Author Topic: Landing on specific FIRE date.  (Read 2773 times)

Rollin

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Landing on specific FIRE date.
« on: April 20, 2015, 06:08:34 AM »
Three things related to retiring in 2016:

1.  Does anyone have a list of the things that one needs to double check before pulling the cord on the RE parachute?  Things like checking your insurance benefits, beneficiary information on work retirements, written up will, etc.

2.  I can time this last year pretty well (i.e., leave at an optimum time) with respect to income vs. taxes.  In other words, I'd like to make as much as I can at my current employer before I jump into a higher tax bracket.  I will have a pretty sizable payout from accrued leave, plus whatever I make from my salary (and DW's), from things like rental and dividend income, and retirement benefit payout income.  Can anyone link me to a thread that discusses this, or have any information that can help me?

3.  And just so I have this correct, the way these tax rates work is for example if I am in the 25% tax bracket not all my income is taxed at that rate, but 10% up to a certain amount ($18,450 for 2015), 15% for the next ($18,451-$74,900), and then anything over the 25% bracket (above $74,901 and up to $151,200) gets taxed at 25%.  Is that correct?

Thanks!

darkcait

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Re: Landing on specific FIRE date.
« Reply #1 on: April 20, 2015, 06:37:55 AM »
Here are the tax brackets for 2015 for married filing jointly.

For earnings between $0.00 and $18,150, you'll pay 10%

For earnings between $18,150.00 and $73,800, you'll pay 15% plus $1,815.00

For earnings between $73,800.00 and $148,850, you'll pay 25% plus $10,162.50

For earnings between $148,850.00 and $226,850, you'll pay 28% plus $28,925.00

For earnings between $226,850.00 and $405,100, you'll pay 33% plus $50,765.00

For earnings between $405,100.00 and $457,000, you'll pay 35% plus $109,587.50

For earnings over $457,000.00, you'll pay 39.6% plus $127,752.50

Retired To Win

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Re: Landing on specific FIRE date.
« Reply #2 on: April 20, 2015, 06:59:55 AM »

...  And just so I have this correct, the way these tax rates work is for example if I am in the 25% tax bracket not all my income is taxed at that rate, but 10% up to a certain amount ($18,450 for 2015), 15% for the next ($18,451-$74,900), and then anything over the 25% bracket (above $74,901 and up to $151,200) gets taxed at 25%.  Is that correct?

Yes.  But remember that is what you'll pay on your taxable income.  Remember in your calculations to factor in how your gross income will be (1) reduced down to your AGI (adjusted gross income) by subtractions such as IRA contributions, and then (2) knocked down further by your exemptions and deductions to your final taxable income.  :)

Rollin

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Re: Landing on specific FIRE date.
« Reply #3 on: April 20, 2015, 07:02:19 AM »
Yes.  But remember that is what you'll pay on your taxable income.  :)

Yes, thank you.  Not sure what that will be yet and with the information below I can start to calculate it.

Here are the tax brackets for 2015 for married filing jointly.

For earnings between $0.00 and $18,150, you'll pay 10%

For earnings between $18,150.00 and $73,800, you'll pay 15% plus $1,815.00

For earnings between $73,800.00 and $148,850, you'll pay 25% plus $10,162.50

So far, without calculating deductions I'm at about $80K of income for 2016 (if I RE on January 1).

Exflyboy

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Re: Landing on specific FIRE date.
« Reply #4 on: April 20, 2015, 09:54:11 AM »
Yes so dump your max contribution into your 401k for the year (I guess you'll have to do that on Jan 1st.. Wonder if you might have to leave on Jan 2nd to make at work.. its a $18k reduction in your gross so its worth it)

Then a max traditional IRA $5500 assuming your under the limit.

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Re: Landing on specific FIRE date.
« Reply #5 on: April 20, 2015, 09:56:24 AM »
Having a few bucks run into the 25% bracket is not a big deal.  Here are a few bigger things you should be sure to consider:

Do you get a bonus or have a pension?  The bonus is pretty obvious, but some pensions have interesting rules as to what counts as a plan year.  If I work from Jan through June, I get another year "credit", probably worth $3500 or so.  Another thing to consider is maxing out your 401(k) or as much as possible prior to pulling the trigger.  Enough remaining earned income to fund IRAs would be good too. You would need to check with HR, but for many, quitting on the 1st of a month is better than the last day, as your health insurance will run through the end of the month you quit in.  If you are planning on using an ACA plan in retirement, your premiums and subsidies could be quite different depending on what you make for the year.   Be sure to project out where you think you might be and make check for any pitfalls.   

Rollin

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Re: Landing on specific FIRE date.
« Reply #6 on: April 20, 2015, 11:30:48 AM »
Yes so dump your max contribution into your 401k for the year (I guess you'll have to do that on Jan 1st.. Wonder if you might have to leave on Jan 2nd to make at work.. its a $18k reduction in your gross so its worth it)

Then a max traditional IRA $5500 assuming your under the limit.

I never thought of that!  That means I can work longer :(, but it is still up to me and doing this reduces my taxes considerably.

Having a few bucks run into the 25% bracket is not a big deal.  Here are a few bigger things you should be sure to consider:

Do you get a bonus or have a pension?  The bonus is pretty obvious, but some pensions have interesting rules as to what counts as a plan year.  If I work from Jan through June, I get another year "credit", probably worth $3500 or so.  Another thing to consider is maxing out your 401(k) or as much as possible prior to pulling the trigger.  Enough remaining earned income to fund IRAs would be good too. You would need to check with HR, but for many, quitting on the 1st of a month is better than the last day, as your health insurance will run through the end of the month you quit in.  If you are planning on using an ACA plan in retirement, your premiums and subsidies could be quite different depending on what you make for the year.   Be sure to project out where you think you might be and make check for any pitfalls.   

I will check my pensions, but we get partial year credits, not just whole numbers.

Once I get my final income figured out I'll plug that into the ACA website and compare with my employer sponsored plan, as they'll contribute about $350 towards a $550 premium, plus I get an $800 Health Savings Account contribution on top of that (lower deductible than ACA too).  However, I'll need to put my DW through ACA since we'd pay full cost for her under my employer.