Federal employment vs self employment

[Asteinfort]

Reader Case Study = Stay the course or ???????

IRS Filing Status = Single, no dependents. 44, Utah (but would prefer Boise, ID)

Gross Salary = $75,821

Pre tax deductions
Retirement 23.25
TSP $145.32 (3778.32 annual)
Health Ins $118.12 (3071.12 annual)
Dental $11.52 (299.52 annual)
FSA 65.38 (1699.88 annual)

Post tax deductions
SSA $168.11
Life insurance $26.90 = term = $453,000 (11.70 for $78000 and 15.20 for a multiplier of annual salary)
Long term care $24.34
Union dues $16.08
Medicare $39.32


Rental Income
$800 (house #2)
$500 (house #1 = 1 roommate)

AGI 2017 $58640

Taxes
Fed $282.55/7346.30
State $127.02/3302.52


Current expenses
Mortgage $1641.67 (1415.47 P&I $226.20 T&I)
Mortgage $749.55 ($606.42 P&I $143.13 T&I)
Utilities house 1 $225
Utilities house 2 $138.50
Heloc $52
Car insurance $60
Phone $65
Costco membership $10
Amazon Prime $10
Gym $26 (prepaid in Jan)
Food $200


Assets
House 1 $365,000 current FMV Equity $87K
House 2 $205,000 current FMV Equity $83K
TSP $69882.33 8.8% rate of return (60% C; 20% G; 10% S; 10% I)
AK State retirement $64551 (12578.67 9.9% return; 35693.32 21.32% return)
ID  State retirement $15745
Ed Jones $960 (basis $450, taxable, just some Verizon/frontier stock and cash)
529 $10465
Car $10572
Cash $7691

Total $349866.33

Liabilities
Mortgage 1 $278K at 4.5%
Mortgage 2 $108,784.47; 4.5%
HELOC      $14429 (House 2)
Home Depot $1900 (no interest until 5/2019)

Total $403113.47


1.   I live in House #1 and work in Utah but I’d rather live and work in House #2 Boise, ID. However, it’s unlikely that I can get a transfer so I’d have to explore self employment (which, if I can nail the clients, I’d double my gross income). I’m totally miserable in my current employment/location to the point where my work place stress is causing physical symptoms. I used to love my job but I started transferring to pursue promotions. Got them but now I just want to go home. Ugh.
2.   House #2 is a $6200 loss on Sch E of which $3827 is depreciation.
3.   What the hell to do w/ 529 plan when neither kid wanted to go to college?
4.   Why do I hold onto this Ed Jones account?
5.   I dropped my TSP contribution to the employer match in order to build up FU cash.
6.   I’d have to work 17 more years to hit minimum retirement w/o a penalty at 62 and max the pay scale at $95,388.
7.   If I quit then I can sell House 1, bank the equity/proceeds and erase upwards of $1900 off my monthly expenses and $278,000 off my balance sheet.
8.   If I pursue self employment my monthly living expenses would be approx.. $500/mo as I’d keep the roomies currently in house #2 and bootstrap the new biz.
9.   My current employer completely restricts my outside of work activity so side hustles are a no-go.

I started my federal career almost 10 years ago. It will be 10 years June 2019. From there it would be 15 years in order to retire with a federal pension at 60 and carry the federal health insurance into retirement (becomes secondary after reaching Medicare age). I have reached a midpoint in life and looking for 1)financial independence and 2)less stress in all areas of life so as to improve my quality of life in the 2nd half.

[Peachtea]

17 years is a long time to work in a job and location you hate. Do you only have three years of federal service then? You can get your contributions back as a lump sum if you quit. Do you know about deferred retirement? Say you started with the federal gov at 24 and now have 20 years at 44, you can retire now and defer your annuity until 60 to avoid reducing the benefit. If you have at least 5 years you can defer your annuity until 62 and not get have any reductions (although obviously it will be a lot less than an annuity with 20 years of service).

What kind of self-employment are you looking at? Have you looked to make sure there is a market in Boise for the type of self-employment you would be doing?

[Asteinfort]

17 years is a long time to work in a job and location you hate. Do you only have three years of federal service then? You can get your contributions back as a lump sum if you quit. Do you know about deferred retirement? Say you started with the federal gov at 24 and now have 20 years at 44, you can retire now and defer your annuity until 60 to avoid reducing the benefit. If you have at least 5 years you can defer your annuity until 62 and not get have any reductions (although obviously it will be a lot less than an annuity with 20 years of service).

What kind of self-employment are you looking at? Have you looked to make sure there is a market in Boise for the type of self-employment you would be doing?

I answered the length of service questions in my original post but I need 11 more years to hit 20. As far as the kind of self employment it would involve representing people before the IRS mostly in collection cases. I was sitting for the CPA when hired by the feds but ran out of time to take the final exam. I would have enrolled agent status upon separation from federal service (and application). There is a market for my skills and knowledge nationwide. I would not be limited to clients in Boise. I would have to work out a cost effective way to secure clients nationwide.

[zolotiyeruki]

You say that you originally enjoyed your work, but as you pursued promotions, your job satisfaction dropped.  Is "going back" to what you enjoyed an option?  Bootstrapping your own small business is possible, but generally speaking, it's a LOT of work for years before you get to the point where you can work a normal 40-hour week.

Are there things that bother you at your current job that you could choose to not care about?  I've heard a lot of stories where people enjoy the work itself, but not the environment, and chose to enjoy the former while ignoring the latter, with very positive results.

[Asteinfort]

You say that you originally enjoyed your work, but as you pursued promotions, your job satisfaction dropped.  Is "going back" to what you enjoyed an option?  Bootstrapping your own small business is possible, but generally speaking, it's a LOT of work for years before you get to the point where you can work a normal 40-hour week.

Are there things that bother you at your current job that you could choose to not care about?  I've heard a lot of stories where people enjoy the work itself, but not the environment, and chose to enjoy the former while ignoring the latter, with very positive results.

I am in the same job/series but have moved up in grades/levels. The work is stressful/confrontational and involves field work. I looked at my medical file/records and in the last 5 years my triglycerides have doubled and I've probably gained/carry an extra 30 lbs. I developed a heart condition (premature ventricular contraction) which currently is benign but over time weakens the heart and combined with the elevated triglycerides lead to heart disease. Basically I'm stressed to the max, fat and my heart beats too damn much. My stress related anxiety is at an all time high. I know that all of this is a result of my inability to shut off the work stress. If you try to balance your work/non work life in my job series management lowers your evaluation. That score determines your ability to move into less stressful positions/work, participate in the voluntary relocation program, get an extra week of a year, etc.

I have set a date for myself (ten year mark summer 2019) where I can sell the UT house w/o capital gains and quit if I have not been able to relocate/transfer or otherwise mitigate my current stressful work situation. I had already switched to full time telework and am in my 3rd year of working full time from home w/ only 3-5 days in the office a month.

[fiteacher]

This maybe a total random question, but why do you have a 529 plan with no dependents? Kids out of college? Sorry I was just curious.

[Asteinfort]

It doesn't sound to me like you can stick it out through that many more years for a pension.

If you do want to get your CPA or pursue other training, is there a way you could use the 529 money for that?  If not, then you could cash it out when your income is low as you are ramping up your business -- you'd have to pay the 10% penalty, but as long as your income isn't too high the tax hit wouldn't be awful.  And if you make too much money in your first year in business, well, good for you!  If you would rather keep it tax deferred, you can always redirect it to other family members besides your kids -- grandkids definitely qualify, and I think siblings or nieces/nephews do as well.

Is the Edward Jones money retirement or taxable?  Either way I would roll it over to someplace with lower fees like Vanguard.

Unsolicited advice:  Presumably you are getting enough of a rebate at Costco to justify the more expensive Gold card membership -- if not, you can cancel it and revert to the $60 regular membership and get money back.  The Costco visa is no-fee and increases your rebate in store, plus you get decent cash back for other purchases.  We're switching to using that as our primary card.  If you don't have it already you should apply for it while you still have your fed job.

You should talk with Keith at TheWealthyAccountant.com -- or at least follow his blog to get more ideas about how to build a business in the financial services space.  I think his account here is @KeithTax  He may have suggestions for other areas where your skill set could be applied, or be able to refer people to you.  I also wonder if self-employment is really your only option -- sounds like you probably work for the IRS, and seems like that plus management experience could transfer into a lot of other jobs.  Boise's economy has been doing pretty well, might be worth doing some kind of lateral job change from fed work to other public or private sector role to get yourself back there so you can start building the business and see how it goes.  If you sell the house in Utah you will have a good cash stash to work from, but building a business on the side is always a bit less risky than jumping feet first into something totally new.

I have a hard time placing a value on that pension vs my life energy. I recently read Your Money or Your Life (these forums and blogs are a wealth of information and have directed me to many books and other blogs I never would have discovered on my own) and I haven't quantified the value of the pension I do know that my current employer is receiving far more than 35,360 of my future life/energy hours. Also, to have 2/3 of your monthly retirement funds under the control/influence of the federal government (fed pension and SS) makes me nervous.

As far as the 529 plan I will use that for myself. Boise States Univ. has a master's in taxation program that I have long been interested in. I could pursue part time employment/self employment while advancing my education and putting the 529 plan funds to good use. Although I work for the federal government I abhor paying a 10% penalty or any more tax than legally necessary.

The Edward Jones is taxable. I'm thinking of just cashing it out and applying the funds to the Home Depot balance. I've been flexing my fledgling minimalism/mustachian muscle and looking for every way I can trim excess expenses/accounts/stuff from my life so that when I transition I have six figures from savings and house proceeds.

I do have the Costco VISA and it is my primary card. I think my combined card/store rebate is/was $500. I currently split the $120 executive membership w/ another adult but will consider lowering it to the regular $60 annual membership fee if my spending diet is such that the rebates don't cover the excess.

Thanks for the blog/website referral. I think I ran across him/his story in another forum/thread? I'll read all the blogs and then message him to get his take.

I appreciate the feedback!

[Asteinfort]

This maybe a total random question, but why do you have a 529 plan with no dependents? Kids out of college? Sorry I was just curious.

2 kids, 26 and 22. They did not choose college. No amount of bribery could get the younger one to attend :) So there it sits. On the other hand, I could easily go back for an advanced degree. I loved the academic environment.

[CalBal]

As far as the 529 plan I will use that for myself. Boise States Univ. has a master's in taxation program that I have long been interested in. I could pursue part time employment/self employment while advancing my education and putting the 529 plan funds to good use. Although I work for the federal government I abhor paying a 10% penalty or any more tax than legally necessary.

You can set-up/use a 529 plan for yourself?!?!

The things I learn on this forum!!

[Asteinfort]

As far as the 529 plan I will use that for myself. Boise States Univ. has a master's in taxation program that I have long been interested in. I could pursue part time employment/self employment while advancing my education and putting the 529 plan funds to good use. Although I work for the federal government I abhor paying a 10% penalty or any more tax than legally necessary.

You can set-up/use a 529 plan for yourself?!?!

The things I learn on this forum!!

Yes, however,  I did not set it up for myself. I set it up for my kids and they have elected not to use it. I can change the beneficiary to myself.

A 529 plan allows a person to grow his or her savings on behalf of a beneficiary, who could be a child or grandchild, a spouse or even yourself. A 529 plan may be established by anyone, including non-relatives, for a designated beneficiary. There is no limit on the number of 529 plans an individual can set up, but contributions should not exceed the cost of education nor the limit as set by the state. So if a plan has more than one contributor, these contributors should inform each other of their contributions to ensure they don't exceed the limits.

Read more: 529 Plan https://www.investopedia.com/terms/1/529plan.asp#ixzz5MbhTq1gG 
Follow us: Investopedia on Facebook

[kimmarg]

You say that you originally enjoyed your work, but as you pursued promotions, your job satisfaction dropped.  Is "going back" to what you enjoyed an option?  Bootstrapping your own small business is possible, but generally speaking, it's a LOT of work for years before you get to the point where you can work a normal 40-hour week.

Are there things that bother you at your current job that you could choose to not care about?  I've heard a lot of stories where people enjoy the work itself, but not the environment, and chose to enjoy the former while ignoring the latter, with very positive results.

I am in the same job/series but have moved up in grades/levels. The work is stressful/confrontational and involves field work. I looked at my medical file/records and in the last 5 years my triglycerides have doubled and I've probably gained/carry an extra 30 lbs. I developed a heart condition (premature ventricular contraction) which currently is benign but over time weakens the heart and combined with the elevated triglycerides lead to heart disease. Basically I'm stressed to the max, fat and my heart beats too damn much. My stress related anxiety is at an all time high. I know that all of this is a result of my inability to shut off the work stress. If you try to balance your work/non work life in my job series management lowers your evaluation. That score determines your ability to move into less stressful positions/work, participate in the voluntary relocation program, get an extra week of a year, etc.

I have set a date for myself (ten year mark summer 2019) where I can sell the UT house w/o capital gains and quit if I have not been able to relocate/transfer or otherwise mitigate my current stressful work situation. I had already switched to full time telework and am in my 3rd year of working full time from home w/ only 3-5 days in the office a month.

Hitting 10 years of Federal service really improves your potential deferred retirement so I’d consider holding out a year.

If you work from home why not live in Boise? Drive down to SLC for the 3-5 days you need to be there.

[Asteinfort]

I can telework up 150 miles from SLC.

[DoNorth]

sounds like you're an auditor with the IRS?  telework, fieldwork, and confrontational?  what's the main nature of the stress?  Internal management or is it coming from somewhere else?  Does your agency allow you to use your physical fitness time and if so, do you use it?  it's hard to make a good decision under that kind of pressure,  Have you ever considered anything a little more radical than just Boise or Utah?  Lots of comptroller kind of jobs overseas. that are hard to fill.  I'm a fed living in France right now and its really relaxed with no stress at all.  It's a term position then I go home when I'm done.

Could be a nice sabbatical from what you're used to on a daily basis.  All other things being equal, I'd suggest you try to stay with the USG, but find a new opportunity.  If you came in under FERS, you're still contributing only .9% to your retirement (us newer employees are at almost 4%) and 10 years isn't really that long if you could find something better to stick it out.  I literally applied for over 35 federal overseas jobs in a month (all in cool places, at good pay grades, doing stuff I know how to do) and I got 5 interviews and 2 offers. and picked the one that sounded the best.