2014 will be my first full year of Mustachianism, so I am currently planning next year's finances and stumbled upon an interesting concept: optimizing my taxable income. I found an

income tax calculator and plugged in some numbers based on maxing out my 401(k), my HSA, and t.IRAs for myself and my wife. The assumptions I used were:

$69,000 income

$1,000 health/dental insurance premiums

$17,500 401(k)

$6,150 HSA (my employer puts in the other $400, so I don't get to claim that)

$11,000 t.IRAs

Standard deduction ($12,200) - next year we won't have enough deductions to itemize

2 personal exemptions ($7,800)

2 dependent children ($2,000 tax credit)

What I found was surprising - my tax liability after all deductions came out to $1335, which meant that after the $2000 child tax credit, our federal income tax would be zero. HOWEVER, since the child tax credit doesn't pay more than your tax liability, that also meant that we would be leaving money on the table by filling all possible tax-deferred accounts.

I did a little more work and found that my optimal tax-deferred contribution for 2014, based on the above assumptions, would be $28,700. This would reduce my tax liability to $2002, which would then be almost completely wiped out by the child tax credit. In other words, the optimal scenario is for me to put almost

**$6,000 less** into my tax-deferred retirement accounts than the law allows! No federal income tax, and no state tax as well (I ran the number on another website for my state income taxes). How's that for tax optimization?

So, tentatively (since I still don't know exactly what my 2014 income will be), my retirement account funding for 2014 will look like:

401(k): $17,500

HSA: $6,150

t.IRA: $5,050

Roth IRA: $5,950 (which should go into the account TAX-FREE!)

Anyway, I just found the idea of optimizing your taxable income to be interesting and thought that others my benefit from it. Obviously, your results will vary widely, depending upon whether you file singly or jointly, which tax credits and deductions you qualify for, how much you earn, and how much you can save. Your state income tax laws will factor in as well. I found it fun to play around with the calculator to find my ideal solution.

Also, now that I've laid out my plan, feel free to shoot holes in it if I've missed something :)