I've done no modeling for taxes in the future. I know I need to do that. I probably need a professional. I am just loathe to get one!
[Note to self: earlier you said you'd likely sell the house in 2022 and now you're saying you'll likely pay down the mortgage and stay. Which is it? Ha ha]
Howdy BLS
I guess you will figure out the house and mortgage one of these days.
It sounds like a nice arrangement, something I would enjoy a lot, so I had assumed you were going to figure out a way to finance it and stay there.
While you are figuring it out, here is some news you can use in the meantime.
I did a trial run on the income tax calculator at Bankrate (Bankrate.com) for a hypothetical individual with the following situation married filing a joint return.
Current income
-qualified dividends from taxable accounts of around $25,000
- withdrawals from an IRA of $33,000 per year
-taxable interest from various sources of $3000
- nominal income after all expenses and depreciation on a rental property of plus/minus $3000 per year, assumed here to net out at zero
-substantial non-taxable return of capital from a partnership account
Deductions against income
Interest payment on mortgage of $30,000 per year
Various state, local and property taxes estimated $10,000 per year
Charitable contributions $5000 per year
Said individual will have an AGI of $61,000 per year, taxable income of $8000 and 0 tax liability.
Said individual could move - convert- an additional $20000 from his IRA to his Roth account. This would raise his AGI to $81,000 but would still leave him with a tax liability of 0.
Numbers and details may vary, but that is an example of the opportunity the individual has.
Said individual could convert more at a nominal tax liability, up to the top of the 15% bracket.
This individual could repeat the process for a number of years and will end up moving a substantial amount out of his tax deferred accounts into his Roth accounts without incurring any tax liability. He will benefit from tax free growth in the Roth accounts and decreased RMDs at age 70.
Said individual would have to be crazy not to take advantage of this opportunity.
For the finer details a gentlemen on the forum named livesoft is a master of the art. Search his posts for references. You really don't need help to do this. I was able to run the simulation and variations in about 2 minutes. It is quite straightforward once you have grasped the general idea that you have much flexibility in your current situation.
My situation was similar to yours. I was so used to having a high income and huge tax liability that I assumed that was the natural order of things. It took me a couple of months of reading and figuring things out to realize that when the W-2 income goes away there are many possibilities to optimize without incurring a tax liability.
Happy converting
W B
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"Through chances various, through all vicissitudes, we make our way." Virgil, The Aeneid