How much 401K etc. to lower taxes due

[Goldy1]

Hopefully, I can figure out how to word my question. Basically, we are a family of four(2 parents and 2 kids)

It feels weird to talk about money, and give personal details, but this is a saving forum, and I have seen another site where people list every cent they spend for financial help. (I have not done that..yet anyway)

For as long as we were married my husband worked and we contributed to his 401K that got no match. We lived below our means or at them. I am a stay at home mom. Despite having income in the range of approx. 50,000 each year(varied due to overtime, wow that makes a difference as an hourly worker) , we managed to have him put about 15% of his income into a 401K (target retirement) make extra on mortgage payments(controversial as some prefer to invest more but this was our choice). I would say we have put approx. 2 grand each into roths as well.

We have paid very little taxes. Nothing was planned. We just did the above with literally no thought except, ok cool we're investing. We just saved, and it was how it worked out.
My husband got a new job at the beginning of the year. He is still hourly, but got a modest raise from last job, and has to work more hours due to being busy at work.

I know there was at least one year in the past where if we put a couple more thousand into 401K it would have given us a lot more in taxes back.(possibly? we played around with a number)

Right now, due to covid and wanting to be conservative, we are not yet putting in 401K. We may start (husband wants to) There is no match.
We live in Michigan.
I don't not want to not invest in 401K, and then owe way more in taxes at the end of the year because putting in 401K decreases taxable income. I also don't want to put in too much we might be taxed on anyway. I can pretty much assume we'll make less in retirement even I go back to work part time which I would like to in retirement.
I am leary of investing again. I need to educate myself more about the market etc. which I plan to do.

How do I figure out how much taxes will be due if we invest xyz.
We both have roths, and my husband has a traditional IRA because we took the money out from his old 401K to open a traditional ira(none cashed out)
We pay about quite a few thousand a year for our employer sponsored healthcare as our portion. I believe we don't pay income tax on healthcare premiums, but not sure.
WE live in Michigan. I found some kid of federal tax bracket calculator, but it was confusing. Then I realized, state taxes come into play. (just when I thohg tI had it figured out)

[disneysteve]

I'm assuming you are married and filing jointly.

On the first $19,400 of income, you pay 10% tax.
On the income from $19401 to $78950 you pay 12% tax.
There are more brackets after that but it sounds like those two cover your situation.

So basically, every dollar he puts into his 401k saves you 12 cents in taxes.

I'm not sure about state taxes. You'd have to look up the rate on that.

In retirement, when he starts withdrawing from the 401k, that money is taxed at your current rate at that time. Until then, the money gets to grow tax-free for however many years you leave it in there.

[Jluke]

Look into the savers credit. You won’t be able to get into the lower tax bracket that disneysteve showed.m (19k appx).

you may qualify for it

Married taxpayers filing jointly may receive a credit worth 20% of their contributions to a qualifying plan or ABLE account if their combined AGI ranges between $38,501 and $41,500.

[Like2Plan]

Hopefully, I can figure out how to word my question. Basically, we are a family of four(2 parents and 2 kids)

It feels weird to talk about money, and give personal details, but this is a saving forum, and I have seen another site where people list every cent they spend for financial help. (I have not done that..yet anyway)

For as long as we were married my husband worked and we contributed to his 401K that got no match. We lived below our means or at them. I am a stay at home mom. Despite having income in the range of approx. 50,000 each year(varied due to overtime, wow that makes a difference as an hourly worker) , we managed to have him put about 15% of his income into a 401K (target retirement) make extra on mortgage payments(controversial as some prefer to invest more but this was our choice). I would say we have put approx. 2 grand each into roths as well.

We have paid very little taxes. Nothing was planned. We just did the above with literally no thought except, ok cool we're investing. We just saved, and it was how it worked out.
My husband got a new job at the beginning of the year. He is still hourly, but got a modest raise from last job, and has to work more hours due to being busy at work.

I know there was at least one year in the past where if we put a couple more thousand into 401K it would have given us a lot more in taxes back.(possibly? we played around with a number)

Right now, due to covid and wanting to be conservative, we are not yet putting in 401K. We may start (husband wants to) There is no match.
We live in Michigan.
I don't not want to not invest in 401K, and then owe way more in taxes at the end of the year because putting in 401K decreases taxable income. I also don't want to put in too much we might be taxed on anyway. I can pretty much assume we'll make less in retirement even I go back to work part time which I would like to in retirement.
I am leary of investing again. I need to educate myself more about the market etc. which I plan to do.

How do I figure out how much taxes will be due if we invest xyz.
We both have roths, and my husband has a traditional IRA because we took the money out from his old 401K to open a traditional ira(none cashed out)
We pay about quite a few thousand a year for our employer sponsored healthcare as our portion. I believe we don't pay income tax on healthcare premiums, but not sure.
WE live in Michigan. I found some kid of federal tax bracket calculator, but it was confusing. Then I realized, state taxes come into play. (just when I thohg tI had it figured out)

Let's say you have 50,000 in taxable income (including all sources of income--employment, dividends and interest, et'c)
(Hopefully your DH's pay stub will be detailed enough so that you can figure out what is excluded from federal taxable wages)

Minus your standard deduction for MFJ= 24,800.

taxable income: 25,200
(Note: this year, you can deduct $300 of your charitable donations even if you take the standard deduction. Be sure to keep receipts!)

As Disney Steve mentioned above you would be taxed in the first 2 brackets: The first 19,750 is taxed at 10%. (1,975)
The next increment is taxed at 12% (Up to 80,250 for 2020) 25,200-19751= 5449 (654)

Approximate Taxes 1975+654 = 2,629 (when you file, you have to use tax tables--for which the numbers come out slightly different)

https://taxfoundation.org/2020-tax-brackets/

Do your kids qualify you for the child tax credit? If, so there is the child tax credit.
https://www.nerdwallet.com/article/t...are-tax-credit

https://www.irs.gov/newsroom/get-rea...ut-tax-credits

In a scenario with 2kids under 17, you could actually be receiving a refund of more than what you paid in--IRS web site says,
"Taxpayers can claim the Child Tax Credit if they have a qualifying child under the age of 17 and meet other qualifications. The maximum amount per qualifying child is $2,000. Up to $1,400 of that amount can be refundable for each qualifying child. So, like the EITC, the Child Tax Credit can give a taxpayer a refund even if they owe no tax."

Also, do you qualify for the EITC?

https://www.irs.gov/pub/irs-pdf/p5334.pdf

Link to saver's credit
https://www.irs.gov/retirement-plans...-savers-credit

This following link for the IRS withholding calculator is really pretty good: You put in all your details and it will explain all the results.

https://apps.irs.gov/app/tax-withholding-estimator

The Roth 401k option might be a better option. But, if the fees for the 401k plan are high, and there is no match and you would be contributing less than 12k (6 k per person), then the Roth IRA might be a better option.

[~bs]

life is strange in that you never really know what the future will hold. in general, saving more is better than less, whether taxable or non-taxable. Saving some taxable and some after tax offers you the most flexibility.

If you could have afforded it, it would have been better to invest whether taxable or non-taxable during covid. You would have saw a very large return on investment since march.