Tax strategies for a travel year of no income
June 25, 2014 4:32 AM Subscribe
My spouse and I are going to leave our jobs at the end of the year and travel internationally throughout 2015, with no income. Are there any strategies we should be following to make the most, tax-wise, of this change?
posted by anonymous to Work & Money (5 answers total) 3 users marked this as a favorite
We make $150K/yr together, currently live in Massachusetts (but could switch our state of residence in 2015), rent, have no children, and have filed jointly in the past with the standard deduction. We are schooled-up and would not be paying additional tuition. There is no income that we can defer (e.g., no year-end bonuses) and no medical procedure we would opt for that would would increase 2014's deductions.
We have been contributing 20% to our 401(k) accounts but just changed that to 5% to build up cash for travel.
An example strategy: We return our 401(k) contributions to 20% or higher but perform an early withdrawal of ~$20K next year. Although we would face a 10% penalty, the remainder would be taxed in the 10% bracket rather than in the 25% bracket that we are in now. Therefore, it seems like we would be 5% = $1K ahead, no? There could, of course, be pitfalls I'm missing.
Are there related techniques that could be employed to take advantage, tax-wise, of a planned drop in income from $150K/yr to zero over a single year?