Right now with some careful planning and maxing our tax sheltered retirement accounts, HSAs, and deductions we (just barely) manage to stay in the 15% bracket each year. I have a sinking fund in unqualified investments to help with our retirement house purchase and buy a car in five years. (Plan is to buy both outright with cash after we sell current house.) I am choosing not to pay off our mortgage now, even though I could, to remain flexible and get market returns. Also, we plan to relocate when we retire, so I don't want to tie up the capital.
Right now I'm working on tax and withdrawal strategies for the final year before we're both retired. I'm encouraging my spouse to quit at the end of 2020, and I would quit at the end of 2021. He turns 59 1/2 in mid 2021. However, I will want to sell about $115K in investments in 2021. I'm not exactly sure what the basis will be, but suspect proceeds will be $115K, basis around $87K, for capital gains of $28K.
So, assuming this all goes down roughly the way and tax laws don't change I'm thinking this is roughly how things will look in 2021:
Gross Wages:
$85K
Less Pretax Deductions:
$24.5K (401k)
$3.2K (health insurance)
$4.7K (HSA including catch up contribution; employer pays balance)
Income:
Taxable wages : $52,600
Other income (interest, dividends) : $3000
Capital gains: $28,000
Deductions:
Itemized Deductions: $20,000
Exemptions: $8100
Taxable Income: $55,500
(Well into the 15% ordinary income; 0% capital gains bracket)
Am I looking at this properly?
If capital gains come in higher and I'm concerned about the capital gains consequences I will look at stacking itemized deductions and would make an IRA contribution for my spouse. (I'm going to keep a little stash o' cash to help with things like this.)
We really don't have a lot of wiggle room in our working years to start moving it to cash gradually over the next five years.
And, I'm anticipating that in 2021 we would live off one income and would be on my employer-provided health plan. The following year we would likely be buying health insurance on the exchange and would have a concern about not falling off the premium subsidy cliff. So, I'm trying to get these one-time transactions out of the way before we're both truly retired.