Personal Investments • Portfolio Review Request for Young Adult and Recent Graduate Starting First Job

Tax Rate:

[*] Federal: 12% (after deductions, I think), 22% before deductions.

[*] State: 4.75%

A lot of people, especially newbies, don't calculate their 'marginal tax bracket' correctly. That tells you how much more in federal taxes you would pay if you had an additional $100 in taxed income that year. (Example: If you added another $100 to your wages and your federal tax went up $22, then you are in the 22% tax bracket.) I'm reviewing this not only for Swallowtail, who already seems to know how to calculate it (by possibly using software), but for other newbies too.

Let's assume for a minute that your only income that was subject to federal taxation was your wages of $60,000. Using the tables on this page and assuming you are Single, then you can subtract the Standard Deduction of $14,600 to give you a "Taxable Income" of $45,400. That number on your tax return for 2024 will put you in the 12% Marginal Tax Bracket with room for only $1,750 more in that tax bracket.

OP, Now consider if you have any Qualified Dividends or Long Term Capital Gains for that year. They are taxed more favorably than regular income. In this case, they are taxed at 0% until the OP's Taxable Income in total reaches the top of the 12% bracket.

...I set a savings goal of $50,000 USD, which will allow me to maximize every tax-advantaged investment vehicle that is available to me.

I agree with a poster above, that at your age, you should only contribute to Roth or Taxable accounts. As you start working a full time job, you are likely in the lowest tax bracket you will ever be in. As you gain more work experience, your salary will tend to increase more than inflation. So take advantage of your low tax brackets now by paying taxes now, then putting as much as you can in Roths. When you are at the peak of your career and you have a higher salary, that is the time to contribute to tax deferred (so you can lower your taxes then).

I love this graphic. Can you point us to the tools that helped you make it?

I see two problems with it though. First, the federal income tax is not shown. Secondly, I would change the label of "Taxable Income" to "Taxed Income" per my first subject discussed.

I decided to place the entirety of my debt allocation into I-Bonds, since they are low-risk, inflation-protected, tax-deferring, and liquid after one year. Should I hold them until maturity, I plan to redeem them into my 529 account, which hopefully would be used to fund my children's education (should I have any!)

A better plan is to just hold them until maturity. If you have kids in 10 or 12 years, when they turn 18 and start college, some of the bonds would be maturing and you won't owe taxes if that interest is used for college expenses.

Finally, although my Maryland 529 account offers tax a state tax deduction for up to a $2,500 USD contribution, all of the underlying fund has really weird, and have high expenses. So I placed a portion of my U.S. stock allocation in it as it's their lowest expense-ratio offering, just to receive the tax deduction. I plan to "sweep" the remaining equities portion into a California 529, which has the lowest expense ratio of all 529 plans.

Contributions to 529 plans in CA aren't recognized for Californians. So be sure you aren't subject to their income tax.

Statistics: Posted by celia — Thu Feb 29, 2024 2:10 am — Replies 7 — Views 641

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