Messages

31

General Discussion / Re: Excess cash and wildly varying incomes

« on: January 19, 2022, 06:10:46 PM »

~$110k (Standard deduction + ~$85k, 2022 numbers)

Once RMDs get large (start at 72 but become significant after age 80 or so) it is quite easy to exceed $110k income, especially with SS

You can play with the numbers with this calc
https://www.gocurrycracker.com/federal-income-tax-calculator/

This post has some charts with rough 401k sizes to have RMDs push you into higher tax brackets
https://www.gocurrycracker.com/is-your-401k-too-big-part-2/

32

Expat life / Re: Foreign tax credit - Germany taxes

« on: January 18, 2022, 09:40:33 AM »

I would hire a tax person that focuses on expat taxes and has experience with German residency. These things are highly nuanced.

Things that are not taxed in the US (your 401k, IRAs) may be taxed in Germany. Is there a tax treaty between the 2 countries that decides which social security system you pay into? Etc...

Most likely you will have a $0 US tax liability - getting a credit for any tax paid in Germany.

You can't exceed the income allowed by the foreign tax credit (you can exceed the Foreign Earned Income Exclusion amount.)
Any excess can be carried forward and applied to future US tax bills, assuming you return to the US within 10 years.

33

General Discussion / Re: Excess cash and wildly varying incomes

« on: January 17, 2022, 09:19:44 PM »

Yeah, accurate plan. I misread your initial post and was thinking you wanted to contribute to both Roth and Traditional IRAs in the same year, but you clearly labeled them 2021 and 2022.

If my wife decides to not earn significant money this year and we stay under the standard deduction, wouldn't it be possible to do a conversion at zero tax with the difference?

Yes. Or do more and pay a little tax at 10% / 12% if you think that is less than what you will pay in a few decades.

I almost always do Roth conversions in December - that is the first time I really know what annual income will be.
Exception - in 2020 when the market crashed in March(?) I did a Roth conversion at discount prices based on a guess for annual income.

34

Travel hacking / Re: Credit card tracker

« on: January 17, 2022, 08:57:54 PM »

I don't have a template... I just put credit card name, date of application / approval, date to meet minimum spend for each card in a simple xls

I'll ask Brandon if he has something shareworthy

35

General Discussion / Re: Excess cash and wildly varying incomes

« on: January 13, 2022, 12:29:25 PM »

Hi Rick, thanks for the kinds words, much appreciated.

So...

You can only contribute $6k total per person to IRAs - if you contribute $6k to a Roth you can't also contribute to a Traditional.

With a monthly burn rate of $5k and depending on spousal income, you may need some of that $100k to fund life expenses for 2022. That says leave excess cash in the taxable account for easy access.

There are 2 terms that are commingled in your question:
Backdoor Roth - something that high income people can do to get money into Roth accounts - you can just do Front door Roths this year assuming you have earned income of $12k+
Roth conversion - the act of moving funds from Traditional IRA to Roth IRA - it is taxable but advantageous when done during low income years

For Roth conversion, 100% of the conversion will be taxable (pro-rate is 100%) - the idea is you are happy to pay 0%, 10%, or 12% tax knowing that it saves you 22%+ later.

You can do a Roth conversion at any time in the year -

36

Early Retirement / Re: Early Retirement withdraw strategy

« on: December 22, 2021, 07:44:31 PM »

There are some limits to buying/selling same shares of a Mutual Fund on the same day. Vanguard calls it a violation
https://investor.vanguard.com/investing/online-trading/trading-penalties

With VTSAX you may end up selling at market close on Day 1 and buying at Market close on Day 2

There are zero restrictions trading ETFs, e.g. VTI

37

General Discussion / Re: Roth or Traditional IRA when pensions are involved

« on: December 20, 2021, 11:01:14 AM »

With a pension (and Social Security) retirement income will be in the same range as working income.

Which means marginal tax rate on IRA withdrawals will be in line with what you are paying today, assuming tax rates don't change.

This is a good case for paying taxes now / contributing to a Roth.

38

Early Retirement / Re: Early Retirement withdraw strategy

« on: December 19, 2021, 01:42:23 PM »

specific shares is best - always choose the shares that have the highest cost basis. The goal is to have the most dollars worth of shares at full basis

39

Early Retirement / Re: Early Retirement withdraw strategy

« on: December 17, 2021, 12:21:33 PM »

Going in reverse order

4 - You can think of Social Security as part of your bond allocation, so your portfolio is more than 20% bonds. Probably enough, imo. Some people target 60/40 as a retirement portfolio.

3 - Money is fungible - bonds are bonds.
If the market drops and you want to rebalance, you can do it in the pre-tax or Roth accounts.

If the market is down and you want to spend bonds to allow the market to recover, you can sell stock in your taxable account to get cash and then trade the bonds for stock in your retirement accounts. Asset allocation is the same either way and the trades are tax friendly.

2 - SEPP is less flexible than Option 1, but certainly a good option

1 - How to get $30k - just take it from the brokerage account. You have 10+ years of runway

You get the standard deduction (~$25k) AND a large 0% tax bracket for LTCGs (~$80k) so total income of ~$105k before LTCGs are taxed

Having health insurance premiums independent of AGI is a very nice thing to have, so that does give you Roth conversion opportunities. Roth conversions AND LTCGs are taxable at the State level in most states, so just be aware of that.

So...
$30k W2 income
~$5k in dividends in brokerage account
~$15k in long-term capital gains (selling $30k of VTSAX assuming it has doubled since you bought it, for example)

This leaves ~$55k of wiggle room for future tax optimization.

You can cap gain harvest next-year's sale of $30k of VTSAX
And do a Roth conversion to fill at least the 10% bracket (~$15k Roth conversion), maybe some 12%. With "only" $650k in traditional accounts you may never pay more than 12% tax. 12% now or 12% in 20 years is mathematically the same so no rush.
https://www.gocurrycracker.com/is-your-401k-too-big-part-2/

This calc can help you figure out the right numbers
https://www.gocurrycracker.com/federal-income-tax-calculator/

Example with $15k Roth conversion

40

Early Retirement / Re: Taking the dive is terrifying!

« on: November 25, 2021, 09:42:11 PM »

Happy to help

I think your take that spending more is just fine and that paying more in taxes / health insurance premiums is also fine is a very healthy and reasonable perspective

41

Early Retirement / Re: Taking the dive is terrifying!

« on: November 18, 2021, 09:20:08 AM »

Your 2 pensions and SS provide a combined $50k/year, which is less than your target cost of living.

You also have $1.25KK, roughly. At 4% withdrawal rate that puts you at $50k/year.

To die with zero, technically you could spend 100% of your savings between retirement and when you start SS.
Just using age 65 for all annuities for simplicity, that is 13 years from the portfolio or about $100k/year to drive then to zero. You could get a very nice van.


Asset allocation - maybe you are at 60/40 stock/bond split just at a glance. If you think of your pensions as additional bond allocation, you are overweight bonds.


I would tweak the withdrawal plan. Nothing says you can't withdraw more from the inherited IRA and there is no penalty for doing so. So draw that down first instead of paying a penalty on withdrawals from your own IRA.

Same with the 457. With no early withdrawal penalty, drawn that down to zero next.
Combine with the brokerage account so you don't go into the 22% tax bracket (total ordinary income less than ~$53k.)
Or better yet, combine with brokerage account and house sale to keep yourself in the <10% tax bracket (ordinary income < $22.5k)

Assuming 50% of the money you withdraw from the brokerage account is a capital gain, you now have a $1k/year tax bill (instead of $4k), annual premiums for an ACA silver plan of $2000 (instead of ~$7k+) and a penalty of $0 (instead of $3k.)

This gets you to age 59.5 upon which you have zero restrictions.


Summary:
Withdraw $22.5k from Inherited IRA and then 457
Withdraw $27.5k from brokerage (assume half as return of capital / half as long-term capital gain)
Available after tax of $1k: $49k
Available after ACA premiums: $47k (equal to pension+SS)

42

Taxes / Re: Moving to the US after 20+ years of teaching in Asia

« on: November 18, 2021, 08:40:48 AM »

Assuming your current country of residence won't tax you capital gains AND your joint total income is still within the 0% capital gains tax bracket, then yes, harvesting capital gains is a good idea. You could also potentially do a Roth conversion if you have US Traditional IRAs

You can use this calculator to figure out the target amount.

If you repatriate before 12/31, then income earned once you are a US State resident may be taxed by that State. Income from cap gain harvesting may result in this income being taxed at a higher rate if it pushes you into a higher State tax bracket.
https://www.gocurrycracker.com/federal-income-tax-calculator/

For example: with $80k joint income all excluded with the FEIE you have about $25k of combined 0% bracket that can be split between Roth conversions and cap gain harvests

43

Early Retirement / Re: Early retirement withdrawal strategy

« on: November 13, 2021, 06:14:54 PM »

Yes, correct

44

General Discussion / Re: Lump sum or dollar cost average?

« on: November 03, 2021, 11:03:14 PM »

You won't know wether DCA or lump sum is better until after the fact.

Rule of thumb is that lump sum is better

The last big chunk of cash I had I did lump sum. Also with the 2nd and 3rd to last chunks of cash.

45

General Discussion / Re: Deciding between index funds, Canada

« on: October 07, 2021, 01:30:57 PM »

The total market fund owns ~3000 stock. The SP500 owns... 500. The extra 2500 stocks are for small and medium businesses, which in theory will grow faster than large cap companies.

As a Canadian, in theory you cannot own US mutual funds. ETFs are fine though. The er on VTI is 0.03%. There is no fee reason to own a different fund.

VXUS is the international fund. It's er is 0.08%.

We own both VTI and VXUS. This post walks through the thought process:
https://www.gocurrycracker.com/us-vs-international-investing/

Canada represents about 2.5% of global equity markets. It would be reasonable for a Canadian to have 2.5% of their investments allocated to Canada.

Currency hedging is a big more challenging to figure out - if you spend 100% of your time in Canada and prefer Canadian sources for food, etc, having all of your assets in CAD isn't so bad. If you spend time outside Canada and favor imports, then maybe some diversification is better.

I would personally choose to not hedge to the canadian dollar - I recommend looking at what some Canadian residents / citizens think about this also. Here is one option: (I didn't read it)
https://www.millennial-revolution.com/invest/workshop-invest/investment-workshop-38-currency-hedging/