Author Topic: How to take (financial) advantage of a sabbatical  (Read 1045 times)

patch45

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How to take (financial) advantage of a sabbatical
« on: November 24, 2019, 09:10:49 PM »
I'll be leaving my job around late April of 2020 to do some extended wilderness travel (5-6 months). I'm quite excited for this. However a thought crossed my mind: my income (~110k right now) will be cut roughly in half. And I started wondering if there's any way I can really take advantage of that.

  • I've already started saving enough for my trip + a very extended time after I get back, in case a job doesn't come as quickly afterwords as I'd hope
  • I plan on completely maxing out my 401k before I quit, or as close as I can reasonably get
  • Have a stash of about 200k right now
  • Much of that stash is in a regular ol taxable account, plus I'm guessing I'm > 5 years from retirement, so starting Roth ladder doesn't really make sense

Is there any clever financial maneuvering I can do while my income is lower than usual? I don't have anything in mind in particular, just wondering if the mustachians can think of something I'm missing

Linea_Norway

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Re: How to take (financial) advantage of a sabbatical
« Reply #1 on: November 25, 2019, 02:55:52 AM »
Many people who take a year long sabbatical, do so from summer to summer, so that they have 2 low income years. This brings you in a low income tax bracket, so that every hour you work gives you more nett income than in a normal year.

With a lower income, you might be eligible for paying lower fees, or for subsidized health insurance? But I expect this to be mostly for people with very low incomes.

In my country, we have to pay 30% taxes for taking out profit of the stock market from a taxed account. If income is zero, or under a certain minimum limit, that is a good year to take out such a profit.

BrightFIRE

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Re: How to take (financial) advantage of a sabbatical
« Reply #2 on: November 25, 2019, 02:18:53 PM »
You might qualify for the savers credit if you max out your 401 and have lowered income. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-savings-contributions-savers-credit The max credit is only $1000, but it's not nothing.

AMandM

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Re: How to take (financial) advantage of a sabbatical
« Reply #3 on: November 25, 2019, 02:28:52 PM »
Can you rent out (if you own) or sublet (if you rent) your place? 5-6 months is enough for, say, a visiting professor for a semester at a nearby university if there is one.

LightStache

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Re: How to take (financial) advantage of a sabbatical
« Reply #4 on: November 25, 2019, 05:07:28 PM »
Switch to Roth 401K contributions if tax rate is same or lower than what you anticipate in FIRE

swashbucklinstache

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Re: How to take (financial) advantage of a sabbatical
« Reply #5 on: November 25, 2019, 07:24:24 PM »
I'd still run the numbers on a conversion to Roth in some portion of your 401k money rolled first to an IRA, if we assume you don't have a Roth option in your 401k. If you're quitting and want to do something like this call a broker first and they can make it work easy for you. You might not need the benefit of the Roth ladder, but if you can maneuver to a situation where you paid no tax on the way in and no tax on the way out why not do so.
If that sounds like too much work, consider selling some taxable stock that has appreciated a lot, since you might have an income low enough to not be taxed on the gains for at least a good amount of it. Even if you re-buy right away, this lowers your tax basis going forward.
What are you doing for health insurance? There's a lot of optimization around income level and the ACA.
If you have any interest in getting a loan of any sort, doing so while you have income is a better idea.