WHAT ABOUT IF YOU ARE MARRIED TO A NON-US CITIZEN?

This is where things start to get interesting, especially if you are brand new to the US. You have the option of filing separately or filing jointly. The final decision is determined by whether your non-US citizen spouse is considered a tax resident or a tax nonresident.

Is The Marginal Tax Rate The Same As the Effective Tax Rate?

The marginal tax rate is the rate you pay on an additional dollar of income. This is the same rate as your tax bracket. The effective tax rate is your average tax rate or the percentage of your taxable income that you’ll pay in taxes. In other words, the share of your total annual income you’ll need to pay in taxes. Average Tax Rate = Total Tax Paid / Taxable Income This is the more accurate representation of how much you pay in taxes. This graphic from Nerd Wallet illustrates the point clearly. With an income of 50k, your total tax bill is $6800, which is 14% of your income. Hence your effective tax rate is 14%, while your marginal tax rate is 22%.

What’s The Difference Between A Tax Credit and A Tax Deduction?

According to Investopedia, a tax credit is the amount of money you can subtract directly from the taxes you owe. The type of credit you get is determined by factors like your filing status, income, etc. They are three types of tax credits Nonrefundable Refundable Partially refundable Refundable credits are the most beneficial type of credit. They lower the tax bill due, and if they reduce the bill to below $0, you’ll be due a refund from IRS. A great example of this is the premium tax credit which helps you cover the cost of premiums for health insurance purchased in the health insurance marketplace On the other hand, a tax deduction is an amount you can deduct from your taxable income, which will likely reduce your tax liability. Essentially lower the amount of taxes you pay. There are two ways to complete this Standard deduction – a fixed amount based on your tax filing status Itemized deductions – you combine a bunch of deductions like mortgage interest, charitable gifts, etc. If this total is greater than the standard deduction, it makes more sense to use use it, but everybody’s situation is different. This is an area that’s constantly changing, so check with a professional regularly A tax credit is more favorable than a tax deduction.

What’s The Difference Between Taxable Income (AGI) and Gross Income?

The best way to explain the difference is as follows Gross Income – Adjustments to Income = Adjusted Gross Income (AGI) Adjustments to income include things like deductions, retirement savings, etc. Anything that lowers your income. Gross Income is the sum of all your income which includes any overseas income. Adjusted Gross Income (AGI) is what you end up paying taxes on.

What Are The Benefits Of Saving Money In A Roth IRA Account?

In a previous post, I addressed the benefits and features of a Roth IRA Account. There are a couple of benefits to saving money in a Roth Account. Some of the benefits include the following. The money is contributed after taxes and grows tax-free and can grow for as long as you (the owner) are alive. There are no RMDs (Required Minimum Distributions). RMDs are typically required so IRS can get its share of taxes. In this case, since there are no taxes to be paid, this is a moot point. But keep in mind that once the account passes to your beneficiaries at death, even though it passes tax-free, the inherited IRA rules kick in and they will be required to withdraw all the money from the account within 10 years of your death. You can take the money out tax-free. Keep in mind that the Roth IRA account needs to have been in existence for at least 5 years to be able to get the money out tax-free.

How Do You Deal With The Roth IRA Mistakes?

Now that I have detailed the mistakes I typically see, you are hopefully not going to make them in 2023. But if you’ve already made them, there are a couple of ways to fix them, but work with your financial advisor, and your CPA to figure out the best solution for your situation. The fixes will depend on the mistake, but also when you made the mistake. If you’ve made illegal contributions (that’s what IRS calls them) – you might be able to recharacterize them as traditional IRAS. Otherwise, you might have to remove those contributions. Every year the money remains in the account, and there is a 6% penalty. But if you remove the money by October 15th after the year it was made, SECURE Act 2 has changed the rules, so you won’t be penalized. If you’ve messed with the Pro-rata rule and did not include the extra income, you might have to amend your prior years’ returns, to account for the extra income. The Roth IRA is a great tool, make the most of it, and you have a shot not only at improving your future but also creating and passing on generational wealth.

3 Lessons My Mother Taught Me About Money

In today’s post, I’m sharing the top 3 money lessons from my mother.

My mom said a lot of things to me about life, things I now hold very dear.

She talked about being financially independent and the things I needed to do to achieve that.

So, in honor of the upcoming Mother’s Day, I’m going to share 3 money lessons my mother taught me about money growing up.

If you’d prefer to watch this on video, here is the link:

Lesson 1: Being financially independent
Lesson 2: Saving for your future self
Lesson 3: Being Financially savvy

She repeated them over and over until they became second nature. Today when I think about her, these lessons come to mind. My mom grew up in a very male-dominated society. For girls to get ahead in their time, a lot needed to happen. One of the ways for this to happen was to become financially independent. In a previous post, I discussed my father’s cost-sharing plan for teaching kids to be financially independent. By the time I came along, even though things had improved a lot, girls were still at a huge disadvantage. How they grew up would depend a lot on how the parents choose to treat them, but also on what they learned from those around them. As research continues to show, parents are still the most powerful influence on their children. Mothers have a big influence on their girls, especially based on where they grew up. Today, I can truly say I’m my mother’s daughter! So, as you read these money lessons from my mother, it might be helpful to dig deep into your attitudes, and your relationship with money. Don’t be surprised if you start to see your parents in your actions.

Money Lesson 1: Support Yourself Financially

This money lesson from my mother has everything to do with financial independence. Ensure you can always support yourself financially, especially before you settle down. Don’t put yourself in a position where you stay in a bad situation because you are relying on somebody else to support you financially. Growing up I saw a couple of my schoolmates drop out of school to have babies. More often than not the girls would have no way of completing their education, in addition to having to take care of the baby. They ended up getting married very young, and these marriages didn’t always work out. Looking back, I now know why this money lesson from my mother was so important. Education was and still is a big deal in my home country, and is the typical way to improve your situation in life. The same lesson is very applicable to our kids today – study and get a job, make a living. In the US, kids have more opportunities to make money compared to what we had, but the principle remains, regardless of where they were born. Figure out how to make a living, enough to support yourself.

Money Lesson 2: Prioritize Saving For The Future

My mother was a big proponent of saving for the future, regardless of how tight your budget was. She was adamant that anytime we got paid, or got some money in our lives, we needed to save some of it (for our future selves).

Her words were “Don’t let your present you bankrupt your future self.”

If you prioritize something, you are most likely going to do it. In your spending plan, have a saving category and make it the first entry in the budget (spending plan). If having trouble with it, consider thinking of it as a regular expense that needs to be paid for first. This money lesson from my mother is best implemented if we simplify things and reduce friction.

Reduce The Saving Mental Energy: Automate Your Money Flow

One way to have success is to automate your money flow. Set a certain amount going to the saving/investing category and it will happen. Reduce the mental energy required to figure out where you are with certain goals! To make it real, name your saving goals including dates, then create saving buckets to match those goals. So instead of looking at a pile of money every month in your saving account, do the following instead.

- Create different saving buckets and give them specific names with dates.

“40th Birthday Celebration June 2024”

“6-12 Months Emergency Fund”

“New knee cash payment”

- Do the math once and you are done. e.g.

$xy every month for x number of months – will meet my $2,000 goal by Jan 2024

- Finally set it up and get on with your life.

Money Lesson 3: Become Financially Savvy

The best way to explain this is to quote her.

“If something affects you daily it is important. If it’s that important, then you need to know enough about it to make independent, smart decisions.”

According to her, there was no room for not learning enough about certain subjects if they impacted you in any way. Money falls neatly into that category and it’s key we learn enough about it to make good decisions. Being a girl in my society meant having an inbuilt disadvantage, so this was key if I was going to have a chance to succeed. It was important to learn about the subject or know how to find the correct information. She exemplified the saying “Knowledge is power.” Her lesson partly explains why I’m in the industry. At some point, in my tech journey, I realized I knew very little about the US financial system and how it impacts those with financial ties overseas and those in tech, so I decided to learn everything I could about the system. There are very many resources to learn about personal finance, but it can be overwhelming trying to figure out where to start. If you are the DIY type start with Investopedia’s personal finance page, which also includes some books on investing. Understand your situation and keep in mind, it’s unique, your values are different from your neighbor, and your risk profile is yours. Use this to evaluate the information out there before you act on it. The money lessons from my mother have served me very well. Just about everything I do with money can be easily related to one of her lessons. I’m passing these lessons to my girls, and I hope they pass them on to future generations. What money lessons did your parents pass on to you? Originally published in Retirement Answer Man Podcast.

Need Help Figuring Out The US Financial Landscape?

Check out our process that will help you evaluate our services, and let you make an informed decision about working together.

Free Financial Assessment

If not ready to start, that’s okay, but please stay on top of our regular updates by email, or by joining here. Sign Up Here.

Disclaimer: This article is provided for general information and illustration purposes only. Nothing contained in the material constitutes tax advice, a recommendation for the purchase or sale of any security, investment advisory services, or legal advice. I encourage you to consult a financial planner, accountant, and/or legal counsel for advice specific to your situation. Reproduction of this material is prohibited without written permission from Jane Mepham and all rights are reserved. Read the full disclaimer here.

Jane Mepham, CFP^® is a Fee-Only financial planner who loves simplifying the complexities of the U.S. financial system for immigrants and foreign nationals on work visas and those in tech. She’ll work with you to map out a personal strategy that addresses all areas of your financial life while avoiding key financial mistakes that could derail your American dream.