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3-5 years from RE--Q for FA?
Old 05-22-2018, 08:36 AM   #1
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3-5 years from RE--Q for FA?

We're a little over 3 years from RE and have our annual meeting with our Vanguard rep tomorrow. DH is 55 and I'm 48, but we have two young children, so we'll be retiring to shuttle kids instead of travel the world!

Currently ~80+% of our assets are in taxable accounts, most in index funds, and the remaining 15-20% is in 401k/IRAs which are mostly in bond funds. Overall we're about 75% equities, which we know we need to bring down a bit.

We want to make the most of our call with the vanguard rep.

The punch list I have:
  • Strategies to minimize MAGI for both ACA and Medicare look back
  • Possible to 'prefund' 529s
  • AA across taxable vs non-taxable funds
  • Alternatives to bonds we should be thinking about
  • Strategies for portfolio drawdown
  • Minimizing taxes in retirement

This forum has been such a wealth of information that I thought I'd check in here and see what I may be missing. Any other thoughts on things we should be thinking about/planning over the next few years?
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Old 05-22-2018, 08:45 AM   #2
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Alternatives to ACA if it goes away.
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Old 05-22-2018, 09:56 AM   #3
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Over the years my experience with VG has been that they will offer very little except generalities related to tax matters. Probably a sensible approach for them inasmuch as tax planning is pretty complicated and highly technical. The advisory people aren't trained in tax matters.
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Old 05-22-2018, 10:28 AM   #4
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Originally Posted by jebmke View Post
Over the years my experience with VG has been that they will offer very little except generalities related to tax matters. Probably a sensible approach for them inasmuch as tax planning is pretty complicated and highly technical. The advisory people aren't trained in tax matters.


That’s good to know. Do you happen to know if that’s the case for their flagship select services as well? This is the first year we’ve qualified so not sure what to expect.
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Old 05-22-2018, 10:41 AM   #5
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Originally Posted by tb001 View Post
The punch list I have:
  • Strategies to minimize MAGI for both ACA and Medicare look back [1]
  • Possible to 'prefund' 529s [2]
  • AA across taxable vs non-taxable funds [3]
  • Alternatives to bonds we should be thinking about [4]
  • Strategies for portfolio drawdown [5]
  • Minimizing taxes in retirement [6]

This forum has been such a wealth of information that I thought I'd check in here and see what I may be missing. Any other thoughts on things we should be thinking about/planning over the next few years?
[Numbers added]

First, congratulations on doing so well! I think kids really benefit by having their parents around more, especially during the teenage years.

My comments on your bullet points, FWIW:

[1] Be sure to consider, in general terms, your tax burden across multiple years. A low MAGI now will garner sweet ACA subsidies, but doing Roth conversions (which raise MAGI) may save you on lots of taxes later. My simple strategy was to look ahead and see what my tax rate is likely to be when I hit RMDs and SS about age 70, and then try to lower that rate a brackeet or two by Roth converting and paying some "unnecessary" taxes now, to the degree that makes sense.

Also, in general, your taxes will fluctuate as you lose your child tax credits when they turn 17, and you may have college-related tax credits that are also pretty sweet. Try to figure out when that will be and see if there are opportunities. I tend to think that taxes are the largest single budget category that we can strategically minimize - more than cars, groceries, etc. that people often discuss.

But in general, the strategies to minimize MAGI is conceptually straightforward: Grab your most recent Form 1040, look at the numbers that make up your MAGI, and see if you can lower them: avoid working, avoid realizing capital gains if possible, etc. Look at the blank lines on the front side of Form 1040 that have the potential for negative numbers and see if you want to do things to put negative numbers in those boxes - for example, realizing capital losses if you have any, or perhaps owning a rental that you can depreciate.

On Medicare lookback, I believe they look back two years, so the tax return when your DH is about 63 is what they'll use to set your Medicare premium when he is 65. Note that they continually look at your tax returns, so if you have high income one year, you'll have a high Medicare premium two years later, but then if your income drops the next year your Medicare premium will drop the next year.

[2] I believe you can still pre-fund 529's with 5 years worth of contributions. (But if you do this, you can't contribute over the next five years.) Analyze the tradeoff between pre-funding, which gives you more time for the money to grow tax free, with whether you'll be able to take your state tax deduction or credit for the full five year amount. What I generally did was fund up to the maximum I could deduct on my state taxes each year.

[3] I'd refer you to this:

https://www.bogleheads.org/wiki/Asse...tiple_accounts

[4] I just use VBTLX. But if I were in a high tax bracket I would consider a municipal bond fund, from which the income is federally tax free.

[5] Too large of a topic for one post. Put your numbers into FIREcalc and make sure you're comfortable with the withdrawal rate and historical success rate you get. If you like Bogleheads, look into VPW.

[6] Too large of a topic for one post. You might be surprised how low taxes are in FIRE, though. Also, once you leave your jobs, you may be able to move to a LCOL and low tax state or area. If you're high income now, you may be low income in FIRE, which will likely make you eligible for tax breaks that you weren't eligible for when working, so I would suggest investigating those.

Good luck!
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Old 05-22-2018, 10:44 AM   #6
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That’s good to know. Do you happen to know if that’s the case for their flagship select services as well? This is the first year we’ve qualified so not sure what to expect.
Not the person you asked, but Flagship won't give tax advice. They'll refer you to your tax professional. If you are at that level of assets and don't have a CPA yet, I'd suggest getting one and paying them an hourly rate to do tax planning with you.

I can fill out all of the tax forms myself and I know how my taxes work, but I still have a CPA that I plan to go to for big tax planning questions and multi-year strategy type stuff. People like my CPA don't seem to be common but they do exist.
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Old 05-22-2018, 12:30 PM   #7
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DH is 55 and I'm 48, but we have two young children, so we'll be retiring to shuttle kids instead of travel the world!
I guess we all have different retirement hobbies...
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Old 05-22-2018, 03:24 PM   #8
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SecondCor, thanks for taking the time to answer so thoughtfully. You've raised a number of points I hadn't considered and really appreciate your insight. I knew there was a reason I asked here!

We do have someone who does our taxes, so I suppose she could help with this as well, but honestly not sure I trust her to have really thought through all of the potential issues. You're right, it's worth the $ to make sure we're making the best decisions for the long term.

And joeaa, lol!! There's a lot of positives in there too
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Old 05-22-2018, 04:16 PM   #9
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At the Flagship Select level, you've accumulated at least $5MM. I'm guessing your taxes are complicated. How much annual net income you require will affect the level of tax planning you need to do (the tax burden on $100K annually is much different, than, say, $250K). I'd recommend consulting with a well-referenced CFP, and tax expert. But give VG the first shot...for your level, they say they will work with you on Tax Strategies, Wealth and Estate planning, Trust services, family legacy planning, investment advice, etc. I'm not sure the level of support they will provide; at the standard Vanguard Flagship Services level, it's nearly non-existent.
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Old 05-22-2018, 04:43 PM   #10
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SecondCor, thanks for taking the time to answer so thoughtfully. You've raised a number of points I hadn't considered and really appreciate your insight. I knew there was a reason I asked here!

We do have someone who does our taxes, so I suppose she could help with this as well, but honestly not sure I trust her to have really thought through all of the potential issues. You're right, it's worth the $ to make sure we're making the best decisions for the long term.
You're very welcome.

There are a lot of tax people who know how to fill out the forms properly. There is a much smaller subset of those people who know how to strategize and do multi-year planning. I think it's worth it to find one of the latter, and that latter person may be a supplement to the person who does your taxes now, or maybe they replace that person.

And I should add my thanks as well. I wasn't aware of Flagship Select and thought you were meaning Flagship level. Learn something new every day! ;-)
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