Thread: IRA Limits for Married Couple?

Originally Posted by coastalite

Ohhhhhh, okay.

I was under the impression that once you move up into a higher tax bracket... ALL of your income is then taxed at the higher percentage of that bracket. I wasn't aware that just the amount in the next higher bracket is taxed higher.

So, let's say (hypothetically) - that we made $95,000 for 2014 - and the IRS says that all income at or below $100k is taxed at 20% and anything over that is taxed at 25%.

So, we'd pay 20% taxes on the $95k.

However, in 2015 - let's say we make $115,000. We'd pay 20% taxes for the $100k & 25% taxes on $15k.

Am I understanding this right?

Yes that is correct. Tax bracket rates are actually marginal tax rates.

Originally Posted by k0nkuzh0n

Yes that is correct. Tax bracket rates are actually marginal tax rates.

Thank you!

Is your the tax bracket you're in based on gross income - or based on your AGI? I would think the latter - but don't remember.

Good site to see it represented based on your filing status:

2014 and 2015 Tax Brackets

Always AGI, because it is after deductions.

Your tax bracket is based on your AGI. The amount you can contribute to a 401K/IRA is based on your earned income. You can't contribute more than you earned. On the other end, they reduce the amount you are allowed to contribute to an IRA/Roth IRA if your AGI is to big. I never had that problem.

On a side note: contributions have to be earned income, but it doesn't have to be your money. If your kid earned $2000 from a summer job and blew it all having fun, he/she can still open a Roth IRA with money you give him/her. There is no minimum age to open an IRA. Even a minor can do it, but it has to be their earned income reported to the IRS. I think it can be the full taxable amount. Not sure about that one. Do you have to subtract out the required deductions like SS? Still, it's a good way to get your children started on the road to saving for retirement if you can afford it and they are responsible enough not to cash it out and run.

Originally Posted by Cactus

Your tax bracket is based on your AGI. The amount you can contribute to a 401K/IRA is based on your earned income. You can't contribute more than you earned. On the other end, they reduce the amount you are allowed to contribute to an IRA/Roth IRA if your AGI is to big. I never had that problem.

On a side note: contributions have to be earned income, but it doesn't have to be your money. If your kid earned $2000 from a summer job and blew it all having fun, he/she can still open a Roth IRA with money you give him/her. There is no minimum age to open an IRA. Even a minor can do it, but it has to be their earned income reported to the IRS. I think it can be the full taxable amount. Not sure about that one. Do you have to subtract out the required deductions like SS? Still, it's a good way to get your children started on the road to saving for retirement if you can afford it and they are responsible enough not to cash it out and run.

Thanks, but no kids... hehehe... we have 3 cats though... maybe we can open a ROTH for each cat... and pay them a salary to sit around the house - that way their "earned income" can fund each of their ROTHs? LOL!

Originally Posted by Frixxxx

Good site to see it represented based on your filing status:

2014 and 2015 Tax Brackets

Always AGI, because it is after deductions.

Thanks, that is helpful - but it's still confusing trying to figure it all out.

Let's say in 2015 - you gross $100K - but your AGI is exactly $75K (this is after you adjust for TSP & all the other stuff they take out).

So, this means for 2015, if your AGI is $75K - then you are in the 25% Y-1 (2015) tax bracket - because your AGI in this case was just a mere $100 over the $74,900 limit???

Wow. They incentivize you to make less!

Originally Posted by coastalite

Thanks, that is helpful - but it's still confusing trying to figure it all out.

Let's say in 2015 - you gross $100K - but your AGI is exactly $75K (this is after you adjust for TSP & all the other stuff they take out).

So, this means for 2015, if your AGI is $75K - then you are in the 25% Y-1 (2015) tax bracket - because your AGI in this case was just a mere $100 over the $74,900 limit???

Wow. They incentivize you to make less!

No, it does not work that way. Refer back to the tax bucket post. The amount of tax you paid in each bucket under your AGI (actually taxable income, but just forget that detail) never changes as your AGI goes up. Here is the 2014 federal tax brackets for Married Filing Jointly. At $73,800 taxable income your total tax is $10,162.50. If you earned another $1000 to increase your taxable income to $74,800 your tax would go up by $250 to $10,412.50. So your extra $1000 income was taxed at 25% and the tax on your first $73,800 income stays the same.

2014 Federal Tax Rate Schedules
Married Filing Jointly
If Taxable Income is:		The tax is:			of the amount over:
Over	Not Over --			Rate
-	18,150	$ -	+	10%	0
18,150	73,800	$ 1,815.00	+	15%	18,150
73,800	148,850	$ 10,162.50	+	25%	73,800
148,850	226,850	$ 28,925.00	+	28%	148,850
226,850	405,100	$ 50,765.00	+	33%	226,850
405,100	457,600	$109,587.50	+	35%	405,100
457,600	-----------	$127,962.50		39.6%	457,600

Originally Posted by Skorcher

No, it does not work that way. Refer back to the tax bucket post. The amount of tax you paid in each bucket under your AGI (actually taxable income, but just forget that detail) never changes as your AGI goes up. Here is the 2014 federal tax brackets for Married Filing Jointly. At $73,800 taxable income your total tax is $10,162.50. If you earned another $1000 to increase your taxable income to $74,800 your tax would go up by $250 to $10,412.50. So your extra $1000 income was taxed at 25% and the tax on your first $73,800 income stays the same.

2014 Federal Tax Rate Schedules
Married Filing Jointly
If Taxable Income is:		The tax is:			of the amount over:
Over	Not Over --			Rate
-	18,150	$ -	+	10%	0
18,150	73,800	$ 1,815.00	+	15%	18,150
73,800	148,850	$ 10,162.50	+	25%	73,800
148,850	226,850	$ 28,925.00	+	28%	148,850
226,850	405,100	$ 50,765.00	+	33%	226,850
405,100	457,600	$109,587.50	+	35%	405,100
457,600	-----------	$127,962.50		39.6%	457,600

Whew... okay, thanks!