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11

Early Retirement / Re: How to convert investments to cash

« Last post by gocurrycracker 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.

12

Early Retirement / How to convert investments to cash

« Last post by dvorak on February 04, 2023, 11:50:40 AM »

Hi all,
I am hoping to retire in August of 2024. I will be 53. I think my portfolio and pensions/SS will be in a good place to walk. But I have very little cash and I am worried about having enough if I get the worst sequence of returns issue right when I retire.
I will make 78K this year and then 50k in 2024 before leaving work in June. I spend about 46K a year (with very cheap and good quality health insurance as a teacher that I will lose when I leave). My state tax is 9%. I plan on needing 50K/yr each year in retirement with higher insurance costs.
•   At 55 I will get 520/mo pension with a lump sum payout of 30K.
•   At 65 I will get another pension of 1240/mo with a 54,000 lump sum (rolled to my IRA).
•   At 70 I get SS at 1500/mo.

My portfolio allocations are attached.
 
I have been investing a lot and probably waited a bit too long to build up cash for my first few years and am probably too heavy in bonds (especially right now!).
Would love feedback on what I plan to do.
Plan for cash this year:
•   Put 17k to my 457 (bond fund) this to keep salary very close to the 22% tax bracket and pair this with selling 17k of my brokerage bond fund (at a 3K loss) to add 17k to treasuries in my brokerage (and harvest the 3K loss to add any salary to 457 or treasuries). I’m also maxing an HSA.
•   Add a 5K RMD from my inheritance IRA to treasuries as well.
•   This year and next: I will continue to loss harvest bond funds to buy treasuries next year (market conditions allowing) to get the 50K cash for the first year and then an additional 14K for when I turn 55 and maybe some more for a third year. (In my 55 year I will start my first pension (6.2K/yr) and get the lump sum 30K… so that is effectively 36K cash). Then, at 56 I will see what I have and hope that bonds are more useful.
So, I find this all kind of confusing and wonder a few things:
•   Is the plan good enough to succeed? Will my available/accessible money last me until 59.5?
•   How much cash/treasuries do I actually need when I walk away? And how much in bonds?
•   Should I put my 457 money in bonds or equities? Bonds are feeling terrible right now.
•   Should I shift away from all bonds throughout my portfolio to treasuries (for example in my inherit IRA) and shift back when the treasuries stop returning 4.5% +?
•   And big picture: How do you decide in retirement when the market is “good enough” to pull funds from equities and bonds to replenish cash? Or do you just make an objective annual rule and follow it no matter what?
Thanks for any thoughts.

13

Taxes / Re: Withdrawal plan for IRA to reduce impact upon death of spouse

« Last post by gocurrycracker 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.)

14

Taxes / Re: Withdrawal plan for IRA to reduce impact upon death of spouse

« Last post by Spot on February 03, 2023, 12:07:48 PM »

Market moves one way or the other does not affect or interest
us in any way as we have just Cash accounts with brokerage
and the $2,500 is just simple interest (no bonds, no stocks)
Should interest rates goback down to zero, no issues with that.

For 2023 (to be filed in 2024), the 12% top is $89,450
Taxed as $2,200 plus 12% of the amount over $22,000
 89,450-22,000 = 67,450 * 0.12 = $10,294 tax owed

Ok to make one IRS 1040ES payment 12/2023 via EFTPS
or should it be made in quarterly payments or even early 2024?

In case it matters, have not made any IRS tax payments for
over a decade due to too small of income and kept it
that way deliberately to get maximum ACA subsidy before
moving over to Medicare.

15

Taxes / Re: Overcontribution (after-tax) to 401K

« Last post by gocurrycracker 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

16

Taxes / Re: Withdrawal plan for IRA to reduce impact upon death of spouse

« Last post by gocurrycracker 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

17

Taxes / Overcontribution (after-tax) to 401K

« Last post by hikebike on January 29, 2023, 03:53:32 PM »

After my husband maxed out his 401K pre-tax, he contributed after-tax into the same 401K in 2022. But it looks like we overdid it by about 20K,  because we didn't calculate with his company 401K match. (My understanding is, that the plan allows $67500 if 50y old -> $27000 before tax, 20500 company match, $20000 after tax)
His plan allows in-service withdrawal, so we did a Mega backdoor conversion of this after-tax portion of $40K is now in a Roth IRA.
What can we do to correct it?

18

Taxes / Withdrawal plan for IRA to reduce impact upon death of spouse

« Last post by Spot on January 28, 2023, 06:03:50 AM »

Background and some easy numbers for hopefully easy math.

Quick facts:
MFJ, both 65+, both on Medicare A+B (nothing else), both have NOT filed for Social Security, no income except IRA interest.

Living expenses paid from a 1M traditional IRA which currently generates about $2,500 in interest income each month.
Projected income for 2023 about $34k which is more than is needed
Medicare premiums are paid from an HSA account with about $45k balance
No debt.

Trying to come up with a plan for easy withdrawal between now and age 70 when both (if alive) will file for Social Security, have a few more years to go. Understand that RMD's don't start until about 72/73.

Trying also to come up with a plan, should one of us die before 70 and the burden or inherited IRA occurs in combination of also possibly being close to 70 and having now full benefit of the larger earning spouse Social Security (about 4,500/month).

Have discussed using QCD's to ease the tax burden for the surviving spouse.

Any suggestions or online calculators or spreadsheets to model these variables?

19

Early Retirement / Re: Salary Deferral Distribution

« Last post by SamChav on January 19, 2023, 11:35:00 AM »

Thank you for your insights and help!

20

Early Retirement / Re: Salary Deferral Distribution

« Last post by gocurrycracker 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)