The best thing if you are ER and don't mind doing a smidge of work is to find someone to pay you as independent contractor to the tune of $2K/Year. That would mean you get to deduct your health insurance (you are small business owner) and put 2K/year into IRA and get a saver's credit for an extra 1K (free money). That can open up a lot of space to convert TIRA to RIRA and never have to pay taxes on those RIRA earnings (and make more accessible without penalties).
Can you elaborate on this strategy? Right now, I'm employed and have insurance through my employer. My wife is not employed. It's cheaper for my wife and 2 kids to get a plan for them through the ACA state exchange. Our household income is less that 400% of FPL, so if I didn't have access to an employer-provided plan, we'd easily get an ACA subsidy for their premiums. Even though we don't, it's still cheaper for us to pay for their coverage with after-tax money than to put them on my plan through work and pay with pre-tax money.
Anyway, my wife and I both do work for family businesses owned by family/friends that we don't currently get paid cash for. We just trade our time/equipment in return for time/equipment from others when we need it. It's just an arrangement where family/friends help family/friends. We own rental property, but don't have a side business with any "earned" income or 1099s. Right now, I contribute to a 401(k) at work, but only up to the match. And then the wife and I each max out a Roth or T IRA, depending on the details of that year.
We know the people we "help out" well enough that we could work out an arrangement where we would get paid a few thousand each year for the work we do for them. But then we'd be in a position where we needed to pay tax on that income. I've always wondered if starting an S-Corp, LLC, or a sole-propietorship that made a few thousand a year(from that source) would be worthwhile for the purpose of funding a SEP IRA or Solo 401(k). I have never thought it was worth it(for us) because:
a) I don't max my 401(k) now anyway. In the future, if my wife is working but does not have access to a 401(k)... then we may make enough to fully fund my 401(k), both IRAs, and still want to defer more income by having a 401(k) for her. I can see where a side-business with a 401(k) may be helpful then.
b) SEP IRA not worth it because of the 20 or 25% max contribution.
The question I have, sparked by this thread, is whether it may be worth starting that small side business now so that we could deduct the health insurance premiums for wife and kids?
Also, can you elaborate on the saver's credit. I believe that's something we already get by maxing out our IRAs while below a certain income. I wanted to make sure you aren't describing something different that is tied to having a business.
Let me know if this needs to be in a new thread....