Stay or Move?

[FLEMdoc]

I was hoping I could get some help from a financial perspective on a possible move.  We would keep our current house with plans to move back in 1-2 years.  We have lived in our current house for about 2 years so far and it does have a mortgage.  The mortgage is about 7% of my monthly pretax income.  I currently live in Florida and the new position would be in KY so there would be a state income tax.  We would plan on renting an affordable house and we would be living in an area with a lower cost of living.  I make a comfortable salary now (33% marginal tax bracket) and that would increase by 35% pretax if we decide to move.  I am an independent contractor and thus already have my own retirement (solo 401k, backdoor Roths) and health savings accounts set up.  The new job has a generous hourly rate however the tax and retirement consequences have me a little concerned.  I would be paid an hourly rate as an employee.  Although I would be an employee, I have to decline all benefits except for malpractice to get the best hourly pay.  My concern is that if I'm paid on a W-2 and considered an employee then I don't believe I'd be eligible to contribute to a solo401(k)?  I also wouldn't be able to contribute to the company plan since I was declining benefits.  Would I just have to save up after tax money for the years I worked in this arrangement?  I would hate to lose the tax benefit of contributing $53000 pre-tax.

[jfoxcpacfp]

You are correct that you wouldn't be able to contribute to the SOLO-k unless you could do some consulting work while you're here. But I think you need to analyze whether it makes sense financially to make lower hourly rate and contribute to the work plan. Should be fairly easy to compute if you have a fairly reasonable idea of the hours you'll work. If it doesn't make sense, then you'll be saving in a taxable account for a year or two, and that's not so bad, either. You'll still be able to do back-door Roth IRAs for you and your spouse if you have no pre-tax IRAs.

Do you possibly have spouse who could set up a sch C business?

Would you be able to rent out the FL house while you're in KY? The cost of keeping two residences needs to be considered, also, of course.

Is it really worth it to uproot your family for only a year or two?

[FLEMdoc]

The potential move is of course more nuanced than just financial.  We have an ill family member as well as several pieces of rental property up North.  The plan would be to be more involved in managing the rentals and also we could potentially set up my wife as an employee of the rental property LLC.  We also would be closer to family to help out with childcare if we moved.  We most likely would not rent out our house in FL.

[jfoxcpacfp]

FLEMdoc wrote:

The potential move is of course more nuanced than just financial.  We have an ill family member as well as several pieces of rental property up North.  The plan would be to be more involved in managing the rentals and also we could potentially set up my wife as an employee of the rental property LLC.  We also would be closer to family to help out with childcare if we moved.  We most likely would not rent out our house in FL.

Click to expand...

Your move makes more sense, then. Doubtful it will make sense to hire your wife for the rental LLC. First of all, you would have to justify her time to pay a reasonable salary. Unless she is the maintenance dude(tte), then that would be difficult and would stick out on your return. Second, you'll be paying payroll taxes on her, which would greatly reduce your ROI on any retirement plan you set up. Better to just stick with the taxable account, imo.

Of course, now that you explain the real reason you are considering the move, the financial details have less meaning. You are actually trying to break even financially, yes?