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More Roth Magic

For this, you must do a bit of homework to see if this advice can apply to you. Go to Fairmark and look at the tax rate schedule that applies to your filing status. You must also have a good idea what your taxable income will be, at least as the year draws to a close. If you fall near the top of your marginal rate, say $32,550 for a single, $65,100 joint, keep reading.

During the year, of course you should deposit enough to your 401(k) to capture your company match. But beyond that, make use of a pretax IRA if you are able to save more. At year end, if you are going to be just below the top of your tax bracket, make use of the Roth conversion to take some existing IRA money and convert to your Roth account.

For example, as I mention above, the 25% bracket begins for a couple, filing jointly, at $65,100. Remember, this is after exemptions, ($3500*number of family members) and any other deductions including itemized or the standard deduction of $10,900. So you see that one can gross as much as $100,000 or more and still be near the 15%/25% line.

Over the years, by straddling the top of the 15% bracket, but not paying 25%, you will save a lot of money on your taxes, and as you near retirement, the Roth accounts can be used if you retire before 59-1/2 to take withdrawals. Look at the Fairmark site to understand if this wil help you, and send a comment if you have any questions. Enjoy the weekend. Next week, we will talk about how to take advantage of Schedule A vs the Standard Deduction.


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