I am planning to pull the cord and ESR next year (Gawd, I hate the day job). DW currently has a small business that brings in roughly $2k a year. Our living expenses I estimate at 60k annually once I cut some fluff and buy health insurance. I might be bringing in some money with what would amount to a side hustle or contractor work, but I think we would be able to shelter a LOT of income from the tax man. We are a family of 4 (4 exemptions), have a mortgage with interest cost of about 7k, state taxes at roughly 5% of taxable income, RE taxes of $1800 or so, and would be able to wrote off health insurance premiums vs. DW.s business income. I estimate exemptions and deductions at $30k or so before we have the first dollar of taxable income. While we have a good slug of funds in after tax investments, an awful lot of our net worth is in traditional IRAs. DW and I will be 40 when I pull the plug.
I think that we should be able to wriggle along via self employment and draws on the after tax funds, but whether I live on it or simply need to reduce my lifetime tax liability, I have to deal with the whopping amount of traditional IRA money. As a result, I am thinking that when we have lower taxable income years, I will first use my room in te 15% bracket to take 0% capital gains and then do Roth conversions (although I would rather do those a t 10% if I can get away with it).
As I understand it, the Roth pipeline basically works as follows: I convert $X on day one and pay whatever taxes are due on the conversion amount. 5 years from day 1, I can withdraw the original amount I converted with any earnings/appreciation having to stay in the Roth to avoid paying penalties for early withdrawal (I assume all of this happens before I am old enough to avoid penalties).
Do I have to have each year's conversion in a separate Roth IRA account in order to keep the 5 year timeline for each $X separate and distinct and able to avoid penalties upon withdrawal? Any other gotchas to be aware of?
I think we can go 10 years or more on the after tax assets, so this all affords me a lot of time to plan. If I have some years where I can convert a lot (low income) and others where I can covert little or none, it won't matter so long as I I know what to do every year as calendar year end approaches.
I get the feeling I will be spending a lot of quality tie with turbotax starting the end of next year.