Messages

1

Taxes / Better understanding of capital gains harvesting?

« on: May 24, 2018, 01:56:57 PM »

I have a bunch of what JL Collins calls "cats and dogs" -- long-held stocks with significant unrealized gains in them. These make up about half of my portfolio.

I am just leaving them alone while I am still making ordinary income. But someday when I am not, I'll need to understand capital gains harvesting. So I recently re-listened to the GCC interview on episode 18 of ChooseFI:https://www.choosefi.com/018-go-curry-cracker-capital-gains-losses-roth-conversion-ladder/

And I also listened to their roundup episode at 18R: https://www.choosefi.com/018r-harvest-long-term-capital-gains-tax-free/
I had to listen to the hypothetical scenario that starts around 22:00 in episode 18R a couple times before it really clicked. Last time I listened to this was a year ago. These things take time to gel.

I also just read this Michael Kitces post: https://www.kitces.com/blog/understanding-the-mechanics-of-the-0-long-term-capital-gains-tax-rate-how-to-harvest-capital-gains-for-a-free-step-up-in-basis/ and found the charts helpful. I am now wondering if I am doing the math right under the new tax code.

Suppose it's 2018 and let's pretend I'm already "retired" and getting $0 in ordinary income. Let's also suppose I am a single filer with no dependents. So, I'm going to do a Roth conversion out of my traditional IRA so that I have some tax-free money in five years. Under the new tax code, $9,526 of ordinary income gets you into the 12% ordinary income bracket. Assume there are no other deductions. So each year, I can convert $9,525 + $12,000 = $21,525 (the amount of the standard deduction), wait five years, then use. Right?

Suppose I need an additional $17,000 each year to live on. I can safely sell $17,000 worth of stocks from a taxable portfolio because I will still be in the 0% capital gains bracket (under a grand total of $38,600) correct?

Am I finally getting it? 

2

Taxes / Re: Mega Roth Rollover for Post-Tax Contributions for 401k

« on: May 24, 2018, 12:34:53 PM »

I think I am finally understanding the difference. Thank you.

3

Taxes / Re: Mega Roth Rollover for Post-Tax Contributions for 401k

« on: May 10, 2018, 01:03:04 PM »

You have to pay taxes on the gains the post-tax investments made between the time they were purchased and when you perform the rollover.

Hopefully this is not too much of a hijack from the original question. I am confused....On the differences between a backdoor Roth, and a mega backdoor Roth, aka Roth conversion ladder. Let's assume for purposes of my question, everything is at Vanguard without mystery fees and weird rules. Let's also assume that I am in the 25% tax bracket, just because it is an easy number to work with.

Scenario 1
Suppose I contribute $18,500 to a 401(k). Then, I roll it over into a traditional IRA. Then, I roll that over/convert that into a Roth IRA. I do this all within a week or so, the shortest period of time that it will take to process the rollovers. It gained a negligible amount during that week or so. I'm taxed at my usual rate on that gain. It isn't much tax because it was not sitting in the Traditional IRA long enough to gain a lot. Yay, now I have $18,500 growing in a Roth IRA that I won't be taxed on later....Can you really do that? Or can I only roll over $5500 per year that way? So, see scenario 2 below:

Scenario 2
Suppose I contribute $18,500 to a 401(k). It just sits there. Then, I open a separate Traditional IRA. I put $5,500 into that Traditional IRA, and immediately roll it into a Roth IRA I opened for such purpose. Yay, now I have $5,500 growing in the Roth IRA. Did I get that right?

Scenario 3
Suppose I contribute $18,500 to a 401(k). No employer match made. Then, I make after-tax contributions to that same 401(k) to bring my total up to $55,000. Then, I roll over the pre-tax part into a traditional IRA and roll over the after-tax part into a Roth IRA. Now my $36,500 is growing in a Roth IRA. Yay! Can I do this?

Long story short, this is the tax issue that I have been struggling to understand since I first discovered GCC and MF a little over a year ago. I haven't optimized it because I don't have a strong grasp of it, and until January of this year, I did not know what my tax bracket would be for 2017 for reasons that I won't get into here. I did not do an employer match because I'm self employed and was told that it would offer me no immediate tax benefit.  When I asked my CPA what CPA knew about Roth rollovers, it was scenario #2 that was described for me and I was told about the $5500 limit. CPA didn't get into any "mega" stuff.

Please correct any of my misunderstandings in the above scenarios. And, assuming they're correct, how might one determine which scenario is best for someone who is still working and not in a low tax bracket? I am still Roth eligible, but the taxes on funding a Roth "now" are painful enough to motivate me not to do it. So far, the last three years, I've just funded the $18,500 in the traditional 401(k) for the tax break and decided I would worry later about how to access the money early. But, I want to have a solid intellectual grasp of this stuff today in case I decide to withdraw the money in the next few years.

Thank you.....

4

General Discussion / Re: Spreadsheet to analyze if your managed portfolio is beating the index?

« on: April 27, 2018, 12:22:50 PM »

This is a good response, prognastat. I don't have 5 years of data. I have just over a year that's readily available. Looking at my personal capital account, the managed portfolio grew 3.81% since I started using personal capital. Fees were just under half of the amount of dividend income it generated. During the same period of time, VTSAX grew 11.77%. 

I need to get out, but I can't do it all at once -- tax problem.

I could just move the portfolio to something like e-trade without selling anything in it, and then gradually sell chunks of it to buy VTSAX at a pace that doesn't cause negative tax impacts. I have been intimidated by this process, however, so I haven't done anything.

5

General Discussion / Spreadsheet to analyze if your managed portfolio is beating the index?

« on: April 27, 2018, 10:11:21 AM »

Several years before I found out that early retirement was a thing, and low-fee index investing the preferred method of stock investing, I put my money with a portfolio manager who has me invested in an array of single stocks. He charges 1% of assets, billed quarterly. Once I have up to a certain threshold the fee goes down to 0.75% of assets under management.

He is a fiduciary, and I am confident that he is an ethical human being. He sells no packaged products of any kind. I consider myself lucky that back when I knew zero about this sh-t, I found him, and didn't wind up in some packaged garbage products. As a financial advisor, what he says is exactly like what JL Collins says, EXCEPT he thinks it is better if people invest in individual companies (focusing on dividend stocks) and if everyone invested in the index, it would be bad. He has some compelling arguments for this. Since finding the GCC blog, Mad Fientist, etc., I have started additional index investing on my own -- kind of like going to a Protestant church on Sunday and then Mass on Wednesday to hedge my bet. 

I have done pretty well with this portfolio, and know it will be fine if I just let it stay there....but could it be better without the drag of this 1% fee? Sure. Is the focus on dividend stocks enough to overcome this drag? Maybe, but then is it a wash? I am also concerned about capital gains consequences of deciding to move this portfolio all into the index at once. It would be a huge tax problem for me that I refuse to take on.

I have thought about investing in real estate once my locale's bubble goes pop, and harvesting some losses in the managed portfolio to come up with an appropriate down payment. That would be one way to reinvest the money and gradually get out of a managed portfolio. But, I have no idea when it will be feasible to get into real estate here, and I'm unwilling to buy any properties I can't drive to in an afternoon.

I wondering if anyone can point me to a spreadsheet or calculator where I can plug in the income (both growth and dividends) generated by my portfolio, the fees I paid, and compare it to VTSAX for a one- or two-year period. I feel like I need to know THIS number before I can think about pulling some cash out of the managed portfolio and putting that toward real estate. You never know, even in this market, the right deal might be out there. I want to compare apples to apples, and then apples to oranges. Thanks!

6

General Discussion / Other Vanguard funds besides VTSAX?

« on: April 19, 2018, 08:06:44 AM »

What we mostly hear about is VTSAX. Does anyone have a handy summary of the other funds Vanguard offers, and what the advantages and disadvantages are to investing in them? Including, but not limited to: VWINX, VIGIX, VEMPX, VIIIX...?

7

Digital Nomad Life / Non-spammy digital side hustle for already self-employed, free-ish person?

« on: April 18, 2018, 02:45:11 PM »

Hi Y'all,

I am a self-employed professional.

First the good news: I have a lot of self-determination and autonomy, and can run my business from home and a rent-a-cube. I have been able to travel and take my work with me. It's low overhead. It's cyclical, meaning sometimes I put in tons of hours, followed by a more relaxed phase.

Now the griping: It's stressful. The amount of stress involved causes me to limit the amount of work I take on, which limits my income. This is kind of a quality problem; I do pretty well. But, I sometimes think I'd like to eventually phase out of this super stressful work into something less stressful before hitting FI. I am about halfway there. I have been having trouble finding a suitable replacement for my income, so I just keep plugging away. I've accepted that my best shot at making enough money to hit FI is to keep doing what I'm doing. But, I am not really able to do any more than I already do in a given week or year, so if I want to hit FI faster, I need a side hustle.

I have explored things like creating and selling online educational courses through a blog, and just found that stuff triggers my "ick, scammy spam" reflex way too much. (When something kinda reminds me of Trump University, do I want to be selling it? Aw, hell no.) I've thought about personal coaching, but after a long day of dealing with people and their problems, bless them, the last thing you want to do is deal with more people and their problems. I have attempted to promote a blog, but found that even a little social media involvement on my part presented a lot of conflicts with my main business, and actually took away from the energy I had for the business that was making more money. I have thought about selling handcrafted items, but based on multiple past experiences doing this, it's quite a bit of labor for a relatively small return. I have looked at buying a rental house and crunched a lot of numbers, but my market is in a ridiculous bubble phase and it just doesn't make any sense right now. I have to be patient on that one. I do a little contract work on the side, but it has been hard to find and make it consistent.

So my question is: During the lulls, I would like to do some kind of non-spammy, non-scammy, digital and portable side hustle to make more money. What have I not considered? Where do I look? Or, should I just resign myself to a less accelerated path to the FI number, and learn to more deeply appreciate my free time while I wait for the real estate market to chill out?

8

Travel hacking / Re: How to hack rental cars in Europe?

« on: April 16, 2018, 08:06:42 AM »

Thank you for the warning! We are admittedly going to some of the most expensive places, so we want to avoid surprises.

Has anyone here used Sixt for renting cars in Europe?

P.s. Great news piece.

9

Digital Nomad Life / Re: Do you have a home base?

« on: April 11, 2018, 03:18:57 PM »

* Reno, Nevada

States w/ no income tax:
Alaska (actually pay you to live there)
Florida
Nevada
South Dakota
Texas
Washington
Wyoming

Property taxes are high in the city of Anchorage, Alaska. But, there are a lot of creative ways that people live part time in Alaska, and it is full of quasi-nomads, so you'll never have to pay for furniture if you don't want to :-)

10

Taxes / Re: S-Corp or Sole Proprietorship?

« on: April 11, 2018, 03:12:24 PM »

This is a very tough call when you're making enough money to really be viable, but aren't really rolling in the dough....

I switched from sole proprietor to S-Corp for 2016. One thing that was a tough adjustment and learning curve was having to deal with a payroll processing company. They wouldn't jive well with where I have my retirement accounts, it was hard to shut off the solicitation emails from them, they messed up a couple things and I had to pay my CPA to fix the way the contributions were designated. As someone with no employees who finds it hard to find independent contractors competent to do any of my tasks (common in my industry, really....) suddenly it felt like I had some idiots to manage.

That said, it has been a great tax benefit compared to the hassle factor.

And, it wasn't any benefit to me the first 5 years I was in business. It made more sense for me to just deal with SE tax up to a point, and the overhead was simpler. Not anymore.

If you're new to business, or this particular business is new, I'd just start out as a sole proprietor but keep a close eye on your earnings and work closely with a CPA to know where you are, since there are deadlines for electing to be an S-Corp (I can't remember what it is).

I'm not a CPA so this is not tax advice.

11

Travel hacking / How to hack rental cars in Europe?

« on: April 11, 2018, 02:57:47 PM »

Hi everyone,

I am planning a three-week trip in Europe in March 2019. We are flying into Switzerland and plan to visit Italy, France, and Germany and perhaps more. We need to rent a car to take to the mountains.

I do not want to burn through all of the Alaska or Delta points. I may have some Amex points building up over the rest of 2018 that could be redeemed for a rental car.

I have done month-long trips in other states within the U.S. and hacked it moderately by turning in my rental car every 10 days for a different one! But, I've never rented a car in Europe and so I am utterly clueless about it.

All suggestions are welcome.