No announcement yet.

PAYE/PSLF/MFS - is it worth it to lower AGI to minimze PAYE payments?

  • Filter
  • Time
  • Show
Clear All
new posts

  • PAYE/PSLF/MFS - is it worth it to lower AGI to minimze PAYE payments?

    Trying to plan out our tax plan/PAYE payments for 2018. We are a dual physician family, no kids. I'm currently a military GMO (in between internship and residency) for the next 3 years + moonlighting and my wife just graduated and started civilian pediatrics internship back in July, so there's some income discrepancy. We're in a unique situation with several options available to lower our AGI and would greatly appreciate some advice on what would be the smartest financial move.

    My income: $100k-$140k taxable (~40k tax free), Her income: $56k taxable

    My student loans is $40k (private, refinanced--thanks WCI!) at ~3.5% with 2.5 years left on repayment, her student loans $220k (fed loan consolidated, on PAYE) at ~5.8%. We have a $500k mortgage (i know, i know--HCOL area and even this was a modest home, we intend to stick around after residency, at the very least has great appreciation/rental potential given location) at 3.75%. No consumer debt.

    I have a traditional or Roth 401k option w/ new 5% match in 2018, 401k with moonlighting gig too. She has 403b, 457b, AND a mega-backdoor Roth (additional $53k available in DCP after-tax space with in-service withdrawals), no match. All pre-tax plans have modest low-cost index funds and no absurd management fees.

    My initial thoughts are to contribute to her pre-tax investment accounts to lower her AGI to a point that results in PAYE payments of $0 (AGI of $24,360), then the remainder in her after-tax options. She is strictly academic and plans to do a 3 year fellowship, so PSLF makes the most sense financially with only 4 years at attending-level income. I would plan to do 5% 401k w/ match with military, remainder in 401k with moonlighting gig to minimize state income taxes. We'd both do backdoor Roth IRAs as well. With the new tax cuts, at the very least I benefit from a cheaper tax rate filing separately. We're also probably one of the few people to still be able to itemize with $10k SALT deductions and mortgage interest deduction >$24k annually. Does it make sense to lower her AGI for PSLF or are we better served in maximizing our Roth options and pay more on her loans? I'm aiming to be in the 24% tax bracket in retirement if that helps...I can't imaging spending more than $158k/year with no mortgage in retirement.