Personal Financial Planning

Formula for taxable income =

Gross income - above the line deductions - standard itemized deductions

Income tax bracket 10% tax

Single: 0-12,400 & MFJ: 0 - 24800

Income tax bracket 12% tax

Single:12,400-50400 & MFJ: 24800-100,800

Income tax bracket 22% tax

Single:50,400- 105,700 & MFJ: 100,800-211,400

Income tax bracket 24% tax

Single:105,700-201,775 & MFJ: 211,400-403,550

Income tax bracket 32% tax

Single: 201,775-256,225 & MFJ: 403,550-512,450

Income tax bracket 35% tax

Single: 256,225-640,600 & MFJ: 512,450-768,700

Federal tax formula

Income less exclusions = gross income less deductions for AGI = adjusted gross income less standard deduction OR itemized deduction = Taxable income

What is the SALT Cap?

$40,000 which phases down starting at 500k down to 10k at 600k

Trump Child savings account

Tax deferred savings accounts for children under 18 - can put in up to 5k/yr. Government contributes 1k for babies born between 2025-2028. Taxed at withdrawal

Tip and overtime deductions

Deduction on tip income up to 25k and overtime pay up to 12.5k single / 25k MFJ

Senior deduction

Taxpayers 65+ may deduct an extra 6k for 2025-2028 phases out above 75k single/150k MFJ

Auto Loan interest deduction

Deduct interest on new personal vehicle loans up to 10k/yr phases out 100k single/200k MFJ

What is included in gross income?

Wages, salaries, tips, self employment income, business income, interest/dividends, capital gains, rental income, alimony, unemployment compensation, gambling winnigns, social security, retirment distributions, forgiven debt

What is excluded from gross income

Gifts and inheritances, life insurance death proceeds, muni bond interest, child support payment received, employer health insurance premiums, qualified scholarship, workers compensation benefits, some social security benefits, qualified HSA distributions, home sale gain (up to 250k/500k exclusions), alimony (post 2018), employer educational assistance

Studen loan interest deduction

Up to 2.5k/yr phases out at MAGI 85k-100k Single & 175k-205k MFJ

HSA Contribution deduction

4400 self only or 8750 MFJ +1000 catch up if 55+

IRA contributions

Up to 7500 (8,600 if 50+ & 9500 if 60-63)

Self employment deductions

50% of self employment tax; SE health insurance premiums; contributions to SEP IRA (up to 72k)

Above the line deductions

Capital losses in excess of capital gains (up to 3k), educator expenses (up to 300k S/600kMFJ), HSA contributions, IRA qualified plan contributions, Student loan interest, 50% of self employment tax, self employment insurance costs, mocing expenses for armed forces members

Below the line deductions (taken after AGI)

Standard deduction, itemized deductions, QBI deduction, 6k deduction for seniors 65+, charitable contributions up to 1k S / 2k MFJ for non itemizers, qualified tips up to 25k, qualified overtime, qualified car loan interest

Tax owed/ refund =

t(axable income x tax rate) - tax withheld - tax credits

Standard deduction

Single (16,100), MFJ (32,200), HOH (24,150), Senior extra (6k)

Itemized deductions

Unreimbursed medical expenses, mortgage interest, casualty and theft, taxes paid (SALT), charitable contributions, gambling losses

Medical and dental unreimbursed expense deduction

Unreimbursed expenses exceeding 7.5% of AGI

Mortgage interest deduction

Interest on up to 750k of acquisition debt, points paid on purchase of primary residence, qualified home equity loan interest

Casualty and theft deduction

Federally declared disaster loss reduced by -$100 + 10% of AGI; Loss= lesser of adjusted basis or decline in FMV of property

SALT deduction

State and local income taxes OR sales tax (not both) 40,400k cap

Charitable contributions

Cash gifts: up to 1k S / 2k MFJ; FMV of donated property (Appraisal required if >5k); Generally limited to 60% AGI or 30% (appreciated property)

Hobby and gambling loss deduction

Gambling losses are an itemized deduction

Child tax credit

Up to 2,200 per child (phases out 200k Single/400k MFJ)

American opportunity tax credit

Up to 2,500 for first 4 years of college 100% of first 2k + 25% of next 2k in qualifying expenses (phases out 80k-90k single/ 160k-180k joint)

Child & dependent care credit

Up to 1050-2100 for child care for child under 13

Retirement savings credit

Up to 1k (2k if MFJ) 10-50% credits on retirement contributions 401k limit 24,500 in 2026

Earned income tax credit

Up to 8,231 for moderate and low income workers: 1 child 4,427 ; 2 child: 7,316; 3 child: 8,231

Lifetime learning credit

20% of up to 10k qualified education expenses; no year limit (phases out: 80k-90k single/160k-180k joint)

Adoption credit

5120 of the adoption credit refundable for qualified adoption expenses

Buy borrow die

Buy appreciating assets, borrow against assets, die with assets

Short term capital gains

Assets held <1 year taxed as ordinary income

Long term capital gains

Held longer than 1 year and get preferential rates

Long term capital gains 0% rate

Single: up to 49,350 - MFJ: Up to 98,700

Long term capital gains 15% rate

Single: 49,350-545,650 - MFJ: 98,700-611,700

Long term capital gains 20% rate

Single: 545,650+ - MFJ: 611,700+

Tax loss harvest

Collect losses up to 3k to offset ordinary income

How much does an employee put into a social security fund?

6.2% of salary each year up to max 168,600

How much is the employer match for social security fund?

6.2% of salary each year up to max 168,600

How much do you get if you retire at 62?

$2,969/month

How much do you get if you retire at age 67?

$4,152/month

How much do you get if you retire at age 70?

5,181/month

How many years do you need to contribute to the social security fund to get benefits?

10 years. amount based on highest 35 years of earnings

How much do you lose if you draw early (62)?

-30%

How much do you get if you withdrawal late (70)?

+25%

What is capital needs analysis?

The process of calculating the amount of investment capital needed at retirement to maintain the pre-retirement lifestyle and mitigate the impact of inflation during the retirement years

Methods for capital needs

The basic annuity method, the capital preservation model, the purchasing power preservation model

Steps in the annuity method

Determine the funding amount in today’s dollars, inflate the needs from step 1 to beginning of retirement, determine the funding needs at retirement age, determine the required annual savings amount

Monte Carlo Analysi

A mathematical tool that can be used to illustrate the unpredictability of real world and its effects on an individuals retirement plan

Approaches to reduce risks of outliving retirement accumulation

4% per year approach (limit withdrawals from capital accumulation to 4%/yr), money for life approach (divide capital into unequal strata with each strata representing 5 years of retirement)

What is the 401k maximum?

24,500 for 2025 plus the employer match

Employer matches in _______ NOT _______

401k; Roth

401k is taxed ___________ whereas Roth is taxed ________

on the way out; on the way in

Roth IRA maximum allowable annual contribution

$7,500 (15000 for spousal IRAs)

States that do not tax pensions/401k distributions

Illinois, Iowa, Mississippi, Pennslyvania

Roth IRAs Qualified withdrawals

NO penalty and non taxable as long as open for 5 years, AND age 59.5+ or permanent disability, or death, or first time home purchase (up to 10k lifetime)

When would you have 10% penalty on ROTH IRA

Younger than 59.5 (no penalty if older than 59.5 and own account less than 5 years OR permanent disabililty, death, first time homebuyer)

What is vesting?

When you earn the right to ownership of the employer contribution over time

What is a graded vesting schedule

1 year service: 0%; 2 year 20%; 3 year 40%; 4 year 60%; 5 year 80%; 6 year 100%

What is cliff vesting

You won’t be vested at all for a period of tme then you become vested all at once

Options when changing jobs with 401ks

Leave money in each plan, cash out, roll over into new IRA/401k

Leave money in each plan changing job option

Monitor funds, higher fees

Cash out 401k changing jobs option

10% penalty plus all taxes

Roll over into new IRA 401k

Plans must allow it. IRA has more options. do direct rollover