Please point out any flaws in my plan.
In a few years my wife and I will retire from our cushy high paying office jobs. With a paid off mortgage, our family expenses are about 30k/yr for groceries and bills and vacations, to which I’m planning to have to add the costs of private health insurance (costs unknown yet but I’m figuring 6k/yr from a state exchange after subsidies for being “low income”) and property taxes (6k/yr on a 300k home) for a total pretax required income $42k/yr. We will no longer have childcare or work-related expenses.
What’s the effective tax rate on 42k/yr? We live in a state with no income tax. Our deductions should include:
12k for the married-filing-jointly standard deduction
4k for our one anticipated remaining dependent child
all 6k of the healthcare expenses
4k for the college tuition credit for older child
the 6k for property taxes
500 for state sales tax deduction
Totals 32.5k in deductions.
To which I expect to be able to add about $15k year in tax free “income” by withdrawing from our Roth IRA principal (tax free) and taxable investment account.
32.5k plus 15k is greater than our 42k/yr in anticipated expenses, which means I will have zero income tax liability unless I’ve grossly miscalculated something, we decide to inflate our spending, or the tax laws change. If health insurance turns out to be significantly more or less expensive, the tax deduction changes by the same amount so it has no effect on my tax rate.
Have I missed any other expenses or deductions that might change the outcome?
If I’m doing this right, then it appears I don’t really care what federal tax rates do because I’m not going to be paying them. As long as Congress doesn’t butcher the current list of exemptions, I think we can live tax free.
p.s. and by “tax free”, I’m obviously excluding property taxes, long term capital gains, and taxes already paid on invested funds.)
switch2richnow 