1
Early Retirement / Re: How to convert investments to cash
« on: February 16, 2023, 12:41:06 PM »I’ll do my part to help other on the path to FI, when I can, to pay it forward.
My pleasure. And thank you
Retire Early. Travel the World.
News:
Welcome to the Go Curry Cracker Community Forum! Still in Beta, but jump in and try it out.
Show Posts
This section allows you to view all posts made by this member. Note that you can only see posts made in areas you currently have access to.
My pleasure. And thank you
2
Taxes / Re: Tax benefit of putting cash/expenses needs in tax advantaged account
« on: February 16, 2023, 12:36:46 PM »
You have a loss either way
3
Taxes / Re: Tax benefit of putting cash/expenses needs in tax advantaged account
« on: February 13, 2023, 05:46:34 PM »
There is such a thing as diminishing returns, and simple is great.
Still, I would tend to put all of the bonds in the tax-deferred account.
Money is fungible... There is no portfolio difference between A and B, but the taxes on B are lower
A - I have $10k in bonds in my taxable account. I want to spend $10k so I sell them.
B - I have $10k in bonds in my IRA. I want to spend $10k, so I sell the bonds in my IRA and buy $10k worth of VTSAX. In the brokerage account, I sell $10k worth of VTSAX.
Still, I would tend to put all of the bonds in the tax-deferred account.
Money is fungible... There is no portfolio difference between A and B, but the taxes on B are lower
A - I have $10k in bonds in my taxable account. I want to spend $10k so I sell them.
B - I have $10k in bonds in my IRA. I want to spend $10k, so I sell the bonds in my IRA and buy $10k worth of VTSAX. In the brokerage account, I sell $10k worth of VTSAX.
4
Early Retirement / Re: How to convert investments to cash
« on: February 13, 2023, 11:10:06 AM »
Thank you, that was very helpful for me to get up to speed.
In summary:
- you are older (and wiser(?))
- your portfolio behaved as expected, down when the market is down
- previous estimates for pensions and SS were too optimistic
I threw your numbers into cFireSim and came up with a 98% success rate, which is better than the 96% success rate from the 4% rule data.
Dropping spending to $48k/year (~4% reduction) results in a 100% success rate (30 years.)
The failure years were the early 70s with a combination of insane inflation, market crash, oil shortage resulted in a strong headwind.
You questions:
Q: do I just sit on what I have where it is and withdraw regardless of the market?
A: Yes. Doing otherwise is called market timing
Pick an allocation.
Q: Is the idea of loss harvesting and reallocating for 2 or three years of treasuries just spinning my wheels or a good idea?
Loss harvesting can reduce taxes in your final year of work. That is good.
Treasuries are short-term bonds. When you say, "should I shift my bonds to treasuries" what you are saying is "should I change my asset allocation, in particular should I shift my bond allocation from longer-term bonds to shorter-term bonds?"
This is another way to say, "I believe that interest rates will decline in the short term faster than the market expects, and that I can make a profit based on this special knowledge."
Does that seem like an accurate statement? I don't know if it is correct or not.
Q: do I need to do anything in particular in the next 1.5 years with rearranging allocations to treasuries or bonds (or do I just leave stuff in equities?)
See previous comment
The market is down in recent years, which says putting more $ into stocks is warranted
General statement:
I am mostly worried at this point, particularly given the hit both stocks and bonds took this last year, about how many years of cash/treasuries I should have when I walk away in June of 2024 to be safe from the sequence of returns risks in my available funds before 59.5.
I'm not sure this is the best focus. The goal generally should be to never run out of money.
We can do things in the short term (minimize sequence of returns risk) that compromise the long term (run out of money.)
For example, you could withdraw Roth IRA contributions now because they are accessible... but then you forego 30+ years of tax-free growth.
Or you could decide to hold ~7 years worth of cash (or cash equivalents) at $350k... more than you have accessible.
Therefore you could NOT contribute more to 457 this year to accumulate more cash... paying more taxes in the process.
An asset allocation of 40% cash would decrease our cFIREsim success rate to 88%, and the only reason it is that high is because of the large pensions
A healthy compromise position is probably:
- 2-ish years in cash / short-term treasuries
- more stocks (because this increases long-term success rate over a high cash/bond position)
More general statement:
In general, my lack of post-tax money throughout retirement concerns me a bit regarding taxes, particularly if I run into any large expenses.
If you need more $ from non-accessible accounts then:
a) pay the 10% penalty
b) setup a SEPP - I would probably just do this in year 2 anyway
c) both
Paying the 10% penalty in a few years is less expensive than choosing to pay 24% tax now in order to accumulate more cash
re: SEPP, for $100k in account value you can withdraw ~$6.5k based on 5% interest rate
With full TIRA value of $377k, that is about half of your living expenses available
In summary:
- you are older (and wiser(?))
- your portfolio behaved as expected, down when the market is down
- previous estimates for pensions and SS were too optimistic
I threw your numbers into cFireSim and came up with a 98% success rate, which is better than the 96% success rate from the 4% rule data.
Dropping spending to $48k/year (~4% reduction) results in a 100% success rate (30 years.)
The failure years were the early 70s with a combination of insane inflation, market crash, oil shortage resulted in a strong headwind.
You questions:
Q: do I just sit on what I have where it is and withdraw regardless of the market?
A: Yes. Doing otherwise is called market timing
Pick an allocation.
Q: Is the idea of loss harvesting and reallocating for 2 or three years of treasuries just spinning my wheels or a good idea?
Loss harvesting can reduce taxes in your final year of work. That is good.
Treasuries are short-term bonds. When you say, "should I shift my bonds to treasuries" what you are saying is "should I change my asset allocation, in particular should I shift my bond allocation from longer-term bonds to shorter-term bonds?"
This is another way to say, "I believe that interest rates will decline in the short term faster than the market expects, and that I can make a profit based on this special knowledge."
Does that seem like an accurate statement? I don't know if it is correct or not.
Q: do I need to do anything in particular in the next 1.5 years with rearranging allocations to treasuries or bonds (or do I just leave stuff in equities?)
See previous comment
The market is down in recent years, which says putting more $ into stocks is warranted
General statement:
I am mostly worried at this point, particularly given the hit both stocks and bonds took this last year, about how many years of cash/treasuries I should have when I walk away in June of 2024 to be safe from the sequence of returns risks in my available funds before 59.5.
I'm not sure this is the best focus. The goal generally should be to never run out of money.
We can do things in the short term (minimize sequence of returns risk) that compromise the long term (run out of money.)
For example, you could withdraw Roth IRA contributions now because they are accessible... but then you forego 30+ years of tax-free growth.
Or you could decide to hold ~7 years worth of cash (or cash equivalents) at $350k... more than you have accessible.
Therefore you could NOT contribute more to 457 this year to accumulate more cash... paying more taxes in the process.
An asset allocation of 40% cash would decrease our cFIREsim success rate to 88%, and the only reason it is that high is because of the large pensions
A healthy compromise position is probably:
- 2-ish years in cash / short-term treasuries
- more stocks (because this increases long-term success rate over a high cash/bond position)
More general statement:
In general, my lack of post-tax money throughout retirement concerns me a bit regarding taxes, particularly if I run into any large expenses.
If you need more $ from non-accessible accounts then:
a) pay the 10% penalty
b) setup a SEPP - I would probably just do this in year 2 anyway
c) both
Paying the 10% penalty in a few years is less expensive than choosing to pay 24% tax now in order to accumulate more cash
re: SEPP, for $100k in account value you can withdraw ~$6.5k based on 5% interest rate
With full TIRA value of $377k, that is about half of your living expenses available
5
Taxes / Re: Tax benefit of putting cash/expenses needs in tax advantaged account
« on: February 11, 2023, 10:22:38 PM »
Your income is ~50k and with standard deduction your taxable income is ~$22k?
Does ordinary income exceed $27.7k/year? (2023 MFJ standard deduction)
If no, then that bond interest would be taxed at zero. The standard deduction applies to ordinary income first.
Taxes on long-term gains from the sale of VTSAX would be at 0% as long as total income is less than ~$117k (2023.)
Since a portion of each sale is a non-taxable return of capital, and you get to pick which shares are sold (and can choose the shares with the smallest gain (or loss)) this seems unlikely.
https://www.gocurrycracker.com/long-term-long-term-capital-gains/
Taxes are calculated on the Schedule D Qualified Dividend and Capital Gains Tax Worksheet
I go through this worksheet on our 2016 tax return writeup
https://www.gocurrycracker.com/go-curry-cracker-2016-taxes/
By having $7k of ordinary income in taxable account you do forfeit the tax-free Roth conversion opportunity on that same amount.
This is federal taxes only.
ACA premium tax and State taxes also apply.
Does ordinary income exceed $27.7k/year? (2023 MFJ standard deduction)
If no, then that bond interest would be taxed at zero. The standard deduction applies to ordinary income first.
Taxes on long-term gains from the sale of VTSAX would be at 0% as long as total income is less than ~$117k (2023.)
Since a portion of each sale is a non-taxable return of capital, and you get to pick which shares are sold (and can choose the shares with the smallest gain (or loss)) this seems unlikely.
https://www.gocurrycracker.com/long-term-long-term-capital-gains/
Taxes are calculated on the Schedule D Qualified Dividend and Capital Gains Tax Worksheet
I go through this worksheet on our 2016 tax return writeup
https://www.gocurrycracker.com/go-curry-cracker-2016-taxes/
By having $7k of ordinary income in taxable account you do forfeit the tax-free Roth conversion opportunity on that same amount.
This is federal taxes only.
ACA premium tax and State taxes also apply.
6
Early Retirement / Re: How to convert investments to cash
« on: February 05, 2023, 03:54:31 PM »
What has changed since your previous post?
https://forum.gocurrycracker.com/index.php?topic=450.msg1375#msg1375
In that discussion, it looked like pensions/SS cover your entire cost of living in the near future.
You also listed home equity previously but it is not included here.
>Is the plan good enough to succeed?
Pensions +SS cover your entire cost of living... with 12 years between retirement and full pensions.
50k * 12 years = $600k to bridge the gap. You have more than $600k.
What is driving your desire to fiddle with things?
What is missing from the simple math above?
The gap between retirement and age 59.5 is <7 years. $350k or so at $50k/year
If you run out of accessible funds, worst case tap the non-accessible funds and pay the penalty. If you need an extra $80k you can have it for a $8k fee, or 1% of total portfolio value. Small.
SEPP is also able to provide substantially higher withdrawals due to higher interest rates.
https://forum.gocurrycracker.com/index.php?topic=450.msg1375#msg1375
In that discussion, it looked like pensions/SS cover your entire cost of living in the near future.
You also listed home equity previously but it is not included here.
>Is the plan good enough to succeed?
Pensions +SS cover your entire cost of living... with 12 years between retirement and full pensions.
50k * 12 years = $600k to bridge the gap. You have more than $600k.
What is driving your desire to fiddle with things?
What is missing from the simple math above?
The gap between retirement and age 59.5 is <7 years. $350k or so at $50k/year
If you run out of accessible funds, worst case tap the non-accessible funds and pay the penalty. If you need an extra $80k you can have it for a $8k fee, or 1% of total portfolio value. Small.
SEPP is also able to provide substantially higher withdrawals due to higher interest rates.
7
Taxes / Re: Withdrawal plan for IRA to reduce impact upon death of spouse
« on: February 03, 2023, 01:06:20 PM »
For estimated taxes, they are due when the income is earned or quarterly.
If you make IRA withdrawals / Roth conversion in Q4, you can pay it all in Q4. If one withdrawal in Q1, can pay quarterly.
Since no tax burden in prior year, you may not need to pay anything at all until April'24
https://www.gocurrycracker.com/avoiding-tax-penalties/
You can pay via EFTPS or I would do it with a credit card to get the signup bonus (worth more than the fee.)
If you make IRA withdrawals / Roth conversion in Q4, you can pay it all in Q4. If one withdrawal in Q1, can pay quarterly.
Since no tax burden in prior year, you may not need to pay anything at all until April'24
https://www.gocurrycracker.com/avoiding-tax-penalties/
You can pay via EFTPS or I would do it with a credit card to get the signup bonus (worth more than the fee.)
8
Taxes / Re: Overcontribution (after-tax) to 401K
« on: February 02, 2023, 11:09:46 AM »
Talk to your plan administrator to have excess contributions removed (and taxed)
https://www.investopedia.com/ask/answers/158.asp
https://www.investopedia.com/ask/answers/158.asp
9
Taxes / Re: Withdrawal plan for IRA to reduce impact upon death of spouse
« on: February 02, 2023, 11:07:10 AM »
Hi Spot
Sounds like you are looking at a 3-5 year plan. Over the short term, market volatility will probably play a much bigger role than any planning exercise.
What is your main concern? Are you in ill health?
I touch on some of the financial aspects for a surviving spouse here:
https://www.gocurrycracker.com/the-real-death-tax/
The difference in tax for MFJ vs Single on 32k income is small (~$1500, 12% marginal vs 10%.)
With $80k income (SS and early RMDs), the delta is larger (~$4k, 22% marginal vs 12%.)
In both cases it is about 5% of income...
You can do Roth conversions up to the top of the 12% tax bracket or the point where Medicare B premiums would increase (whichever is smaller) between now and RMDs begin to save some of that 10% marginal rate difference
In addition to QCDs the surviving spouse can decline to inherit the spousal IRA and pass it on to heirs
Sounds like you are looking at a 3-5 year plan. Over the short term, market volatility will probably play a much bigger role than any planning exercise.
What is your main concern? Are you in ill health?
I touch on some of the financial aspects for a surviving spouse here:
https://www.gocurrycracker.com/the-real-death-tax/
The difference in tax for MFJ vs Single on 32k income is small (~$1500, 12% marginal vs 10%.)
With $80k income (SS and early RMDs), the delta is larger (~$4k, 22% marginal vs 12%.)
In both cases it is about 5% of income...
You can do Roth conversions up to the top of the 12% tax bracket or the point where Medicare B premiums would increase (whichever is smaller) between now and RMDs begin to save some of that 10% marginal rate difference
In addition to QCDs the surviving spouse can decline to inherit the spousal IRA and pass it on to heirs
10
Early Retirement / Re: Salary Deferral Distribution
« on: January 11, 2023, 06:01:30 PM »
I'd just take it all out as fast as possible then
Pros:
Market is low(er)
All future gains are tax-deferred or zero tax (never sell, leave to charity or heirs)
More years with flexible income to optimize ACA premiums (if applicable)
Pros:
Market is low(er)
All future gains are tax-deferred or zero tax (never sell, leave to charity or heirs)
More years with flexible income to optimize ACA premiums (if applicable)
11
Early Retirement / Re: Salary Deferral Distribution
« on: December 25, 2022, 11:02:58 PM »
Generally speaking.... tax deferral over 10 years +/- isn't worth a ton and it is hard to get excited about saving 2% on taxes. (400k * 2% = $8k.)
I could ask some followup questions if you disagree.
I could ask some followup questions if you disagree.
12
Taxes / Re: Distributing an Inherited IRA as an early retiree
« on: November 07, 2022, 11:28:47 AM »
Let's look at the 2 extremes
If you take it all out today you pay about $60k in ACA premiums and income taxes, so you will have about $190k remaining to invest in accordance with your target asset allocation.
If you wait 10 years and do a large withdrawal at the end, assuming 7% annual return you will make a $500k withdrawal with marginal rates up to 35%+/- (total tax ~= $113k.)
At the same time, that 190k may have grown to $380k or so (same 2x.)
Total value is roughly the same in both cases - in the former the $60k in taxes not paid gets to grow longer but then you pay taxes at a higher rate on withdrawal.
In the latter case you have a bunch of unrealized capital gains which may never be taxed, and you will have taxable income from dividends / interest along the way. As you say, more income means higher % FPL which may impact CSR. Independent of this choice, dividends can go up and down and many companies have been increasing dividends faster than inflation for some time.
FPL numbers do go up with inflation, but with a delay of 1 year... ACA enrollment for 2023 is based on FPL numbers reported in January 2022
If you take it all out today you pay about $60k in ACA premiums and income taxes, so you will have about $190k remaining to invest in accordance with your target asset allocation.
If you wait 10 years and do a large withdrawal at the end, assuming 7% annual return you will make a $500k withdrawal with marginal rates up to 35%+/- (total tax ~= $113k.)
At the same time, that 190k may have grown to $380k or so (same 2x.)
Total value is roughly the same in both cases - in the former the $60k in taxes not paid gets to grow longer but then you pay taxes at a higher rate on withdrawal.
In the latter case you have a bunch of unrealized capital gains which may never be taxed, and you will have taxable income from dividends / interest along the way. As you say, more income means higher % FPL which may impact CSR. Independent of this choice, dividends can go up and down and many companies have been increasing dividends faster than inflation for some time.
FPL numbers do go up with inflation, but with a delay of 1 year... ACA enrollment for 2023 is based on FPL numbers reported in January 2022
13
Taxes / Re: Distributing an Inherited IRA as an early retiree
« on: October 29, 2022, 11:33:31 AM »
What is the underpayment penalty you are referring to? For underpayment of estimated tax?
I don't know IL's rules, but for federal it is easy - the tax is due as you go... if you realize a large chunk of income on December 31st, that is due with the estimated tax payment on Jan 15. No need to pay in January '22 because you think you will have a big income jump in December '22.
But even that may be unnecessary and you can just pay in April as long as you make estimated payments equal to or greater than 100% of the tax you owed last year... which is what, $0?
https://www.gocurrycracker.com/avoiding-tax-penalties/
You shouldn't have to pay back any CSRs but you will have to repay the PTCs in full when you go over400% FPL (edit: 600% FPL)
Do you concur with the #s in the spreadsheet?
I don't know IL's rules, but for federal it is easy - the tax is due as you go... if you realize a large chunk of income on December 31st, that is due with the estimated tax payment on Jan 15. No need to pay in January '22 because you think you will have a big income jump in December '22.
But even that may be unnecessary and you can just pay in April as long as you make estimated payments equal to or greater than 100% of the tax you owed last year... which is what, $0?
https://www.gocurrycracker.com/avoiding-tax-penalties/
You shouldn't have to pay back any CSRs but you will have to repay the PTCs in full when you go over
Do you concur with the #s in the spreadsheet?
14
Travel hacking / Re: Credit card points (maximize)
« on: October 24, 2022, 12:07:47 PM »
My pleasure.
If you have any questions as you work through a redemption, just ask.
If you have any questions as you work through a redemption, just ask.
15
Travel hacking / Re: Credit card points (maximize)
« on: October 16, 2022, 08:42:40 AM »
If your goal is to get the most $/point, that is typically done by transferring to an airline or hotel.
At best you can get 1.5 cents per point (cpp) through the Chase portal, for example. But by transferring to an airline and booking business or 1st class tickets you can sometimes get 10+ cpp.
One of our best redemptions was business class flights to Paris at 20cpp
https://www.gocurrycracker.com/to-europe-and-back-again/
If your goal is to get the most economy flights or hotel nights per point, sometimes transferring is best / sometimes using the card portal is best.
For airlines, if you book a fare through the card portal you will still earn miles for the flights (no points for award travel)
At best you can get 1.5 cents per point (cpp) through the Chase portal, for example. But by transferring to an airline and booking business or 1st class tickets you can sometimes get 10+ cpp.
One of our best redemptions was business class flights to Paris at 20cpp
https://www.gocurrycracker.com/to-europe-and-back-again/
If your goal is to get the most economy flights or hotel nights per point, sometimes transferring is best / sometimes using the card portal is best.
For airlines, if you book a fare through the card portal you will still earn miles for the flights (no points for award travel)