How can my wife and I maximize the advantages of itimized vs standard tax decuction years?

Mark Z: How can my wife and I maximize the advantages of itimized vs standard tax decuction years?
Last year my wife and I doubled up on our chartible contributions and property taxes to get an itimzed deduction of $ 17K. This year we’ll take the standard deduction. Last year we each saved 4K in Roth IRAs, plus 20K combined in our 401Ks (maxing employee contributions). Does it make sense this year to put that 8K into traditional IRAs so we can lower our taxable salary by 8K? We’d still put the same amounts in our 401Ks.

Side question: my employer now offers a Roth 401K. What years would it make sense to switch to that from the standard 401K?

Thanks

Answers and Views:

Answer by bobbydigits
Actually, it comes down to a last-minute decision at tax time.

Since the law says that if one partner itemizes, the other must, you approach this with a little strategy: you both keep all of your receipts until tax time. Then, total them.

The standard deduction isn’t the least bit flexible, so it just a matter of adding up all the exemptions, standard deductions, and looking at the AGI after you account for your 401k exclusion. You’ll then file your return after you compare the tax liability after itemization to the standard deduction.

Yes, it always makes sense to put the 8K into the 401K. But you can do this at this last minute as well, even while your return is being prepared. That will be 8K less on which you have to pay taxes.

The Roth401K is so generous and flexible that you want to move to it ASAP..

Answer by r_kav
I think you are worrying too much! For most people, to ROTH or not is a tossup, unless you can predict your tax bracket in retirement, and tax brackets in general, in the future.
Suggest you go half and half, and sleep well.

Answer by ninasgramma
Itemizing every other year is a good strategy. Your taxes were reduced by at least $ 1,000 by itemizing.

If you did the traditional IRA this year, your deductions are going to be about the same as last year when you itemized and did the Roth IRAs. It makes sense if getting those deductions is important to you.

If you are young, even without the up-front tax deduction, the Roth IRA is a better deal for you. It appears to me that you will have sizeable distributions from your 401k, and will not be in a lower tax bracket in retirement. In this case the Roth saves you money in the long run and provides you with greater flexibility in how you take your distributions.

The Roth 401k is an option to designate some or all of your 401k contribution as “Roth” and pay your taxes on your contributions up front. Employer match is a traditional 401k. So even with a Roth 401k, you are going to have both pre-tax and post-tax money in your 401k.

You might do Roth IRAs and 401k’s up to the top of your current tax bracket and then do traditional IRAs and 401k’s so that you do not go into the next higher tax bracket. You can split up your contributions any way you want. I would evaluate each year and decide your allocation of pre and post tax contributions for 401k and IRA accounts.