Questions from Readers

I was updating my net worth info at NetWorth.Com when I noticed that I had three questions.  Wow, I have a few readers out there in cyberspace…awesome!  Here are the questions followed by my answers:

Cheers posted:  
“I am curious if I am understanding your profile comments correctly. You max out all your retirement accounts, and because of this, you need to supplement your income with 72t SEPP distributions from your IRAs?  So basically, you are still funding your IRA’s, but taking 72t distributions at the same time?
Is there an advantage to this? It seems like it would make more sense to just cut back on your retirement contributions, so you don’t lock yourself into the 5 (or more) years of required 72t distributions.”

EM:  Cheers, good question.  My wife and I started our SEPP plans to provide us with a stream on income that will give us more flexibility.  Currently, we have a stream of $18,000 per year that we use to pay our mortgage and other living expenses.  This means that when we work, we are able to fully fund our various accounts (457, 403b, IRA, HSA and ESA).  Because we no longer want to work full-time year after year, we are currently hammering our accounts as best we can.  Putting our heads down at our current jobs is not a realistic possibility.  Sure, we could do it, but at this point in our lives, it’s simply not worth it.  

To your question…yes, there is an advantage to doing this.  Maxing out our various accounts 1.) accumulates money to our side of the ledger and 2.) gives us a sense of control when it comes to our taxes.  For example, this year my wife and I know that we’ll save roughly $80,000 while only paying $1,800 in federal income taxes.  We like that!  We also like the increased freedom, financial and otherwise, that we are starting to experience.  So much so, that we are going to take some time away from work starting in June.     

cyber888 posted:  
“Hmm .. curious about SEPP. Are you really able to contribute to your IRA while doing a SEPP ? or is your SEPP from a 403 or 401k and different from an IRA?”

EM:  Cyber888, my understanding of the SEPP laws is that you can not take distributions from an IRA while also contributing to it.  Our SEPP IRAs contain IRA and 403b monies that were rolled into the account.  Here is what we did:  First, we consolidated (via rollovers) all of our 403b monies from Valic and our Vanguard 403b accounts to our Vanguard IRAs.  Then, we each established SEPP distributions for our IRA accounts.  In February 2013, I opened new IRA accounts at Vanguard for both my wife and myself.  All IRA contributions for 2013 and beyond will be made in this account.  In the future, all of our 403b balances will be rolled to these new Vanguard IRA accounts.  As these accounts grow, we can decide 1.) if we will simply let them continue to grow, or 2.) if we will harvest them via SEPP distributions. 

The bottom line is that our old IRAs are SEPP accounts and our new IRAs will receive future contributions.

Spud posted:  
“Why do you keep such a high balance on your CC?”

EM:  Spud, I have mixed feelings about this.  I hate having this credit card balance, but I currently have all of the debt at a 0% introductory rate.  This special interest rate period will end in May of 2014.  As long as I have a mortgage (at 5.875%), I will funnel all extra money towards principal pre-payments.  We are making sure that we do not add to our credit card debt.  Once our mortgage is paid off, we’ll focus our attention to the credit card debt.  

Well, that’s my first attempt at answering readers’ questions.  Are there any other questions or comments out there?  If so, let me hear them.

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