Strategy for "bridge" years

[a60dan]

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?

 

[TheWizard]

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...

 

[HarveyS]

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.

 

[RunningBum]

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.

 

[sengsational]

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.

 

[EastWest Gal]

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.

 

[MRG]

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.

 

[SnowballCamper]

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!

 

[oscar1]

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).

 

[Koolau]

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.

 

[SecondCor521]

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.

 

[jim584672]

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.

https://info.nystateofhealth.ny.gov/sites/default/files/Essential%20Plan%20Fact%20Sheet_4.pdf

 

[a60dan]

Strategy for "bridge" years

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.

https://info.nystateofhealth.ny.gov/sites/default/files/Essential Plan Fact Sheet_4.pdf

Ironically I recently reached out to my company’s broker for medical insurance.

She told me I’d be “crazy” not to go for the Essential Plan.

The truck loan will be 1.5% for 4 years. RV loan 5 year balloon with 12 year payments at 2.79%.

Sold off some Bitcoin (15% long term capital gain) and my 2014 car is worth way more than I expected if I trade it.

Revised my resignation letter the other day.

Giving notice November 1. That’s the scariest part [emoji3]

 

[a60dan]

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.

Appreciate the input.

This will be our 3rd travel trailer.

Like tow vehicles, used cost more than new right now. I always want to buy used in normal times.

 

[a60dan]

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.

I prefer used in normal times.

If my mother weren’t in a nursing home locally, we’d seriously consider going full time for a while.

 

[jim584672]

Not trying to hijack the thread but does anyone have some links to the information mentioned in the quote above? This info could have a big impact to us.

Impact of Key Provisions of the American Rescue Plan Act of 2021 COVID-19 Relief on Marketplace Premiums

https://www.kff.org/health-reform/i...2021-covid-19-relief-on-marketplace-premiums/

 

[mountainsoft]

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.

You might also reevaluate whether the RV is really the best financial decision. Unless you plan to travel in it full time, I'm betting you would spend less and have more comfortable accommodations by renting motels and/or AirBnB's near your destinations. No vehicles to maintain, no fuel, no insurance, no park fees, no worries about storing it when you're not traveling, etc.

For us, finding unique places to stay is often part of what makes travel interesting.

 

[armor99]

Also remember that if your plan allows it, you can reverse rollover a traditional IRA, back into your current 401k plan. If you do that before you retire (@55) you can then use the rule of 55 to get at your money earlier with no penalty.
Normally, you would need to wait till 59.5 to get at your traditional IRA, or face the 10% penalty..

 

[Ramen]

How about just renting an RV when you need it? Buying seems like a big commitment amid uncertain health and times. Also, a while back I heard or read somewhere that RVers are quitting in droves because campgrounds are packed amid the pandemic. Even in the so-called off season now, it's hard to find a space. Hmm, maybe this will bring a wave of used sales?

 

[SecondAttempt]

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.

If you will be traveling around a lot (as implied by the trailer) this might be a great idea for you. My mother and her husband were residents of (I think) South Dakota for many years for tax reasons even though they spent little time there. Eventually the "moved" to Texas, another low tax state.

There are rules you must follow of course but it could be worth tweaking your plans to avoid NY taxes.

 

[chassis]

Get the truck and camper if you want them. It’s only money. You only live once.

A camper should be treated as an expense, including the acquisition cost. It’s a massively depreciating and maintenance hungry possession. I owned one for 10 years and enjoyed it. And it gobbled a fair chunk of my time and money to keep it roadworthy.

Spend time on rv.net and you will find most experienced rvers are honest about massive depreciation and maintenance intensity. And fun.

RV’s of all descriptions are made using low tech methods and low quality materials by workers paid by the piece (piecework wages). I have first hand experience with this. It means low quality, brand “image” notwithstanding. But they are fun.

 

[Koolau]

How about just renting an RV when you need it? Buying seems like a big commitment amid uncertain health and times. Also, a while back I heard or read somewhere that RVers are quitting in droves because campgrounds are packed amid the pandemic. Even in the so-called off season now, it's hard to find a space. Hmm, maybe this will bring a wave of used sales?

We looked into that one time and found it to be WAY more expensive than using hotels. DS more recently looked into renting and found the same thing though he wanted to full-time for 6 months. SO, he bought a used unit and drove it cross country for several months and sold it for more than he originally payed. His primary reason to RV was because he owned two dogs which can be problematic when obtaining hotel rooms. YMMV