Just a 48-year-old mom of 2 in Northern California. My kids are Monkey Monkey(MM) and Drama Llama (DL). I am married to Monkey Hubby (MH). This is what I started to write re: 2026 Financial Goals.
I am trying to minimize IRA contributions. But I think we will need to contribute $5K to IRAs, in order to avoid the next tax bracket (22%). Which feels pretty steep after paying ~$0 taxes for two decades. & also factoring how complicated taxes are and how this means an effective tax rate of 35%+.
I ended up preparing our 2025 tax return this week (state software isn't ready but I have good IRS numbers). And... Our income level means we lose the ability to deduct Traditional IRA contributions. What!? So anyway, this is pointless and I have to plan ahead re: larger 401K contributions instead (if I want to reduce MAGI, or if I want to lower our taxable income.)
It gets even more weird. I just reduced income by $10K (in tax software) to get a sense of what our effective tax rate is (trying to figure out if I should up 401K contributions to manage taxes) and our effective tax rate (on just this $10K) is only 22% for Federal. 😮 I was envisioning more like 40%, given how wonky our effective tax rate was for every extra dollar of income, when we had more tax breaks. That's crazy! I've never just paid a flat tax rate without losing all sorts of other deductions because we had more income.
It's good because it no longer sounds horrifying to skip Traditional IRAs.
A - I can't deduct those contributions anyway.
B - A 22% tax hit is pretty small (compared to years past). If we are used to 25%+ tax hits when we were in the 10% or 12% tax bracket. & now 22% just means 22%.
After all that, I don't have any reason to contribute any money to IRAs. It was a windy road to get here (as I noticed more and more tax consequences of higher income), but I feel a lot more confident about dialing down retirement contributions.
The other piece of this equation is that we are no longer subject to 0% long term capital gains tax. Which is some of why lowering our income (with retirement contributions) used to lower our tax rate so dramatically.
There will have to be more thought and planning re: tax efficiency in the future. For example, I never gave a flip about tax efficient mutual funds, when our investment tax rate was 0%. It's a topic I might have a wee bit more interest in now.
Edited to add: I got state tax software/update so was able to run through state numbers. Definitely feeling the middle class squeeze here. The tax rate moves pretty quickly from 4% to 9.30%. Our marginal tax rate will be 8% for state, this year. Bringing our total marginal tax rate to 30% (22% + 8%). It will be a very simple tax calculation when it comes to my bonus this year. (30% is kind of *shrugs* because that's the true marginal rate we were used to already. It's been ~30% for a long time. Just was a lot more complicated re: losing other tax breaks when we had extra dollars.) Which is why I used my tax software for rough estimates (after losing professional work tax software). Our taxes in 2026 can easily be done with some rough napkin math, in contrast. There's not 5 different tax deductions/credits/rates/phase-outs interacting with each other.
January 7th, 2026 at 07:05 am 1767769554
January 7th, 2026 at 02:37 pm 1767796647
January 9th, 2026 at 06:29 am 1767940176