Hey GCC, the Foreign Earned Income Exclusion is amazing! Thank you so much for making me aware of this – I’m able to pay no tax on my entire earned income! I also saw on your blog that it is possible for a married couple to earn about $100,000 in qualified dividends and long-term capital gains. Can I do that too?! That is, since the FEIE excludes all of my overseas work income, can I also harvest $100k of capital gains tax free?! Cuz that would be sweet!`
The end of 2018 marked the completion of 6 full years of early retirement and world travel.
It’s been a fun ride so far… we’ve traveled a bit, had a few good meals, and taken many naps.
But how effective have these 6 years been in terms of implementing our tax minimization strategies? Are Roth IRA Conversions, Capital Gain Harvesting, and nomadic strategery just fantasies we keep while working, or do they actually produce results in the real world?
Let’s do a financial check-up and see how we are doing.
The US tax code includes an Estate Tax for inherited wealth. Oligarchs and other opponents of such a tax like to refer to it by a more ominous title, The Death Tax. Ooh, scary.
After the passage of the Tax Cuts and Jobs Act of 2017, this tax applies only to households with more than ~$11 million per adult (~$22 million per couple.) Fewer than 0.2% of US households qualify. (*)
I’m personally more concerned with the tax that will apply to the other 99.8% of us. The real death tax.
(This post is the 2nd in a series. Subsequent posts forthcoming… soon. See the first post: Is Your 401k Too Big?)
A Traditional 401k / IRA allows us to invest for the future in a tax advantaged way. However, in some cases these accounts can become tax disadvantageous due to sheer size.
When the IRS forces withdrawals after our 70 1/2 birthday (the RMD), large accounts may get hit with higher tax bills. Those taxes could even be greater than what we saved on contribution.
We already saw this in the first post in this series. Even account values at age 70 1/2 of $350k or more (Married Filing Jointly) would most likely fail to Never Pay Taxes Again. But this isn’t necessarily tax disadvantageous.
Due to tax savings on contributions, are there higher account values that can be reached before our 401k becomes too big? And if so, how do we evaluate additional contributions?