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Author: bghouse Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Marriage Penalties? Date: 10/7/2000 8:44 PM
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Mary and I are engaged to be married next summer. With all the political talk about the marriage penalty, we decided to look into it, and we're confused!

We both work. My annual income is approx $90K, and Mary's is approx $70K. What are we looking at in terms of taxes?

We both have IRAs - Mine is a traditional, Mary's is a Roth. Can we both contribute $2000 ea? Or will we be limited with a combined $2500? If the latter, what would happen to existing accounts?

At a combined income of $160K, will we be subject to AMT?

What strategies should we be looking at to minimize the punishment the government seems intent on imposing upon us because we want to marry?

Thanks,
Bill & Mary
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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40675 of 121061
Subject: Re: Marriage Penalties? Date: 10/7/2000 10:44 PM
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Mary and I are engaged to be married next summer. With all the political talk about the marriage penalty, we decided to look into it, and we're confused!

We both work. My annual income is approx $90K, and Mary's is approx $70K. What are we looking at in terms of taxes?


My best suggestion is to get a copy of Form 1040-ES from the IRS website and work the numbers. There's not enough information in your post to tell you the tax effect of marriage, but the worksheet for the 1040-ES will tell you.

We both have IRAs - Mine is a traditional, Mary's is a Roth. Can we both contribute $2000 ea? Or will we be limited with a combined $2500? If the latter, what would happen to existing accounts?

Once you're married and filing a joint return, each of you can contribute $2,000 to an IRA as long as between you there's $4,000 in taxable compensation. Details are in IRS Publication 590.

At a combined income of $160K, will we be subject to AMT?

That depends on whether you have preference items. AMT doesn't kick in just because of your income.

What strategies should we be looking at to minimize the punishment the government seems intent on imposing upon us because we want to marry?

Make babies. That's where the real tax savings are nowadays. To lessen your punishment, don't pay any attention to the yammering politicians until Congress produces a bill that the President will sign.

TMF ExRO
Phil Marti

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Author: msmoola1 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40693 of 121061
Subject: Re: Marriage Penalties? Date: 10/8/2000 7:10 PM
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Phil - I'd like to follow up with a few more questions on this subject:

1) As to the IRA question - as I understand the law, if either Bill or Mary are already contributing to a 401K through their jobs - the only IRA they can sign up for is a Roth - further it appears that their combined income may put them over the top for a Roth (??)

2)I learned something new here. I've never heard of preference items. I thought AMT kicked in automatically at a certain income level. Can you pls provide examples of what these preference items are?

3) While I appreciate the need for procreation of the species - my husband and I have found that having a child basically only provides an additional exemption (not that there's anything wrong that....:) ) Because our combined household income is on par with that of Bill and Mary - we find that our childcare credit is somewhat limited - further I may be mistaken- but I think we may also be precluded from opening an educational IRA for our child. Please point me to the real tax savings you are referring to.

Thanks Phil for your ever present assistance with these pressing matters.

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40698 of 121061
Subject: Re: Marriage Penalties? Date: 10/8/2000 11:09 PM
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1) As to the IRA question - as I understand the law, if either Bill or Mary are already contributing to a 401K through their jobs - the only IRA they can sign up for is a Roth - further it appears that their combined income may put them over the top for a Roth (??)

Not true. Coverage by a retirement plan affects only the deductibility of traditional IRA contributions. Anyone under 70 1/2 with $2,000 taxable compensation can contribute $2,000 to some sort of IRA, even if it's just a nondeductible contribution to a traditional IRA.

2)I learned something new here. I've never heard of preference items. I thought AMT kicked in automatically at a certain income level. Can you pls provide examples of what these preference items are?

At a high income level standard tax rates are going to way exceed AMT rates. Preference items include some itemized deductions, capital gains, and ISO's, among other things. You'll find basic information about AMT in the instructions to Form 6251. I think there's also an article in the FAQ, but I'm not sure about that.

3) While I appreciate the need for procreation of the species - my husband and I have found that having a child basically only provides an additional exemption (not that there's anything wrong that....:) ) Because our combined household income is on par with that of Bill and Mary - we find that our childcare credit is somewhat limited - further I may be mistaken- but I think we may also be precluded from opening an educational IRA for our child. Please point me to the real tax savings you are referring to.

At a high income level you do lose most of the tax benefits of children, but my mother tells me they bring you joy in your declining years.

One note about Education IRAs. There's a loophole the size of a small Central American country in the law. Anyone who meets the AGI limits can contribute to an Ed IRA, even if the contributor has no income. You can always give the little nipper $500 and have him make the contribution, even if he's not moved to strained vegetables yet.

TMF ExRO
Phil Marti

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Author: msmoola1 Three stars, 500 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40703 of 121061
Subject: Re: Marriage Penalties? Date: 10/9/2000 7:28 AM
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Thanks Phil for the additional info.

Forgive me if I'm quibbling over #1 -but even if you can contribute to a traditional IRA regardless of your income, but can't take the deduction because of your income or because you're already contributing to a 401K - wouldn't it make more sense to open a Roth?

curious about this.

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Author: TMFExRO Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 40707 of 121061
Subject: Re: Marriage Penalties? Date: 10/9/2000 9:06 AM
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Forgive me if I'm quibbling over #1 -but even if you can contribute to a traditional IRA regardless of your income, but can't take the deduction because of your income or because you're already contributing to a 401K - wouldn't it make more sense to open a Roth?

Yes, it does, but your post indicated that your AGI is too high for a Roth contribution. If one cannot make a deductible traditional IRA contribution but can make a Roth contribution, the Roth is a no-brainer over a nondeductible traditional.

TMF ExRO
Phil Marti

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