Doing a Roth conversion can be the key to a successful FIRE (financial independence, retire early) strategy. That’s definitely the case for us. By doing some financial planning, this one move is allowing us to access money in our pre-tax retirement accounts with no penalty and the ability to pay little to no tax when it happens. Today, I’m going to take you through some more details on what a Roth conversion is and why it’s so valuable. I’ll also share with you the steps we took in making it happen. What is a Roth conversion? A Roth conversion (more formally known as a Roth IRA conversion) is simply a matter of moving all or part of the money
One of the things we did before we headed to Panama was to change our state of domicile. If you’re not familiar with the term, your state of domicile refers to your principal place of residence. If you leave for a while, it’s what can be thought of as the place you would return to afterward. In other words, it might be considered your “home base” in the U.S. – your permanent place of residence. For snowbirds that head from Ohio to places like Florida during the winter, their home in Ohio would more than likely be their state of domicile. It’s also the state you’ll be taxed in for any income earned (though other states you reside it might
I don’t normally write book reviews on this blog, but I’m making an exception for the new Choose FI book. I was expecting my opinion to sway one way with the book but my impression after reading it went in a completely different direction. Chris Mamula is the author of Choose FI: Your Blueprint to Financial Independence (along with coauthors Brad Barrett and Jonathan Mendonsa). If you’re not familiar with Chris, he retired in 2017 at the young age of 41 (beat me by two years!). He also spends a lot of time writing at the Can I Retire Yet? site. I met Chris at the FinCon conference in 2017 – such a nice guy! We didn’t get a chance
I’m just going to say it – I have three very small businesses that I’ve been running for years and I’ve never paid estimated self-employment tax payments. Ouch, for shame, for shame! That’s right, I’m a complete failure in that avenue. And that could have cost me, too. If you owe $1,000 or more come tax day in April, you might be hit with a penalty by the IRS. In essence, it’s an interest penalty on the difference of what you should have paid and what you actually paid. And guess who gets to decide what that interest rate is? That’s right, the IRS does. For the second quarter of 2019, they’ve decided that the rate for underpayments will be
There are some folks out there who are enthralled by the idea of taxes. The idea of working on their tax return actually excites them every year. I’m far from being one of those people. Taxes… borrrrring! Unfortunately, love ’em or hate ’em, if you’re in the U.S., you’re stuck with doing a tax return every year. There’s a part of taxes though that I don’t really get. It’s the idea that if you get money back on your tax return, you did something wrong. And the higher your refund, the more your year was botched. This year we got around $5,000 on our tax return (between federal and state). That’s quite a bit more than we usually get back.
As I became a little more familiar with the idea of FIRE (financial independence / retire early), I needed to learn where I should be putting my money. And I’m not talking about the specific investments – I’m referring to the type of investment account. Terms like taxable, tax-deferred, and tax-free can make a huge difference in the outcome of your portfolio. When I started out, I didn’t understand just how much of a difference each of these accounts could make in the long run. Most of the articles you read or the standard investment advice you hear from planners on TV anticipates that you’ll be retiring at the traditional age… or even working for the rest of your life. Because of