A Year Off

[JoshTrent]

Hello..
I am 45yo, single, in accumulation phase - and have decided to take a year off. Well.. I am halfway through my year off. I’d rather not get into who/what/when/where/how of my taking a break, but rather hear your opinions about what financial decisions I can make this year, as my income will be down significantly from where it usually is. Black Magic notwithstanding, I don’t know that I will ever be in this low of a tax bracket in the future. The past several years, I have been in the 35% bracket.

I am currently living off savings (abroad LCOL area) without Health Insurance (knock wood), but I anticipate new W2 employment Q1 of 2022 to include insurance.

My 10-yr Plan.. yeah I don’t know. Anywhere from Coast FIRE tomorrow, to full FIRE ASAP.

So far this year:
- $15k (gross) in YTD W2 income (this will not increase)
- $2.5k in QDivi’s (expect $5k at year end)
- $500 in LT Cap Gains
- $134 in Interest (expect $268 at year end)
- $3,600 HSA Contribution completed

Taxes & Credits:
- File Single
- $300 Fed Income YTD withheld
- State has no Income
- CTC x 3 ($9k)

Loss Harvesting - I am able to harvest $3k in losses if needed.

I have large tIRA and Roth IRA Balances - enough that at 59.5, I am FI.

The only thing keeping me from FIRE today is the size of my.. Taxable Account. While I did open my Roth in 1999, I’d like to keep Roth funds intact as long as possible.

My priority when rejoining the W*rk force next year, is to build my taxable balance. That balance is the only thing standing between me and FIRE.

Is making a large tIRA>Roth the best use of this year??

I feel that I have complete control over my Tax Situation this year, and I don’t know how to best handle it.

TIA for your input!

 

[tulak]

Can you use a 72(t) to get money out of tax deferred accounts?

How long do you plan to work? If you can wait until the year you to turn 55, you could look for a company whose 401k supports withdrawals at 55.

I’m a big proponent of maximizing Roth contributions, but you need to see if that makes sense in your case. Remember that you can also withdrawal Roth contributions after 5 years. That might be another option if you need cash for a few years.

 

[Dtail]

Just picking out one comment.
No health insurance? Are you sure you want to not have any? Anything can happen to anyone no matter how healthy they currently are.

 

[RunningBum]

Seems to me that a large Roth conversion would be good for you.

You say you don't want to touch the Roth early, but I would make that decision based on numbers, not a feeling that you shouldn't. If you're going to be in the 35% tax bracket next year, I'd want to defer as much of that income as possible, unless you think your retirement income will be that high. If that means you can't sock away as much in taxable, maybe that's ok if you can use the Roth to get you to 59.5. It's worth running the numbers to see which way is better.

 

[JoshTrent]

Can you use a 72(t) to get money out of tax deferred accounts?

Thanks.. I am unfamiliar with the 72(t). I'll be doing some research on what it is, and how it might help me.

How long do you plan to work? If you can wait until the year you to turn 55, you could look for a company whose 401k supports withdrawals at 55.

I plan to work just long enough, to sock away enough savings in my taxable account, that will cover expenses until I turn 59.5.

I’m a big proponent of maximizing Roth contributions, but you need to see if that makes sense in your case. Remember that you can also withdrawal Roth contributions after 5 years. That might be another option if you need cash for a few years.

Thank you! I appreciate your response to my questions!

 

[JoshTrent]

Just picking out one comment.
No health insurance? Are you sure you want to not have any? Anything can happen to anyone no matter how healthy they currently are.

I acknowledge and appreciate your concern. I am currently away from the US, and my current situation can be managed without HI. Upon my return later this year to the US, I will be looking for a short term solution to tide me over until gainfully employed.

 

[JoshTrent]

Seems to me that a large Roth conversion would be good for you.

You say you don't want to touch the Roth early, but I would make that decision based on numbers, not a feeling that you shouldn't. If you're going to be in the 35% tax bracket next year, I'd want to defer as much of that income as possible, unless you think your retirement income will be that high. If that means you can't sock away as much in taxable, maybe that's ok if you can use the Roth to get you to 59.5. It's worth running the numbers to see which way is better.

A large Conversion is what I was thinking as well. RMDs would be my biggest concern - and moving as much as possible to my Roth (earlier rather than later) will allow me a bit more room with those.

Growing my taxable balance will be my priority, once re-employed. When the Taxable Balance reaches the amount to cover my expenses through the time I can access Retirement Funds - that is the turning point.

I was just chatting with my son about opening my first Roth, and there was definitely some nostalgia. Perhaps I am holding that account in too high esteem, and it might do me good to run calcs assuming that I pull some out. I appreciate that encouragement!

 

[brett]

We did something very similar 40 years ago when we were in our late 20's. We sold up, went to Europe, and bought a camper van.

Travelled in Europe for 8 months, Came back, packed up what we had in storage, and moved to the west coast. Changed my occupation completely.

Best thing we ever did. Blows away the cobwebs and makes on focus. I turned down a job offer just prior to leaving. As we were returning to London I saw a huge neon sign advertising the company that had made the offer. I called them when we were back and settled. Started working for them the following week.

It was wonderful. Though some of DW's relatives could not understand it. We have been travelling extensively every since...pre and post early retirement.

 

[JoshTrent]

We did something very similar 40 years ago when we were in our late 20's. We sold up, went to Europe, and bought a camper van.

Travelled in Europe for 8 months, Came back, packed up what we had in storage, and moved to the west coast. Changed my occupation completely.

Best thing we ever did. Blows away the cobwebs and makes on focus. I turned down a job offer just prior to leaving. As we were returning to London I saw a huge neon sign advertising the company that had made the offer. I called them when we were back and settled. Started working for them the following week.

It was wonderful. Though some of DW's relatives could not understand it. We have been travelling extensively every since...pre and post early retirement.

Thank you for the perspective.. I salute you for doing you! So far this year has given me a chance to heal from burn out, life changes and (most recently) moving into new perspective & focus. I would be traveling more around, If not for travel restrictions varying around the EU so much.

 

[OldShooter]

Experts here will confirm, but IIRC any money you contribute to a Roth can be withdrawn without penalty after its been there for five years (but not the growth in the account). If so, that will let you have a sort of secret place to keep your taxable account where its growth will never be taxed. Right, experts?

 

[citrine]

I think it is great what you are doing....sometimes you need to shake up everything in your life just to see where you need to end up. I did that about 12 years ago...left a good job in big pharma to take a chance and go learn a new occupational trade. I had many people question my sanity since I resigned in the middle of a recession from a job that many would have loved to get. It was the best decision ever and gave me great insight into the kind of life I wanted to live. Here it is 12 years later and that occupation gives me the freedom to work as much or as little as I want and I am able to do many other things than just work 40 hours a week.

 

[brett]

Thank you for the perspective.. I salute you for doing you! So far this year has given me a chance to heal from burn out, life changes and (most recently) moving into new perspective & focus. I would be traveling more around, If not for travel restrictions varying around the EU so much.

When we retired at 58/59 we did the same again but for longer and further afield. Sold our home, downsized to a storage container, traveled for 7 months and rented a condo for another three. Essentially homeless for a year. Moved everything to the web.

We only had two firm reservations when we flew to Portugal on a one way ticket in August. We had a 14 day African safari booked in November, a two week car rental booked in South Africa and a one month condo stay in Costa Rica booked for January. Everything else was spontaneous. Sometimes only a day or two in advance, sometimes more. Came home in late March and rented a furnished apt. downtown. I would have been happy to stay out for a year, DW not so much. Now, pre covid, we do two 8-9 week trips per year.

Traveled through Europe, picked up last minute cruises, did a self driving trip in South Africa.

We always preferred experiences to things. More so in retirement. I would say that if you have the travel bug then get out and do it. We have done it all our lives in many forms from tenting, camper vans, cruises, AI's no stars, three stars, six stars.

You will not regret travel. You may regret not traveling! Forget about the language issue. It does not exist Simply adapt to each location...you will meet wonderful, helpful locals. Plus a lot of fellow travelers (many Australians) who will give you some great travel tips.

Once you start you will realize what little we know about the world and how just because things are done in a certain way at home does not mean the rest of the world does the same. Quite the opposite in fact.

As my spouse says...why stay at home when there is so much world out there to see and experience?

 

[chassis]

When we retired at 58/59 we did the same again but for longer and further afield. Sold our home, downsized to a storage container, traveled for 7 months and rented a condo for another three. Essentially homeless for a year. Moved everything to the web.

We only had two firm reservations when we flew to Portugal on a one way ticket in August. We had a 14 day African safari booked in November, a two week car rental booked in South Africa and a one month condo stay in Costa Rica booked for January. Everything else was spontaneous. Sometimes only a day or two in advance, sometimes more. Came home in late March and rented a furnished apt. downtown. I would have been happy to stay out for a year, DW not so much. Now, pre covid, we do two 8-9 week trips per year.

Traveled through Europe, picked up last minute cruises, did a self driving trip in South Africa.

We always preferred experiences to things. More so in retirement. I would say that if you have the travel bug then get out and do it. We have done it all our lives in many forms from tenting, camper vans, cruises, AI's no stars, three stars, six stars.

You will not regret travel. You may regret not traveling! Forget about the language issue. It does not exist Simply adapt to each location...you will meet wonderful, helpful locals. Plus a lot of fellow travelers (many Australians) who will give you some great travel tips.

Once you start you will realize what little we know about the world and how just because things are done in a certain way at home does not mean the rest of the world does the same. Quite the opposite in fact.

As my spouse says...why stay at home when there is so much world out there to see and experience?

This is great advice. Thanks for sharing it @brett.

 

[teetee]

Low income year(s) at your age is hard to come by (unless you are unemployed or choose not to work), I would do the conversion to Roth to avoid any RMDs in the future if I don't plan to use that before retirement.

 

[teej1985]

Experts here will confirm, but IIRC any money you contribute to a Roth can be withdrawn without penalty after its been there for five years (but not the growth in the account). If so, that will let you have a sort of secret place to keep your taxable account where its growth will never be taxed. Right, experts?

The five year waiting period is for conversions, Contributions can be taken out immediately.

 

[JoshTrent]

When we retired at 58/59 we did the same again but for longer and further afield. Sold our home, downsized to a storage container, traveled for 7 months and rented a condo for another three. Essentially homeless for a year. Moved everything to the web.

We only had two firm reservations when we flew to Portugal on a one way ticket in August. We had a 14 day African safari booked in November, a two week car rental booked in South Africa and a one month condo stay in Costa Rica booked for January. Everything else was spontaneous. Sometimes only a day or two in advance, sometimes more. Came home in late March and rented a furnished apt. downtown. I would have been happy to stay out for a year, DW not so much. Now, pre covid, we do two 8-9 week trips per year.

Traveled through Europe, picked up last minute cruises, did a self driving trip in South Africa.

We always preferred experiences to things. More so in retirement. I would say that if you have the travel bug then get out and do it. We have done it all our lives in many forms from tenting, camper vans, cruises, AI's no stars, three stars, six stars.

Thank you for sharing your experiences! I really enjoy reading about others' travels. Let me know if you ever write a book!

You will not regret travel. You may regret not traveling! Forget about the language issue. It does not exist Simply adapt to each location...you will meet wonderful, helpful locals. Plus a lot of fellow travelers (many Australians) who will give you some great travel tips.

No regrets so far. I have experienced that language barriers can be overcome. Human Beings are amazing creatures, and so many are beyond helpful!

Once you start you will realize what little we know about the world and how just because things are done in a certain way at home does not mean the rest of the world does the same. Quite the opposite in fact.

As my spouse says...why stay at home when there is so much world out there to see and experience?

Traveling has given me great perspective and appreciation for other cultures & people. To a point that I am struggling with some of "norms" that are so prevalent where I am from. I guess a person can only grow if the press their boundaries!

 

[armor99]

The five year waiting period is for conversions, Contributions can be taken out immediately.

I believe that is correct. However, the ROTH IRA itself must have been in existence for 5 years for that to work. If you just open a ROTH IRA (never had one before), I think you have to wait five years to get even your contribution out.