Wellesley Income Fund

[Nords]

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Originally Posted by wallygator69 Last one "Given the range of write-offs I can come up with"..... Been looking at the Tax thing.* What kinds of "write offs" do some of you more creative FIRE's have.

Well, the best way to lower your tax bracket is to get rid of all that pesky W-2 income. That usually eliminates the need for the deduction dance.

Then there's the child tax credit.

We have a mortgage (which is a whole 'nother thread) and that interest deduction has given us more room to convert our conventional IRAs a little each year to Roths.

We have a rental property which, as long as we're taking the depreciation, will never show a positive cash flow.

As you divest yourself of all your work-related crap office attire & equipment, giving it away is a deductible charitable donation.

Some of us have long-term rollover cap losses from the 2000-2003 "Dark Ages". We finished that business off last year.

Set up your retirement portfolio to throw off long-term gains & qualified dividends instead of short-term gains & interest.

Energy conservation legislation has added a lot of tax deductions for hybrid vehicles & renewable-energy home improvements. We're going to max those out this year & next.

Gosh, I love talking about this stuff when I can use it as an excuse it distracts me from actually having to enter the data into TurboTax...

[cute fuzzy bunny]

Yes, vanguard lets you direct capital gains and/or dividends into your checking acct. I ended up having all of it go to my vanguard prime MM fund, and have a regular 'paycheck' automatically transferred to my checking acct on the first of every month. I tweaked that to the point where I had just enough and a bit more to cover our average monthly bills. All but one of my bills 'autopays', so its almost a touch-free system.

Spouses, babies, taxes on homes, taxes on cars, charitable donations and the usual other suspects help. Keeping the income from ever being taxable income in the first place by using 401ks/ira/403b's, medical savings accounts, and taking your investment income as qualified dividends that have a low income tax cap also makes sense.

Make the egg small in the first place by using tax deferrals, then trim it down using good old deductions.

We hit high five figures in total money. Our AGI was half of that. The taxable income was almost half of that. Child tax credit and foreign tax credits, along with a couple of other small ones...cut the tax bite on that taxable income in half.

Right now, qualified dividends are the best free lunch I can see and I cant believe more people arent taking advantage of them. Your taxes are capped at 0/5/15% this year and next, and the following year unless a tax code revision is put in place (which is likely) they're untaxed.

As far as wellesley goes, I dont own it anymore. Its an excellent fund for a fully retired person of almost any age that wants a 4% withdrawal rate, low volatility, no sudden moves and no loud noises. You're not going to get 12% out of it on a sustained basis, but you'll get your 4% paid as a dividend, part of it qualified, and the principal should keep up with inflation and maybe a bit more. Its turned back 8%+ a year on average through some turbulent up and down times, with no big loss years and no sequential losing years.

With a working wife providing all the income we need, I didnt need the low volatility and could handle some sudden moves and loud noises in exchange for potentially stronger long term returns.

Edit: whoops, nords posted while i was typing. The curse of the long-winded. What he said.

[wallygator69]

Quote:

Originally Posted by Cute n' Fuzzy Bunny Yes, vanguard lets you direct capital gains and/or dividends into your checking acct.* I ended up having all of it go to my vanguard prime MM fund, and have a regular 'paycheck' automatically transferred to my checking acct on the first of every month.* I tweaked that to the point where I had just enough and a bit more to cover our average monthly bills.* All but one of my bills 'autopays', so its almost a touch-free system.

Fuzzy,

Brilliant! I switched Banks few weeks ago finally going to on line bill pay and this is even better than what I expected to be able to do. (Is it too early in our relationship to tell you I love deeply respect you.

One more very important clarification I hope you'll help with.

Since long term cap gains are 15%, why do you care if Wellesly is not very tax efficient. I know it's conservative but if I grind the numbers.

$1M in Wellesly last year would have kicked of $40800 in Dividends.

It would have also distributed $17756.00 in Long term Capital Gains.

If you take it all, the total is $58,556.00 for the year.

Am I missing something?

Doesn't this potentially do something like the Gummy SWR. More in Good times, less in bad. ie:

Use the Yield last year of $40,800 as your base. If it's a good year there should be Long term Cap gains as your mad money. If not since it was a good year, you could sell off shares as needed, but no more than back to the Original Portfolio value at the start of the year.

If it's a bad year you just live off the $40800....

This is getting very interesting. For me anyways.

Thanks,

Wally

[cute fuzzy bunny]

Quote:

Originally Posted by wallygator69 Is it too early in our relationship to tell you I love deeply respect you.

Only if you're a chick. If you're a guy, we should grunt a little and talk about football or cars or something for a few minutes until nobody's looking anymore.

Quote:

Since long term cap gains are 15%, why do you care if Wellesly is not very tax efficient.

A lot of wellesleys dividends are from intermediate term bonds, and are taxed as ordinary income. That could be a lot more than 15%.

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Am I missing something?

Nope.

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Doesn't this potentially do something like the Gummy SWR. More in Good times, less in bad.

You could do that, but then you'd be digging into your inflation protection; by reinvesting the capital gains, your principal keeps up with inflation (at least it has historically in that fund), so your next years 4.xx% yield is against that higher principal (the gains reinvested, plus share appreciation). You -could- take the capital gains, and hey, you're paying taxes on them so theres no extra hit for doing so, if you need the money and want to play it a little close, or have other stock holdings you wont touch for a long time. When I was knee deep in wellesley, I was taking everything that came off of it, but I had 1/3 of my net worth in an IRA that was all rocket stocks like small cap value, reits, healthcare and so forth. Even if my wellesley nestegg depleted between my retirement at 39 and 59.5 when I could access the IRA without penalty, the IRA should have doubled or better in that 20 years and easily carry me through another 20 years. Plus any social security that might show up.

Seemed like a plan at the time.

Quote:

Thanks

S'allright

[cute fuzzy bunny]

Oh yeah, one other thing...look at 'target retirement income' from vanguard. Same approximate idea but no long track record as its new. Instead of 65% bonds and 35% large cap value its got some inflation protected bonds, some total bond market and some total stock market. Might do better in a high inflation environment, maybe not so much if inflation stays low.

maybe half in wellesley and half in target retirement income wouldnt be so bad.

If you can handle a little less regular income and want better potential long term growth, split half in wellesley and half in wellington, you'll end up with ~50% stocks and ~50% bonds, picked by the same people, same strategies. Your yield will drop to about 3.2% or so on average, but you have a better shot at having a bigger port in 10-20 years.

Rebalance between the two every couple of years.

[wallygator69]

Quote:

Originally Posted by Cute n' Fuzzy Bunny Only if you're a chick.* If you're a guy, we should grunt a little and talk about football or cars or something for a few minutes until nobody's looking anymore.

Sorry, Dory probably wouldn't change the name to Brokebak website anyway..

That would be wrong...

[cute fuzzy bunny]

I wish I could quit posting with you.