Land sailing, water sailing, and taxes

[hblask]

We've been moving closer to the cruising lifestyle. As you may expect, it isn't without it's hiccups, mostly financial, but also emotional.

But now I've taken a big first step: I've quit my job of 33 years, and am currently unemployed. So why am I not out on the water yet?

Short answer: taxes.

We are funding our sailing adventure with 33 years of 401K. But that counts as income, and is taxed as regular income. So look up the income taxes you'd pay on the price of a boat, say a solid used 40' catamaran, plus a year of living expenses for a family of 4.

What does that mean for us? It means that if we defer the dream until the beginning of next year, and spread the cost of the boat across two years, we'll save enough money to buy a used RV and travel the land portion of the US. So let's see, give our money to the government to hand to corporations, or give our kids the adventure of a lifetime, seeing most of western USA at our own pace -- same cost either way. Then, sell the RV and buy a boat, and be better off than if we had just gone directly to the boat. Tough choice.

So, at the risk of getting too political, this should be a lesson for those who always think the rich should pay more taxes. The rich (and I barely fall into that category, I guess) have options that the poor don't. If you raise taxes hoping to make them fall on the rich, they will step aside and use those incentives to fund a different adventure, and the taxes will be passed on to the middle class and the poor.

We're taking a week long charter in August in the San Juan Islands to keep our sailing skills up and to try out a 46' Jenneau, so we won't be completely away from sailing. But this second choice of 'land sailing' for the rest of the year doesn't sound all bad. If we love it, maybe we'll do it for 18 months and spread the boat cost across three tax years, and get a much nicer boat I just don't want to start counting dollars too closely and watch the dream fade due to health or age -- I've fallen for that trap for 33 years too long already.

[nautical62]

I struggle with this constantly. After 20 years of owning cruising boats, I'm now boatless. on the one hand, I do miss the cruising, but on the other hand, the income I don't have wrapped up in a boat and am not spending on insurance, dockage and maintenance opens up so many other possibilities, including retiring much earlier.

Last year I spent over a month on the road sight-seeing, camping and hiking and did a 2 week charter, all for what I used to spend on just dockage, and without the headaches that come with boat ownership. I could buy a new camper I'd be happy with for a fraction of the cost of my last boat, and not have the insurance, storage, maintenance or headache that boats have. Owning a cruising boat for part time use, is just plain expensive.

While there's great boon docking away from the crowds, anywhere I can drive a camper to will never have the barrier to others that sailing across the Gulfstream does. Cruising the Bahamas is also a wonderful winter destination.

I got nailed this year on taxes due to the investments that used to be in my boats which was a big ouch, but still that's better than boat depreciation

My only thought about doing the RV then sailing, is I think there's less potential to be limited doing it the other way around. It's more likely to have a health issue come up that limits cruising than limits RVing. You see a lot of people who give up cruising to buy land yachts when cruising becomes too difficult, you don't see many doing it the other way around.

As you said we are fortunate to have enough money to have the luxury of pondering such decisions.

[dlymn]

Now there's your problem straight away. You are trying to use logic about buying a boat. B.O.A.T. Bring out another thousand

[cruisersfarm]

I'm actually buying an rv right now because I'm sick of boat life after 20+ years.

I'm also divorced, so it is way too socially isolating.

For these reasons, I'm in the process of buying an rv and taking rhe year off boating.

Will visit friends, family, lots of girls, go hiking, mountain biking, snowboarding, all those things you can't do in the ocean.

Very much looking forward to it.

After my year is up, I'll either return to boats( possibly keeping both) or put my high performance, 50' catamaran up for sale and continue rving and maybe rving in other countries.

Nothing wrong with doing both. It's an ideal setup and many people do both.

[Paul L]

OP
It sounds more like you want to use taxes and maybe a little anti-government thinking to justify that you aren't ready to take the plunge. Taking 401k money (that has had its taxes deffered for years) over multiple years certainly makes sense. Being almost rich, as you say, means you could easily get a loan or use other non-deffered assets to cover the 6 months till the next 401k dip.

[hblask]

Originally Posted by Paul L

OP
It sounds more like you want to use taxes and maybe a little anti-government thinking to justify that you aren't ready to take the plunge. Taking 401k money (that has had its taxes deffered for years) over multiple years certainly makes sense. Being almost rich, as you say, means you could easily get a loan or use other non-deffered assets to cover the 6 months till the next 401k dip.

Nah, not an excuse. I've started investigating the loan possibility; even with that it still makes sense to spread the payments out of as many years as possible. (I can only take out a loan up to $100K, so the rest of the boat would still count as income). In fact, if I can spread them out enough, I can actually get taxpayers to subsidize my boat (via the extra interest deductions, lower income, child care credit, realizing deferred losses, and subsidized health care).

I think if I thought the RV adventure was going to be significantly unpleasant, we would've found a way to do sailing without the RV; for example, I could've worked until closer to the end of the year. But quitting now is essentially a free vacation to go see places I'd like to see anyway, so I'll be happy to take it. I'd be willing to do this (the RV thing) for a few more years except for the risk of health issues brought up by a previous poster: sailing requires much better health than RV-ing, so I want to make sure I get out sailing while I can. (I'm in good health, but I've known too many people who went from healthy to nursing home in a very short time).

[cruisersfarm]

Originally Posted by hblask

sailing requires much better health than RV-ing, so I want to make sure I get out sailing while I can. (I'm in good health, but I've known too many people who went from healthy to nursing home in a very short time).

Yet... rving keeps you healthier than sailing.

Sailing full time is an awful lot of sitting, no cardio, no walking. I even have a manual windlass on a 50' cat with 80lbs Manson. Yet, still...

I'm far more active on land where I can do strenuous things all the time (hiking, biking, skateboarding, snowboarding, etc)

Ironically, sailing requires more health but doesn't give you the opportunity to build that health.

Too much sitting around endlessly.

[Paul L]

Originally Posted by hblask

Nah, not an excuse. I've started investigating the loan possibility; even with that it still makes sense to spread the payments out of as many years as possible. (I can only take out a loan up to $100K, so the rest of the boat would still count as income). In fact, if I can spread them out enough, I can actually get taxpayers to subsidize my boat (via the extra interest deductions, lower income, child care credit, realizing deferred losses, and subsidized health care).

I think if I thought the RV adventure was going to be significantly unpleasant, we would've found a way to do sailing without the RV; for example, I could've worked until closer to the end of the year. But quitting now is essentially a free vacation to go see places I'd like to see anyway, so I'll be happy to take it. I'd be willing to do this (the RV thing) for a few more years except for the risk of health issues brought up by a previous poster: sailing requires much better health than RV-ing, so I want to make sure I get out sailing while I can. (I'm in good health, but I've known too many people who went from healthy to nursing home in a very short time).

You can take out loans on other assets you have besides the 401k, so that isn't a real limit. And your opening line of

Short answer: taxes.

just doesn't sound genuine. There is nothing wrong with going RVing. Lots of cruisers keep an RV and go on road tours/family visits when laid up for the hurricane season. Do what works best for you and your family. But in the end taxes and perceived subsidies will have little to do with your cruising fulfillment. Hell, if you actually get out there you might find that you limit your look at that stuff to once year. The comment on health is always relevant -- didn't they say something about taxes and death being inevitable?

As crusingfarm says, some find cruising as lacking any frequent exercise. We don't. We snorkel everyday that the weather is decent when we are in the tropics. And you certainly get in a ton of walking, if for no other reason to try and reprovision.

[Wallaby]

How terrible!! Having avoided taxes for 33 years ("33 years of 401K"), hblask is now faced by the awful realization that his deferred taxes are no longer deferred, and it is impinging his retirement plans--boat or RV.

My view is pay the tax and empty the 401K as quickly as possible. What may very likely happen as more pension funds fail, and social security goes bankrupt, is that 401K plans will be scooped up for a centralized retirement system. It's remarkably easy to achieve, just a new regulation that requires 401Ks to have a percentage invested in government bonds (for your own security, of course).

[bruce v]

Interesting concept. I am doing it in reverse. I am a a full time RVer (retired from teaching/coaching in 2010 sold the home - loss- and went on the road then). Being a retired teacher, I an obviously not wealthy but we are able to fill most of our wants. We are presently filling in our plans by working as camp host and are using those funds to purchase our boat. As season ends here in October, we plan to sell the RV and move aboard the boat. (If the RV doesn't sell right away, we'll put it in storage long enough to cruise the inland waterways from Cincinnati to Mobile. Hoping to get there by Thanksgiving to spend time with the kids but also want to beat the colder winter weather.

My thoughts to you are to suggest you don't wait. Buying a boat is no more financially limititing than purchasing a house or an RV. You get what you can afford. The problems usually come from wanting to have your cake and eat it too. Choosing a boat and an RV is feasible for guys like me but not along with a house too. Of course, if you are wealthy, you can have it all but what for. It is a matter of choices and therein lies the caveat. I see you trying to please everyone's wishes. (Taking the kids on an RV adventure and, I don't know, a sailing adventure too. Are you keeping the home for mama and them too?) At 68 years of age, my kids are grown with husband, wives, kids and lives of their own. I have them occasionally meet us for travel in the RV or stop in to visit when nearby (we even wintered in Port O'Conner, Texas this year to be able to run and visit them for the holidays). They all grew up on our boat in Hawaii and hated it until I sold it. They thought my wife and I were nuts for doing so (even though they "hated it" and I imagine they think we are just as nut now for doing it again at "our age"). Nuts or no, we love it. Life is an adventure and it will alway only be as thrilling or boring as you make it. If you are putting restrictions on what you can or can't do, they are more realistically predispositions of what you will or won't do for either fear of failure or fear of what others may think. Truthfully, none of that matters. In the end, doing what you wish to will certainly outweigh wishing that you had.

[Symphony]

to the OP -- I think the two year RV-Boat plan is a great idea, staging the withdrawal of your savings so you reduce the tax bracket. the tax deferral of a 401k or IRA or Keogh is to help you save, and when you pull it out you will pay tax of course, but taking it in large dollops is expensive. as others have suggested it might be better to borrow against it since interest rates on boat loans and 401k loans are very low.

I wouldn't feel bad about not giving it all to the government. you earned it, and if you leave it in the 401k plan the net profit after fees and tiny interest is not worth the risk of what is called a Haircut. It has happened a few times in Europe during the 20th and 21st centuries.

As far as a boat making sense economically - you can always live more cheaply on land if you live a remote enough spot.

Enjoy your retirement.

[NSboatman]

There is another alternative lifestyle that has many of the plusses and very few of the minus': Canal & river cruising. In North America (great loop, champlain, rideau, etc); and in Europe, and in Asia. And probably elsewhere - I just am no aware of others.

ok, there's not a lot of pure 'sailing' in canals and rivers, but there could be if you picked up a small daysailer or dinghy to sail from the mother ship (the barge). probably more fun sailing in some ways.

I've met many Europeans who find this an incredibly rewarding step from offshore cruising, and indeed I look forward to it. I have done a couple of short charters in various places, and have to agree that it approaches a zenith in terms of quality of life in many ways. The folks I've met who have embraced this chose to own, share, long-term charter and group own in semi-organized consortia; the boats they use... and it seems to work well for the most part.

...something else to ponder in the discussion.

[Symphony]

Originally Posted by NSboatman

There is another alternative lifestyle that has many of the plusses and very few of the minus': Canal & river cruising. In North America (great loop, champlain, rideau, etc); and in Europe, and in Asia. And probably elsewhere - I just am no aware of others.

ok, there's not a lot of pure 'sailing' in canals and rivers, but there could be if you picked up a small daysailer or dinghy to sail from the mother ship (the barge). probably more fun sailing in some ways.

I've met many Europeans who find this an incredibly rewarding step from offshore cruising, and indeed I look forward to it. I have done a couple of short charters in various places, and have to agree that it approaches a zenith in terms of quality of life in many ways. The folks I've met who have embraced this chose to own, share, long-term charter and group own in semi-organized consortia; the boats they use... and it seems to work well for the most part.

...something else to ponder in the discussion.

I guess one never worries about dragging anchor, or an uncomfortable swell when barging! My wife would love that.

[Dave22q]

Boo hoo. It's just awful. That nasty old government taxing your IRA withdrawals. They should tax some single mom's food stamps instead. Nevermind that your deposits dodged taxes. Taxes are for somebody else. Never ME!!!

[hblask]

Originally Posted by Paul L

But in the end taxes and perceived subsidies will have little to do with your cruising fulfillment.

Go to this site:

https://www.dinkytown.net/java/TaxMargin.html

and compute the tax on a 40 foot catamaran. Now do the tax if that is spread over three years. Then explain to me how that doesn't have an effect on my life.