U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 04-07-2015, 08:38 PM
 
1,734 posts, read 1,949,697 times
Reputation: 3901

Advertisements

I believe I can live on the skinny, and still have a heckuva good time - I theeenk.

Here's an idea I haven't heard before: what if I quit work for a year or so right after my FRA. (as long as it takes to show really low wage income and be in a reeeaaal low tax bracket over two tax years).

During the very low income year or so, convert as much of my IRA/401K cash into a ROTH as feasible. I'd file and suspend when I leave the workforce, having filed for Medicare previously. I've got a modest pension and taxable dividends at that point, plus rental income - in total, enough to live on if I were an ascetic scholar. I'm buying a house in East Swampwater before I do this move. Don't care about having a mortgage. East Swampwater has reeaaal low priced housing on an absolute basis. There's just not much in that county. But I like it. Once it doesn't work anymore, one can leave - there's NO rental housing in East Swampwater county.

My purpose for doing this is to avoid taxes on the Roth conversions, while having a rationale to get out. Mathjak did say that you can retroactively collect the following Jan after you file and suspend. The retroactive is a chunk of change. Maybe it would be better to just not collect until the IRAs are converted. Have to run the spreadsheets.

I'd have more than 35 years of work for SS purposes, and Medicare. My birthday is in the beginning of the year - so if I left right after my birthday, filed, and suspended, conceivably I could have a really low income for ROTH conversion purposes? - as well as having the retroactive the following Jan? OR forgetting the retroactive, and just getting a higher check every month.

The downside is I'd be throwing away a fair salary in exchange for a low income for Roth conversion purposes. Dollar for dollar, it does not make sense - I do lose more than I gain, cash-wise. But I do gain free time.

Free time is starting to sound awfully nice!

Thanks in advance for your opinions!
Reply With Quote Quick reply to this message

 
Old 04-08-2015, 01:44 AM
 
13,320 posts, read 25,565,364 times
Reputation: 20505
Interesting idea. As I write from work, I'm tempted myself! I'll wait for more knowing people to opine.
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 02:27 AM
 
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
22,592 posts, read 39,962,822 times
Reputation: 23726
Will be interesting to hear SS implications for this strategy.

from my feeble (15 yr pre SS retirement...)
1) Take the money (current salary) and bank it (max deferrals into matching 401k + remainder of 'catch-up' into ROTH 401k, any additional into Traditional or ROTH IRAs. (while you have the job, and can endure).

2) Opportune to terminate early in yr (less income = ezr to qualify for ACA subsidy + lower tax brackets).

3) Roll into ROTHs to amount you can keep taxes below 7% (that is my thresh-hold / not a magic number). I would expect the roll will affect your MAGI (ACA number... if you need HC).

4) It will take a LOT of yrs of conversions to get this accomplished! (I have been doing conversions for 15 yrs, but only have had 4 yrs that it made sense to execute an inbound ROTH roll.) I do add a lot to my ROTH 401k (when employed... seldom).

Retire early, retire often
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 02:48 AM
 
71,626 posts, read 71,751,865 times
Reputation: 49222
the question is will converting that late in life really accomplish much. once that conversion income gets added to the regular income you have and you go over the 15% bracket odds are you didn't accomplish much.


the trick is to just convert as much as you can while keeping total income including the conversions in the 15% bracket . as long as you are still in the 15% bracket it is better to pay now at 15% than 25% later when rmd's and ss are combined.
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 06:11 AM
 
4,481 posts, read 4,743,979 times
Reputation: 9940
Intersting idea, would love to know if it could work.

Is East Swampwater for real or made up?
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 10:04 AM
 
Location: Albuquerque NM
1,660 posts, read 1,525,919 times
Reputation: 3650
People are also using this strategy to qualify for Affordable Health Care subsidies if they do not have employer health insurance in retirement. There are probably all kinds of things you can take advantage of by having this "artificial" low income.
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 10:07 AM
 
8,859 posts, read 5,136,100 times
Reputation: 10129
If you're going to retire anyway, absolutely you should live off your taxable accounts while converting tax-deferred to Roths. Definitely fill up your 0% bracket; 10% probably makes sense; 15% might make sense too.

(Is it legal to put two semi-colons in a single sentence? Hope I didn't just commit a felony.)
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 10:22 AM
 
1,734 posts, read 1,949,697 times
Reputation: 3901
Quote:
Originally Posted by brava4 View Post
Intersting idea, would love to know if it could work.

Is East Swampwater for real or made up?
Brightdog, lol, it is my made up term for a place I'd like to live - lotsa water (therefore lotsa wildlife), too far to commute, low population density and likely to remain that way because it's geographically undesirable. For my purposes, a perfect place to decompress and take long dog walks.

Hey, each to his own, right?
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 10:39 AM
 
1,734 posts, read 1,949,697 times
Reputation: 3901
Quote:
Originally Posted by mathjak107 View Post
the question is will converting that late in life really accomplish much. once that conversion income gets added to the regular income you have and you go over the 15% bracket odds are you didn't accomplish much.


the trick is to just convert as much as you can while keeping total income including the conversions in the 15% bracket . as long as you are still in the 15% bracket it is better to pay now at 15% than 25% later when rmd's and ss are combined.
Mathjak, thanks for your insight. Realistically, I have little hope of being in 15% bracket before I pull the trigger. Only if I load up on rent/commercial properties RIGHT NOW while I have income to substantiate. In my case, not a wise move - the RE within manageable distance (3 hrs round trip) is insanely overpriced. I don't like the area enough to be tied to it. Don't have enough discretionary time to do da job and manage farther flung properties.

The purpose of the Roth conversion: it is my understanding from reading posts from you and others on this board, Kitces, and googling extensively, that you and heirs can keep those suckas going in perpetuity. Thus, benefit during my lifetime is subordinate to prospect of future tax-free compounding.

Like I said, don't need a lot to feel happy and fulfilled.
Reply With Quote Quick reply to this message
 
Old 04-08-2015, 10:44 AM
 
1,734 posts, read 1,949,697 times
Reputation: 3901
err, Brava4 - please accept my apology for calling you brightdog. I was typing from memory. In my case, a bad move.
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Follow City-Data.com founder on our Forum or

All times are GMT -6.

2005-2019, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35 - Top