Messages

46

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.

47

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

48

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

49

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

50

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)

51

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

52

Early Retirement / Re: Early retirement withdrawal strategy

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

Yes, correct

53

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.

54

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/

55

General Discussion / Re: Forever home decision between Taiwan and Cali

« on: September 14, 2021, 08:56:20 AM »

Education was part of it, yes.

Generically speaking -
Taiwan schools follow a more Confucian education model - the teacher teaches, the kids listen. Don't ask questions. You will understand why later. Sit still. We will go to the bathroom at the scheduled break. Etc... Art, music, play time, are often pushed aside for more time to study. After school you can go to English cram school. Sleep, repeat.

The US has traditionally followed a liberal arts model - being a well rounded student is more important than your math score. Being able to figure out a solution to a general problem is more important than fact memorization. The "why" of something is sometimes more important than getting the right answer.

There are pros/cons to both models.

With a very high energy child, we felt the US might be a better fit.

56

Taxes / Re: Taxcaster

« on: September 13, 2021, 11:22:10 AM »

The thing I really liked about Taxcaster was it could account for Social Security income separately to apply the taxes to it correctly. Do you know of an easy way to do that? I get taxed on it so it was nice playing with the ROTH conversion numbers to pay exactly what I want.

Also now that you are living in CA, hoping to see a calculator for CA taxes. I also can't wait to see your next filing. I know you eluded to not paying zero by a long shot, but wanting to see how you mitigate your taxes in your current situation.

Take a look at this calc: https://www.irscalculators.com/tax-calculator

It isn't perfect but it will do CA taxes and (I believe) Social Security

57

Taxes / Re: Taxcaster

« on: September 09, 2021, 10:08:28 PM »

Yes, they changed it and now it is terrible

Try this one instead
https://www.gocurrycracker.com/federal-income-tax-calculator/

58

General Discussion / Re: Flexible indexed universal life insurance and fixed index annuities

« on: September 04, 2021, 11:35:00 AM »

Read through what WCI has written here (and related articles):
https://www.whitecoatinvestor.com/5-reasons-not-to-buy-indexed-universal-life-insurance/

59

General Discussion / Re: Flexible indexed universal life insurance and fixed index annuities

« on: September 01, 2021, 08:37:38 AM »

Universal life insurance is good for one person only, the sales person

60

Taxes / Re: IRA too big. Best way to minimize taxes and maximize estate

« on: August 20, 2021, 09:54:23 AM »

If taxes go up, yes better to pay now vs later. They may go up, but probably not because of federal debt
(Fun read: https://amzn.to/3B2FsNp)

The no pay later option on a Roth is nice, I agree. It's only because you pay now though, so it isn't free.

For the specific plan of $300k annual Roth conversions...
Any dividend or capital gain distributions from the brokerage account will be taxed at 15% + 3.8% NIIT vs 0% (?) if you do no Roth conversions. That is another few thousand dollars of tax per year (maybe 10% increase in total tax.)

At age 60 the legal cost of health insurance premiums can be 3x the cost at age 25. For a household of 2, heath insurance premiums could be on the order of $25k/year - the cliff can be massive. Adding the cost of going over 400% FPL to total tax paid could give you a marginal rate much higher than 28%+.

I don't know if either of these factors are significant without looking deeper, but they should be included in any analysis.


With $4 million in Traditional IRA now some Roth conversions are warranted. I'd probably aim for having TIRA values at less than $2.5 million at age 70-ish. Maybe <$2 million with SS and rental income filling lower brackets.
https://www.gocurrycracker.com/is-your-401k-too-big-part-2/

This might mean filling the 22% bracket and stopping. (Although 24% isn't that much more and maybe you just fill it because it is easiest.)