The Intersection of FIRE and Disney

[speedyfishy]

So me and Roth have a strange relationship...I don't have ANY Roth...I've never been in a tax bracket where I wanted to take advantage. I always have contributed to traditional to avoid paying 25% or 15%.

This new 12% tax bracket has me re-thinking Roth now though, because we can get into that 12% bracket if I buy down our taxable income a little bit through some strategies. I personally wouldn't do Roth if I were in the 22% bracket though (but wouldn't fault those who see it differently).

Also to answer your question - deduction limits are on AGI.

We are close. lol he is claiming the head of household deduction and the 401k deduction. But we may be over with interest from bank bonuses. Figures... I may just do Roth so I don’t need to go through this hassle and then the partial deductions etc.

 

[Mome Rath]

I need advice. Trying to determine if we should max SOs 2018 Roth IRA. We have the fund but it will leave us with an emergency fund of four months of expenses. If we don’t max it out we will be left with 6 months of expenses. I’m an anxious person and SO is the only one that is currently employed but he is in a high demand field (software engineer) but is four months really enough? I guess we would be closer to six if I count all the giftcards im floating in the EF. I really want a years worth of expenses in the EF which we will try and hit this year. Am I ok to just max it?

Regardless of which IRA type you pick, I'm going to go in a different direction and say it depends on your anxiety level and your motivation. First, I would wait as long as I could to decide, at least until April, and try to get to a place in your EF where you are comfortable with it. You don't want to grow to hate investing because of the anxiety it produces; however, if you think it would be a motivational tool to save save save and cut cut cut and you can live with the anxiety a bit, go ahead and do it (unless you have an upcoming already planned reason for needing a higher on hand EF). In the end it needs to be a part of a conversation between you and your SO, and both of you need to feel understood, and then move forward together.

 

[SouthFayetteFan]

We are close. lol he is claiming the head of household deduction and the 401k deduction. But we may be over with interest from bank bonuses. Figures... I may just do Roth so I don’t need to go through this hassle and then the partial deductions etc.

You guys aren't married yet........I forget that!!! LOL! That changes the math a lot then! I kept applying married tax brackets and income limits and was thinking how could you be phased out?

 

[speedyfishy]

You guys aren't married yet........I forget that!!! LOL! That changes the math a lot then! I kept applying married tax brackets and income limits and was thinking how could you be phased out?

Not married until next year so he gets that sweet head of household deduction. We are filling taxes as married but filing separate in the future we will get screwed but my student loans are so high if I do PSLF it makes sense lol.

 

[SouthFayetteFan]

My personal feeling is that tax rates will never be this low again.

I think this is the critical factor Most people won't take the time to formulate a personal feeling on income tax rates, lol! I am good with any strategy as long as somebody is comfortable with their logical belief of how things will transpire and they employ a strategy founded on those beliefs.

For me personally, I like to think of it as not tax rates as a whole but where will MY tax rate be.

My scattered thoughts on tax planning for early retirement:

• If I'm retiring early I won't be withdrawing $250k per year - I will live a modest retirement (if my family of 4 can survive on $45k now how would I suddenly spend that much money anyways as a family of 2)?
• Apparently we now think that $80k in taxable income is a middle class number that should only be taxed at 12%. I think now that these tax cuts in place it will be very hard to roll them back. Everybody thinks the RICH can afford more taxes - but they themselves don't want to pay more. No politician wants to be the one who raised taxes on middle class families.
• Thus - if I can have a slightly below average middle class early retirement...taxes are largely a non event - I don't pay them now - and I don't pay them then
• I am finally conceding to Roth in 2019 as I want to diversify my accounts and that 12% today is just too darn enticing. I won't willingly pay 22% though - no thanks, I'm hoping that through savvy strategies I will never pay 22%
• One of my other fears of Roth is that sometime down the line a politician will say this was a terrible idea. There are millions of dollars in earnings that are un-taxed...people weren't supposed to get rich via Roth. And then they'll put some limit and say you owe taxes on roth balances above $250k or $500k or something like that. I am fully aware that this is a conspiracy theory but for me I just don't want to be too heavy in Roth.

Everything I just said could be wrong and I'm comfortable with that because I at least had a logical strategy. I'd rather have a strategy and end up with slightly less efficiency than have no strategy and end up screwed

I also think age plays a part in people's thoughts towards taxes - anybody my age or younger never paid real taxes prior to the 2002 tax cuts. You look back at a year like 1994 when a married couple paid 28% on taxable income > $38k Fast forward to 2014 and now you don't pay 25% until your taxable income eclipses $74k. (Of course inflation comes into play there too, but $38k in 1994 would be about $60k in 2014 so you're still winning). Of course this is also taxable income and since America is awesome back in 2014 your first $20k in income was wiped out by a standard deduction and personal exemptions (for a married couple w/ no dependents).

EDIT: Nobody should either invest in or avoid Roth based on what I typed above. You should research and model what your FIRE strategy might look like and figure out what's best for you

 

[pillow]

I need advice. Trying to determine if we should max SOs 2018 Roth IRA. We have the fund but it will leave us with an emergency fund of four months of expenses. If we don’t max it out we will be left with 6 months of expenses. I’m an anxious person and SO is the only one that is currently employed but he is in a high demand field (software engineer) but is four months really enough? I guess we would be closer to six if I count all the giftcards im floating in the EF. I really want a years worth of expenses in the EF which we will try and hit this year. Am I ok to just max it?

My suggestion is to do your taxes first and see where your taxable income falls. If 22%, do the IRA. If 12%, do the Roth. In the past, I’ve put just enough in the IRA to get us out of that nasty 22% bracket.

 

[DisneyMandC]

I need some help on FSA v. HSA v. HRA...

DH is signing up for a new health insurance plan and I'll be going on my own plan at work (I've always been on his). I'll have a more "traditional" plan, while DH took his work's quiz on which plan would be best for him, and it indicates that their HRA plan with a $2500 deductible would be the best option. I tend to agree with this, as he generally never goes to the doctor. He gets his preventative care through work annually (blood tests, cholesterol, etc.), and on the off chance he gets sick, they offer a LiveHealth program where you call in and a doctor will diagnose you as long as it's something simple and then send off a prescription. His work will give him $300 per year in his HRA which can be rolled over. I find it extremely hard to believe he will ever even use all $300 unless some sort of accident happens. He doesn't take any regular prescriptions and the only ones I can think that he's gotten in the last 5 years was one for an ear infection and then Tamiflu recently.

He said he also has an option to get an FSA. His only other medical expenses are that he wears glasses. He does have vision insurance, and his work provides annual eye exams in office, so he gets that done there and then just orders whatever glasses he wants online with his prescription. I'm not sure I see the use of an FSA for him unless it will pay for his glasses though, and he maybe gets one pair every two years.

Anyone have any advice? Any reason for me to get an FSA for him? I just don't want to miss anything and then be wishing I had done it.

 

[SouthFayetteFan]

My suggestion is to do your taxes first and see where your taxable income falls. If 22%, do the IRA. If 12%, do the Roth. In the past, I’ve put just enough in the IRA to get us out of that nasty 22% bracket.

This is my strategy now as well...buy down the taxable income out of that higher bracket and then hit Roth with the rest

 

[pillow]

I need some help on FSA v. HSA v. HRA...

DH is signing up for a new health insurance plan and I'll be going on my own plan at work (I've always been on his). I'll have a more "traditional" plan, while DH took his work's quiz on which plan would be best for him, and it indicates that their HRA plan with a $2500 deductible would be the best option. I tend to agree with this, as he generally never goes to the doctor. He gets his preventative care through work annually (blood tests, cholesterol, etc.), and on the off chance he gets sick, they offer a LiveHealth program where you call in and a doctor will diagnose you as long as it's something simple and then send off a prescription. His work will give him $300 per year in his HRA which can be rolled over. I find it extremely hard to believe he will ever even use all $300 unless some sort of accident happens. He doesn't take any regular prescriptions and the only ones I can think that he's gotten in the last 5 years was one for an ear infection and then Tamiflu recently.

He said he also has an option to get an FSA. His only other medical expenses are that he wears glasses. He does have vision insurance, and his work provides annual eye exams in office, so he gets that done there and then just orders whatever glasses he wants online with his prescription. I'm not sure I see the use of an FSA for him unless it will pay for his glasses though, and he maybe gets one pair every two years.

Anyone have any advice? Any reason for me to get an FSA for him? I just don't want to miss anything and then be wishing I had done it.

Not familiar with HRA??? Does it partner with HSA?

 

[DisneyMandC]

Not familiar with HRA??? Does it partner with HSA?

I wasn't either until this new plan came up. Apparently it's a Health Reimbursement Account, and it's fully funded and owned by your employer. But it can be used for co-pays or anything like that. DH said he just checked and it can be used to pay for glasses.

 

[SouthFayetteFan]

I need some help on FSA v. HSA v. HRA...

DH is signing up for a new health insurance plan and I'll be going on my own plan at work (I've always been on his). I'll have a more "traditional" plan, while DH took his work's quiz on which plan would be best for him, and it indicates that their HRA plan with a $2500 deductible would be the best option. I tend to agree with this, as he generally never goes to the doctor. He gets his preventative care through work annually (blood tests, cholesterol, etc.), and on the off chance he gets sick, they offer a LiveHealth program where you call in and a doctor will diagnose you as long as it's something simple and then send off a prescription. His work will give him $300 per year in his HRA which can be rolled over. I find it extremely hard to believe he will ever even use all $300 unless some sort of accident happens. He doesn't take any regular prescriptions and the only ones I can think that he's gotten in the last 5 years was one for an ear infection and then Tamiflu recently.

He said he also has an option to get an FSA. His only other medical expenses are that he wears glasses. He does have vision insurance, and his work provides annual eye exams in office, so he gets that done there and then just orders whatever glasses he wants online with his prescription. I'm not sure I see the use of an FSA for him unless it will pay for his glasses though, and he maybe gets one pair every two years.

Anyone have any advice? Any reason for me to get an FSA for him? I just don't want to miss anything and then be wishing I had done it.

So FSA and HRA are definitely not HSA. I don't know a lot about HRA and FSA but they definitely aren't the "ultimate medical/retirement" account that an HSA is. I'd read up on FSA a little more but it doesn't seem like it would provide you guys with any benefit.

 

[DisneyMandC]

So FSA and HRA are definitely not HSA. I don't know a lot about HRA and FSA but they definitely aren't the "ultimate medical/retirement" account that an HSA is. I'd read up on FSA a little more but it doesn't seem like it would provide you guys with any benefit.

Yeah I know the HSA is a little more flexible, but the actual health parts of that plan would be a little more costly for us in terms of copays than the HRA plan would, plus it would cost us an additional $40 per paycheck. The only benefit would be the deductible being $750 lower and greater flexibility with the money in his HSA.

According to him, we actually have an HRA with our current health insurance plan that has over $700 in it. I didn't even know we had this. Now I'm wondering if it's going to transfer from his current insurance company to the new insurance company...

 

[Frwinkley]

Question regarding Traditional vs Roth IRA:

Right now we max out our 401k. We’ve never dealt with an IRA, because our first goal was to fully fund the 401k (employee match, etc). With colleges expenses behind us, and our home paid off, I’m now looking at other retirement vehicles. I use Turbo tax. When I include the full allowable IRA amount, only a portion of that generates a decrease in our taxable income, thereby increasing our refund. My thought is to take the excess and open a Roth with that, since I’m receiving no tax benefit any way. Is my thinking correct? I anticipate that our tax bracket will be much lower when we retire.

 

[pillow]

Yeah I know the HSA is a little more flexible, but the actual health parts of that plan would be a little more costly for us in terms of copays than the HRA plan would, plus it would cost us an additional $40 per paycheck. The only benefit would be the deductible being $750 lower and greater flexibility with the money in his HSA.

According to him, we actually have an HRA with our current health insurance plan that has over $700 in it. I didn't even know we had this. Now I'm wondering if it's going to transfer from his current insurance company to the new insurance company...

I just read something that said you can have BOTH an HRA and an HSA . . . https://www.peoplekeep.com/blog/bid/97341/faq-can-i-have-an-hra-and-an-hsa-at-the-same-time

Full disclosure - I know zilch about that source. Just googled cause I was curious.

 

[SouthFayetteFan]

Question regarding Traditional vs Roth IRA:

Right now we max out our 401k. We’ve never dealt with an IRA, because our first goal was to fully fund the 401k (employee match, etc). With colleges expenses behind us, and our home paid off, I’m now looking at other retirement vehicles. I use Turbo tax. When I include the full allowable IRA amount, only a portion of that generates a decrease in our taxable income, thereby increasing our refund. My thought is to take the excess and open a Roth with that, since I’m receiving no tax benefit any way. Is my thinking correct? I anticipate that our tax bracket will be much lower when we retire.

You may be butting up against some sort of phase out but without seeing all the numbers it would be hard to determine exactly why. If what you are describing is correct then I would do what you said and put the excess in a Roth

 

[Frwinkley]

Yes, that is exactly what is happening. Since my DH and I are both covered under employer sponsored retirement plans (a 401k and a 403b), and our modified adjusted gross income is above a certain threshold, only part of the IRA contribution is deductible. I will use the excess than to fund a ROTH.

 

[amalone1013]

I would never have thought to split the IRA contributions between traditional and a roth!

 

[georgina]

I think this is the critical factor Most people won't take the time to formulate a personal feeling on income tax rates, lol! I am good with any strategy as long as somebody is comfortable with their logical belief of how things will transpire and they employ a strategy founded on those beliefs.

For me personally, I like to think of it as not tax rates as a whole but where will MY tax rate be.

My scattered thoughts on tax planning for early retirement:

• If I'm retiring early I won't be withdrawing $250k per year - I will live a modest retirement (if my family of 4 can survive on $45k now how would I suddenly spend that much money anyways as a family of 2)?
• Apparently we now think that $80k in taxable income is a middle class number that should only be taxed at 12%. I think now that these tax cuts in place it will be very hard to roll them back. Everybody thinks the RICH can afford more taxes - but they themselves don't want to pay more. No politician wants to be the one who raised taxes on middle class families.
• Thus - if I can have a slightly below average middle class early retirement...taxes are largely a non event - I don't pay them now - and I don't pay them then
• I am finally conceding to Roth in 2019 as I want to diversify my accounts and that 12% today is just too darn enticing. I won't willingly pay 22% though - no thanks, I'm hoping that through savvy strategies I will never pay 22%
• One of my other fears of Roth is that sometime down the line a politician will say this was a terrible idea. There are millions of dollars in earnings that are un-taxed...people weren't supposed to get rich via Roth. And then they'll put some limit and say you owe taxes on roth balances above $250k or $500k or something like that. I am fully aware that this is a conspiracy theory but for me I just don't want to be too heavy in Roth.

You are at a different life stage than us! Not too long from now the RMDs on DH's regular IRA's will start. Extra income means social security payments will be taxed. He will go on medicare next summer, and I have a feeling medicare premiums are affected by income also. So by going Roth, we can cut some of that future income. He retired as soon as our youngest graduated from college, but we were older parents. By working longer he accumulated a lot of savings and investments. He also has a modest pension. I am not worried about them taxing current Roth's, but the benefits could be changed for future savers. As for tax rates, the lower rates for individuals are already set to expire, so they can claim they didn't raise the taxes. The national debt is exploding and those tax cuts are unsustainable (yes, my opinion).

Hope you have good health care in retirement, that is one thing that can drive up your unexpected costs. We have enough medical expenses for 2018 I will be itemizing and deducting them.

 

[crisi]

We had sort of planned for it. But my husband is in a job he loves - he works from home. And I fell into a four hour a week work from home job (well, I own half a business) that pays me half of what I made full time. - So we are - or could be - financially independent - at around the age of 50, but didn't end up retiring. We did both end up self employed and consulting for a bit once we hit the point where we didn't "need" jobs - which means sometimes we didn't work, and sometimes we did.

Here are things I know.

1. Life throws big curveballs. We supported my brother in law for a few years when he had terminal cancer back when we both were working full time.
2. If you have kids - college is going to be expensive and anyone with college aged kids with enough money to retire early isn't getting need based financial aid.
3. Once you reach financial independence you may discover that the freedom to work a job you love means that you don't retire. Or that someone is willing to pay you very well for working just a little.
4. Healthcare is nearly impossible to pay for. Its just SO expensive. Specifically U.S. Health Insurance. If you make a small enough amount of money that you qualify for the ACA subsidy - maybe....but the uncertainty around the ACA and increasing healthcare and insurance costs is anxiety producing.
5. It takes a certain mindset to retire early. You can't get to your 401k until 59 1/2, and you won't get Social Security for a LONG time. So you are getting through on your savings - which we did for months and months at a time. But after years of compulsively watching my net worth increase and saving more than I brought in, to switch it around was tough - even though the investments still made more than we spent. I suspect most people end up doing what we did - changing into careers that they find are more fulfilling or less time intensive - rather than truly retiring. And frankly, I think its a better goal.
6. There were things that my husband seemed to buy into when we started the plan, that it turns out he wouldn't give up. Expensive cars tops the list. Should we really retire, he'd have to give up some of those luxuries. Hence the continue to consult on his part. (Mine was anxiety driven - #5 - I didn't have the mindset).

We were never live on a shoestring people - we were "make a lot of money and live a pretty middle class lifestyle" people (except for the expensive cars and vacations).

 

[1st*toright]

I need some help on FSA v. HSA v. HRA...

DH is signing up for a new health insurance plan and I'll be going on my own plan at work (I've always been on his). I'll have a more "traditional" plan, while DH took his work's quiz on which plan would be best for him, and it indicates that their HRA plan with a $2500 deductible would be the best option. I tend to agree with this, as he generally never goes to the doctor. He gets his preventative care through work annually (blood tests, cholesterol, etc.), and on the off chance he gets sick, they offer a LiveHealth program where you call in and a doctor will diagnose you as long as it's something simple and then send off a prescription. His work will give him $300 per year in his HRA which can be rolled over. I find it extremely hard to believe he will ever even use all $300 unless some sort of accident happens. He doesn't take any regular prescriptions and the only ones I can think that he's gotten in the last 5 years was one for an ear infection and then Tamiflu recently.

He said he also has an option to get an FSA. His only other medical expenses are that he wears glasses. He does have vision insurance, and his work provides annual eye exams in office, so he gets that done there and then just orders whatever glasses he wants online with his prescription. I'm not sure I see the use of an FSA for him unless it will pay for his glasses though, and he maybe gets one pair every two years.

Anyone have any advice? Any reason for me to get an FSA for him? I just don't want to miss anything and then be wishing I had done it.

The HRA is a new animal to me also - my only advice is to be sure that you have enough cash in the HRA and/or HSA that you could fully fund the out of pocket maximum for him in any given year, in case something did happen (god forbid). We do a high deductible plan, and it works well for us even with a few low-grade health issues that require prescriptions/monitoring for both DH and me. It definitely saves us money over the long term, but we made sure to build up enough cash in the HSA that no matter what we run into, we have the cash to cover a full year's costs so we wouldn't be blindsided if we have a bad year. When I was pregnant, one medication I needed blew through our entire year's deductible for a 3 month supply of medication - I hit my deductible a week into the plan year! Totally worth it (just ask my little one!) but I was glad we had stashed cash to cover it.

I generally don't fund a FSA - its use it or lose it, and unless you know exactly how you will spend the money, its more of a pain than its worth for the cost of a pair of glasses or whatever.