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Archive for February, 2015

Tax and Savings Planning

February 16th, 2015 at 01:14 am

I've drafted my tax return. I would have completed it, but I'm having problems installing the state module, so I need to wait for tech support to get back to me.

My income will be changing a lot between 2014 and 2015, so I wanted to figure out how to get the most benefit by saving, while also continuing to whack away furiously at my accumulated non-mortgage debt.

This will be the last year that I can get a deduction for putting money into a traditional IRA (for singles, the ability to deduct money put into a traditional IRA phases out between 60K & 70K this year). So I played around with my tax software to figure out the optimal amount to contribute--the amount where my total refund will be just about equal to the contribution. I figured that out back in January and have been putting aside money from each paycheck to make the contribution (which has meant paying less on my credit card debt). As soon as I've got my software glitch figured out, I'll make the IRA deposit, file my return, and then use the refund to pay more off on credit cards. If all goes according to plan, I'll have managed to lower my nonmortgage debt by about 10K by sometime in March by a combination of using my required minimum distribution from my inherited IRA and the refund, plus some regular payments.

After this, I'll continue to pay off the debt at about $1000 a month. A lot of this debt is on credit card balance transfers (12 to 18 month) at 0%; but two of those expire in June, by which time I figure my total non-mortgage debt will be about 18K. At that point, I'll need to determine whether I'm going to look for another balance transfer or possibly find a low-interest loan. I'm thinking about taking out a 36 month loan (of course, depends on the interest rate). If there's no penalty for early pay-off, I can then think about whether I want to keep paying at a thousand a month, or whether I want to halve that and start saving $500 a month to build my emergency fund back up.

In any case, getting the debt down by 10K after I get the refund will feel really good. I had no non-mortgage debt back in 2008 and 2009, and I'd like to get back to that place as soon as is feasibly possible, while also working on my other goals (paying for the certification program I am in, rebuilding emergency savings, having a little money to do things like hire a personal trainer for a couple of months and go on vacation for a week, now that I once again earn enough that those are reasonable things to consider).

Balance. It's all about balancing goals over time.