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Strategy for "bridge" years
Old 05-09-2021, 06:44 AM   #1
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Strategy for "bridge" years

Not sure if this is a unique situation, or the correct area to ask.....

Our current plan is in place:
  • sufficient after tax funds to live on starting 2022 through 2026 when DW qualifies for Medicare
  • intentionally limiting tax deferred account withdrawals during this time to ensure "best value" ACA plans for each. We both have chronic health conditions and the coverage is far better than our really good COBRA plan, if that plan even exists in 2022......
  • virtually all remaining unallocated funds are in traditional IRA

The wrinkle that recently arose is that we want to get a couple of big ticket items (big tow vehicle & travel trailer) that weren't on the radar until now.

2021 is the last "full salary" year for us, so the federal tax rate would be at 22% to start with. I'm thinking this is the last year until 2026 to pull a large amount of taxable income.

NY state allows $20K "deduction" for IRA withdrawals, and gets about 6% with different bracket levels than federal.

As I run the "what-if" numbers, the 30% income tax (federal + state) and additional 8% sales tax is a real concern. "The only sure thing......death & taxes" :-)

Sucking it up and paying up is one option, and I'd have to pay estimated tax or increase withholding to avoid further pain of penalties regardless...

I'm also considering 2 other "hybrid" options that involve withdrawing less from

the IRA:

- finance the RV and or tow vehicle, making payments over the 4 years, pay it off in 2026 when we have less concern about the ACA cliff. If the RV is collateral on the loan, it appears the loan interest is deductible.

- selling my "inflation hedge" after October 2021, when I can pay 15% capital gains (saves about 7-9% federal income tax).

The supply chain is so "upside down" it's the absolute worst time to buy, but we have decided that 2022 is the time to go for it, given our health circumstances.

We're likely to put a deposit on the RV in the next 3 months due to the very long lead time.

DW has absolutely vetoed my offer to w*rk another year (after another very brief ER visit), which really wouldn't solve the tax concerns.

We are extremely grateful to have these "first world problems", and don;t want to diminish our regular charitable contributions through the "bridge period" to pay taxes this year.

I'm still crunching the numbers wondering if I've missed any other options?
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Old 05-09-2021, 06:52 AM   #2
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Not quit sure what the question is, but the answer is probably something along the lines of levelizing your AGI and taxable income from those four or five years.
If that means you need a loan to finance the $60k pickup, then do that...
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Old 05-09-2021, 07:08 AM   #3
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I would buy a used trailer/tow combination. I know the market is tight, but put feelers out and you should be able to find something. Four people have approached me about their rigs based on my lifestyle, even though I have never expressed interest. Despite what is in the press, in my experience, there is a great deal of inventory available. It's just not all advertised.
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Old 05-09-2021, 07:13 AM   #4
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Another option might be to get a home equity line of credit to use for major purchases, and pay it off when it works better to take more income. Easier to get a HELOC while you are working, I've heard.
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Old 05-09-2021, 07:22 AM   #5
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The ACA PTC $ is probably worth making the interest payments on a HELOC. That would be a lower borrowing rate than if you got a loan for the trailer, I expect.

I was in the same place as you WRT all tIRA (all spend would need taxable withdrawals), but recently had inheritance and it's triggered getting the house spiffed up a bit. We started with the things that were rusted and rotted, so making the place more easily sellable. But a "fun thing" might also be in the cards now that there's no associated "penalty" or need for financial gymnastics.
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Old 05-09-2021, 07:42 AM   #6
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HELOC is a good way to go. We got a HELOC for $100K and used it to pay for a new roof, a solar system, a new deck and swim spa. We have until 2044 to pay it off. We're making small payments. We don't have to pay anything, actually. We'll likely not be around when the loan is due anyway.
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Old 05-09-2021, 08:48 AM   #7
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If you are going to borrow do it while you still have a paycheck. We got one when we moved but only 30% of what we wanted due to not having a W2.
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Old 05-09-2021, 09:41 AM   #8
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I'm pretty sure you can get fairly long repayment terms on an RV loan, up to 15 years as I recall... this could help with the cash flow problem, and if the interest is deductible, that helps. Man, I'm glad I don't live in NY anymore...

The big pickup truck I bought a couple years ago has barely depreciated... a pleasant surprise. This is probably the worst time in decades to be RV shopping, but I do understand your predicament. Good luck!
--At what age does spending less now in order to have more later stop making sense?
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Old 05-09-2021, 09:49 PM   #9
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And you know the ACA cliff is gone for the next 2 years due to recent stimulus bill capping premiums at 8.5% as opposed to having to manage income below 400% fed poverty level (~$67k if married filing joint).
Enjoy your life and do as many things as possible while you can! There will come a day when you donít want to or you canít!
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Old 05-10-2021, 03:45 AM   #10
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Originally Posted by a60dan View Post

As I run the "what-if" numbers, the 30% income tax (federal + state) and additional 8% sales tax is a real concern. "The only sure thing......death & taxes" :-)
Radical as it might sound, now might be the time to consider a move to a state with lower/no (applicable) state taxes. It's been done but YMMV.
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Old 05-10-2021, 07:48 AM   #11
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I second the idea to buy used, both on the RV and the tow vehicle. My impression is that lots and lots of people think they'll do a lot of RV'ing, so they buy a setup, use it a bit, find out they're not that into it for whatever reason, then sell them for half what they paid. So I think there's plenty of supply in the used market.

Another more radical idea that occurs to me for someone in your situation would be to sell the house and go full time RV'ing. Apparently it's a very good time to sell a house these days. This is obviously a risky move for several reasons (you might hate RV'ing, you might have trouble buying a house again later, it's a big hassle), so I'm not suggesting/recommending/advising you or anyone do it.
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
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Old 05-10-2021, 07:56 AM   #12
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Just want you to be aware of the Essential Plan.

For a household of 2 income below $34,840 gets the Essential Plan in NY. Only $20 per person per month. $0 for the next 2 years.
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