If you don’t mind a little expense (0.35%), consider JEPI. It yields 7%+ and has been essentially flat or increasing since 2023. There is also a JEPQ yielding 9%+
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I have some JEPI in my portfolio. I consider it part of my dividend stock mix because of the yield even though the way it generates the yield is quite different than the rest.
If you aren’t gonna run into the issue where your RMD amount is greater than however much you spend in a given year, then there is little advantage to rothifying your money now
Probably don’t wanna rothify anything during the years you spend extravagantly
Easy peasy
True, but I’m thinking the correct strategy might be to live off of non-retirement brokerage money the first few big spending years. Even with big spending my taxable income should be very small (just capital gains) so it might makes sense to do some Roth conversions then. If I focus on getting ACA subsidies I wouldn’t be doing much in Roth conversions… in order to save ACA money immediately… but I don’t know if larger Roth conversions to fill up the lower tax brackets would save me more in future taxes than the amount of extra ACA premiums up front.
The other thing I want help with is how extravagant is too extravagant. I know I could spend more, but not how much more. Spending more is going to make me a bit nervous so I want some backup on that decision so that I can spend and enjoy it.
Good problems to have, I apologize if my fretting over it annoys anyone.
Thanks Ted, this is how I’m currently leaning also. I’m not willing to pay an AUM fee for someone just to help choose an allocation of mutual funds that would probably be very similar to what I would come up with.
The couple of firms I have interviewed offer a lot of services beyond investment allocations. If I were more interested in the topics I probably could educate myself enough to do a decent job of it. I just really don’t want to spend the time necessary to feel qualified to do it all myself.
I think we will be ok on RMDs. We haven’t hammered out a final number. For purposes of thinking this through, let’s say we have $2.5M in 401k and $1M in brokerage. So $3.5M, times 4%, $140k annual allowance. Assume I retire at 50-52 years old.
Now at first we would tap the brokerage, right? Assume half of the $1M is cap gains and half is principal. So if I take out $140k, only $70k is income, minus a $29k standard deduction, our official income is $41k, right?
Since the brokerage won’t likely bridge the gap to SS, should I do some Roth conversions here? At least to get my IRS income up to $63k, to take full advantage of the 12% bracket. Now, if I only convert $23k, which I can withdraw in five years, that won’t be nearly enough, obviously. So I could either Roth more in the 22% bracket, or I could could start SEPP from the 401k, likely beginning in my early 60s, so a pretty short bridge to SS.
I don’t know, am I getting any of this correct?
If you sell off $123,250 of capital gains in your brokerage that you have held for one year, you get a $29,200 standard deduction leaving $94,050 which is the upper limit for the ZERO long-term capital gains tax bracket for married jointly. Anything above that will cost you 15% (there is a 20% but it is beyond the scope of this example).
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If I had zero income from working and had $100k in LT cap gains, there is zero cap gains tax, does this trigger any income tax? Or can I literally take $100k of cap gains and get out for free? If the latter, then if I only need $80k for a year, am I better off withdrawing the max I can tax free, at least to step up my cost basis? I know there are wash sale rules.
And question two. If $123k is the cap and I withdraw $124k, do I pay 15% on the $1k or the whole $124k?
Appreciate your patience, I’m way behind on this stuff.
$1,000 x 0.15 = $150.
I advise you to read this article from Go Curry Cracker.
It’s a bit dated, but back when he wasn’t making as much income from his blog and his tax return was simpler. But I doubt anything material has changed, only the tax brackets and rates, but the concept of 0% for qualified dividends and long-term capital gains remains the same.
He goes on to add that you can recharacterize a traditional IRA as a Roth up to the standard deduction at no cost and fill the remaining $ with the dividends or capital gains. So the ideal mix could be $29,200 recharacterization and $94,050 of capital gains.
He addresses ACA elsewhere and I haven’t completely absorbed this yet, since I will still have income and will be somewhere under 400% of the poverty line.
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Thanks Klaymen, super helpful. I should make a spreadsheet. I’m gonna need some time to absorb all of this!
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It will be well worth your time
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I’m not going to pretend I have TurboTax but I have built in the situations pertinent to me.
They are a bit haphazard, feel like I should redo it.
I have two more quick interviews this week, and I might be doing 20hrs/wk of actuarial work on the side. Then they tell me I would have a K-1 partnership form to fill out for that income sigh
| Federal 1040 | ||
|---|---|---|
| 1 | Wages | 25,853 |
| 2b | Taxable Interest | 1,058 |
| 3a | Ordinary Dividends | 1,978 |
| 3b | Qualified Dividends | |
| 4b | Taxable IRA Distributions | 12,608 |
| 7 | Capital Gain | (1,986) |
| 7A | Capital Loss Carry | - |
| 8 | State Refund | - |
| 8 | Business Inc | 12,560 |
| 9 | Total Income | 52,071 |
| 10a | Deductible SE Tax | (887) |
| 11 | Adj Gross Income | 51,183 |
| 12 | Standard Deduction | (29,200) |
| 13 | Qual Bus Deduct | (2,512) |
| 15 | Taxable Income | 19,471 |
| 16 | Subtotal Tax | 1,947 |
| Saver’s Credit | 400 | |
| Subtotal Tax | 1,547 | |
| 23 | SE Tax | 1,775 |
| ACA Tax | 864 | |
| TOTAL TAX | 4,186 |
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