Author Topic: No pension or working spouse or side gigs - FIREd w/investment portfolio only?  (Read 8749 times)

Cassie

  • Magnum Stache
  • ******
  • Posts: 3734
My DIL is from Rybnick and the COL is so cheap. If I knew Polish and the air quality was better in the winter I would be moving there. It is beautiful and the people really nice. We have been there twice.

Cherry Lane

  • Pencil Stache
  • ****
  • Posts: 765
  • Location: Virginia
But the Roth conversion is taxable, no?

That is why I said do the conversion using any tax-free space you may have.  If your only income is untaxed (because of low tax-bracket) capital gains from your post-tax accounts, you will have $10,400 (2017 federal standard deduction and personal exemption for single filer) of "space" to fill with another sort of income, like Roth conversions.

And yes, this strategy relies on the current tax code.

rpr

  • Pencil Stache
  • ****
  • Posts: 547
Yeah, you should never pay taxes, you should Roth convert for years while living on taxable, then have free Roth withdrawals.

50k in ER should be 50k, $0 taxes paid.

One must be careful if you intend to become a long-term resident of a different country. While, there may be double taxation avoidance agreement (DTAA) between countries, it is possible that tax advantaged accounts in the US such as IRAs/401k may not be recognized by other countries. The OP needs to check and verify this.

For example, one of the countries I'm interested in has a DTAA with the USA but does not recognize tax advantaged accounts. In this case, once you become a resident of that country, you will have to pay taxes on dividends and any realized capital gains in the 401k/IRAs/Roths even though you may not be making any withdrawals from such accounts. Furthermore, any tax paid there may not be eligible for DTAA as the US does not require taxation of such dividends and capital gains. In this situation it almost seems better to slowly convert all to a taxable account for reasons of simplicity.

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 2554
  • Location: CT for now...
Good to know, rpr.  I'll check on that.

Also, I'll need to convert more than $10k a year, probably $30k?  I really need to figure it out.  Do you think that a financial adviser could be helpful?  I think I get free financial advice at Fidelity. 



arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 26141
  • Age: -999
  • Location: Traveling the World
But the Roth conversion is taxable, no?

And all of that of course assuming no changes in the tax code...

Well sure, but when you're in the low hanging fruit of the fat end of the tax curve, you pay very very little taxes on it.

Have you done the reading on the roth rollover?  The MadFientist article(s)?  The GCC articles stickied in the tax forum on how to pay 0 taxes in retirement (they had ~95k-100k "income" from rollovers, gains harvesting, etc., and paid $0 in taxes.. did it again this year).  There's literally a step-by-step guide with their exact tax forms posted.  :)
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Playing with Fire UK

  • Handlebar Stache
  • *****
  • Posts: 1867
I have considered the tax situation and am fully expecting to be paying taxes in both the US and Poland, taking any permitted credits (Poland and US have a tax treaty in place designed to prevent double taxation).  I am planning to consult with a tax professional as to the details. 

I have no assets in Euro/Zloty other than investments in international stocks through a US-based international index fund.  I'm considering buying a small investment property in Poland as a partial hedge.  Not sure if I will in the end, but it's a possibility.

As to the expenses in Poland, I have done a lot of research and consulted with my family in detail, and feel comfortable in my estimates.  Actually my brother thinks my estimate is way too high.  He thinks my everyday expenses should not exceed $1K per month (not including travel or any extraordinary expenses).

Cool, the plan looks good. I've only visited Poland but found the cost of living on the low side. Your international stocks will track part of the growth of the Europe area, but not the currency fluctuations. If you are happy to ride it out that's fine. I'd be tempted to have a holding of something in Euros and Zloty to take advantage of currency changes.

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 2554
  • Location: CT for now...
But the Roth conversion is taxable, no?

And all of that of course assuming no changes in the tax code...

Well sure, but when you're in the low hanging fruit of the fat end of the tax curve, you pay very very little taxes on it.

Have you done the reading on the roth rollover?  The MadFientist article(s)?  The GCC articles stickied in the tax forum on how to pay 0 taxes in retirement (they had ~95k-100k "income" from rollovers, gains harvesting, etc., and paid $0 in taxes.. did it again this year).  There's literally a step-by-step guide with their exact tax forms posted.  :)
Read it a while ago, but need to revisit and apply to my specific situation.  I think the numbers work a lot better for a married couple than for a single person, unfortunately. 



SuperMex

  • Stubble
  • **
  • Posts: 117
One recommendation, if you are worried about being priced out of the real-estate market then you should buy a cheap small single family home or duplex where you want to live in the U.S. , work maybe an extra year and pay it off.

At this point you have some rental income and when you decide to come back to the U.S. long term you just give the renters 90 day notice.


lhamo

  • Walrus Stache
  • *******
  • Posts: 5817
  • Location: Seattle
Yes, the rollovers are MUCH easier to manage under the current tax structure when you are part of a couple, or better yet have kids.   

It is probably worth doing up to the top of the 15% tax bracket, though -- it will give you long-term tax free gains and access to that money in perpetuity.  Given the way things are going, I don't see our taxes staying as low as they are for much longer. 

Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)
Wherever you go, there you are

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 26141
  • Age: -999
  • Location: Traveling the World
Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)

Not worries about potential culture conflicts?
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

lhamo

  • Walrus Stache
  • *******
  • Posts: 5817
  • Location: Seattle
Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)

Not worries about potential culture conflicts?

Been there, done that --and I'm a Canadian at heart, anyway! We'd just apologize to each other all the time.  It would be lovely, I'm sure.
Wherever you go, there you are

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 2554
  • Location: CT for now...
Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)

Not worries about potential culture conflicts?

Been there, done that --and I'm a Canadian at heart, anyway! We'd just apologize to each other all the time.  It would be lovely, I'm sure.
. Ooohh I wanna sign up for the Ihamo "American mail order brides to foreign countries" dating service.  I have moneys....'Merican moneys (which is like a gazzillion Canadian...for now)...that should buy me one lumberjack ;-).

Me too!!!



jim555

  • Handlebar Stache
  • *****
  • Posts: 1284
Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)
Dual nationals, DISLOYAL, sad!  Deport them!  /DJT mode off

ysette9

  • Handlebar Stache
  • *****
  • Posts: 1708
  • Location: Bay Area, CA
I just had a conversation yesterday with my security at work to see if I could keep my clearance if I got dual citizenship. Surprisingly, the DoD is okay with that but they start giving the stink eye if you get a passport from another country. I imagine this depends a bit on which country is in question, though I didn't ask.
"It'll be great!"

CanuckExpat

  • Handlebar Stache
  • *****
  • Posts: 2399
  • Age: 34
  • Location: Travelling
    • Freedom35
Regarding little to no taxes in RE, this is true, but slightly more complicated under current ACA premium tax subsidy rules (however long any of that lasts) (may not apply to person going to Poland)

At lower income levels, you start getting premium tax credits reduced much sooner that you will start paying taxes.

If you want, there is some room to argue whether you are actually paying more taxes or rather losing a subsidy, some people care a lot about the difference for a variety of reasons (let's call them semantic or ideological for lack of better terms), but in the end it will be mathematically the same for your wallet and bank account..

GCC has a post about Obamacare Optimization vs Tax Minimization
Not the best, but I think it's more the fault of the subject matter than the article. It's a starting place
Retired, or just homeless and jobless.
Blog
Journal

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5311
  • FU @ 22. F.I.R.E before 23
I just had a conversation yesterday with my security at work to see if I could keep my clearance if I got dual citizenship. Surprisingly, the DoD is okay with that but they start giving the stink eye if you get a passport from another country. I imagine this depends a bit on which country is in question, though I didn't ask.
That had to be a nerve wracking conversation.
Give me one fine day of plain sailing weather and I can mess up anything.

MustacheMathTM

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 2554
  • Location: CT for now...
I ran some numbers through Taxcaster yesterday and concluded that the trick to keeping my US taxes low will be to stay in the 15% tax bracket.  That means being very careful with the Roth conversions and using recharacterization to make sure that I extract the maximum tax benefit.  While it would be nice to be able to convert all of my traditional IRA funds into Roth before I have to take RMDs, that's probably not realistic.  But hopefully I can reduce them enough so that I can stay at 15% after I start taking distributions.  I think I need to sit down with the Fidelity financial advisor and see how helpful they will be in that process - most of my money is at Fidelity so the conversions will need to be done by them.



smoghat

  • 5 O'Clock Shadow
  • *
  • Posts: 42
If your spouse is still working, it's not FIRE.

i have a side gig (part time teaching) so I guess it doesn't count, but I am lucky that they pay my LLC instead of me. I use it to produce a loss. My car, 1/3 my house expenses, my computer, cameras, pretty much anything fun is deducted that way. 

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 26141
  • Age: -999
  • Location: Traveling the World
If your spouse is still working, it's not FIRE.

If you need that income, yes.

But if someone (A) has 10MM saved up, spends 30k/yr, and retires, but their spouse (B) is still working because they enjoy their work, the spouse that quit (A) isn't retired? 

The other spouse (B) quits, and now they (A) are retired?  And then spouse (B) goes back to work, and they're (A) unretired again, even though they (A) still are doing the same stuff before B quit, and after B started working again, none of which was paid employment?

That seems like a silly definition, to me, to hinge someone's retirement on their spouse working, or not.

I would say if they're dependent on the spouse's income they're not FIRE'd, because they're not FI. But otherwise the spouse's working status is irrelevant to their FIRE status.
We are two former teachers who accumulated a bunch of real estate, retired at 29, and now travel the world full time with a kid.
If you want to know more about me, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (occasionally) blog at AdventuringAlong.com.
You can also read my forum "Journal."

Metric Mouse

  • Walrus Stache
  • *******
  • Posts: 5311
  • FU @ 22. F.I.R.E before 23
If your spouse is still working, it's not FIRE.

i have a side gig (part time teaching) so I guess it doesn't count, but I am lucky that they pay my LLC instead of me. I use it to produce a loss. My car, 1/3 my house expenses, my computer, cameras, pretty much anything fun is deducted that way.

Meh. Some people are FIRED and have jobs. It's a pretty loose term around here.
Give me one fine day of plain sailing weather and I can mess up anything.

MustacheMathTM

Exflyboy

  • Magnum Stache
  • ******
  • Posts: 4423
  • Age: 56
  • Location: Corvallis, Oregon
Another potential FIREy business idea for the enterprising rebel:  A matchmaking service that hooks up people with tenuous visa and residency status or a desire to leave the US with passport holders of various nationalities.  Heck, if I end up divorced you'd better believe I'd be considering looking outside the US borders for my next relationship (and better health insurance options...)

Not worries about potential culture conflicts?

Been there, done that --and I'm a Canadian at heart, anyway! We'd just apologize to each other all the time.  It would be lovely, I'm sure.
. Ooohh I wanna sign up for the Ihamo "American mail order brides to foreign countries" dating service.  I have moneys....'Merican moneys (which is like a gazzillion Canadian...for now)...that should buy me one lumberjack ;-).

Me too!!!

I think I'll see if some of my single UK guy friends want to pimp themselves out for their free HC bennies?

DW is happy with this situation except the weather in the UK always sucks..:)

Exflyboy

  • Magnum Stache
  • ******
  • Posts: 4423
  • Age: 56
  • Location: Corvallis, Oregon
Regarding little to no taxes in RE, this is true, but slightly more complicated under current ACA premium tax subsidy rules (however long any of that lasts) (may not apply to person going to Poland)

At lower income levels, you start getting premium tax credits reduced much sooner that you will start paying taxes.

If you want, there is some room to argue whether you are actually paying more taxes or rather losing a subsidy, some people care a lot about the difference for a variety of reasons (let's call them semantic or ideological for lack of better terms), but in the end it will be mathematically the same for your wallet and bank account..

GCC has a post about Obamacare Optimization vs Tax Minimization
Not the best, but I think it's more the fault of the subject matter than the article. It's a starting place

Also complicated by which State you live in.. In Oregon there are no tax breaks for ANY income.. that means QDivs or Capital gains appreciation (in after tax accounts) get the same 9 to 9.9% treatment.

I got to move out of this State!.. Sad because its a beautiful place otherwise.

canadian bacon

  • 5 O'Clock Shadow
  • *
  • Posts: 91
I ran some numbers through Taxcaster yesterday and concluded that the trick to keeping my US taxes low will be to stay in the 15% tax bracket.  That means being very careful with the Roth conversions and using recharacterization to make sure that I extract the maximum tax benefit.  While it would be nice to be able to convert all of my traditional IRA funds into Roth before I have to take RMDs, that's probably not realistic.  But hopefully I can reduce them enough so that I can stay at 15% after I start taking distributions.  I think I need to sit down with the Fidelity financial advisor and see how helpful they will be in that process - most of my money is at Fidelity so the conversions will need to be done by them.

ZiziPB,  You are 100% on the right track here.   clap clap clap.  most people do not consider your tax situation (or mine)

Most people here are used to roth conversion with a family of 4.   When the topic comes up of taxes to convert your 401K/IRA to Roth, I hear a simple response that the taxes are 0 or close to 0.   This is not always the case, tax can be significant and a low tax rate is not in the cards for everyone

In situations where you a have a large 401K and are trying to get in front of RMDs (required minimum distributions) or if you simply do not have a large family with many exemptions, tax can be significant.   

As you saw, with taxcaster, for you to pull 50K out of your IRA, your 25% tax rate begins just around 49000 per year.  For obvious reasons as you noticed you want to keep your conversions at a point less than this.    (although even if you are withdrawing a large amount and are well into the 25% tax bracket, the 401K still worked in your tax favour.  ex if you would have been taxed 25% on funds that you put into your 401K and afterwards pull out 100K per year, your tax bill is 18K on that money vs your original 25K)

The one thing that I would suggest that you do is get on top of your 401K and get this reduced as quickly as possible.  For instance, if you have a 401K of 600K and assume 7% yearly growth, you need to pull out 42K per year just to keep the 401K from increasing.  If you wait 10 years, your 401K/IRA could be north of $1250000 and you now need to pull out more than 80K per year to keep it from running away.

So with that being said.  I would get on top of the 401K and maximize withdraws before RMDs force you to take a higher tax rate.  Assume 5K per year in income tax.   

ZiziPB

  • Magnum Stache
  • ******
  • Posts: 2554
  • Location: CT for now...
Great analysis, canadian bacon.  The problem is twofold as I see it - if I go over the 15% threshold, the Roth conversions get taxed at a higher rate AND I end up paying capital gains taxes what my taxable account generates.  And the 15% threshold doesn't leave much room for Roth conversions so eventually I will be stuck paying higher taxes.  Oh well, I guess it's a good problem to have :-)



canadian bacon

  • 5 O'Clock Shadow
  • *
  • Posts: 91
Yes.   A really good problem to have!  ha ha

I think I will err on the side of lower taxes and expenses for the first 10 years to keep my expense ratio low even if that means that my 401k becomes out of control.    I understand that the portfolio is more sensitive to market fluctuations for the first 10 years so I think I will go this way.