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Old 01-04-2021, 12:45 AM   #161
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Haven't tracked spending since 2011 (only year ever). I found a few "surprises" but seriously, a back of the envelope was within a few percent. Since spending the effort did NOT change my spending habits and we have "enough" without making any changes, I dropped the whole idea.

With that in mind, we DO track "spending" on charities and the kids. Most charities are deductible and we like to know how our kids' "inheritance" is going. So, in 2019, we doubled both charities and kids. Those are (far and away) our biggest "expenses" with taxes being a distant third.

Notable changes this year: 1/6 the spending on gasoline - haven't driven 1000 miles in 2019. Eating out - just the occasional take out due to Covid. WAY more on groceries. We used to eat out 4 or 5 times a week but now we eat at home. It's way cheaper, but it still adds up in the "food at home" category - which we don't actually track. NO travel since January (all the way to the Big Island!). Inflation has been significant on just about everything, though the CPI (or whatever) doesn't reflect that (another thread.)

So, it turns out, we've spent more this year than ever in our lives - even our big reno. years.

Just a thought on the spending on the ER forum. Just SWAGing it, it looks like the bulk of us spend between $20K and $200K. I think that must be nearly THE definition of "middle class." Heh, heh, not too many NetJets users or 3-McMansion families represented. As always, YMMV.
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Old 01-04-2021, 12:57 AM   #162
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Originally Posted by Out-to-Lunch View Post
Can one of you who have become enlightened explain it to those of us who are still benighted? I won't be offended if you explain it as if I were five.
Imagine you're an only child and your parent has a $1M traditional IRA. They pass away and leave it to you. you have 10 years to empty it because of the SECURE Act.

For the next 10 years, you take out $100K from the traditional IRA. It's taxed as ordinary income. You're thus in a high tax bracket.

You therefore don't want to do Roth conversions on your own traditional IRA during those 10 years, because you're already in a high tax bracket from the $100K from the inherited IRA. (Roth conversions are generally advised for when you're going to be in a relatively lower bracket.)

That's what I understood, anyway.

Does that help?
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Old 01-04-2021, 09:49 AM   #163
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Originally Posted by SecondCor521 View Post
Imagine you're an only child and your parent has a $1M traditional IRA. They pass away and leave it to you. you have 10 years to empty it because of the SECURE Act.

For the next 10 years, you take out $100K from the traditional IRA. It's taxed as ordinary income. You're thus in a high tax bracket.

You therefore don't want to do Roth conversions on your own traditional IRA during those 10 years, because you're already in a high tax bracket from the $100K from the inherited IRA. (Roth conversions are generally advised for when you're going to be in a relatively lower bracket.)

That's what I understood, anyway.

Does that help?
Ahh, I see. Thank you for working on explaining that to me. I just wasn't seeing it.
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Old 01-04-2021, 12:17 PM   #164
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Imagine you're an only child and your parent has a $1M traditional IRA. They pass away and leave it to you. you have 10 years to empty it because of the SECURE Act.

For the next 10 years, you take out $100K from the traditional IRA. It's taxed as ordinary income. You're thus in a high tax bracket.

You therefore don't want to do Roth conversions on your own traditional IRA during those 10 years, because you're already in a high tax bracket from the $100K from the inherited IRA. (Roth conversions are generally advised for when you're going to be in a relatively lower bracket.)

That's what I understood, anyway.

Does that help?
Precisely This is what DW and I will be up against. Although I think her side is all after tax so perhaps we just get my side in the inherited tIRA. It would really incentivize me to quit my day job in terms of tax consequences.

I high income earner already in the 24% bracket...then gets hit with an extra 100k of income for 10 consecutive years. Interesting times. I'm already looking for cash options here anything to tuck a lil under the rug so uncle sam can't smell it.
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Old 01-04-2021, 01:21 PM   #165
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To be fair, the problem existed before the SECURE Act; the SECURE Act just exacerbated the issue and created the 10 year income bump.

The additional thing that I think @kgtest is alluding to is that for a typical case (or maybe just the typical case for someone here on this board), someone inheriting a $1M IRA from their parents is probably in their mid-50's and doing well themselves and may already be in the 22% or 24% bracket, so adding the $100K per year on top of that and it'll get hit pretty hard with taxes.

It could also make planning difficult for someone who has retired early and may be planning on Roth conversions already themselves and planning on having X years to do so before age 72, yet effectively having that X reduced by 10 somewhere along the line.

Again, first world problems.
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Old 01-04-2021, 02:11 PM   #166
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I agree that keeping track of Amazon categories is hard, because the variety of stuff I buy there is large.
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Same here. When I order things from Amazon I write them individually on my sheet, bracket it with the word Amazon beside it. Allows me to check my credit card statement before paying.
This may or may not be helpful, but you are able to download EVERY THING YOU HAVE EVER BOUGHT at Amazon. It used to be much easier, but there is a workaround for it and it's not instant like it once was. I will warn you...if you order from there often and don't keep track, the results may be...ahem...surprising.

https://www.komando.com/how-tos/down...istory/752778/
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Old 01-04-2021, 02:14 PM   #167
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The secure act also reduced the availability of stretch IRAs which could spread the time significantly longer.

Also when you look at the hypothetical 1 mill IRA spread over 10 years.... the asset is still invested and will likely grow making more than 100k/year
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Old 01-04-2021, 02:16 PM   #168
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Again, first world problems.
I am glad you said that.

Part of the reason for my earlier incomprehension was the utter foreignness of the concept of an inherited IRA. I was very grateful for the $8k inheritance I received.
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Old 01-04-2021, 02:37 PM   #169
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Speaking of passing along our retirement funds to our kids, I have been thinking about the same "problem" my kids may be facing.

If they suddenly have a 6-figure income from inheritance added to their already good pay, the tax may be so high that they decide to quit and to retire early. That itself is not a bad thing (they can then join ER forum to BS around like I do now), but the problem is the inheritance income will run out in 10 years, and they may not have enough other assets to sustain their ER. Plus, they may not have enough work years to have a decent SS to live on.

I hate to think that the money I leave behind may cause financial demise for my kids. For a financial success, we know that it's not what we make, but also what we spend.

And that brings us back to the topic of this thread. You've got to know what you are spending. Period.
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Old 01-04-2021, 03:09 PM   #170
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Speaking of passing along our retirement funds to our kids, I have been thinking about the same "problem" my kids may be facing.

If they suddenly have a 6-figure income from inheritance added to their already good pay, the tax may be so high that they decide to quit and to retire early. That itself is not a bad thing (they can then join ER forum to BS around like I do now), but the problem is the inheritance income will run out in 10 years, and they may not have enough other assets to sustain their ER. Plus, they may not have enough work years to have a decent SS to live on.

I hate to think that the money I leave behind may cause financial demise for my kids. For a financial success, we know that it's not what we make, but also what we spend.

And that brings us back to the topic of this thread. You've got to know what you are spending. Period.

Or, it could take you back to the topic of a different thread: https://www.early-retirement.org/for...hy-107219.html
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Old 01-04-2021, 05:31 PM   #171
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I remembered that B of A has an easy and fast tool for spending records, by the month. So I added up the last 12 months and it was 200 grand!

Woo-Hoo, Blow That Dough! But since half of that was landscaping and sheds, not too bad at all.
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Old 01-04-2021, 05:40 PM   #172
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Imagine you're an only child and your parent has a $1M traditional IRA. They pass away and leave it to you. you have 10 years to empty it because of the SECURE Act.

For the next 10 years, you take out $100K from the traditional IRA. It's taxed as ordinary income. You're thus in a high tax bracket.

You therefore don't want to do Roth conversions on your own traditional IRA during those 10 years, because you're already in a high tax bracket from the $100K from the inherited IRA. (Roth conversions are generally advised for when you're going to be in a relatively lower bracket.)

That's what I understood, anyway.

Does that help?
But, doesn't that actually encourage Roth conversions by folks like me, with a large tIRA and only one heir?

I understand your point, but I don't think the "tax bump" will reduce conversions. I think it encourages them for folks with a large tIRA.
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Old 01-04-2021, 06:36 PM   #173
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A new deck on the house. The old one was beyond its life. New one is maintenance free, bigger, more functional and has stairs going down.

6x6 posts on 54" footings with 2x16 stringers. 54" wide steps, ceder color with bronce rail. Looks very nice. Also felled 3 trees to open it up for a nice view a 90' cotton and a couple boxelders. I hired a teee climber and groundsman and we worked together on the trees. I actually made money on that endeavour as neighbor wanted sime felled which paid for ny gear and help.

I helped with the deck too and saved some money being my own GC. Phase 2 in spring involves 7yards of stamped n stained floating slab and a screen porch with underdecking. Extra 1400 sw ft of outdoor space we can use now. BofA and Capital one paid for this. I'll pay them back in 18months. DW is super happy with it all.

Built 3 retaining walls this summer so its coming together. Lots of stone to lay yet
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Old 01-04-2021, 06:58 PM   #174
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Cool. So how much did you spend in 2020?
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Old 01-04-2021, 07:55 PM   #175
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Cool. So how much did you spend in 2020?
Oh boy...you ask such a loaded question... I thought here I was in the blow that dough thread...ya caught me..now I gotta check standby...

Looks like debt paydown including mortgage was $16,500 $35,000 edit

Expenses were around...

~$75k. Family of 5 in chilly flyover country.

We also contributed a bunch to retirement but I don't count that as spending. One of our best years in terms of the numbers. Blessed.
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FIRE in 2031 @ 50yrs old (+/- 2yrs) w/ a hypothetical $2.5mil portfolio, 3 appreciated homes worth $1.0mil and rental income to fund my gap years until RMD. Assets will go to an inherited IRA where I plan on watching the investments grow until I die or the trust gets executed.
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Old 01-04-2021, 08:05 PM   #176
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But, doesn't that actually encourage Roth conversions by folks like me, with a large tIRA and only one heir?

I understand your point, but I don't think the "tax bump" will reduce conversions. I think it encourages them for folks with a large tIRA.
It wasn't my point originally. Someone else made it (bingybear I think?), and I was just explaining it to someone else who asked. And the original poster's point was from the POV of the beneficiary, not the original owner.

Yes, if you have a large tIRA and only one heir, it certainly could make sense to do Roth conversions to reduce the impact of that tax hump on that heir for those 10 years. It depends on a lot of factors, though, including your other assets, age and tax bracket of the heir, your health situation, your estate plans, whether you're married, etc.
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Old 01-04-2021, 10:31 PM   #177
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and I was just explaining it to someone else who asked.
No good deed goes unpunished!


But thanks again.
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Old 01-05-2021, 02:03 PM   #178
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Well, we did something unexpected and moved in October. So our expenses are completely out of whack - bought house in the farther-out suburbs/sold townhouse in crowded area. New house needed some new furniture, a Peleton, and some renovations. Having said this, the money we spent this year would have been spent in 2022 or 2023 originally, so we just moved up the timeline.

Of course, we spent less on travel and entertainment/eating out, as well as pet-sitting (since we didn't go anywhere)....the other categories were about the same as 2019.
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Old 01-05-2021, 03:24 PM   #179
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Things look very different during Roth conversions - year 2 of 7 for us. But the right thing for us to do long term IMO. Fed & State taxes have been as low as 5-8% of annual spending some years since I retired...
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Old 01-05-2021, 03:27 PM   #180
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My spending was way down for last year - from 54,000 in 2019 to 33,000 for 2020. I had actually been thinking of increasing my spending in 2020 from prior years - 4 years into retirement I felt like I was past some of the SORR - but the world had different plans.

I think my 2021 spend will probably be pretty low as well, so 2022 may be a "blow that dough" year for me.
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