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2021 Planning

December 20th, 2020 at 04:04 pm

I got my 2021 raise and so am able to start planning out next year.  

I am completely ignoring college, for now.  That is the giant question mark that will take some re-figuring mid year.

For now...  

I presume that MH will have no income.

I think it's possible his job will come back next fall, but wouldn't hold my breath that his company survives all of this. 

His unemployment expired this month.  He's not looking for a job, so I just presume no more unemployment income.  

Before I even knew what my income would be for 2021, the obvious was that I will have to choose between longer-term savings and funding IRAs.  I think the reality will fall somewhere in the middle.  I can probably fund one IRA and keep adding to our longer-term savings.  We do have $36,000 set aside in taxable investments, so that would give us 6 years ($6,000 x 6) to fund the second IRA.  & obviously the max will go up at some point, but we are also continuing to add to investments.  I feel confident we can cover the next 6 years. 

In the end, the college years are going to be very deja vu (financially) to the daycare years.  We were already kind of, "Meh, not sure it's worth MH looking for a job" and I feel this 1,000 times more as I run through the math.

What I was thinking was with a small cost of living raise and re-figuring one-income taxes, I might be able to squeeze $1,000/month savings out of my paycheck.  Currently I am saving $550/month for more longer-term and bigger purchases.  (MH was funding IRAs).  

In the end, when I took out everything but my salary, our income taxes were -$0-.  I did have a small cost of living raise, and so the $1,000/month savings is realistic.

In the end, while we've paid very little taxes since having kids, I was a little thrown off by my initial -$0- single income tax projection.  Not sure it's been quite that low since our kids were infants.   I eventually figured it out.  I had left my Traditional IRA contributions in my tax planning, which is something we never did in our early one-income years.  We always did ROTH IRA contributions instead (while paying very little in taxes).

Because $20K-ish of income is the difference between a 0% tax rate and a 50% tax rate...  I held my breath as I pulled out that $12K deduction, not knowing what to expect...  But...  Phew!  If we do ROTH contributions in 2021, our marginal tax rate was 15%.  I can live with that, and it would be a no-brainer to fund ROTH IRAs if it's just my salary next year.  

That will bring my savings down to $800/month, if I plan to withhold enough taxes to cover ROTH IRA contributions.

{I will also funnel 9% into my 401K plan}.

& so that is the plan.  I never make the final IRA decisions until the year is over.  We have the cash to fund 2020.  For next year, I will set aside the $800/month and will decide what to do with it the end of the year.  If we can fund IRAs with that, great, but I expect other things will come up.  Even at $12,000 per year (max), that buys us 3 years to shift taxable investments over to IRAs.  The IRAs will get funded, just not from my salary.

I think I will just keep throwing an extra $100/month at the mortgage, but that is going to be the first thing to go if we need the money for college.

We are also throwing around $150/month (snowflakes) to investments (can also redirect to college if need be).  

2021 goals will be roughly same as 2020 goals, but will increase cash savings goal (with extra tax savings) and change IRA funding to being funded from "other sources" than MH's wages.


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