Messages

1

General Discussion / Re: 72(t)/SEPP changes vs Roth conversions in early retirement

« on: March 15, 2022, 08:55:42 PM »

Borrowing isn't crazy. I'm doing it too.
https://www.gocurrycracker.com/sweet-sweet-debt/

3.5% interest may work out to be less than the 10% penalty you would pay on early IRA withdrawals without the SEPP

You can't deduct the interest on a cash-out refinance unless the funds are used to make capital improvements to the property. Maybe if you borrow on one of your rentals...

If you are staying in California you might be able to keep your current low tax base on a new property if you wait a couple years
https://www.boe.ca.gov/proptaxes/prop60-90_55over.htm

Another option - get a new CPA

Thanks

 The CPA is being replaced. I was under the impression that a refi would be duductable as long as it was a mortgage and not a HELOC ?

I have some research to do. I have been out of that game for a while,  I have been 100% debt free for over 10 years.

Moving the tax at 55 is an option. I know some props have changed here in California. It used to be one time over 55 if the counties reciprocate but now things have changed.

I did read your sweet sweet debt post and I sent it to a few friends as well.

Thank for the replies.

2

General Discussion / Re: 72(t)/SEPP changes vs Roth conversions in early retirement

« on: March 15, 2022, 04:42:45 PM »

Glad you posted this. I just signed up for this forum because I wanted 72T info and boom the first topic I see when I log on is regarding 72T.

 I'm 53 house rich and cash poor with some retal income.  With 6.5 years until I can access a roll over IRA without penalty. This might be a decent choice to put me in a "work optional" situation.

Yes, this is pretty much the ideal situation for signing up for the SEPP - ~5 years to age 59.5, most funds in IRA

 The only other way that I can think of to get access to cash would be to sell the house and downsize. I could buy a less expensive home and use the extra cash as a bridge to 59 1/2. My CPA said don't do a SEPP says i'm too young but then again he also still grinding in his 70's

 I am not ready to sell the home and leave so cal yet so one crazy Idea would to take a cash out refi. Use the funds to live off for 5-6 years until I sell it. Would that be nutts ? I mean I know that I am paying a penalty in interest to get at my equity early but It would be a write off because I do itemize. Sort of like doing my own short term reverse mortage. It is not a smart money move but even a downsize in my area would be a big property tax increase as I have been in my home for 23 years. The other upside would be that my IRA would have another 5-6 years un touched.

Am I crazy to pay 3.5 % penalty to take home equity early if it improves my life ?   

3

Taxes / Re: 529 withdrawal without taxes ?

« on: March 07, 2022, 07:50:23 AM »

Earned income is required for Roth contributions. If he has at least $6k of earned income in 2021 and the same in 2022, then he can contribute to Roth IRAs for both years.

Any withdrawals from a 529 won't qualify as earned income for Roth contributions. But it can be a source of cash.

To get $12k in cash from the 529:
Withdraw: $12,500
Basis: $8,065 ($20k/$31k*$12.5k)
Earnings: $4,435 (withdrawal - basis, 12.5k - $8,065 = $4435)
Penalty: $443.50 (10% of earnings)
Actual cash from withdrawal: $12,056

Income tax will also be due. That $4,435 could be taxed with an additional 10%, 12%, 22%+ (or it could be 0% - all depends on income.)
State income tax (and penalty) could also be due.

529 funds can also be used to pay student loans, transferred to another person in the family, or used for K-12 expenses on future kids (less than 20 years from now.)

Thanks : )

 He does have an income. He makes around $50-$60K and has been funding his Roth since he was 19. Just looking at options to use some other funds as keeps saving for a futre home.

Thanks for the great info.

4

Taxes / Re: 529 withdrawal without taxes ?

« on: March 05, 2022, 11:38:44 AM »

529 withdrawals are pro rata - some will be earnings, some will be basis. There is no way to do a basis only (contribution only) withdrawal.

Any non-qualified earnings withdrawal will be taxed and penalized (10%)

Thank you for the quick response.

Might still be worth it to take the hit now to get more into his Roth at 24 than wait 20+ years when he is not even married yet.

5

Taxes / 529 withdrawal without taxes ?

« on: March 05, 2022, 10:04:52 AM »

My 24 year old Son has $31K in a 529 that his grandparents funded with $20K. He is done with school and does not need the money.

Can he take out $20K tax free ? I was under the impression that only the gains are subject to taxes and penalties if the money is not used for qualified education expenses.

If so,  this would be cool as he could take out $12K and fund his Roth for 2021/2022 which he was going to do $6K from savings anyway.

6

General Discussion / Re: 72(t)/SEPP changes vs Roth conversions in early retirement

« on: February 28, 2022, 03:51:18 PM »

I recently heard that the 72(t) calculations for SEPP are not longer limited to 120% of the Federal mid-term rates, but can go up to 5% (more info here https://www.irs.gov/pub/irs-drop/n-22-06.pdf).  Would there still be an advantage to Roth conversions if the SEPP calculation ended up being around the Roth conversion amount?

Is there anything to consider from an optimization standpoint (traditional IRA amount and age for instance to determine which is better).

Thank you.

Glad you posted this. I just signed up for this forum because I wanted 72T info and boom the first topic I see when I log on is regarding 72T.

 I'm 53 house rich and cash poor with some retal income.  With 6.5 years until I can access a roll over IRA without penalty. This might be a decent choice to put me in a "work optional" situation.