greatly reduced taxes in ER?

[79protons]

Since I have started really considering getting my small IRA into a Roth such that I can do a backdoor Roth each year (my wife already has for 2009, 2010, and 2011 since she had no traditional IRA) it got me thinking about how taxes might look when/if we ER in 5 years at age 45ish.

We should have about 1.5M split up as follows:

$300,000 cash from selling house (plan to be rubber tramps for awhile)
$200,000 municipal bond taxable account
$400,000 taxable account individual stocks
$500,000 401K
$100,000 Roths

Now, since we plan to really LBYM for at least 5 to 10 years, I think we could get by living on cash from the house sale + muni bond interest + dividends during that time. Married filing jointly, we probably could withdraw up to $30,000? from the 401K each year (which I guess by then would be a rollover IRA) and convert it to a Roth with very little tax due.

So after 15 years at age 59ish our portfolio might look like this (with a not too terrible market and low SWR):

$50,000 cash
$100,000 municipal bond
$600,000 taxable account individual stocks
$100,000 401K
$850,000 Roths

With a $850K Roth we would be pretty much tax free the rest of our lives, no? We could start pulling from the taxable stock account which probably would have large capital gains and leave the Roth largely untouched invested in bonds or something, where it would grow to over 1 mil by 67 when we collect the $3 of SS that is left in the fund. Kind of exciting to think the days of paying taxes might end in just 5 years!

 

[LOL!]

People who run grow houses never pay taxes anyways.

With $1.5 million and $500K in tax-advantaged accounts, what's with the tax-exempt bonds? That doesn't make sense. Put your bonds in your tax-advantaged accounts. Use you taxable account for tax-efficient passively-managed equities such as index funds. If you do the tax-loss harvesting thing, your realized cap gains will be offset, so you will have no taxes except those from conversions to Roth if even that.

 

[LOL!]

BTW, we never saw your response to the "make $200K and pay less than 10% in income taxes" post. Are you still paying lots of taxes while working that could be easily avoided?

 

[79protons]

I don't currently have any muni bonds, this was just a portfolio I envisioned.

What 200K thread are you talking about? I will ahve to look it up.

 

[FIRE'd@51]

Use you taxable account for tax-efficient passively-managed equities such as index funds. If you do the tax-loss harvesting thing, your realized cap gains will be offset, so you will have no taxes except those from conversions to Roth if even that.

Why does he need the "tax-loss harvesting thing" to offset the realized LT capital gains? I would think at his level of income in ER (likely < 89K AGI in today's $) any tax on LT cap gains and qualified dividends would be zero anyway since they would fall into the 10% and 15% brackets. (I'm assuming that the Bush tax cuts will get extended permanently for most taxpayers, even if Obama is re-elected.)

 

[LOL!]

He's making $200K+ a year by trading options. He needs the tax break today.

 

[79protons]

He's making $200K+ a year by trading options. He needs the tax break today.

Aww, come on, did I really deserve that?

My wife makes 200K a year, not me. I only trade options in my little IRA account and I am going to stop doing this as soon as I convert the IRA to a Roth using one final option play if I can swing it. After that I will use the spousal contribution rule to allow $5000 of her income each year fund me a traditional IRA and then immediately convert it to a Roth.

I am in charge of all of the investments, but it is mostly boring stuff for the big money. Three vanguard stock funds and pimco bond fund in the 401K and 10 large caps in the taxable account along with a chunk of cash waiting on an investment idea (was thinking of either more stock or muni bonds if the debt issues are resolved a bit). Oh, and I have her Roth invested in a Vanguard international stock fund.