Ask Terry Questions Taxable Income and IRA Options

Taxable Income and IRA Options

By Terry Savage on March 02, 2015 | Financial Planning / Retirement


My husband and I have questions regarding two things: taxable income and IRA options.

When filing our taxes this year, we are required to pay for the first time. Our taxable income is higher than it has been, so we are hoping to avoid this in the future. Aside from changing our withholdings, do you have any other advice to get the most out of our money? We do not have credit card debt, own our house and have no student loans, so we would like to make sure we keep making smart choices.

The second question is regarding IRAs. We are both young professionals with 401k accounts – which type of IRA would you recommend?

Looking forward to your feedback!

Kind regards,

Terry Says:  Well, the good news is that you’re in a nice situation — not buried in debt, and presumably only a small mortgage deduction.  There are not too many ways to improve on your situation when it comes to taxes.

I’m guessing that you earn too much to open a Roth IRA.  (In 2015, the AGI phase-out range for taxpayers making contributions to a Roth IRA is $183,000 to $193,000 for married couples filing jointly, up from $181,000 to $191,000 in 2014.)  But you could still open a non-deductible traditional IRA — so more of your money would grow tax-deferred.  (Be sure you are maxing out your 40l(k) up to the company match, if there is one.)

But to get more deductions, you have to make some more commitments.  You might consider rental property, which comes with more complicated tax calculations, but could provide additional deductions.  Or if you are only expecting a year or two of above-average income, you could open an account in a Charitable Gift Fund (see Fidelity Charitable Gift Trust) where you get an immediate deduction for your contribution, but it can grow tax-free and later be distributed to recognized charities in your name.

And finally, not to be flippant, but you didn’t mention children.  They are a huge tax deduction — as well as a huge expense!  If you have a child, you can pretty much guarantee that you won’t ever again worry about having too much extra money!

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