March 26- Work may be optional on a teacher’s salary

Patrick and Joan’s plan had work a little bit different than Jane and Jon because they were about to have a baby; so health  insurance had to be part of their equation to reach F.I.( Financial Independence).

Patrick estimated that without having the burden of a mortgage payment and car payments they could live off 30-35K a year comfortably.  They had also done their due diligence of trimming discretionary expenses. No more buying out lunch or Starbucks twice a day. No more baseball season tickets and finally…the cable subscription…gone.

Patrick reflected on how much money he had spent over the years on cable to watch sport shows that really didn’t make any difference in his life. Nobody cared if he watched the game or not. There was no reward for feeding an industry of consumerism; not even for the most die hard fan. The only thing that was a given was a lot of expenses and wants. Over $200 a month for the cable service and few subscriptions to special channels. “Not worth IT!” he muttered.

After trimming expenses, Joan and Patrick calculated they could bring in about 170K yearly. However, this was going to require some strategy to avoid paying taxes in a high income bracket.

In order to get the most out of their pay, they were planning on investing to create some liability against such high income.

For starters, they wanted to invest in a rental property. This would not only allow them to deduct their mortgage interest paid each year, build up their equity, and get some appreciation but also gain through depreciation. Patrick could not believe that the IRS allows one to shelter 1/27.5 of the property value in the form of depreciation. In other words, if you have a rental property appraised at, let’s say 200K, you are allowed to depreciate 200,000/27.5 yearly= $7,272K a year.

They also wanted to use the magic of tax deferred accounts and compound interest to invest in the stock market. The government also allows you to pay yourself first in savings every time before taxes are collected . As a married couple, Patrick and Joan could put aside up to 38K in the ir 403B plan without paying one cent in taxes. Besides that, they were planning on fully funding Roth Ira accounts for 6k each, totaling 12K extra in savings.

All these savings plus a standard deductions for married couples of 24K, would total their savings at 81K in taxes. Incredible. Not to forget the tax credit for having a child. And if needed they could also fund a 457 plan for each one of them for up to 38K more. Mind blowing!

Patrick and Joan, could taste the winds of freedom and independence. Life has taken a new meaning for them. Instead of just going to work day in and day out the planning of their future had brought them together again.

The IRS had their backs!

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