Tax Strategies on FIRE: Financial Independence / Retire Early

[@TwoSidesOfFI]

What does your year-end tax planning look like? If you've got tips and optimization strategies to share, we'd love to hear from you in the comments.

[@Lmessimer1567]

Thank you for addressing the “double-edged sword” between balancing income, Roth conversions AND maximizing/balancing ACA premium credits. There are lots of folks on the FIRE path “preaching” Roth conversions, and few are specifically referencing the impact to ACA premium tax credits. We are in our mid-50’s, just completing our first year of FIRE, and accessing healthcare via the ACA. The process of estimating your income for ACA is no joke, and not something you want to get wrong. Thanks for all your content this last year. It’s been super beneficial for us as we navigate our early retirement!

[@TwoSidesOfFI]

Thanks for your support, Laurie! There is a lot to consider for sure. Belated congrats on your first year post-FIRE!

[@chipper6729]

The small eng. firm I worked for had a SEP-IRA and they would ask us how much we wanted to contribute/withhold and they would flat just put in 10% no match required. I didn't have access to adjustment (they had to do it) but I think the max was 15% (which aligns with SavingtoInvest comment above (25% of comp max)). It was a private company with no equity/stock, so this was how they attempted to make up for that competing in the Bay area

[@joleneunland4061]

We have avoided the ACA shenanigans by getting Cigna Global Expat Health insurance (there are a few other providers, but this one has come to the top after talking to several brokers over the years). We can see doctors in our area or other states as well as overseas. Two catches - stay outside the US for six months per year and have minimal preexisting health conditions. The premiums are about the same as ACA Bronze HDP, and some of their HDPs qualify for HSA contributions. Potentially a good solution for someone who wants to travel in early retirement overseas as well as take advantage of larger Roth conversions in a down year. And, we meet with our CPA in November and March to adjust our plans for each year like you described in the video.

[@TwoSidesOfFI]

Thanks for sharing, Jolene

[@skhend6310]

Helpful. Thank you.

[@same.7939]

Loved the discussion. Thanks for having him. I agree with him that the role of financial planners are somewhat limited, but a second set of fresh eyes for DIY’ers never hurts. In fact, that’s the primary value they provide.

[@TwoSidesOfFI]

Thanks! Glad you liked it. Having someone else take a look is worth a lot in terms of confidence, among other things. We definitely found value in our own experiment kzbin.info/www/bejne/enu5pIqvnMZ3pLs

[@NegSkew]

I liked the walk through of HSA contribution and Roth conversion benefits. I also appreciated the discussion of taxes on ACA subsidies.

[@TwoSidesOfFI]

Thanks, Croom

[@aztecforlife7360]

Great job. Lots of good ideas and info

[@TwoSidesOfFI]

Glad it was helpful!

[@SavingtoInvest]

Incorrect. SEP IRA employer contribution limit is 66K (or 25% of comp). If the employee is the owner and employee (solopreneur) and is also a W2 employee at another employer then a SEP is a much better option for max retirement contributions. 22k + 66k, so with employer match would be nearly 100k.

[@coremoneycoaching3554]

🙌🏽

[@TwoSidesOfFI]

@SeanMullaneyVideos

[@nairina]

Thank you for the discussion. I’m curious why Sean didn’t mention the third type of contributions that can be made to a solo 401k which makes it even more powerful savings vehicle - the voluntary after tax employee contributions.

[@TwoSidesOfFI]

Cheers, thanks for watching! Sean has a chapter in his book dedicated to this so be sure to check that out for more detail. In short, he argues that for most people the minimal incremental benefits of after tax contributions make other options more attractive. One such option he discusses is how basis in a taxable brokerage is the secret weapon of the early retiree.

[@ccw39]

Great and informative episode! Do you know if the Solo 401K applies if you are co-owner with someone else on a 2-person LLC?

[@TwoSidesOfFI]

Hi, Cyrus- Eric here replying (I use a solo 401k for my business). I believe if your co-owner is also your spouse then the solo 401k could work, but otherwise, no. More details on the IRS website: www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people

[@andylee8772]

Did Jason get a new mic? He sounds different.. his voice is deeper in this video

[@TwoSidesOfFI]

Same mic, different software. It should revert to normal next time :)

[@Bella0480]

What do you do if you are making 300-400k in dividend income yearly that is all taxable in brokerage? Can you do a solo 401K and put yourself as a trader if you trade and have some deductibility there?

[@TwoSidesOfFI]

If you're really dealing with proceeds of that magnitude we'd strongly recommend checking in with a fee-only advisor and a CPA.

[@Bella0480]

I am a financial advisor. I was curious what the fire community advocates

[@tigerbeck]

What can I do if I don’t have a Roth? Also as a single person with my mortgage my expenses are at least $7k/mo so how can I avoid taxes and get Aca when I need to realize at least that income in retirement? I’m at $10-11k a month in dividends at the moment but not going to pull the trigger and quit until I have a plan.

[@TwoSidesOfFI]

If you're realizing that much in dividends monthly (I'm assuming you're annualizing your quarterly dividends) such that you're covering your expenses by that large of a margin, you've won the game! You can certainly get ACA coverage, but premiums would be unsubsidized as a single person with that income level. If you want Roth assets you can elect to convert traditional retirement assets but of course there will be tax consequences that must be considered to see if this makes sense. If you've not done so, consulting with a CPA could be a useful way to understand what tax avoidance + optimization strategies could apply.

[@gcburkett]

Where do people find advice only finanancial planners? I think most of them are independent planners so if they charge $2,000 for a financial plan, how do you know if they are worth it. I don't don't really want an AUM advisor but if something should happen to me, I am not so confident in my wife's ability to take over. I have thought about using an AUM advisor with just part of my funds but some of them want all of your funds. The commission based advisors seems to be a little more willing to not have all your funds but non-investing advice seems to be limited with many of them.

[@TwoSidesOfFI]

Jason and I hired a fee-only advisor and shared our experience as well as resources for finding one here: kzbin.info/www/bejne/enu5pIqvnMZ3pLs Hope that helps! -Eric