Ask the grumpies: How do you reduce your taxable income if you’re high income?

Michelle asks:

What if you make more than 186K jointly and want an option for reducing your taxable income? Can you still invest in an IRA?

Standard disclaimer:  We are not professionals.  Consult a professional with fiduciary responsibility and/or do your own research before making important monetary decisions.

In 2017, if you make more than $133,000 you can purchase a traditional IRA but doing so will provide no tax benefit (more than 118K, and you only get a partial tax benefit).  You can roll that traditional IRA over into a Roth IRA, but Roth IRAs do not reduce your taxable income this year.  Roth IRAs decrease your taxes on earnings in the future when you start living off those retirement assets.  (That 186K number is the beginning limit for the Roth IRA.)

What can you do to reduce your taxable income?

  1.  Contribute the maximum to a traditional 401(k)/403(b)/457 through your work if that’s available– if you have Roth versions that these won’t decrease your AGI (taxable income) this year, just at some point in the future.  If you have both a 403(b) and a 457, you are allowed to contribute to the max for each (but you can only contribute a total of 18K to all your 401(k) options, although if your company offers a mega backdoor roth option, that’s a way to shelter future income by putting away up to 36K this year)
  2. Contribute to an HSA (health savings account) through your work if that’s available.
  3. Pay a lot of interest on a mortgage (not the best idea for your finances overall, but it may decrease your AGI depending on where it hits compared to the standard deduction).
  4. Sell stocks or other investments at a loss.  If the loss is big enough you may be able to carry those losses over to future years.  Again, it’s nicer to get profits than to get losses, but there’s a little benefit in terms of decreasing your AGI.
  5. Donate a bunch to charity, or start a donor-advised fund to donate a bunch of charity in the future and to get the tax break now (you won’t get the tax break later when you actually give the money away though).  Again, be aware of standard deductions and alternative minimum taxes.
  6. Something I don’t understand called a “bond fund swap” which sounds a bit sketchy, but a lot of tax dodging saving stuff is sketchy.
  7. Have a baby or adopt a kid (again, not an overall money saving strategy, but it will help your AGI).
  8. Pay a lot in state taxes possibly by moving to a place (for work!) that has higher taxes.  (See above about not overall money-saving.)
  9. Those moving expenses that aren’t reimbursed may also be tax deductible.
  10. Have a bunch of job-related expenses.
  11. Plan when you pay your home-owners taxes so that they make the most tax sense, which may mean doubling your payment one year and not paying it the next (this will depend on your other deductions and the standard deduction).
  12. Keep all your receipts for itemized deductions, even little things like $5 donations.
  13. Marry someone who makes a lot less than you do.  (Or divorce someone who makes close to what you make.)
  14. Pay alimony.
  15. Put off taking retirement income until you have to.
  16. If you have high medical expenses (>10% of your AGI), bundle them as much as you can into one year.
  17. If you have self-employment income, look into the SEP and Solo 401(k).  Also make sure you’ve accounted for all business expenses and maybe make some business expenses.  You may also be able to do some dodgy things about paying your kids as employees.
  18. If you have a rental property, make sure you document your costs.
  19. You can deduct some money for qualifying education expenses.

Grumpy Nation, what other suggestions do you have to lower Adjusted Gross Income?

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Ask the grumpies: What music do you enjoy?

Leah asks:

what music do you enjoy listening to? Do you like going to concerts?

#1: I sometimes like going to concerts, although I often find them more trouble than they’re worth. I have many and varied musical tastes.  Bagpipes are the best.  [Really, she loves bagpipe music.]

#2: I like pretty much all music EXCEPT techno and most country (though I’ve gotten better about hating country living in the South for more than a decade). I still really hate techno. Anything that is super repetitious without variation drives me crazy after a while. I just can’t handle it.

I do not like going to concerts where the audience spends a lot of time standing. That really gets up my fear of crowds. I find most orchestra concerts dull because music without word seems like background music to me. I like operatic concerts and enjoyed the Boston pops when they had a guest I liked.

#1: here’s an incomplete list of music I really like listening to:

  • ’90s hip-hop
  • Missy Elliott
  • Salt-n-Pepa
  • Jackson 5
  • Katy Perry
  • Beyonce
  • Rihanna
  • dubstep
  • One Republic
  • Hamilton mixtape
  • musicals (incomplete list:  A Little Night Music, the Music Man, Guys & Dolls, Tick Tick BOOM, The Secret Garden, City of Angels, Into the Woods)
  • Gilbert & Sullivan
  • Bagpipes
  • Hildegard von Bingen
  • Waverly Consort
  • Owl City
  • Lady Gaga
  • Michelle Branch
  • U2
  • Dr Dre
  • MC Frontalot
  • [Jonathan Couton, Paul & Storm, John Roderick and the Long Winters]
  • Blackstreet
  • Lindsey Stirling
  • Taylor Swift
  • Adele
  • Madonna
  • Nikki Minaj
  • No Doubt
  • Peter Gabriel
  • Handel
  • J. S. Bach
  • some of Mozart
  • anything sung by Bernadette Peters
  • Sondheim
  • Kanye West (don’t love him but he’s a very talented musician)
  • Metallica
  • almost all ’80s music
  • power ballads; hair bands
  • AC/DC
  • a capella music
  • Pentatonix
  • Straight No Chaser
  • Nine Inch Nails
  • Apocalyptica
  • Def Leppard
  • Kelly Clarkson
  • Angels & Airwaves
  • En Vogue
  • O.A.R
  • Barenaked Ladies
  • TMBG
  • madrigals
  • Renaissance music from all over the world
  • Naughty by Nature
  • The Corrs
  • The Scorpions
  • Flogging Molly
  • the Moana soundtrack
  • Tears for Fears

Ask the grumpies: Favorite constellation?

Leah asks:

What is your favorite constellation?

#1:  Orion because it’s the only one I can find consistently!

#2:  Doesn’t have one.  No wait, I agree with #1.  Orion is also the only one I can find consistently.

Ask the grumpies: How to deal with a needy friend

Taylor asks:

I have a long-time friend/acquaintance with a lot of social anxiety. Sometimes it comes out in small ways like saying of herself “I’m so stupid”, constantly seeking affirmation, projecting her desires onto me because she is feeling insecure about them. Sometimes it comes out in big ways like breaking down randomly in the middle of a conversation because she’s feeling socially isolated.

I am fine comforting her once and a while, but I don’t want to be her counselor. And sometimes I just don’t have the spoons to decode what she is saying vs. meaning, even in casual conversation. Is there a tactful way to signal I don’t want to be a pillar of emotional support? Or that I need a break without further exasperating her anxiety?

Captain Awkward says you can restate your boundaries.  Or you can try somewhat ghosting.  The somewhat ghosting may exasperate her anxiety, but as Captain Awkward would probably note, that’s kind of on her.  If you look up “African Violet” in the CA archives you’ll get all her ending friendship posts.  Not that you want to end the friendship, you just want it to be less needy.

With me, I’ve been in that situation I think three times… and the first two times the needy friend ended up breaking it off with me after they’d fixed themselves up a bit and I guess no longer needed me (the third time we had moved away and I kind of ghosted on email because I had had a baby and just couldn’t anymore).  Nowadays I see the red flags and avoid without getting involved instead of trying to help, because, as you say, I don’t have the spoons.  And I’m not sure I ever was much help, but who knows.  It’s amazing how nice it is not to have people around who are always emotionally draining.  (Note:  it’s different with people who are there for me too– there’s a big difference between people who are always taking and those who are actual friends.)

So I dunno, I mean, I would recommend counseling to her because her problems are more than you can handle and then back off.  (Note, friend #2 broke it off with me because her counselor told her to.  I was, apparently, causing her too much stress.  And after I got over the initial sadness of losing a friend I’d cared about… I realized I no longer had all that stress she was causing me.)

If it’s just stuff like “I’m so stupid”, we recommend the negativity jar.  But it sounds like there’s a lot more going on that simple tricks like that aren’t going to be able to fix.

Disclaimer:  We are NOT counselors of any kind, and even if we were, we would not feel comfortable giving armchair advice.  Talk to professionals and introspect before making important emotional decisions.

Ok, grumpy nation, who has better advice for Taylor?

Ask the grumpies: Saving concurrently vs. consecutively for big financial goals

Sandy L asks

Opinion. Pros and cons of saving concurrently vs consecutively for big financial goals.

Wow, this is a really intriguing question that I hadn’t really thought about before.  We talk a lot about this in terms of debt repayment– should you pay off debts concurrently vs. consecutively, and if consecutively, in what order, but I’m not sure I’ve seen this one addressed on the PF blogosphere in terms of savings.  I guess Dave Ramsey is like, get your emergency fund in order first, but after that… huh.

Because money is fungible, maybe in the grand scheme of things it doesn’t really matter.  If you’ve been saving up for a vacation and your car gets totaled, you can take money from the vacation fund (and the emergency fund) and put it towards the car.

Some money isn’t fungible though.  Should you save for retirement first and then 529s for the kids, or should you do both at the same time?  What about vacations?  What about houses?

I think really you have to do a bit of both, or if not both, then break up your savings goals into pieces and save them consecutively that way.  What I mean by this is, for example:

  1. Get some form of transportation to work and some form of housing.
  2. Save up an emergency fund of $X.
  3. Put enough in your retirement that you get the match.
  4. Save in an HSA
  5. Put some money in for a down payment (YMMV depending on your housing situation, income, etc.)
  6. Put more money in your retirement fund to what you “should” be saving given your years to retirement and income
  7. Save for a bigger emergency fund
  8. Max out retirement
  9. Finish saving for a down payment (YMMV) and buy a house
  10. Vacation fund (most people will put this earlier– I think of it as more of a luxury than 1-8, but some people are willing to make trade-offs)
  11. Start saving in a 529 for the kids
  12. Save for a new car
  13. Prepay the mortgage

and so on… [As always, YMMV and you should do your own research and/or talk with a professional prior to making major decisions]

Some of these will be maxed out each year (ex. retirement), but some are much more lumpy (ex. new car).  So you probably can’t do a lifetime of retirement savings before saving for other things unless you are extremely high income and low spending, but you may be able to max out your tax-advantaged funds each year.

Some people get really motivated for saving for vacations or cars or houses.  It’s possible that saving for these might work better in a savings snowball, one at a time.  On the other hand, cars and housing are generally more necessary than vacations, but vacations cost less than cars and houses and you might have to wait 10 or more years before going on a vacation if you put off saving until you have a downpayment.  If you save for the vacation first, you might end up going on too many vacations or you might take vacations too soon.  (Still, money is fungible and there’s nothing really preventing you from taking vacation money out of the house fund…)

Some saving needs to be automated because it just isn’t easy to save for otherwise.  It’s easy to do automated saving concurrently because it all happens without you paying attention.  In addition, changing up the automation requires attention, which means that you might not get around to saving for the next item on your list if you try to do automated saving consecutively.

[Update:  See some discussion in the  comments about diversifying risk vs. return for saving/investing goals.]

What do you think, Grumpy Nation?  What are the pros and cons of saving consecutively vs. concurrently?  What do you do?

Ask the grumpies: Baths vs. showers?

Leah asks:

what are your opinions on baths versus showers?

#1:  I love both, but one thing I do not understand is how OCD germaphobe John Green can wax so poetically about baths and so stridently against showers.  Does he not realize that you are wallowing in germs when you take a bath?  Plus if the bath hasn’t just been cleaned and you’re not careful about drains and things, some of those germs might belong to other people.  These concerns don’t generally bother me (well, I don’t do hotel Jacuzzis), but I totally would have guessed the opposite for John Green’s preferences.  Er hem, back to the original question.  I love a good soaking bath, but I usually take showers because they’re faster, our bathtub is so big I feel guilty using it except when I really need a hot soak, and because I’m allergic to the water in our town and we’ve got a shower filter set up but not a bath filter (we could and should probably get a whole house filter now, but previously we couldn’t afford it– the shower and kitchen sink filters combined are an order of magnitude cheaper).

#2:  I like baths but they must be in a separate tub that nobody showers in.

Ask the grumpies: What did you miss while at boarding school?

Leah asks:

What did you miss while at boarding school?

#1:  Decent food.  Our food was LITERALLY prison-grade.  Literally.  After they got rid of Total cereal, I ended up on a binge and starve diet (eating mainly on the weekends at home) that I am sure was not good for my long-term health.  I was probably the only college freshman who didn’t complain about the cafeteria food at college because it was so much better.

#2:  The food was @#$@#%, I guess.  I missed having a room to myself.  OTOH, I got a semi-private bath out of the deal, which kind of makes up for it.

#1:  Oh, yes, I also missed having my own room and being able to decide for myself that I wanted to go to bed at 9:30pm (so as to wake up for my 7am class) and not have to wait for a roommate who stayed up until midnight to stop making noise.  Ugh.  I wrote about my need for sleep as why I needed a single pretty extensively in my college acceptance materials.  I must have convinced them.