There are a lot of moving parts here, but my basic inquiry is if there's a way to continue accessing 403b/457b retirement account loans indefinitely, or find some other way to avoid increasing my taxable income while having access to loans/funds, so that I can keep my AGI at about $39,000 while having achieved coast FI, working part-time.
Net worth: $260,000 (me $230,000, wife $30,000)
This includes substantial 403b/457b accounts, both of which provide access to $50,000 loans that are not taxable events, so long as I make timely monthly payments.
Age: 37 (wife 32)
Student loan debt: $95,000. I'm on the REPAYE plan, which means that about 10% of my take-home pay goes toward student loan payments, based on Adjusted Gross Income.
Children: 1 (infant), likely one or two more down the road.
House: 30-year mortgage at 3% interest. Owe about $238,000.
Basic monthly expenses: about $2,500. Discretionary spending is fairly modest. We have a good life but don't spend too much on the trappings of consumerism. We fly about 2x/year, and never really want for important things like a car, baby items, nice TV, bicycles, etc.
My wife is currently staying home with our baby, though she likes working and will likely eventually go back to work at least part-time.
My goal is to Coast FI in 2027, as my student loans can be forgiven then through Public Service Loan Forgiveness. At current contribution rates and assuming 7% growth, our retirement accounts should be at over $600,000 then. I would then downshift to part-time work, getting our adjusted gross income down to $39,000, after a $4,000 retirement account contribution. Assuming that we have two kids by then, a $39,000 AGI would give us $2,000 in the saver's credit, $4,000 federal/state earned income credit, and $6,000 in child tax credits. After taxes, our take-home yearly income would be about $46,000 for this basic part-time work (2 days/week), with access to free health care (either Medicaid or the NY Essential Plan), and possibly SNAP/food stamps. I've worked out the AGI of $39,000 to be the magic number to maximize benefits and minimaize taxes. My priority is to be at this number, while working on a very part-time basis, 2 days/week. While take-home pay would be $46,000, I would feel more comfortable with a take-home income of $60,000 or so.
My strategy, since I'll still be working, is to make up the income difference with access to 403b/457b loans. Since taking out a loan does not count as income, and since interest rates are pretty low (and any interest goes right back into the retirement account instead of to a bank), these 403b/457b loans are ideal. They would allow me to keep take-home income at about $60,000 while maintaining AGI at $39,000, giving us free health insurance, possibly food stamps, and an additional $6,000 in tax credits (saver's credit and federal/state earned income credit).
Since I have access to both a 403b and a 457b, my strategy would be to take out a loan for any extra income needed each year, then pay it off the next year with a loan from the other account, plus taking out more income for that second year, etc. and continue doing this until I have reached the $50,000 maximum amount allowed for a retirement account loan. 403b/457b loans spread out repayments over five years, so at current interest rates, if I take out a $20,000 loan, for instance, monthly payments would be about $372.
I figure that I can keep this going for about eight years until I can't take out any more money in loans, and either have to start working again, or default on these loans, which would create a taxable event (10% early withdrawal penalty on any remaining balance, plus paying taxes on the default amount). That's not really a big deal though, as by then our accounts should be at more than $1,000,000. I'll be around 50 years of age and, if I'm not still working part-time, could wait out the time until reaching 59 1/2 with SEPP, or I could stop working and tap into my 457b, which has no 10% early withdrawal penalty before 59 1/2 once you stop working.
Ex: year 1 of Coast FI - AGI $39,000 (take-home income of $46,000) - $14,000 loan from my 403b
Year 2 - AGI $39,000 - $28,000 loan from 457b account, $14,000 of which goes to pay off the previous 403b loan
Year 3 - AGI $39,000 - $42,000 loan from 403b account, $28,000 of which goes to pay off the 457b loan
Year 4 - $50,000 457b loan. Make monthly payments.....
Year 5 - default on 457b loan (creates a taxable event)
Year 6 - take out $50,000 403b loan, make minimum monthly payments. Use the rest as discreationary income to fund lifestyle
Year 7 - continue using funds from the $50,000 loan
Year 8/9 - default on 403b loan. Taxable event. Meanwhile, 403b and 457b accounts have continue growing for the previous eight years
My question is whether this sounds like a decent strategy, and also whether anyone can see a way of extending the retirement account loan musical chairs indefinitely. Is there another way to access non-taxable loans, besides through private companies like Sofi, etc. The reason that I like the idea of taking out 403b/457b loans so much, again, is the low interest rate (and the interest payments go back into the account), and that doing so allows for free health insurance/food stamps, the saver's credit, the earned income credit, etc. Basically, I'm prioritizing a minimalist lifestyle through part-time work at age 43 to transition to coast FI, instead of spending more time working full-time and being taxed more heavily.
If there's a way to indefinitely extend access to these loans without increasing our AGI, I might be able to coast FI in three years instead of six. My student loans would be around for another 10-15 years until they're canceled by the federal government, but monthly payments would be so minimal due to the $39,000 AGI - about $20/month, that my student loans would hardly be an issue. I can pay the tax bill from the canceled debt, using money from the 457b. (I estimate that this tax bill would be about $30,000-35,000).
