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Hubby were homeowners for 20 years and we got tired of all the stress and worries of maintaining a house. So we sold the house and now we are renters. We have a lot more disposable income now because the expenses to rent (including utilities and renters' insurance) is much less than what we were paying when we owned our house.
We have 2 immediate financial goals: to pay off debt and to save for retirement. The problem is, I am not sure which we should pursue first. My first inclination is to pay off debt, but I am worried that now that we no longer have the property tax deduction to claim on our income taxes, we may be pushed into a higher tax bracket. So that makes me wonder if we should sock away whatever necessary into retirement to keep us out of a higher tax bracket.
Should we meet with a financial planner to sort all this out? If so, what type of financial professional should we seek out to help us figure out how to maximize our money which keeping our income taxes at bay?
How would paying off debt push you into a higher tax bracket?
You haven't posted nearly enough about your financial situation for anyone to make any kind of answer. Age, amount of debt, income, living expenses, etc., etc. all need to be taken into consideration.
I really think a financial planner would be a good idea. The best way to find one that suits your needs is to poll frineds and family members who seem to have their financial lives in order. Some will say you need to find a CFP or an AIF or a CFM or whatever designation they like (there are dozens that mean pretty much the same thing, just offered by different organizations. It's best to find someone you feel comfortable with who's done a good job for someone you trust.
Hubby were homeowners for 20 years and we got tired of all the stress and worries of maintaining a house. So we sold the house and now we are renters. We have a lot more disposable income now because the expenses to rent (including utilities and renters' insurance) is much less than what we were paying when we owned our house.
We have 2 immediate financial goals: to pay off debt and to save for retirement. The problem is, I am not sure which we should pursue first. My first inclination is to pay off debt, but I am worried that now that we no longer have the property tax deduction to claim on our income taxes, we may be pushed into a higher tax bracket. So that makes me wonder if we should sock away whatever necessary into retirement to keep us out of a higher tax bracket.
Should we meet with a financial planner to sort all this out? If so, what type of financial professional should we seek out to help us figure out how to maximize our money which keeping our income taxes at bay?
Hubby were homeowners for 20 years and we got tired of all the stress and worries of maintaining a house. So we sold the house and now we are renters. We have a lot more disposable income now because the expenses to rent (including utilities and renters' insurance) is much less than what we were paying when we owned our house.
We have 2 immediate financial goals: to pay off debt and to save for retirement. The problem is, I am not sure which we should pursue first. My first inclination is to pay off debt, but I am worried that now that we no longer have the property tax deduction to claim on our income taxes, we may be pushed into a higher tax bracket. So that makes me wonder if we should sock away whatever necessary into retirement to keep us out of a higher tax bracket.
Should we meet with a financial planner to sort all this out? If so, what type of financial professional should we seek out to help us figure out how to maximize our money which keeping our income taxes at bay?
Any advice would be appreciated.
THANKS!
How much were your property taxes, mortgage interest, state income taxes, charitable deductions, and any other itemized deductions, in total? Look at the bottom of your Schedule A.
The standard deduction for MFJ for 2014 is $12,400. The difference between the total of your Schedule A and $12,400 is the additional income which will be taxed.
Unless you had a high end home, I think you will find the difference is not much.
I really don't want to post all my detailed personal information here but I would like to know what is the best kind of professional to guide us in this situation. What type of education or certification(s) should they have?
I don't think paying off debt will push us into a higher tax bracket. I think that being a renter, as opposed to a home owner where we received tax deductions for owning a home will push us into a higher tax bracket. Therefore I am wondering if we may want to sock a lot of our current increased disposable income into retirement fund(s) as opposed to paying off debt so that we can get our taxable income rate down.
I really don't want to post all my detailed personal information here but I would like to know what is the best kind of professional to guide us in this situation. What type of education or certification(s) should they have?
I don't think paying off debt will push us into a higher tax bracket. I think that being a renter, as opposed to a home owner where we received tax deductions for owning a home will push us into a higher tax bracket. Therefore I am wondering if we may want to sock a lot of our current increased disposable income into retirement fund(s) as opposed to paying off debt so that we can get our taxable income rate down.
Hope that makes sense. Thanks for the input!
If you are covered by 401k plans you could each put 17.5k aside for a total of 35k that would be possibly removed from your taxable income. The mortgage interest deduction/tax expense isn't all that great, you already said your expenses were lower without the house
I really don't want to post all my detailed personal information here but I would like to know what is the best kind of professional to guide us in this situation. What type of education or certification(s) should they have?
I don't think paying off debt will push us into a higher tax bracket. I think that being a renter, as opposed to a home owner where we received tax deductions for owning a home will push us into a higher tax bracket. Therefore I am wondering if we may want to sock a lot of our current increased disposable income into retirement fund(s) as opposed to paying off debt so that we can get our taxable income rate down.
Hope that makes sense. Thanks for the input!
You need a CFP (Certified Financial Planner) in that case.
You need a CFP (Certified Financial Planner) in that case.
Or, a qualified advisor who doesn't happen to be a CFP.
Helping you decide how to balance your debt repayment vs. saving for retirement is one of the most elementary things a planner could do. It doesn't require any certification whatsoever. There are plenty of uncertified advisors who have the same education and expertise as those with a half-dozen designations behind their names, they simply choose to spend their time working for their customers rather than pursuing paper to hang on the wall.
Don't get me wrong, there's nothing wrong with the CFP, it represents a lot of knowledge and hard work. It's just not the be-all, end-all that some make it out to be. And by limiting yourself to advisors with that particular designation you run the risk of not meeting the one that's the best fit for you.
As I said before, talk to people you know - preferably those your age or a bit older - who seem to have their financial lives in order and find out who they use. Once you have a couple of names schedule some consultations (enough of them will do this for free that you shouldn't have to deal with one that doesn't) to determine which one seems to have the best grasp on what you want to do.
I really don't want to post all my detailed personal information here but I would like to know what is the best kind of professional to guide us in this situation. What type of education or certification(s) should they have?
I don't think paying off debt will push us into a higher tax bracket. I think that being a renter, as opposed to a home owner where we received tax deductions for owning a home will push us into a higher tax bracket. Therefore I am wondering if we may want to sock a lot of our current increased disposable income into retirement fund(s) as opposed to paying off debt so that we can get our taxable income rate down.
Hope that makes sense. Thanks for the input!
I don’t mean to sound mean but you can install a couple of apps and answer all the elementary questions you may have regarding your finances (turbo tax: tax caster will answer all you need to know about how adding to retirement accounts will lower your taxable income)
Quick examples to determine how much more taxes you will pay with no information provided:
If you paid $1000 per month in interest on your home and $3,000 per year in property taxes this is $15,000 that you were able to use as deductions for your taxes. Assuming you had an additional $5,000 in misc. deductions (donations, etc...) that would bring your schedule A deductions to $20,000. The standard deduction for MFJ is $12,400. This means that you would pay tax on an additional $6600 than you did last year when you owned your home and had those deductions. Assuming this income falls into the 28% bracket you would pay an additional $1800 in taxes. To not pay this additional $1800 in taxes you would have to put $6600 into your 401(k) plan or a Traditional IRA. You can use this simple math with your own financial numbers to determine how much you will need to sock away to not pay any additional tax than you did when you owned your home
As far as paying down debt or saving for retirement there is the logical way of doing it and what makes you feel better. If the interest rate on your debt is bigger than you can expect to make investing it, then it would make sense to payoff debt. This is true in most cases. For some people it is morally rewarding to save money while paying off debt. This is completely up to you. In most cases it's much wiser to pay off your debt though.
Any other follow up questions. Ask away
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