Author Topic: No point in investing income post-FIRE?  (Read 976 times)

Mr. Green

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No point in investing income post-FIRE?
« on: January 18, 2019, 03:20:43 PM »
My wife and I are no longer working and we've begun drawing on our portfolio for living expenses. Surprisingly, I may have a sweet income opportunity this year. A family member is starting a business that periodically requires some extra bodies. I can pick up about $4,000 for a week's work. If I earned $8,000 in 2019 I should just use that money for living expenses correct? Since I'm in the drawdown phase where I'm converting tIRA money to Roth to create most of my annual income and living off taxable accounts, I don't think it makes sense to contribute the money to a tax-deferred account. My earned income is low enough that I'm not paying any federal tax so there's not really much incentive for me to tax-defer. Plus that just means more money that I'm trying to migrate into the post-tax category. Pretty sure this is how I would handle it but we're just beginning the drawdown phase so I wanted to make sure I'm not missing anything.

TexasRunner

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Re: No point in investing income post-FIRE?
« Reply #1 on: January 18, 2019, 03:34:04 PM »
My wife and I are no longer working and we've begun drawing on our portfolio for living expenses. Surprisingly, I may have a sweet income opportunity this year. A family member is starting a business that periodically requires some extra bodies. I can pick up about $4,000 for a week's work. If I earned $8,000 in 2019 I should just use that money for living expenses correct? Since I'm in the drawdown phase where I'm converting tIRA money to Roth to create most of my annual income and living off taxable accounts, I don't think it makes sense to contribute the money to a tax-deferred account. My earned income is low enough that I'm not paying any federal tax so there's not really much incentive for me to tax-defer. Plus that just means more money that I'm trying to migrate into the post-tax category. Pretty sure this is how I would handle it but we're just beginning the drawdown phase so I wanted to make sure I'm not missing anything.

This actually should allow you to claim earned income credit.  No, I wouldn't put anything towards a tax-deferred account as you have no taxation to defer and it actually may cost you a credit...  :)

Double check EIC.

BicycleB

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Re: No point in investing income post-FIRE?
« Reply #2 on: January 18, 2019, 04:15:06 PM »
Makes sense to me!

If you use ACA, make sure your overall income stays in range. Receiving the income from the work should fit into that very nicely.

secondcor521

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Re: No point in investing income post-FIRE?
« Reply #3 on: January 18, 2019, 04:58:01 PM »
My wife and I are no longer working and we've begun drawing on our portfolio for living expenses. Surprisingly, I may have a sweet income opportunity this year. A family member is starting a business that periodically requires some extra bodies. I can pick up about $4,000 for a week's work. If I earned $8,000 in 2019 I should just use that money for living expenses correct? Since I'm in the drawdown phase where I'm converting tIRA money to Roth to create most of my annual income and living off taxable accounts, I don't think it makes sense to contribute the money to a tax-deferred account. My earned income is low enough that I'm not paying any federal tax so there's not really much incentive for me to tax-defer. Plus that just means more money that I'm trying to migrate into the post-tax category. Pretty sure this is how I would handle it but we're just beginning the drawdown phase so I wanted to make sure I'm not missing anything.

Yeah, that's basically what I do.  Just use it for living expenses, which will postpone the next portfolio draw for a little bit.  I draw what I expect to be 3 months' expenses, and then see if I make it last longer than that (via spending less or outside income).

One thing you might want to look into is if it is worth contributing $2K to your (and spouse's if applicable) IRA.  You may be able to get the Retirement Savings Tax Credit, which at a low income is 50% of the amount contributed.

Also, having income too low can be problematic.  My income two years ago was low enough to where I lost out on some non-refundable credits.

EIC is a good tax credit but in my experience is very hard to qualify for.  Still, check the rules and you might get it.

StetsTerhune

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Re: No point in investing income post-FIRE?
« Reply #4 on: January 19, 2019, 05:47:15 AM »
It might make sense to max out yoir Roth IRA contribution. there's no tax consequences , and then the income in there is tax free forever. Plus the stuff in there is now protected from lawsuits, FAFSA, etc. Only negative I can see is that you may have to sell something you don't want (and possibly increase your income) to make up for the 6k you're putting away in the Roth.

MDM

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Re: No point in investing income post-FIRE?
« Reply #5 on: January 19, 2019, 09:33:34 AM »
Consider withdrawing from taxable to pay living expenses, while using the earned income amount for Roth contributions.

The $3600 limit on investment income probably disallows the EIC for you.  Any good 2019 tax estimator should give that answer.

radram

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Re: No point in investing income post-FIRE?
« Reply #6 on: January 19, 2019, 11:04:47 AM »
It might make sense to max out yoir Roth IRA contribution. there's no tax consequences , and then the income in there is tax free forever. Plus the stuff in there is now protected from lawsuits, FAFSA, etc. Only negative I can see is that you may have to sell something you don't want (and possibly increase your income) to make up for the 6k you're putting away in the Roth.

+1 to look into this. I like the current rules regarding no RMD's and the flexibility to withdraw deposited money whenever you want. There is no downside to maxing it out while you have earnings (max out you and your wife with your earnings).

It sounds like this is not a normal thing for you, so I would max it out every year you qualify.

I understand your tax bracket is 0 now, but who  knows about future tax brackets.