Author Topic: Taking from Taxable to fund Tax Deferred?  (Read 556 times)

hadabeardonce

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Taking from Taxable to fund Tax Deferred?
« on: November 09, 2019, 01:02:01 PM »
We're preparing for our household income to drop by 50% next year due to potential job loss and required career training/education. Luckily we're able to cover expenses with just one of us working, but I'm trying to figure out the optimal way to maintain our investing.

Option X.) We have ~40K in a taxable investment account which I was thinking about using to fund our "structural deficit" each month. We would take home $38k(after maxing a 403b and 457), but our expenses may be around $56k for the year, so we would sell $18k from the taxable acct.

Option Y.) We would be to not fund the 403b which may leave us with a small shortfall(52k-56k), but we'd maintain the money in the taxable account (and pay $2900 more in taxes.)

There's so much unknown right now that I'm preparing for one us earning $0 for 2020, but in all likelihood we'll find a way that both of us earn something or find an additional source of income(sacrifice weekends, reduce free time.)

terran

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Re: Taking from Taxable to fund Tax Deferred?
« Reply #1 on: November 09, 2019, 01:15:46 PM »
We can't otherwise afford to max all our tax advantaged accounts, but still have some in taxable from before we got access to these extra accounts, so this is what we're doing. I view it as an extension of the recommended investment order in that holding taxable while not contributing to tax advantaged is essentially the same thing as choosing to invest in taxable before maxing tax advantaged (which would not be the recommended investment order).

The next step once taxable is gone will probably be putting our emergency fund in tax advantaged accounts too and considering our Roth IRA as an emergency fund. We'll probably never need it, but if we do then we're no worse off than if we kept the emergency fund money out of tax advantaged accounts in the first place (probably slightly better off as it would have been earning tax free interest in the intervening years).

secondcor521

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Re: Taking from Taxable to fund Tax Deferred?
« Reply #2 on: November 09, 2019, 01:25:19 PM »
If your capital gains taxes on the $18K in sales from taxable is less than the increase in taxes from not contributing to the 403(b), then I'd probably lean towards option X.

The other thing to factor is is your overall discipline.  If choosing option X means you might be more inclined to "raid the cookie jar" in future years and that regular raiding would be detrimental longer term, then that would be a qualitative factor towards option Y.

chasesfish

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Re: Taking from Taxable to fund Tax Deferred?
« Reply #3 on: November 10, 2019, 04:59:00 AM »
Will your total income be less than $105,000 next year?

If so I'd spend down the taxable account, enjoy harvesting your gains tax free, and still max the other two accounts. 

MDM

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Re: Taking from Taxable to fund Tax Deferred?
« Reply #4 on: November 10, 2019, 05:41:34 PM »
We're preparing for our household income to drop by 50% next year....We would take home $38k(after maxing a 403b and 457)
Do you have a Roth option on the 403b and/or 457?

Appears you will be in the 12% bracket, so if you expect this to be temporary and you will be in the 22% or higher bracket in subsequent years, this might be a good time to put a bunch into Roth.

You might (depends on what "education" means in your situation) be eligible for the saver's credit, but that might increase your marginal tax saving rate to no more than 15% so Roth could still be in play.