Any differences between holding real estate in a Roth IRA vs a traditional IRA? Very interesting strategy. There is another way to accomplish your goal. See comments below. Tax is a boring topic, but finding ways to pay less tax is very exciting to me. Pre-tax money. However if you increase your roth conversions even more you will have taxable income. * When you put a number in (), the meaning is negative fyi. If you're looking for a long-term investment strategy, I'd recommend sticking with mutual funds. 1. Actually I realize some of the 24k 401k contribution must be an employee contribution, but since you are over 18k, you have at least 6k in employer contribution, so 17% employer contribution. It may be down a little on the year, but it has a decent track record going back to 2000. I am finding that I know more than my tax accountant on these kind of topics, and I always like to present her with hard data/resources. Think about both accounts as being one and diversify/rebalance accordingly. Here is the history 1. I’m with Vanguard and First Trade. I'll probably end up adding something else in to my IRA. Any ideas on that would be great. So Income ($32,000) means you have negative income. We should be able to do this trick if the law doesn’t change. I wouldn’t be surprised if this kind of tax trick gets closed eventually. Roth IRA rules dictate that as long as you've owned your account for 5 years* and you're age 59½ or older, you can withdraw your money when you want to and you won't owe any federal taxes. We’re planning on trying this trick ourselves, but we’re not banking our early retirement on it lasting forever! The nice thing is that you were likely in a high tax bracket during your working years, but when you do your ladder you will be in a low tax bracket. Tristan, Sorry for the late response. Yes, that’s true. All the rentals are under both our names. So if you have $100,000 that is tax-deferred and you add $100,000 with after-taxed money. It says the IRS looks at one’s total holdings regardless of where the IRAs are held. http://www.nytimes.com/2015/09/23/your-money/401ks-and-similar-plans/irs-ruling-makes-after-tax-contributions-more-attractive.html?_r=0. That means you don’t have to pay tax on the earning. If the rental is part of your estate, the inheritor will start over with depreciation at FMV. (This is a taxable event. If you know other unusual ways to minimize tax, please share it with us. How can this be possible? New comments cannot be posted and votes cannot be cast. Anther option to share – There is an exception to take money out of 401k if you leave your company the year you turn 55 or older without having to pay the 10% penalty. Tax gain harvesting is another, although less powerful than free Roth conversions. Just curious about the rental income depreciation. It seems $36,000 is near some sort of threshold. This applies when you have tax-deferred and already taxed money in your IRA. In your case it looks like you are doing just that, contributing a large part of your business income directly to 401k. All the money in this account is pre-tax. We have to pay self employment tax no matter how much we make. I’m a huge fan of Roth IRA’s. *Okay, I’m wrong about this. If you’re like us, you have invested a lot of money in your tax-deferred retirement accounts. You can overfund your 401k. I hope to reduce my taxes as much as possible . I never knew it was possible. I am converting my traditional IRA into a Roth IRA. No, this is not an S-corp. I’d say your plan is the best way to access your 401(k) / IRA money if your income is low enough to able to make those conversions. Why wouldn’t you consider a global market cap weighted fund like Vanguard Total World (VT/VTWAX)? Here is what I found online. I don’t see any exceptions that apply unless I get a massive inheritance tomorrow. Also, there is a way around depreciation recapture. We’ve been wanting to get into real estate and we’ll have to get started after we finish traveling the world this year. ... Tell me sweet nothings about how you’re converting some of your pre-tax money into a Roth IRA right now. Have you explored what that might mean? I like to play around with Taxcaster, forecasting different early retirement income scenarios, seeing how small changes in different places affect the total tax. Yes, I would stop contributing to my i401k and just use that money to fund our cost of living. How Much Can You Put into a Roth IRA? Of course, hopefully this will be far off in the future. If this isn’t mind blowing, I don’t know what is. So you should be able to claim the savers credit I think. I have my tax accountant looking into but wanted to throw it out here as there is so much wisdom on this site. She earns $7,000 per year and contributes $3,000 to a Roth IRA, which her parents match 100%, for a total of $6,000 (the IRS limit in 2019). At this point, we could bring in $36,000 more and the total tax would stay the same. A Roth IRA offers many benefits to retirement savers. Also, the Roth IRA conversion is a taxable event. When Mrs. RB40 retires, our earned income will drop quite a bit and it would be a good time to start our Roth IRA ladder. As an individual, if you make over $132,000, you also can not contribute. If you got a new job, you might want to hold off for now. You can always do it at the end of the year if it makes sense. Rental properties. My 2018 IRA is currently fully funded in VTSAX. I did and they were uncharacteristically forthcoming; tax is usually the third rail when it comes to investment advice. It’s a surprise to me and I’ve been filing tax for 20 years. Press question mark to learn the rest of the keyboard shortcuts, https://jlcollinsnh.com/2019/03/03/stocks-part-xxxv-investing-for-seven-generations/. Do you have any backup plan if this tax loop hole gets closed? Others (such as the White Coat Investor in this post) argue forcefully that you should hold bonds in taxable, because you want to maximize the tax benefits of your retirement investment accounts by maximizing the return of the assets in those accounts. Great tax write off too. We won’t have to pay any additional tax on the Roth IRA conversion. Roth IRA conversion* – We want to build a Roth IRA ladder so we can avoid the 10% early withdrawal penalty. These two things will help you bridge the 5 years gap in the Roth IRA ladder and you’d pay less tax as a bonus. My 401k account is more diversified - foreign markets, bonds, etc. I expect to have zero taxable income this year. Do you see the magic? You have earned income via your business. 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