income annually for 20 years starting in 4 years using cash

[Ready-4-ER-at-14]

Hi we have a four year window of time when we don't need or want extra cash or interest due to final conversion of iras to roth and medicare cost increases if we over earn certain types of income that affect Adjusted Gross Income.

Kind of in a brain fog and not thinking crystal clear today so reaching out for help here or at least confirmation. Talking about 100k in this pot of money.

One thing could be an annuity paying out over 20 years starting in four years. Jointly payable with return of unpaid principal. I guess that is a death rider of some sort.
My understanding is you don't pay taxes on the money until you start payout and of that payment a lot will be payback of money paid not gain. Will need a quote to see payments.

I thought about a bunch of small cds in a ladder maturing starting in 5 years. but those all owe taxes each year. Maybe a 100k zero coupon treasury maturing in 5 years and then make a 20 year ladder of 5k per year?

I know people here utilize low cost index funds and am doing more of that as I sort of amble away from trading and active investing.

Does anyone know of lowest cost way to purchase cd's? Or does everyone just buy at broker at asked price on cd's on new issues? Anyone just put in bids that effectively increases the yields and get them filled in a day? if so how?

Finally, do you buy annuities through the respected firms here like Schwab, fidelity, Vanguard or say through an annuity company directly and pay what they offer?

Thanks for any response and reasons for unsuitability of any of these ideas is welcomed. I believe we have sufficient money directly in the market. And some is being added there too.

i will use a spreadsheet to assembly the components of the columns to determine any significant difference.

thanks for any comments in advance.

 

[Sunset]

You could buy BRK.B - no dividends or interest each year. When you want the $$ sell some shares.

 

[aaronc879]

You could buy BRK.B - no dividends or interest each year. When you want the $$ sell some shares.

37% of BRK.B is in Apple stock. I would not be comfortable with that lack of diversification. YMMV

 

[COcheesehead]

New CDs are issued at par and have no transaction fee, at least that is the way they are sold at Fidelity.

 

[Sunset]

37% of BRK.B is in Apple stock. I would not be comfortable with that lack of diversification. YMMV

Are you sure ?
I think the Apple stock is ~40% of BRK.B stock holdings, which are 3/7ths of the company capitalized value.
Which would make Apple ~17% of BRK.B -> yes high still.

That is why I don't own any Apple stock directly, as I also have VTI and ~5% of it is Apple stock.

And I don't even own a Mac

 

[OverThinkMuch]

I thought about a bunch of small cds in a ladder maturing starting in 5 years. but those all owe taxes each year. Maybe a 100k zero coupon treasury maturing in 5 years and then make a 20 year ladder of 5k per year?

You should research "imputed interest" of zero coupon bonds. I think you owe tax on interest even when you haven't received it.

Will tax-exempt income help?

I currently put my taxable cash in iShares Short-Term National Muni Bond ETF (SUB) because of being in a high tax bracket. But if you want to limit how much interest contributes to your AGI, it might help you.

 

[sarasotacycler]

5 year MYGAs are currently paying around 5.4% interest. My understanding is that the accrued interest isn't taxable until withdrawn. This would meet your 4 year window of income without taxable status for the period. Blueprint Income seems to be a reliable agent, you can get quotes at their website.

 

[Montecfo]

37% of BRK.B is in Apple stock. I would not be comfortable with that lack of diversification. YMMV

It is about 19% of BRK's market cap. Closer to 40% of BRB's stock holdings which exclude directly held businesses.

Edited to add: I see Sunset has made this point above.

 

[Ready-4-ER-at-14]

You should research "imputed interest" of zero coupon bonds. I think you owe tax on interest even when you haven't received it.

Will tax-exempt income help?

I currently put my taxable cash in iShares Short-Term National Muni Bond ETF (SUB) because of being in a high tax bracket. But if you want to limit how much interest contributes to your AGI, it might help you.

Thanks everyone for the comments. I did a quick internet search on imputed interest and it appears your memory is correct. In fact when i read the term I sort of remembered what it was. Seems this was a modification of the tax code some years ago.

I tend to read the forums here on a laptop I only use for internet browsing and only log in on a different computer when I want to make a comment, so my appreciation of the comments was slower than my reading them.

I'm not sure about the tax-exempt income aspect. Finances are a bit in flux until the net amounts of new resources are determined so just painting with broad brush strokes for a little longer. Some of the financial decisions are premade. Fortunately many are not time crucial.

At the MoneyShow in Las Vegas an insurance guy also touted whole life insurance as a possible work around for tax problems. If i remember correctly you bought expensive whole life insurance with a large cash value and could borrow tax free against it, just reducing the payout to your heir after death. It seemed to work as an estate workaround and cash that did not hit your agi. Seemed self-serving to me for the salesperson but might have some merit if you are near estate tax levels for state or federal. Think IL is 4 million but 4+4 if married and do a trust properly.

I did have brk.b in the past. In fact kind of traded it short term for a while. Don't remember why i got away from it, seems the general market was going down and i went to cash.

Had to look up what MYGA was Multi Year Guaranteed fix rate annuity. I have one at a different company bought during the extremely low interest rate period that fortunately is maturing this year. I just wanted the money out of the stock market and paying better than cd rates.

Thanks for the feedback and ideas. Will comment when a purchase occurs. ty.

 

[Ready-4-ER-at-14]

Still doing research, money came in a different method that expected due to the particulars of how it was held and is taxable rather than tax free.

It appears that than rather than avoiding cash i will be stopping cash distributions of Roths and cash distributions from regular IRAs. I will still do Roth conversions that are taxable.

I'm doing modeling of 2023 taxes now and it appears that I can spend the cash from the new money to live on and taxes from the money and still convert most if not all of what is in regular iras to roth in the next 4 yrs when Social security would be turned on.

That money and annuity taxes would use up most of the low tax bands and investment cash accounts will have to be watched for tax efficiency.

I was under the assumption that a death benefit from a non turned on annuity in a cash account was like a life insurance death penalty and not taxable. As Gomer Pyle used to say to sergeant Carter "Surprise, Surprise, Surprise!". Turns out it seems the premium paid is not taxable on return, but the gains are.

It seems the rules are even different on getting the money than for a cash purchased deferred annuity over time. With the purchased annuity what you paid is deducted from taxable income on the 1099-r annually. So if the money tripled you pay taxes on 2/3 of the payout annually. My understanding is the inherited death benefits paid over time (say 5 years) pays back the gains first which are 100% taxable and the tax free towards the end. Need to recheck this but think I understood it.

Anyhow I did a pivot on what I wanted to do, but with investing and taxes is what most of us seem to do anyway. TY for prior postings.