Bringing It All Together. Here is an example of how a married couple with four children can combine the tax deductions and credits into a sound financial strategy to pay less federal taxes and save more. Let’s assume each person is 55 years old and earns $150,000 each.
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By contributing $57,900 total to their 401(k) plans and health savings plan accounts, their adjusted gross income drops to $242,100.
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Next, setting aside $30,000 to a donor advised fund and taking $10,000 deduction for state and local taxes reduces their taxable income to $202,100.
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The federal tax owed on this amount is $37,083, but after taking the $8,000 child tax credit, it drops to $29,083.
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By taking advantage of all pre-tax accounts and utilizing a post-tax IRA contribution, the couple will have invested $70,900 of their $300,000 income towards financial independence.
Tax reform usually brings new planning opportunities for people in just about every tax bracket. By continuing to save money in 401(k) and IRA accounts while making changes to take advantage of the new law, just about everyone can save money and continue to work toward their financial goals.
Jason Cross is a wealth advisor with Brightworth, an Atlanta wealth management firm with more than $3 billion in assets under management.