are currently saving another $700/mo in various savings accounts (building our e-fund back up, saving for a new car, building up our house fund for projects/inevitable expenses like new roof/appliances, vacation fund, etc). We don't max out our Roth 401k contributions because that would be over 40% of our gross and we just can't afford it.

We are interested in finding other ways to invest our extra money, but haven't found a financial planner that has been able to offer options for us. So far everyone has just said we are doing better than most people our age/salaries and to keep it up. We gross just over 80k/yr combined now.

I was super nervous when I first started investing outside of our retirement accounts and was certain I was somehow going to mess it all up. I did a lot of internet research regarding which funds I wanted to buy (I'm an index fund devotee) and then Fidelity was really awesome and patient and walked me through the process on the phone while I opened the account online.

Now that you're more experienced, have you thought about branching out with individual stocks? In the past three years, our picks have collectively gone up more than 50%.

Not really. Mostly because I don't have the time or desire to properly research individual stocks. Before we were married my husband used to buy individual stocks and did pretty well but since we've merged accounts we've just been sticking with the index funds since it's hard to argue with super low fees and solid returns that we don't have to put my brain thought into. Plus with a baby on the way we're leaving the investments alone and switching to beefing up our cash reserve to cover the unpaid portion of my maternity leave without dipping into the emergency fund and also do a few house projects that are necessary for safety (like the front stairs that are going to fall apart any day now).

Gotcha. Well for anyone interested, it's really simple and fairly inexpensive. We personally pick brands we use and know that pay dividends, like Johnson & Johnson, Disney, Comcast, Microsoft and John Deere, plus a few growth like Ulta, Amazon, etc. We've only lost on a single stock and it was an advisor suggestion outside our normal strategy.

How often do you typically buy/sell?

We don't have a set frequency for buying, but if I averaged it all out, I'd say we buy one stock every 4-6 weeks, give or take. We like to buy about $1,000 worth of shares of the same stock at a time. And since they're all income or growth stocks, we buy and hold, so we've yet to sell anything.

hoffse · January 2017

KAdams767 said:

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

Nope. For 2016 ours breaks down like this (approximately).

FICA - 7.55%
State - 3.8%
Local - 1%
Property - 1.54%
Federal - 20.8%
____________________
TOTAL - 34.69%

It amounts to so much money for us that I keep track of this from year to year when I prepare our tax return. I have a few more things to add in to our return, but this is where we are at currently. The numbers aren't going to change much.

I really should count sales tax too, which in Alabama is 8-10% on everything, but I don't track it closely enough.

To clarify: H and I are in the 33% bracket for federal taxes, which is why ours is so high. Our deductions are worth a lot, but we have income phase out for some of the bigger ones (like student loan interest), and our mortgage payment is intentionally small for our incomes, so even that doesn't help us as much as you would expect.

hoffse · January 2017

LillibetteV said:

KAdams767 said:

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

I found this neat calculator online that adds in your state tax and estimate sales and property taxes to the effective tax rate. It's not perfect, but I thought it was interesting! It undershot our property a little but it still has us at a total tax rate of 28%

https://smartasset.com/taxes/income-taxes#55hnlTwiIv

That's interesting. Notice it's only counting FICA from medicare though, it's not including SS in that number.

Sorry, but I hate to tell you that you actually pay more than that....

KAdams767 · January 2017

hoffse said:

KAdams767 said:

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

Nope. For 2016 ours breaks down like this (approximately).

FICA - 7.55%
State - 3.8%
Local - 1%
Property - 1.54%
Federal - 20.8%
____________________
TOTAL - 34.69%

It amounts to so much money for us that I keep track of this from year to year when I prepare our tax return. I have a few more things to add in to our return, but this is where we are at currently. The numbers aren't going to change much.

I really should count sales tax too, which in Alabama is 8-10% on everything, but I don't track it closely enough.

To clarify: H and I are in the 33% bracket for federal taxes, which is why ours is so high. Our deductions are worth a lot, but we have income phase out for some of the bigger ones (like student loan interest), and our mortgage payment is intentionally small for our incomes, so even that doesn't help us as much as you would expect.

This is interesting to me, it sounds like we have similar situations and incomes. I wonder if my state taxes being higher is resulting in a fair amount of the difference in my federal rate than yours. I guess I will see where this year shakes out.

LillibetteV · January 2017

hoffse said:

LillibetteV said:

KAdams767 said:

hoffse said:

When you talk about effective tax rate you have to include other taxes in it.

I have actually run this calculation before, and H and I have an effective tax rate of about 35% when you include federal, state, local, FICA, and property taxes.

This seems quite high to me, given that mine is a fair amount lower and I live in NY where all taxes are close to the highest in the country and we are DINKS that have a fairly high HHI and pretty limited deductions. Are you including something else as a tax that you haven't listed here?

I found this neat calculator online that adds in your state tax and estimate sales and property taxes to the effective tax rate. It's not perfect, but I thought it was interesting! It undershot our property a little but it still has us at a total tax rate of 28%

https://smartasset.com/taxes/income-taxes#55hnlTwiIv

That's interesting. Notice it's only counting FICA from medicare though, it's not including SS in that number.

Sorry, but I hate to tell you that you actually pay more than that....

Maybe they didn't include SS because I'll hopefully get some of that back someday? Lol. At least only one of us pays into SS as my husband is a state employee...

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