Advice welcome-VERY unusual circumstance: lien, NOL

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boglewill34
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Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Wed Nov 22, 2017 10:50 am

Hopefully this is a situation that will be very unique here! I have no regrets, I just want to pull this phoenix out of her fire.

Wife and I both early 40s, both somewhat newly but gainfully employed in the public sector, me for 2.5 years, her for only a couple months. She was between jobs for 4 months prior to getting this job. 3 kids, 8, 10, 10.

I make 55k, which was a promotion in June, and within two months I've also been doing standby/overtime which increases my gross 20%, so roughly 66k. I get 2% cola, and will get roughly 3% step increases each year for 6-7 years. She makes 36k, with basically no adders, but should get 2% cola as well.

We have a home which we've had since 2005, currently owe 205k at 4.875% on a first and 47k at around 5.25% on a heloc. RE taxes total around 6k a year combined. Both mortgages were refi’d around 2015 under a distressed “save your home” type of program. Monthly payments are $1600 on the first including escrow and $400 on the heloc. Interesting thing 1, we have an IRS lien on the house.

Taxes. We owe around 52k from 2012, and around 13k from 2013. This is down around 50% from the high that we owed from other years as well, so making progress. Not currently on repayment, the current "strategy" (probably not the best one) is to use current year withholdings to pay down the taxes in arrears. To help speed this up, we generally claim exemptions of 0 and single to maximize payroll withholding. Leading to the next interesting thing 2.

Interesting thing 2, taxes too. In 2014, I closed a business for which there was almost $1M in unrealized/unrealizable capital account. This turned into NOL, which we’ve carried forward. So since then, all taxes collected in state and federal taxes get “refunded” back to the IRS to apply toward our open balances. Note that all returns were filed, on time. There are just these two years with open and somewhat large balances on them.

The kids all have 529 plans, within the immediate family it’s currently funded enough to pay a year of college for each, and I’ve just now re-set up payroll withholding to contribute a menial amount, like $500 a year each. In addition, my parents have 529s set up for them that I’m not sure of the amount of, but I think more substantial than ours, but conservatively will provide at least another year of university for each.
Credit card debt as follows: 2k on zero percent for a year, 4k on 13%. I’ve got current plans to pay the ones carrying interest within 6 months ($750 a month), and then zero out the zero interest before carrying interest.

Savings, emergency or otherwise, basically zero at this point. We had some that got spent down while wife was on a ~4 month sabbatical. Given at least the stability of my working situation (both objective and subjective), for now I can say I’m basically ok with using all unallocated funds to pay down debt instead of building ES, and using credit to lever against emergency needs. I say MY work situation is stable because I know I’ll stick out public service until retirement, she’s not as committed yet.

Retirement. We are both in a pension tier that will provide 35% of final average salary for life at age 63, and will get a continuation of employment level health coverage in retirement. We are currently not well funded for retirement otherwise. I’ll have a deferred comp (457) set up in December to which I’ll currently contribute 4%, with the intention of increasing these contributions in lock step with cola and step increases. Once I have the account info for this 457, I’ll also roll over an existing 401k I have $10k in that has a REALLY high ER of around 1.3%. She also has an old 401k, I don’t have current paperwork for it but I think that’s around $10k as well, not sure of the ER, etc at this point, but we will roll it over if it’s high.
The AA and ERs of my 457 will be as follows:
• Bond 30% .02%ER
• Large Cap 25% .01%ER
• Small Cap 20% .02%ER
• International 17% .2% ER
• Emerging 8% .99%ER
The overall ER of this portfolio is 0.13%, these were all picked out of the offerings of the plan for the lowest in class ER. Unfortunately, while the domestic offerings are super low ER, the only offerings in international and emerging are orders of magnitude higher. I can post plan offerings in full if there’s interest.

We have no car payments, two cars with 150k miles plus each but run, have shopped insurance on them. Don’t have cable, don’t take lavish vacations (camp locally), have leveraged deals for cell phone plan, don’t dine out much, spend below average on groceries, etc etc.
Other than the plans above of paying off interest bearing consumer debt within 6 months, and all consumer debt within a year, contributing and increasing contributions to 457 to match salary increases, the next plan will be to pay down the taxes more quickly. To that end, I think once the interest bearing cc debts are paid, I’ll take that money and send directly to the IRS. That’ll be $750 a month, in addition to what will already be $1000 a month from payroll withholding.

I MAY opt to instead minimize withholding (claim 9 exemptions or something) and send THAT money instead to the IRS, I think I’ll pay less in interest and penalty that way. After this year, I’ll still have at least 650-700k of that NOL to carry forward, this will only be the 3rd or 4th year that I’ve carried forward that NOL. While reading about it is confusing, it looks like I can carry that loss up to 20 years total.

I guess the questions are, should I be doing something differently with either the taxes or with setting up emergency savings? More generally, is there something I’m missing that I can or should be doing?

My goals are very simple and imo humble. Provide for my kids now, and provide at least a bit of their higher education. Be able to sleep a little better by having less debt. Be able to break bread and hoist a beer near a camp fire with friends and family. Big one, be able to continue to do the same at a retirement age of 63.

Advice or input welcome!

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Thu Nov 23, 2017 8:50 am

This is mostly a bump.

It might be helpful for you to describe what a NOL is and how it works.

My only question is whether you can afford to contribute to the 457b at this point although I know 4% is not a lot.

Don't worry about the ER of the plan - all are fine except the emerging markets and that is a small portion of the overall plan. It is the overall cost that matters and .13% is fine.

Broken Man 1999
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by Broken Man 1999 » Thu Nov 23, 2017 9:26 am

Could NOL be net operating loss?

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

UncleLongHair
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by UncleLongHair » Thu Nov 23, 2017 10:04 am

I think this is somewhat of an esoteric question and you should probably talk to a qualified CPA to get some advice.

I had a kinda-similar situation about 10 years ago. My father passed away and I settled his estate, which included a huge house and a business that he owned. (Very) long story short I sold both the house and business so that there were substantial tax losses even though we got a little cash from them (had to do with the difference between sales price and stepped-up cost basis).

Again long story short this led to a 6-figure capital loss in the estate, which could be passed to the beneficiaries, me and my siblings. This led to a large tax loss carry forward for us, which we could use to offset income at $3k per year and capital gains.

This is not the same as a NOL as you had in your business, but kind of similar. The tax loss carry forward that we got could be carried forward indefinitely but could not be passed on to our kids. So there is an incentive to use it up. I have after-tax investments in stocks and funds and having this tax loss carry forward was as good as cash, basically I could sell taxable investments at a gain and not pay any tax. It took me about 7 years but I used it all up, which I consider to be a good thing.

My advice would be to talk to a CPA and see what you can do to take advantage of this NOL to help you minimize other taxes, and do so sooner vs later.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Thu Nov 23, 2017 10:07 am

Broken Man 1999 wrote:
Thu Nov 23, 2017 9:26 am
Could NOL be net operating loss?
Seems likely, but what happens with it? What does it do?

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Fri Nov 24, 2017 8:57 am

Yes, NOL is net operating loss. I basically have a negative income that offsets any positive income until it gets depleted. I basically have enough loss accumulated to offset all income at present levels for the next 7 years. The weird part is that while the IRS "owes" me on the NOL, I owe them for 2012 and 2013 having open amounts.

I've cycled through 3 or 4 different CPAs, all of whom would rather re-litigate the causes leading to the NOL, and whether those numbers are correct, etc, than to issue strategy going forward. I think the big loss ends up looking like a shinier object than the current reality, which is that of a middle class family making average income but having a loss. I settled on a CPA that just does basic tax prep now, and can input the numbers and come up with a return every year that makes sense.

I think what I'm trying to sort out is to what level should I fund retirement or ES while having admittedly smallish consumer debt, but then also having the tax debt that does carry a substantial interest and penalty to carry.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 9:54 am

Thanks for the update. I had no idea how to interpret the post without that information.

See if I have this debt right:
  • $52k to IRS at what interest rate?

    $13k to IRS at what interest rate?

    $205k mortgage at 4.875%

    $47k HELOC at 5.25%

    $2k at 0%

    $4k at 13%

Savings/Retirement:
  • $0k Emergency fund

    $20k old 401ks

    ~$2.2k a year to 457b starting

    $1.5k to 529's
First, it appears to me you have this situation well in hand and are very much on your way to being out of debt...in time.

A could of things to consider changing.

1) It appears you have had to "leverage" your CCs a few times, one of which has turned into a 13% interest rate debt - a real obstacle to getting out from under debt. I think it would be better to build up a small emergency fund (maybe $2k) than have to depend on the CCs when things come up. Your two old cars are going to need work. Be prepared for that rather than playing catch up all the time with your credit cards.

2) It seems you are paying off the IRS debt at about $12k a year - no thoughts on that till we know the interest rate. You say "substantial", but let's compare that to your other debts.

3) I think I would reduce your 457b contributions to 1% or 2% till the emergency fund is built up, the CC debt paid, and maybe the HELOC. It does not make sense to me to pay 5.25% on the HELOC when you may not be bringing in 5.25% on the investments. Since you may be getting to deduct the HELOC interest on your taxes, it may almost make sense though.

4) You really can't afford the 529, but I get it. Would you consider skipping this for 2018 and put that money into an emergency fund?

The fact that a pension or two is in the future makes this situation less worrisome. What about SS?

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 9:56 am

Is there some specific date in the future when you are allowed to refinance that mortgage at a lower rate?

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BL
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by BL » Fri Nov 24, 2017 10:00 am

I certainly don't have any good solutions, but suggest you consider this an emergency, rather than "middle class income" managing a temporary financial downturn. You are living on borrowed money, and this cannot be sustained.

First, I would not consider adding more to 529, even a "menial" amount of 500. Every penny counts when you are in this bind. I would not add to retirement savings at least until you get the high-interest CC paid off. Suggest you put everything possible, after paying minimums, into the highest rate CC to get it done immediately! At 13%, it takes forever to pay it off at regular minimum payments. The 0% CC will probably have similar high rates, so wipe that off ASAP. Then tackle next high-interest debt.

Christmas is coming and many families spend more than they can afford. Get your whole family in on working on this emergency, so that family future is not in jeopardy. Everyone can look for extra jobs to make a bit of cash to help out. Instead of buying presents, make coupons promising time or help with favorite things.

You will have no tax benefits from your 457 contributions so I don't see any advantage in doing this right now. Putting some into a Roth IRA would at least let the contributions serve as an emergency fund. In fact, I hate to suggest it, but cashing in some 401k or 529 if there is no tax or penalty due to NOL, might even be considered.

Another thing I hate to suggest, but may need to be considered is bankruptcy, even though IRS loans probably can't be discharged.

I commend you for working hard to take care of this matter.

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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 10:06 am

BL wrote:
Fri Nov 24, 2017 10:00 am
You will have no tax benefits from your 457 contributions....
Why? Because of the NOL?

Putting some into a Roth IRA would at least let the contributions serve as an emergency fund.
Had not thought of this - might be a very good idea.

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BL
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by BL » Fri Nov 24, 2017 10:12 am

retiredjg wrote:
Fri Nov 24, 2017 10:06 am
BL wrote:
Fri Nov 24, 2017 10:00 am
You will have no tax benefits from your 457 contributions....
Why? Because of the NOL?

Putting some into a Roth IRA would at least let the contributions serve as an emergency fund.
Had not thought of this - might be a very good idea.
I am no expert on NOL, but OP did state that there was no tax due for either state or federal taxes, so my assumption would be that a higher income due to no 457 would also have no tax due.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 11:12 am

Makes sense. If correct, I think Roth IRA or Roth 457 (if available) would be the better choice.

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badbreath
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by badbreath » Fri Nov 24, 2017 11:32 am

I would be asking this question over at the http://www.fairmark.com/forum/
“While money can’t buy happiness, it certainly lets you choose your own form of misery.” Groucho Marx

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Fri Nov 24, 2017 11:36 am

Good points here, including considering a Roth instead of the traditional pre tax IRA contribution.

I would no longer consider bankruptcy, as this IRS debt can't be discharged under bk, and we are otherwise solvent.

With the IRS debt, unfortunately I can't log onto my IRS account to get current transcripts, but it looks like I've come to a point where penalty on the unpaid balance is now maxed out, and the "only" interest on these accounts is calculated at the fed rate plus 3%, so the rate is listed at 3-4% currently on these debts.

On a potential refi, my credit is not excellent (shows as around 650 average), and last I checked with the bank they wouldn't touch a refi with the tax lien being in place. I may try again soon, but last time I tried I was basically hung up on by the mortgage officer.

Some are suggesting considering selling off existing retirements accounts to settle the tax debt. I'll consider it but it makes me a little nervous losing out on having some retirement savings in place and compounding. I see the point though, I'll have to consider that further.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 12:09 pm

Consider some variation to this theme.

Continue paying the IRS at current rate. If you are paying $12k a year, you'll be done in 5 or 6 years, before your oldest two get into college. If your interest rate really is 3% or 4%, it is a debt worth keeping when you have other debt at a higher rates. If there really is no more penalty, I see no reason to rush this debt except to get the lien off the house.

Do give more consideration to making payments to the IRS rather than letting them keep your tax refund. The way you are doing it now, the government is getting the working benefit of your money all year before it actually becomes the government's money. You are making nothing from that money and in fact, your debt is increasing a little since nothing is going to the debt each month. I'd set up a payment plan for all or part of what you are paying them.

You probably cannot refinance till the lien is gone. But you can get rid of that HELOC that has a higher interest rate.

Open a Roth IRA and put all the new 529 money and all the new 457 money (for which you seem to be getting no tax benefit) into it for the next several years. Call it your emergency fund and invest the first $5k in money market or a short term bond - nothing more aggressive that that.

If you have an emergency, you can take that money (contributions but not earnings) without tax or penalty. If you don't have an emergency, the money can be used for your retirement or for college. Doing this preserves also your Roth space which is currently going to waste each year. In a few years when this mess is behind you, you can invest much or all of the money in the Roth IRA as you would for retirement (if the money will be for retirement).

Taking from Roth requires some record keeping and one more form on your taxes (Form 8606). So keep up how many dollars goes into the Roth IRA and how much comes out if it comes to that.

I would NOT cash in your retirement accounts. If things really turn south, that could be a source of cash rather than/before losing your house.

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BL
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by BL » Fri Nov 24, 2017 12:14 pm

Have you studied the IRS pub on NOL?
https://www.irs.gov/publications/p536#e ... 1000177390

It is probably too late to consider carry-back on the losses, but it wouldn't hurt to talk to IRS immediately to see if there is anything that can be done at this time, since you are paying no tax now while owing a lot for the 2 years before NOL.

Someone mentioned the Fairmark forum, that might be worth a try.

Good advice from retiredjg above.

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Fri Nov 24, 2017 1:58 pm

These are some great new things to consider, thank you! I have been looking at the IRS pub that you referenced. I'll have to review and then ask the IRS if I can resubmit the returns to reallocate the NOL to a carryback. Thinking about this somewhat more deeply though, I think the NOL was declared in 2015, and at that time my earliest and in fact largest open balance was 2011, so carrying back to that given the 3 year look back was not an option. Meantime unfortunately this has allowed 2012 and 2013 to carry interest and penalty.

I DO have the option to do Roth within my 457, this does indeed appear to be among the best options given the totality of the situation. I could also consider a Roth conversion, ie converting my current balances (20k) of traditional IRA to Roth and letting those additional taxes burn up my NOL.

Either way, I think most actionable is to work on eliminating CC debt, swing max withholding to instead make payments to the IRS to the tax years currently in arrears, make sure I'm right about penalty no longer accruing and that the interest rate is currently 3-4%, and ease into making contributions to a Roth instead of traditional pre tax IRA, and consider eliminating contributions to the 529s.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Fri Nov 24, 2017 2:13 pm

boglewill34 wrote:
Fri Nov 24, 2017 1:58 pm
I DO have the option to do Roth within my 457, this does indeed appear to be among the best options given the totality of the situation.
Roth 457 would be better than traditional 457 since you are getting no (direct) benefit on your taxes. I suppose if you use traditional 457, it simply extends your NOL a few months. But eliminating that HELOC and CC debt is more important than using 457 at all, at least this year and next.

Remember that you would not be able to use Roth 457 for an emergency fund. You can only use Roth IRA for an emergency fund.
I could also consider a Roth conversion, ie converting my current balances (20k) of traditional IRA to Roth and letting those additional taxes burn up my NOL.
You have not mentioned having IRA. You mentioned having $20k in old 401ks. Keep in mind that IRA and 401k are different things.

I had not though of Roth conversions. Considering your low tax bracket and the fact that you can burn up the NOL that way, it could be a reasonable idea.

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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by bsteiner » Fri Nov 24, 2017 2:45 pm

The NOL is carried back 2 years unless they waived the carryback.

Tax assessments expire after 10 years unless the government files suit on them. Absent some unusual circumstances, the government usually lets them expire. So the taxpayer has to weigh the inconvenience of the tax liability (including its effect on his ability to borrow) against the possibility that he can run out the clock.

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Fri Nov 24, 2017 5:22 pm

I don’t know if it would be a likely occurrence, but fear that the irs would attach my wages before 10 years lapsed would or will probably make me inclined to pay up ASAP.

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welderwannabe
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by welderwannabe » Fri Nov 24, 2017 5:34 pm

I am sure many other will disagree with me, but that is a lot of mortgage debt for your combined salaries. $2,500 per month with the property taxes. What is your equity situation with the home? Have you considered downsizing the home a little and using any equity (if there is any) to help pay back the IRS?
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Thu Jan 10, 2019 9:55 am

boglewill34 wrote:
Wed Nov 22, 2017 10:50 am
...
Wife and I both early 40s, ... 3 kids, 8, 10, 10.

I make 55k, .. She makes 36k, w

...home which we've had since 2005, currently owe 205k at 4.875% on a first and 47k at around 5.25% on a heloc. RE taxes total around 6k a year combined.

Taxes. We owe around 52k from 2012, and around 13k from 2013.

NOL (normal operating loss), which we’ve carried forward.

The kids all have 529 plans, my parents have 529s set up for them that

Credit card debt as follows: 2k on zero percent for a year, 4k on 13%. I’ve got current plans to pay the ones carrying interest within 6 months ($750 a month), and then zero out the zero interest before carrying interest.

Savings, emergency or otherwise, basically zero at this point.

Retirement. We are both in a pension tier that will provide 35% of final average salary for life at age 63,

We have no car payments, two cars with 150k miles plus each but run,
I'm the OP, this was November 2017. I wasn't going to update this directly, but I haven't read this in probably a year and see things have changed so much, mostly for the way better. So I figure I'd update for interest and curation, and also as a way to give thanks to this community.

1/2019
2018 his gross $73k (after health and pension taken out)
2018 her gross $44k
For 2019 I should make about the same +a 2% cola in April and a 2% step in Oct
For 2019 she will make $50k + a 2% cola + a $5k health insurance opt out in June

The past due taxes from 2013 have been paid in full, current due taxes from 2012 is around $41k. Full refund from state and fed for 2018 ($12k) will go toward this balance, and we have been in repayment on this balance $600/month since May 2018. The interest is now 5% on this balance, and there is also a .25% per month penalty (3% annual), but for whatever reason this penalty has not been applied since end 2017, so....idk.

I've projected the NOL carry forward should last us until the end of 2023. IE our effective tax rate is currently 0%, that will change to join the general US populous in 2024.

Housing: owe $203k on 37 years remaining on a 40 year note at 4.875%, owe $37k at 5.25% on the heloc

Our retirement funds in end 2017 were I had around $9k in a trad IRA and she had $2.5k in a simple ira. We rolled mine into my 457 Roth and hers into a Roth with Schwab. We've been contributing to both, I started at around 4-5% in my 457 Roth at the beginning of 2018 and have it set now to 10.5%, she is contributing 6% to the Roth at Schwab and I may be able to come close to maxing that out for 2019 with some extra payments here and there.

We actually had more credit card debt than indicated in the OP, there was an additional balance on a card she owned, as well as a very past due balance on an old card I had that was in collections. I settled with the collections agency, and we are currently at zero consumer debt. It was pretty hard work, I sold basically anything not bolted down! I had various car parts, a trailer, blah blah and it's all gone now, turned to cash to pay off the debt. We are still driving the cars indicated here, they needed maintenance, as did various home appliances and stuff along the way, but I'm handy and have tools and everything is in functioning condition. And even better, all is paid off!

Current balance in my 457 is $14k, in her Roth it's $3100.

We also now have almost 2 months saved in an emergency fund.

Along the way my credit score went from low 600s to now almost 750, and hers is well above 800. :D

Current strategy is to first get another 2 months saved for a total of 4 months of emergency fund. Then we will increase payments to the IRS for the remaining 2012 tax balance. I've got it worked out where we will have it paid off by this time next year. At the same time we will continue to contribute to both Roths at or above the current levels.

Another strategic move that I may make is to refinance the house into a 15 or 20 year fixed mortgage. I should be able to do that this summer, as I should be able to apply to have the tax lien removed from the house by then, and my credit score will continue to improve.

I'll post some details about asset allocation in a subsequent post.

***Above all*** I'd like to THANK the good people here. There have been times when it all seemed too difficult, both from a technical standpoint but also from a psychological standpoint. It can be hard to confront one's past and mistakes made along the way. But until that's done, true progress can't be made. I really think things have turned around for us for the better, and again some of it is due to the help I've gotten along the way. Help within this thread and in just passively reading up on other threads that have made me think and shape my ideas.

retiredjg
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by retiredjg » Thu Jan 10, 2019 10:04 am

Impressive. :happy Keep up the good work!

Thanks for the update.

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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by Broken Man 1999 » Thu Jan 10, 2019 10:12 am

Great update!

It was an interesting read, for sure! :shock:

Hopefully you can shovel out the rest of the debt, and emerge unburdened.

In a weird way, this experience might have shown both of you what you are capable of doing when under duress. An expensive lesson, but a lesson, indeed. After this I would imagine you realize your strengths, and focus, and future problems might not be as intimidating.

Best of luck going forward!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven than I shall not go. " -Mark Twain

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boglewill34
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Thu Jan 10, 2019 11:19 am

Broken Man 1999 wrote:
Thu Jan 10, 2019 10:12 am
Great update!

It was an interesting read, for sure! :shock:

Hopefully you can shovel out the rest of the debt, and emerge unburdened.

In a weird way, this experience might have shown both of you what you are capable of doing when under duress. An expensive lesson, but a lesson, indeed. After this I would imagine you realize your strengths, and focus, and future problems might not be as intimidating.

Best of luck going forward!

Broken Man 1999
Thanks, and thanks to retiredjg as well.

Really, the end of 2017 had a much more difficult prologue leading up to it. Basically from 2014 through then we went from her working part time probably $25k a year and me picking up occasional side work, and we were on an array of public assistance for maybe 6 months and very thankfully got a handout from my mother to basically save our house. Then she got a great and very stressful director job and I worked at a convenience store, etc etc. Today I feel our work life balance is extremely good, thankfully we have our health and financially things are very good.

And indeed, not too much seems scary at the moment. We have some wisdom built in the rearview!

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BL
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Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by BL » Thu Jan 10, 2019 11:26 am

Thanks for the update. You have done well and will succeed in this difficult endeavor with your dedication. You are a real inspiration on overcoming difficulties! A lot of people with relatively minor debts could really learn from your example of sticking to your plan.

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boglewill34
Posts: 161
Joined: Thu Nov 16, 2017 12:52 pm

Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Thu Jan 10, 2019 11:49 am

As far as AA, my target is:
20% fixed income
35% US Large Cap Equity
20% US Mid/Small Equity (Russell 2500)
15% Developed international equity ex-US
10% Emerging markets equity

His 457 Roth holdings, % shown is percent of total retirement holdings:
10.3% stable value
10.4% bond (NYSDCP, basically like BND) .02%ER
33.3% US Large Cap (NYSDCP Blackrock S&P500 product) <.01%ER
20.5% US Mid/Small (NYSDCP Blackrock Russell 2500) .02%ER
4.3% Dev Intl (NYSDCP MSCI EAFE index) .2%ER
3% Emerging (Morgan Stanley MSCI emerging) .99%ER

Her Roth holdings at Schwab
10.5% Developed intl SWISX .06%ER
7.7% Emerging markets etf SCHE .13%ER

I've favored putting international into her Schwab account because as you can see they have a lower ER than what I have available. I chose the MF of developed because it has a lower ER than the ETF, vice versa on the emerging. I invested in both SV and bond funds in my 457 in exactly equal amounts, partially as a horse race to see which performs better over time. I may continue to do both, but I have some preference to the bond fund. No hurry to make a change.

For now I've been able to wiggle with the contribution amounts to keep very close to target AA, but as the accounts grow I'll rebalance once yearly, in July.

For the emergency fund, I've kind of been having fund messing around with a variety of fixed income instruments. For now I have around a month in checking and savings. Savings yields 0.055%, sucks but is very liquid and it's a CU I can get to at lunch or even break time. I have almost another month in a t-bill ladder that is starting to form. My intention was to put a month each into 3X 13 week t-bills so the whole thing would roll over once a quarter, but I've kind of changed my mind and have a current path of a month or so total in the 3X13week. For now the rest I have earmarked to go into a Schwab joint MMF account, current yield around 2.25% or so. I've vastly over-complicated the emergency fund thing, I readily admit. But, I've enjoyed learning about how things like t-bills and bond funds work by buying them and watching them over some time frame. I figure no harm is being done, and I'm way better tinkering within the fixed income/cash space than doing the same with the equities or even venture into individual stocks.

If there's any input on any of the above, feel free. In particular, thoughts on refinancing the house in the summer to a 15-20 year, different strategies regarding paying off the taxes or using my 0% effective tax space differently, and/or using equities for future tax efficiency in my EF.

Thanks again!

Katietsu
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Joined: Sun Sep 22, 2013 1:48 am

Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by Katietsu » Thu Jan 10, 2019 12:40 pm

There are behavioral aspects to finance that are very different from person to person. I am glad you are making progress. I do wonder though if you would not be better off taking a Dave Ramsey approach. In other words, get rid of the debt as soon as possible. This is especially true since your debtor is the IRS with much more power than a usual lender.

I would not be putting money into a 457 plan or a 529 plan. I would not have money withheld for taxes. I would be sending all this money to the IRS every month. I would have some type of automatic process set up or at regimented process so that the full amount goes to the IRS. You will have all that extra money that can go to college or retirement when you have no IRS bill. You now have great incomes. You have proven that you can live frugally. Ok, so maybe you want to live a little better than you did during the lowest of times. But it seems that you should have the IRS paid off in 18 months if you make that your number 1 priority. Your whole family might find motivation listening to Dave Ramsey podcasts.

Now this advice goes out the window if you would spend that 457/529/withholding money if it was not automatically pulled from the paycheck and hard to get at.

People are usually less successful when they are working on several goals at a time instead of a laser focus on one or two at a time.

Second the idea of a Roth IRA that can be used as an emergency fund if needed but for college or retirement if not. You can use this account for your tinkering if that gives you a boost.

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boglewill34
Posts: 161
Joined: Thu Nov 16, 2017 12:52 pm

Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Thu Jan 10, 2019 1:08 pm

Katietsu wrote:
Thu Jan 10, 2019 12:40 pm
There are behavioral aspects to finance that are very different from person to person. I am glad you are making progress. I do wonder though if you would not be better off taking a Dave Ramsey approach. In other words, get rid of the debt as soon as possible. This is especially true since your debtor is the IRS with much more power than a usual lender.

I would not be putting money into a 457 plan or a 529 plan. I would not have money withheld for taxes. I would be sending all this money to the IRS every month. I would have some type of automatic process set up or at regimented process so that the full amount goes to the IRS. You will have all that extra money that can go to college or retirement when you have no IRS bill. You now have great incomes. You have proven that you can live frugally. Ok, so maybe you want to live a little better than you did during the lowest of times. But it seems that you should have the IRS paid off in 18 months if you make that your number 1 priority. Your whole family might find motivation listening to Dave Ramsey podcasts.

Now this advice goes out the window if you would spend that 457/529/withholding money if it was not automatically pulled from the paycheck and hard to get at.

People are usually less successful when they are working on several goals at a time instead of a laser focus on one or two at a time.

Second the idea of a Roth IRA that can be used as an emergency fund if needed but for college or retirement if not. You can use this account for your tinkering if that gives you a boost.
Ah yes, sorry. I've been a bit wordy, but the current plan is to have the taxes paid off by tax day of 2020, so that's shy of 15(?) months from today. There's some likelihood that we can do a bit better than that as well, but that is the current and very attainable goal.

Some is behavioral. It is nice to not see the money leave any of my accounts and go to the 457, and then it magically appears in that account. Even better when it generally coincides with a raise, so there ends up being no net impact. We've also gone so many years without having emergency funds of any kind, that there is some peace that comes from even having the two months saved now. After having two more months saved, for a total of 4 months EF, I'll regroup a bit. There's probably diminishing utility to having more than that, and by far the most logical place to put the extra funds will be the tax bill.

Thanks for the feedback!

Topic Author
boglewill34
Posts: 161
Joined: Thu Nov 16, 2017 12:52 pm

Re: Advice welcome-VERY unusual circumstance: lien, NOL

Post by boglewill34 » Thu Jan 10, 2019 1:19 pm

Part of the uniqueness of this situation is simultaneous to having this tax bill, I also have a large loss to write against future incomes and hence full refunds. So I've sort of made the existing payments plus extra payments coincide with the refunds for 2019 taxes to pay the rest of the bill in full in or around April/May of 2020. If I were to want to pay it off in full for example in February of 2020 I'd have to make enough extra-extra payments to cover what will be a much larger lump payment (~$11k) in April/May 2020. And by then the interest and penalty saves will be in the lower-100s of dollars.

Edit add: I may also think about filing as exempt from taxes going forward after this. I'll still get a credit for the 3 children, but at least won't be paying the state and fed all year only to have them pay me back in April. I've been leery of claiming exempt though, especially on the state side, because their criteria doesn't seem as cut and dry as the IRS. We both currently file married joint with 13 allowances, which is the highest you can do without either re-filing the W4 every year or coming up with reasons for having such high allowances. Even at that though, we are still combined paying $5k total state and federal withholding.

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