No. of Recommendations: 0
Lulu posted about her $700,000 stock portfolio and respite from teaching..

"I'll take philosophical input, too. The big question for me is, am I asking too much of a modest portfolio?"

$700,000 (unless I added a zero) is not a modest portfolio. It's not extrememly wealthy either.

Here's philosophical reply...

There are always costs involved in working. If you remained working and had daycare that would add to your costs so staying at home until your child is in 1st grade sounds like a wonderful investment in yourself and your child.

The tricky part as I see it is to trying to keep the investment growing and still use part of the stock to cover your living expenses. I am assuming the stock is NOT in an IRA, 401K, 403b, or any other tax deferred retirement vehicle. If not then you'd be facing a 10% penalty which would not be pleasant.

1st off, you will need to determine what your marginal tax rate is. I suspect it's 28%. Will the loss of the $27,000 put you back in the 15% rate?

Let's assume for a moment that the $27,000 was in a marginal tax rate of 30% (I am assumming some state income tax - use 28% if no state income tax.) Let's assume also that you don't move out the 28% bracket because you sell enough stock that keeps your AGI in the 28% rate. Also assume that AMT will not trip you up. Also let's assume that the sale of each stock is 99% gain - with little or no cost basis (conservative assumption) then you'd pay tax at a 20% rate on LT Cap gains. This alone is a 10% cut in taxes from 30% to 20% so instead of paying around $8,000 in income taxes on your $27,000 income, you'd be paying about $5,400 at cap gains rate. This saves close to $2,500 so instead of needing $27,000, you could probably do well with $25,000 from the stock protfolio.

If you had losers, you'd like to sell then you'd have no gains and therefore no tax so instead o needing $27,000/yr, you'd need to sell only about $19,000/yr of those stocks which have no gains.

$25,000/$700,000 is 3.6% of the portfolio's value.

This you should be do able over a 5 yr period for certain. that's not to say that your stock portfolio woould still grow as it has been. That will depend on if you sell the stock that will do poorly in the years come instead of selling the stock that will do well over the next few years.

I hope at this point, you both have been and will continue to be maxing out IRA's

Another consideration is how much your portfolio is producing in dividends now? Have you been using the dividends for living expense or have you been re-investing them?

Remember dividends are taxed at your marginal rate and are not as advantageous as cap gains.

I hope this helps to some degree..

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