The “I want to retire soon” thread (1 Viewer)

[stbugs]

House paint job

Did this one myself. Saved 15k or so. Crazy what that costs these days.

I'd rather work an extra month.

Luckily, current house is all brick.

One thing I will enjoy is building our “last” home is that everything will be new so hopefully that means less needed the first 10-15 years. I’m just hoping the current house makes it through the next 6 months or so with nothing major (knock on wood) and we can get to an apartment in good shape and start the build.

 

[-OZ-]

I like the idea of downsizing your home as you get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

Edit: I wouldn't want to have to clean and maintain a large house in my old age. I suppose they could have someone do that for them. Not knowing their financial situation, I wouldn't want to add a huge mortgage in my old age either. Perhaps they have enough investment to be free and clear of a mortgage, or close to it after purchase, I don't know.

we plan to downsize and upgrade. Smaller home, but the location will be more expensive.
Mortgage just depends on rate imo. Less than my wife’s SS share ideally or paid off.

 

[Gally]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

 

[Senor Schmutzig]

I like the idea of downsizing your home as you get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

Edit: I wouldn't want to have to clean and maintain a large house in my old age. I suppose they could have someone do that for them. Not knowing their financial situation, I wouldn't want to add a huge mortgage in my old age either. Perhaps they have enough investment to be free and clear of a mortgage, or close to it after purchase, I don't know.

I"m thinking that this is what we will need to do whenever I decide to retire. We built a home in Miami (we were the developers) and moved in right before COVID, so we have the benefit of paying at cost for the land, labor and materials combined with the crazy appreciation that this area has had over the past 5 years. That equates to about a 4x equity versus mortgage. Of my total housing nut each month, only 47% goes to pay down my mortgage. The rest is for insurance and property taxes. I'm not sure how that compares to others, but it would be tough to maintain in retirement I think. We could sell and use the proceeds to buy two other places (one in FL for winter and probably another in Chicago for summer) and still have money left over. That's the way I'm leaning right now. Or we could just cash out completely and buy a nice home in a lower COL location in Florida and put the rest in my retirement bankroll (after capital gains). There is also the option of renting and using the proceeds to rent somewhere although we would lose the considerable homestead exemption, and our property taxes would most likely double.

 

[dgreen]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

 

[JohnnyU]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

 

[dgreen]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

Haha, true. Well, my mom was pretty good at cleaning into her 70s. My dad, not so much. She passed away in 2019 so it has just been him in this way-too-big house. My sister convinced him to hire a cleaning service to come in once a month, but that doesn't help with the general picking up.

 

[JohnnyU]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

Haha, true. Well, my mom was pretty good at cleaning into her 70s. My dad, not so much. She passed away in 2019 so it has just been him in this way-too-big house. My sister convinced him to hire a cleaning service to come in once a month, but that doesn't help with the general picking up.

Precisely why downsizing is the play as you get old. Maybe not true in every situation, but is in most I think.

 

[dgreen]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

Haha, true. Well, my mom was pretty good at cleaning into her 70s. My dad, not so much. She passed away in 2019 so it has just been him in this way-too-big house. My sister convinced him to hire a cleaning service to come in once a month, but that doesn't help with the general picking up.

Precisely why downsizing is the play as you get old. Maybe not true in every situation, but is in most I think.

Yep, and I suspect my dad will downsize at some point. But, he doesn't make decisions quickly or easily. He bought a new car a couple months ago after thinking about it for literally four years. He's lived in this area for 50 years and this house for almost 25 years. Moving and downsizing is going to be a really hard decision for him, even if it is the obvious thing to do.

 

[-OZ-]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

When we visit my sister, half of us stay in a hotel. They’d do the same if they visited (we go there because mom is there and doesn’t travel).

Renting a hotel room or house when the kids come home once or twice a year would work. If they live closer and/or visit often, a larger place probably makes more sense.

 

[Desert_Power]

Every time my worth gets to be about 25x my projected spend, I

Projected being the key here. Don’t forget that your work related expenses will disappear or change to travel and more fun.

I do keep work expenses below the line and have the "fun" spend dialed in pretty well. When I'm fluttering around the magical 25x number, I consider ways I may want to rachet up the fun in the future.

One of the more debatable things in my current model is around travel spending itself though. I do not explicitly assume spending on hotels or airfare. The reason for this is that I am also not including cash-equivalent value of credit card/other points that largely funds this travel. I do track each category that is spendable on a credit card versus the lowest points I would earn. This kinda assumes that these expenses offset when, in reality, I tend to accumulate points much more than I can spend.

Something to look at.

 

[Gally]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

When we visit my sister, half of us stay in a hotel. They’d do the same if they visited (we go there because mom is there and doesn’t travel).

Renting a hotel room or house when the kids come home once or twice a year would work. If they live closer and/or visit often, a larger place probably makes more sense.

It would work sure but for the most part if they are only visiting a couple times a year or once every couple years it's nice to have everyone all in the same place and not have to go anywhere. Makes it easier for meals together and just hanging out.

 

[-OZ-]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

When we visit my sister, half of us stay in a hotel. They’d do the same if they visited (we go there because mom is there and doesn’t travel).

Renting a hotel room or house when the kids come home once or twice a year would work. If they live closer and/or visit often, a larger place probably makes more sense.

It would work sure but for the most part if they are only visiting a couple times a year or once every couple years it's nice to have everyone all in the same place and not have to go anywhere. Makes it easier for meals together and just hanging out.

Sure, I’m just suggesting it’s one possibility. Or maybe if it’s only a few times a year everyone stays in a rental. We vacation with my in laws every year, I pick and pay for the house and bikes, they handle the food.
Obviously that doesn’t work for everyone but we like it.

 

[JohnnyU]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

Haha, true. Well, my mom was pretty good at cleaning into her 70s. My dad, not so much. She passed away in 2019 so it has just been him in this way-too-big house. My sister convinced him to hire a cleaning service to come in once a month, but that doesn't help with the general picking up.

Precisely why downsizing is the play as you get old. Maybe not true in every situation, but is in most I think.

Yep, and I suspect my dad will downsize at some point. But, he doesn't make decisions quickly or easily. He bought a new car a couple months ago after thinking about it for literally four years. He's lived in this area for 50 years and this house for almost 25 years. Moving and downsizing is going to be a really hard decision for him, even if it is the obvious thing to do.

People get attached to their house and don’t want to downsize, even if it’s the right thing to do. Our house is only 2,500 square feet and we don’t plan to downsize now. My worry is that it’s a split level. As we age I worry about the steps. I would rather have a small ranch style. If we get to where that is a problem we will have to re-evaluate our situation. It was built in the 70s, but is in great shape. If it starts to have high maintenance that will factor into it also.

 

[jamny]

I like the idea of downsizing your home as get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

This is something we are mulling over. We bought a plot of land in Idaho and plan to build. We did a preliminary floorplan and it came out to almost 3000 square feet. We don't need 3K square feet to take care of but as we were sketching it out we wanted room for kids/grandkids and friends when they visit. Also want a nice area for entertaining. Putting all that in there just leads to a big house. I am not sure if there is a way around it.

Yeah, it was important to my mom to have a house where out-of-town kids and grandkids could stay. Most of the year, it was way too much house for my parents, but it met its purpose during holidays. I value that, too, but would prefer to find another solution because I also really like the idea of downsizing.

Who wants to clean and maintain a large house in their old age? Assuming you don’t want to pay someone to do it?

Haha, true. Well, my mom was pretty good at cleaning into her 70s. My dad, not so much. She passed away in 2019 so it has just been him in this way-too-big house. My sister convinced him to hire a cleaning service to come in once a month, but that doesn't help with the general picking up.

Precisely why downsizing is the play as you get old. Maybe not true in every situation, but is in most I think.

Yep, and I suspect my dad will downsize at some point. But, he doesn't make decisions quickly or easily. He bought a new car a couple months ago after thinking about it for literally four years. He's lived in this area for 50 years and this house for almost 25 years. Moving and downsizing is going to be a really hard decision for him, even if it is the obvious thing to do.

People get attached to their house and don’t want to downsize, even if it’s the right thing to do. Our house is only 2,500 square feet and we don’t plan to downsize now. My worry is that it’s a split level. As we age I worry about the steps. I would rather have a small ranch style. If we get to where that is a problem we will have to re-evaluate our situation. It was built in the 70s, but is in great shape. If it starts to have high maintenance that will factor into it also.

We downsized from a 2000 sqft house to an 880 sqft 1 bedroom condo. Got rid of a ton of stuff, even the storage unit is mostly empty especially compared to many other residents. We could stay here for good but are keeping our eye out for maybe a 55+ community with small one level homes. Our condo, being right in the city, will most likely cover the cost of anything we do get since we'd probably be outside of the city a bit.

 

[pecorino]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

 

[Gally]

My worry is that it’s a split level. As we age I worry about the steps.

That is one of the key aspects of our house design. The only caveat is if the slope of the property requires a walk out basement but we will have the bulk be one level and maybe put in one of those chair ride down the stair things..haha

 

[Riffraff]

Agreed with some inputs above: single story is the way to go, though many like the look of multiple stories. Knew when buying my 'forever home' that it had to be 1 floor, otherwise half the house would become no man's land and storage space only. Lots of sports and a physical job history had that firmly ingrained in my head for future me (at the time).

 

[Alex P Keaton]

I like the idea of downsizing your home as you get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

Edit: I wouldn't want to have to clean and maintain a large house in my old age. I suppose they could have someone do that for them. Not knowing their financial situation, I wouldn't want to add a huge mortgage in my old age either. Perhaps they have enough investment to be free and clear of a mortgage, or close to it after purchase, I don't know.

Trying to get Mrs APK to agree with this. Have been dropping hints for 5 years now. How old do my kids have to be before this would be acceptable? Can we sell the house the weekend after they leave for college?

 

[Sand]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

No idea about the LLC, but your dude needs to get some Roth conversions in before his RMDs hit.

 

[Sand]

Trying to get Mrs APK to agree with this. Have been dropping hints for 5 years now. How old do my kids have to be before this would be acceptable? Can we sell the house the weekend after they leave for college?

I'm on the other end of the scale. I don't care if I'm knocking around at 90 in a 30,000sq. ft. castle. I'm not ****ing moving again.

 

[Instinctive]

I like the idea of downsizing your home as you get old. Something to think about as you retire. There’s a friend of a friend of my wife that are in their 60s that bought a large square footage home. I don’t understand why. Maybe they are in great health and will live forever.

Edit: I wouldn't want to have to clean and maintain a large house in my old age. I suppose they could have someone do that for them. Not knowing their financial situation, I wouldn't want to add a huge mortgage in my old age either. Perhaps they have enough investment to be free and clear of a mortgage, or close to it after purchase, I don't know.

Trying to get Mrs APK to agree with this. Have been dropping hints for 5 years now. How old do my kids have to be before this would be acceptable? Can we sell the house the weekend after they leave for college?

I would assume based on our own experience that a key factor is grandkids.

My guess for a framework is if you want to host holidays, you don't ever get to downsize. If you're willing to travel for grandkids and such, then downsizing is doable once your kid(s) have their own home big enough to have you as a guest.

Or, have enough $$$ that you can out family up in a nearby hotel or you can pay to be in a nearby hotel to them.

ETA: we forced my parents to us this year, and my in laws to us last year, because traveling to people requiring many-hour drives with kids under two just seems terrible. Eventually that will be fine.

 

[Peggy]

If you want a single number. Go calculate your expected expenses (it's good to track current expenses, then add on provisions for health insurance, travel, car replacement, new roof, etc.).

Highly overlooked thing.

Always take into account the housing upkeep and maintenance as they usually end up as 'surprise' costs for items and labor upcharging as 'emergency', but need to allocate projected funds every year.

Roof replacement
House paint job
Water heater
Refrigerator
Oven or microwave
Random plumbing in kitchen or bathroom - those rubber grommets / o-rings wear thin or crack
Washer / dryer
Garage door openers
Furnace / HVAC
Backyard grill, fire pit, or entertainment items
Patio stones
Tree trimming or root created damage
Yard bark or beautification
Sprinkler system
Septic or underground piping
Fence panels and painting/staining
Deck plank refresh
Replace the lawn mower or other typical tools.

Bound to be something every year so budget for them. Best to systematically replace items when you got the coin and know things age.
Know you are going to retire within 5 years? Start a phased replacement/upgrade on major appliances while you got the paycheck.

If you're tracking your costs prior to retirement and have been a homeowner for a good while a lot of these should be baked in already. And you can cross reference that to an average of 2% of the home value as maintenance cost. But yeah you should know the big ones, like how long your roof is expected to last, is it a 20 year or 40 year roof? HVAC usually last about 20 years etc.

 

[Peggy]

We up sized from 2400sf on one acre to 3000sf on a six acre small farm. But that's what we wanted to do in early retirement.
And it's all at a lower cost because we move out of a high cost of living area to God's country.

 

[Steve Tasker]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

This is very close the line, if not entirely illegal.

Any funds spent on the construction of the house would be capitalized into the cost of the house - they would not be deductible when incurred. If the house is a true rental, the property itself would be depreciated until he sells it. If he were to live in the house, it'd be a personal use property and it wouldn't be depreciable.

Basically, he'd be paying the tax on the IRA withdrawal when he takes the funds out, and then would not get an immediate tax deduction for spending the money on constructing the property.

Source: I'm a tax CPA.

 

[JohnnyU]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

This is very close the line, if not entirely illegal.

Any funds spent on the construction of the house would be capitalized into the cost of the house - they would not be deductible when incurred. If the house is a true rental, the property itself would be depreciated until he sells it. If he were to live in the house, it'd be a personal use property and it wouldn't be depreciable.

Basically, he'd be paying the tax on the IRA withdrawal when he takes the funds out, and then would not get an immediate tax deduction for spending the money on constructing the property.

Source: I'm a tax CPA.

Lots of knowledge here. I respect that.

 

[pecorino]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

This is very close the line, if not entirely illegal.

Any funds spent on the construction of the house would be capitalized into the cost of the house - they would not be deductible when incurred. If the house is a true rental, the property itself would be depreciated until he sells it. If he were to live in the house, it'd be a personal use property and it wouldn't be depreciable.

Basically, he'd be paying the tax on the IRA withdrawal when he takes the funds out, and then would not get an immediate tax deduction for spending the money on constructing the property.

Source: I'm a tax CPA.

Thanks for your expertise. So what I am hearing is the following: 1) This is not a patently illegal strategy and 2) the costs to acquire and/or develop the land would not be deductible when incurred (though I assume they can be depreciated over something like 27.5 years). Do I have that correct? Is the length of time of depreciation set or would he have any control over that? [The land, I assume, would not depreciate so I don't know how one deals with the costs incurred in acquiring the land.]

And finally, if he has no intent to rent it but instead wants to sell it for a profit, would he not be allowed to live in it while it is on the market? For instance, if he puts $500,00 into the development then lists it, say at $1.5 million, and it just sits there on the market, could he not also live in it while it is for sale? And so long as it does not sell, the cost that was sunk into it would be able to be written off, albeit over many years? Thanks again.

 

[Instinctive]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

This is very close the line, if not entirely illegal.

Any funds spent on the construction of the house would be capitalized into the cost of the house - they would not be deductible when incurred. If the house is a true rental, the property itself would be depreciated until he sells it. If he were to live in the house, it'd be a personal use property and it wouldn't be depreciable.

Basically, he'd be paying the tax on the IRA withdrawal when he takes the funds out, and then would not get an immediate tax deduction for spending the money on constructing the property.

Source: I'm a tax CPA.

Thanks for your expertise. So what I am hearing is the following: 1) This is not a patently illegal strategy and 2) the costs to acquire and/or develop the land would not be deductible when incurred (though I assume they can be depreciated over something like 27.5 years). Do I have that correct? Is the length of time of depreciation set or would he have any control over that? [The land, I assume, would not depreciate so I don't know how one deals with the costs incurred in acquiring the land.]

And finally, if he has no intent to rent it but instead wants to sell it for a profit, would he not be allowed to live in it while it is on the market? For instance, if he puts $500,00 into the development then lists it, say at $1.5 million, and it just sits there on the market, could he not also live in it while it is for sale? And so long as it does not sell, the cost that was sunk into it would be able to be written off, albeit over many years? Thanks again.

The LLC can't lose money every year and still deduct. You'll get disallowed as a hobby and then likely audited (yoy repeated LLC losses are a key IRS audit flag)

I don't really see how it would help him avoid much in taxes anyway? You're gonna take out enough income to spend $500k on building a house, but jump through the cost of setting up a fake LLC, lying about it's business purpose, all to try and get between $5-10k deducted each year above the line?


ETA: and at a marginal rate you'd expect in retirement (15-20% tops??) that's maybe $1.5k in tax avoidance, right?

Oh and btw, the LLC would need to own the house. And as a business asset, anyone who inherits it wouldn't get a basis step up, because there's no homestead exemption. I think. So he'd really be ****ing over the heirs too.

 

[Steve Tasker]

Thanks for your expertise. So what I am hearing is the following: 1) This is not a patently illegal strategy and 2) the costs to acquire and/or develop the land would not be deductible when incurred (though I assume they can be depreciated over something like 27.5 years). Do I have that correct? Is the length of time of depreciation set or would he have any control over that? [The land, I assume, would not depreciate so I don't know how one deals with the costs incurred in acquiring the land.]

And finally, if he has no intent to rent it but instead wants to sell it for a profit, would he not be allowed to live in it while it is on the market? For instance, if he puts $500,00 into the development then lists it, say at $1.5 million, and it just sits there on the market, could he not also live in it while it is for sale? And so long as it does not sell, the cost that was sunk into it would be able to be written off, albeit over many years? Thanks again.

I mean, it's not illegal for an LLC to lose money or to simply exist without a real business purpose. But taking an immediate deduction for construction costs on something like this would be incorrect.

The depreciation on the "shell" of the building and any essential building components or systems - think HVAC, plumbing etc - would be deductible over 27.5 years. Assets that are more decorative in nature or not permanently affixed to the building - think cabinetry, countertops, appliances, carpeting, etc - could be depreciated over a much lower life. Again, this is all assuming the property is truly a rental property - he is holding the property out for rent, it is advertised and marketed at a fair rental price, and so on.

If he doesn't want to rent and wants to sell the property for a profit, he can certainly live in it. But when you say "the cost that was sunk into it would be able to be written off", what does that mean? If he's making "permanent" capital improvements to the property, like say he puts in a new backyard deck, those would be added to the cost basis of the property for when he sells it someday. If he's making "repairs", like a fresh coat of paint on some interior walls, that would just simply never be tax-deductible. And he would not be able to depreciate the property if he's living in it. It'd be just like anyone else who has a second home or a vacation home.....you can certainly do it, you're just not getting a tax deduction for it, aside from maybe the property taxes or mortgage interest.

 

[Sand]

I've got a tax / LLC / retirement question. A colleague of mine who is 55 stands to inherit a nice parcel of land in Sante Fe but to put a house on it would be at least $500K. The time frame (though one never knows when a parent will pass) may be on the order of five years. He wants to retire around that time, too, and he will eventually face a massive tax bill because a majority of his investments are in pre-tax IRAs. He will not take RMDs for a while but at some point the tax man will come calling for their share.

Today I suggested to him that he create an LLC which would be a land-development / construction company. For a few years, nothing would happen but once the land is available and once he wants to tap money in his IRA, I thought that he could withdraw $x from the IRA and use that money to sink into the building of a house. If the value of x is in the hundreds of thousands then he is looking at a big tax hit but if in the same year the LLC spent that money to build the house, then the loss could offset the taxable event. I believe this is true but I am not an expert in taxes. Is this possible? Is it legal? Once the house is built, he could live it in while trying to sell it. I suggested that he could list it for an exorbitant price and live it in while it does not sell. Again, legal? Thanks to any experts out there who can keep him out of jail and out of the sights of the IRS.

This is very close the line, if not entirely illegal.

Any funds spent on the construction of the house would be capitalized into the cost of the house - they would not be deductible when incurred. If the house is a true rental, the property itself would be depreciated until he sells it. If he were to live in the house, it'd be a personal use property and it wouldn't be depreciable.

Basically, he'd be paying the tax on the IRA withdrawal when he takes the funds out, and then would not get an immediate tax deduction for spending the money on constructing the property.

Source: I'm a tax CPA.

Rule #1 of Adulting: Don't F with the IRS.

 

[Steve Tasker]

Oh and btw, the LLC would need to own the house. And as a business asset, anyone who inherits it wouldn't get a basis step up, because there's no homestead exemption. I think. So he'd really be ****ing over the heirs too.

For what it's worth, this in particular is a complicated topic and may depend on the actual structure. If it's a disregarded entity LLC, I would think the estate step-up would apply, and the heirs would inherit the asset at a stepped-up basis, but it would potentially also become a partnership immediately at the taxpayer's death. But I would think there would be a matching of inside-and-outside basis. If the LLC has multiple owners at death, it gets more complicated with Sec 754 basis adjustments.

 

[Sand]

For what it's worth, this in particular is a complicated topic and may depend on the actual structure. If it's a disregarded entity LLC, I would think the estate step-up would apply, and the heirs would inherit the asset at a stepped-up basis, but it would potentially also become a partnership immediately at the taxpayer's death. But I would think there would be a matching of inside-and-outside basis. If the LLC has multiple owners at death, it gets more complicated with Sec 754 basis adjustments.

Apologies, did we just switch to a foreign language sub here? I recognized a few words in this.

 

[Instinctive]

For what it's worth, this in particular is a complicated topic and may depend on the actual structure. If it's a disregarded entity LLC, I would think the estate step-up would apply, and the heirs would inherit the asset at a stepped-up basis, but it would potentially also become a partnership immediately at the taxpayer's death. But I would think there would be a matching of inside-and-outside basis. If the LLC has multiple owners at death, it gets more complicated with Sec 754 basis adjustments.

Apologies, did we just switch to a foreign language sub here? I recognized a few words in this.

Real CPA, let's go. Nothing is every cut and dried! (I'm the son of two CPAs but only did an accounting undergrad degree)

 

[Mookie]

My boss was griping about how he found out that a woman in our office was planning to retire this winter and had not told him yet, so I told him I planned to retire next spring. He was floored but took it in stride. The beer helped. It's happening.

 

[Sand]

My boss was griping about how he found out that a woman in our office was planning to retire this winter and had not told him yet, so I told him I planned to retire next spring. He was floored but took it in stride. The beer helped. It's happening.

 

[-OZ-]

Every so often something happens that gives you pause and reminds you that we really don’t know how much time we have left.

When I was a JAG at Fort Bragg, I had three different NCOICs (senior paralegal). I just found out the third died a month ago. We were good together, he was a good guy and leader, but weren’t all that tight (he was following my favorite NCO I ever worked with) but still, that hits. Dude was only 43 and died on active duty.

 

[Gally]

But when you say "the cost that was sunk into it would be able to be written off", what does that mean?

Just ask Kramer. He does it all the time for Kramerica Industries.

- YouTube

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

youtu.be

 

[matttyl]

But when you say "the cost that was sunk into it would be able to be written off", what does that mean?

Just ask Kramer. He does it all the time for Kramerica Industries.

- YouTube

Enjoy the videos and music you love, upload original content, and share it all with friends, family, and the world on YouTube.

youtu.be

You don’t even know what a write off is.

 

[Sullie]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

 

[matttyl]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

If not already in your list of questions, be sure to ask if your plan has the rule of 55.

 

[Sullie]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

If not already in your list of questions, be sure to ask if your plan has the rule of 55.

Thank you! So, I had checked when I set up the appointment and found out that it is.

I'm completely torn, 1/2 of me is done and the other 1/2 of me is ready to go for another 5+ years. Mainly, I just want to see what my options are. Wifey is 3 years older than me and she's planning on working for another 7 years and she keeps encouraging me to retire. Whatever I decide to do, knowing me, I'm sure I'll regret it either way!

 

[-OZ-]

she keeps encouraging me to retire.

Pretty standard advice - listen to your wife.

 

[Sand]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

If not already in your list of questions, be sure to ask if your plan has the rule of 55.

And be sure they allow partial in service withdrawals. Some plans allow for rule of 55, but require everything be taken out at once, which obviously isn't helpful.

My old employer did that BS - luckily they have been kicked to the curb.

 

[Riffraff]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

If not already in your list of questions, be sure to ask if your plan has the rule of 55.

Thank you! So, I had checked when I set up the appointment and found out that it is.

I'm completely torn, 1/2 of me is done and the other 1/2 of me is ready to go for another 5+ years. Mainly, I just want to see what my options are. Wifey is 3 years older than me and she's planning on working for another 7 years and she keeps encouraging me to retire. Whatever I decide to do, knowing me, I'm sure I'll regret it either way!

Great part of Rule of 55 is that you can still go back to work full or part time if you want and still take out full / partial allocations of your most recent company 401k/403b/TSP. It's a beautiful rule!

 

[Sullie]

I'm 57 and I'm glued to this thread. I'm going to talk to a financial consultant this Friday who is part of a concierge team from our company's retirement investment company. Wish me luck!

If not already in your list of questions, be sure to ask if your plan has the rule of 55.

Thank you! So, I had checked when I set up the appointment and found out that it is.

I'm completely torn, 1/2 of me is done and the other 1/2 of me is ready to go for another 5+ years. Mainly, I just want to see what my options are. Wifey is 3 years older than me and she's planning on working for another 7 years and she keeps encouraging me to retire. Whatever I decide to do, knowing me, I'm sure I'll regret it either way!

Great part of Rule of 55 is that you can still go back to work full or part time if you want and still take out full / partial allocations of your most recent company 401k/403b/TSP. It's a beautiful rule!

Nice, I did not know that, thank you guys! Please keep the information and advice flowing.

 

[Sullie]

So, I just got off the phone and I'm kind of in shock right now if I'm being honest. I knew what I had in my accounts, I've known I could retire for a long time now I guess it's just different when someone says "you can comfortably retire today if you wanted to, it's just a matter of how much you and your wife want left over when you pass away is the only question." Everything projected to me has always been "worst case scenario" because I've always, always, always been (and will forever be) a plan for the worst pray for the best kind of a person. I hate being disappointed so I always expect and plan for worst case situations. I think working in IT has petty much driven this point home time and time again after hearing "wow, I've never seen this happen before." I hear that once a week, I expect the same in retirement.

So, my plan is to keep working until our son graduates college in a couple of years. I just want to get him launched and then go from there plus I want to spend the next couple of years getting into "retirement" mode. I think I really need to wrap my mind around it, get a plan together and start warming up to the idea. But, overall, good news.

 

[Sand]

New portfolio threshold achieved. 14 months to step up - totally crazy. It won't hold as my company stock has gone vertical and it's sure to retrace - huge part of that 14 months is in that wildcard. But damn, things are moving. My expenses have been very low (1 PTO day since last May, so no vacations to blow dough) and my tracker says I'm at 62x TTM expenses, which is ridiculous. In the long term I'm realistically at 40x.

Seriously considering where to go from here.

 

[Sand]

I'm completely torn, 1/2 of me is done and the other 1/2 of me is ready to go for another 5+ years. Mainly, I just want to see what my options are. Wifey is 3 years older than me and she's planning on working for another 7 years and she keeps encouraging me to retire. Whatever I decide to do, knowing me, I'm sure I'll regret it either way!

Couple in-between options. Take a couple month break from work (if you can) and test drive hanging it up. Barring that drop to low full time (30 hours) or part time (20 hours) and see how lessening the load works out for you.

 

[InDitkaWeTrust]

This week has been the first time I've really felt the urge to retire. Early 50s here with young-ish kids. Not sure why, but it hit me like a ton of bricks earlier this week. We're close, but not quite in a position to retire but it sure has me considering moving to fewer days of work per week. Anyone else?

 

[Sand]

This week has been the first time I've really felt the urge to retire. Early 50s here with young-ish kids. Not sure why, but it hit me like a ton of bricks earlier this week. We're close, but not quite in a position to retire but it sure has me considering moving to fewer days of work per week. Anyone else?

Definitely. Dropping back to 30/week would gain me back about 1100 hours a year from working to leisure.