The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: bambooman on August 06, 2019, 01:37:59 PM
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I'm cash-heavy and have a crazy idea, looking for feedback.
-I'm 51, no debt
-$140k in a high yield savings acct.
-$230k in retirement accts.
-I max out my Roth IRA each year $7k
-My yearly expenses are ~18k plus 7k to Roth=$25k
-Net income is $22,000 from school district job and $8,000 from part-time job =$30k
-I rent (super cheap, my landlords love me) and buying is not an option right now, I live in a resort town in the mountains of Colorado and 2br condos are $350k.
-I need a healthy amount of FU money because I might be changing careers (still don't know what I want to be when I grow up) or saying "f*** it" and take a year off and play.
-The school district I work in has a Roth 401k option (no match)
Crazy Idea=For at least a year or two contribute 100% of my paycheck to the school Roth 401k and live on money from my high yield savings account. I would live on the 8k from my part-time job and withdraw 17k from my HYSA to cover the rest of my expenses.
Thoughts??
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I would need to know the Roth versus traditional amounts in your current retirement holdings. You could do traditional and qualify for savers credit (unless you already do). And you could still do a Roth and take more from your high yield savings, up to your earned income.
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My 230k in retirement accounts...
148k Traditional IRA
32k Roth IRA
50k taxable accounts
I don't think I qualified for the saver credit last year, don't know much about it.
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That doesn't sound like a "crazy idea", in fact, that's the exact plan one should undertake when you are cash heavy and want to "move" more money into tax-advantages or retirement accounts.
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Agreed, sounds like a great idea.
Here's info on the Saver's tax credit: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit
As you'll see, if you can get your AGI down below $19,250 (assuming you're single) you'll be able to get your federal tax liability to $0. Note that the savers credit is non-refundable, so you won't get money back if you owe less than the credit (which you will if you target the full 50% credit)
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You would basically be dollar cost averaging that $140,000 by investing your entire paychecks and living of the cash. You could keep doing that for several years until your cash account is depleted to a level you feel comfortable.
If you keep your AGI under $32,000 for 2019 you will qualify for the savers credit. You might need to do a mix of traditional and Roth IRA contributions to get under the limit but that is free money every year. At your income level you would get 10% of the maximum contribution of $2,000 ($200).
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What are your plans for medical coverage? Can you go on Medicaid or get high subsidies on an ACA plan? Have you considered your landlord may chose to raise your rent to current market levels or sell the place and give you the boot? Do you have a contingency plan for affordable housing if that happens? At 51 now it lay be somewhat easy to get a decent laying job but if your circumstance change it might be harder in your 60s and up. Also what are your plans if you take a year off? Does having a p/t job interred with that? Not trying to he negative but you need to think of potential long term ramifications of doing this at 51. I did the same thing at 42 but was in better situation for long term if SHTF.
All good points. Medical coverage-I have awesome coverage with the school district (I pay zero per month for a $1500 deductible). If I quit and take a year off (probably won't) I can use my HSA account and pay COBRA premiums or get a subsidy on an ACA Plan. Housing-If the landlord doubles the rent or gives me the boot I would geoarbitrage and move to an area more affordable. Job-My school would let me take a year off and hire me back, there are always positions open. I'm just looking to lower my cash-heavy balance so realistically I'm reducing my high yield savings account ~$20,000 per year which shouldn't eat into my $140,000 too quickly. If SHTF I still have enough liquid funds to adjust my plans and move forward without having to go near any of my retirement accounts. I'm just trying to find the right balance between YOLO and setting myself up for success with retirement. Adulting is hard.
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I would need to know the Roth versus traditional amounts in your current retirement holdings. You could do traditional and qualify for savers credit (unless you already do). And you could still do a Roth and take more from your high yield savings, up to your earned income.
My 230k in retirement accounts...
148k Traditional IRA
32k Roth IRA
50k taxable accounts