Jeremy used to work 80-hour weeks to maintain his sprawling suburban house, car and motorcycle.
But around age 26 or 27, he took a life-changing vacation to the Philippines. He ate mangoes, laid on the beach and learned to scuba dive. By the end of the trip, he decided he wanted to retire and live overseas forever.
He devised a plan. He slashed his living expenses, renting a room in Seattle for $400 per month (and later, upgrading to a home he rented for $980 per month). He sold his car. He stopped dining out.
At a conference in Beijing, he met his future wife Winnie. She was already saving 50 percent of her income, and his ratty clothes caught her eye. She liked that he was so obviously frugal. He approached her to ask if she could help him haggle with street vendors in Mandarin. They hit it off immediately.
They married, moved to the U.S., earned a combined income of around $130,000 per year, and saved between 50 to 70 percent of this money. Roughly 10 years after Jeremy’s epiphany on the beach, the couple retired. They moved to Taiwan, had a baby boy, and live on their investment income (plus unexpected bonus blog money.)
How did they pull off this feat? What advice do they share? Find out in this week’s episode.
Roy Lagro @ Band of Savers
Great information. I learned a lot about the finer points of minimizing taxes. I think that I was in the same boat as J. in that I know a lot of the terms and could follow the conversations but hadn’t really spent much time researching and strategizing ways to work the system. So this show did leave me with some questions.
1) does the Roth Conversion trick only work with IRAs or can you do that with 401(k)s as well?
2) In reference to the cost basis increasing, if I’m currently at $66k of ordinary income, does this mean that I can sell up to $8.9k of capital gains in my taxable account then repurchase and still stay in the 15% tax bracket (upper limit being $74.9K for us)?
Jeremy
Hi Roy
The Roth Conversion only works with Traditional IRAs, but you can rollover the 401k to a T IRA when you change employment.
The upper limit of the 15% tax bracket is $74,900 (in 2015) for a Married Couple Filing Jointly. It is half that for Single ($37,450.) But this is after Deductions and Personal Exemptions. For a married couple using the standard deduction, this is $20,600.
This is also after Traditional 401k, Traditional IRA, & HSA contributions, and other adjustments to gross income, so it is possible to harvest gains even with incomes well over $100k.
I go through our own example on our 2015 tax return, which might make it more clear. https://www.gocurrycracker.com/go-curry-cracker-2015-taxes/
Cheers
Jeremy
Wil
Great show everyone. How often would I do a Roth conversion (annually or only with an income change that affects the tax bracket)?
Jeremy
Hi Wil
You would do a Roth conversion when it results in zero tax or a lower tax rate than you expect in the future.
This could be when you take a year off between jobs, when you retire (early), etc…
Cheers
Jeremy
Wil
Understood. Thanks for reiterating.
Wil
I forgot to mention that you have a sinister laugh. It really belongs in a movie.
Jeremy
Muahahahahaha
Ryland
Such a good, good one! Just listened to it on my rainy 6 mile bike ride to work here in SF.
Love you’re stuff, Jeremy. I’ve learned so much over the last year.
I want much the same in life with freedom of long term travel and unrestricted time with kids. Thank you for sharing.
And good work on the podcast, J-Money and Paula!
J. Money
Glad you’re enjoying it, man 🙂 Love that your commute involves a bike!
Jeremy
Riding in the rain is the best. And great for buying that future freedom.
Thanks Ryland!
Nate
how does harvesting gains affect state taxes? Would you have to pay state tax on these gains?
Jeremy
9 States don’t tax capital gains. If you are in one of the other 41, then tax will be due.
In Paula’s case (Nevada) and ours (WA, International) there is no tax.
Melanie Sorrentino
I love the podcast in general but this one was ultra cute. I LOVED IT!
J. Money
Thanks for listening!
Mr. PIE
Been loving these podcasts!!!
And this one especially. Finally an explanation of tax gains harvesting and cost basis that I can understand. Blimey, it took me two chemistry degrees and a J Money/Paula podcast to get me there!!????
Keep up the great work, please.
J. Money
Haha…
You can pay us back in beer please 🙂
Michele
This was an awesome podcast and I think I was just as shocked as Paula.
Thank you for this great podcast.
Also Paula, I would love to hear a podcast from you on.rental income and taxes for rental.LLCs.
Thanks so much
Carolyn
I found Afford Anything recently and have been listening to all of the podcasts. Loved this one! Winnie has an awesome sense of humor!