Retire Even Earlier with Deferred Compensation

(GCC: A few months ago, today’s guest post author reached out with the desire to share knowledge about a unique option to accelerate early retirement. Thanks to a deferred compensation plan, this post was written between retirement activities in a sunny zero income tax State. Maybe this is also an option for you…)

Does your financial freedom plan include maximizing both earning and savings? Mine did, but one of the challenges with this approach was higher marginal taxes. I discovered the (GCC: subjectively) brilliant Go Curry Cracker tax avoidance strategies years ago, but filing a 1040 with a $0 federal income tax liability was impossible as my earned income increased.

My income soared as I advanced my career, and the typical tax deduction tools were already maximized. Deductions (itemized or standard), exemptions (when they existed prior to 2018), credits (usually child and foreign tax), and cafeteria plan elections (those employer deductions like 401(k)s, HSAs, health insurance premiums, etc.) shielded less and less income from taxation. As income is subject to higher marginal tax rates, the IRS adds insult to injury by phasing out IRA contribution deductibility.

If you’re earning enough to lose this benefit, your earnings are AT LEAST into the 22% tax bracket! Imagine paying an extra $1,320+ to the IRS just because you can’t deduct a $6,000 IRA contribution. Your employer giveth, and the IRS taketh… Maybe the average high earner brushes it off as a “death and taxes” situation, but if you’re aligned with the Go Curry Cracker approach to taxes you find this unacceptable.

I did too, and now you may be thinking, “there must be a way to be a highly compensated employee AND have an IRA tax deduction.” Not only is it possible, but you can also shield even more money from your taxable income. I just “stumbled” into a savings plan that allows this, but maybe some of you GCC readers can more purposely take advantage of this.

Enter the NQDCP…

(more…)

The Go Curry Cracker 2019 Taxes

2019 was our 2nd tax year under the Tax Cuts and Jobs Act (TCJA), 3rd year using the Foreign Earned Income Exclusion (FEIE), and 7th year of paying ~$0 in income tax on dividends, interest income, and blog revenue.

But… this year I also realized a massive long-term capital gain which resulted in a massive tax bill.

Our 2019 tax return has some good examples of the FEIE, the long-term benefits of capital gain harvesting, and tax and travel hacking synergies.

Here are all the fun details.

(more…)

The CARES Act

This weekend the Coronavirus Aid, Relief and Economic Security (CARES) Act was passed into law, with the intention of providing relief to taxpayers affected by the coronavirus (COVID-19). I imagine this is but one of many stimulus/emergency relief efforts to come, and the details will undergo much scrutiny in the coming months.

This is a massive and wide-reaching law. I’ve done my best to summarize the parts that I think will have the greatest interest or impact to early retirees and aspiring early retirees, although it will affect nearly everyone.

(more…)

The SECURE Act – Compression of the Stretch IRA

After 10 years or so of “this legislation will pass soon”, at the end of 2019 the Setting Every Community Up for Retirement Enhancement Act finally became law.

Besides a cool acronym, the SECURE Act offers a wide range of changes and “enhancements” to 401(k)s, IRAs, and 529s, as well as a whole slew of incentives for small businesses to add or expand retirement plans to both full and part-time workers.

In my opinion, most of the changes (including the much-touted compression of the stretch IRA) are of limited interested (to the living.)

(more…)

Double Your Roth Contributions (Without Working or Earning More)

2X the Contribution, 1/2 the Work

Earning a little income in your retirement years is becoming increasingly common.

Some choose to work part-time for benefits or socialization or fun, and others accidentally make a little extra while pursuing their hobbies or passions.

With a powerful investment portfolio behind these (early) retirees, this income is often just added to a Roth IRA for further tax-free growth.

Now, what if there was a way to double those Roth contributions without working or earning more? Turns out, there is.

(more…)