• Ed Mills

      Laura, I’m not sure how it works in England. Here in the States, the government allows you to earn varying amounts of money before federal income tax kicks in. Good luck finding your free money in England!

  1. Jon


    This is kind of digging up the past, but MadFi just linked me here this morning, I’m excited to have a new world of information to explore. How does this work with a taxable investment account that pays dividends? I expect to retire once I have enough in dividends to cover my cost of living + tax burden, but I don’t know a whole lot about the tax side yet. Are the dividends taxed both as capital gains and as income? If so, isn’t your effective tax rate much higher than ~1%? Or, are you referring to taxable income you can make this year and pay essentially nothing for, to help continue to build wealth after your investment gains are taxed?

  2. Simon

    How will the child tax credit “free money” adjustment play out if you did move into the 15% range, would it be worth $1000/0.15 = $6666.67 only?

  3. rachel

    Just found you via The Mad F – yours is a pleasing story from a fellow dual educator household.

    how does the math work with 2 children? standard deduction stays at 12,600, personal exemptions becomes 16,000 and then 2 child exemptions is 20,000 for an income total of 48,600. But 2 x 10,000 is over the 18,450 so is just the excess piece ($1,550) taxable at 15% so $232 in tax?

    • Ed Mills

      Hi Rachel,
      Your free money number with two children would be:

      standard deduction: $12,600
      4 personal exemptions: $16,000
      2 child tax credits: $19,483*
      2015 Total Free Money: $48,083

      *($2,000 of child tax credits – $1,845 takes care of 10% bracket with federal income tax ($18,450 * .10 = $1,845) However, you still would have $155 of tax credit that would allow you to earn another $1,033 ($155/.15) at your free money level. Summary for your child tax credits: $18,450 + $1,033 = $19,483.

      Check my numbers and tell me what you think. I hope this helps; keep in mind that I am not an accountant, CPA, or tax expert!

  4. Catherine

    Does the 457 have to be direct contribution from payroll deduction? Can you suggest good resources to understand this better? Do all school systems have to offer the 457? I,too,am an educator, and you and your family are amazing.

  5. Suzanne

    So, can you tell me if I’m doing my math right for my 2015 free money? I’m single, no children. Here’s what I’m thinking:

    $6,300 (standard deduction)
    $4,000 (exemption for 1 person)
    $9,225 (10% bracket cap for single filers)
    TOTAL 2015 free money for single person: $19,525

    Thanks & please let me know if I’m missing something.

    • Ed Mills

      Thanks for the visit Suzanne,
      Your total free money for 2015 is: $6,300 + $4,000 = $10,300. This money is your true free money…you would owe $0 on it!
      Your 10% bracket is $9,225 with a tax obligation of $923. That means you would have an effective tax rate of 4.73% ($923 / $19,525). So yes, your numbers look good!


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