I have been chipping away at our 2023 income tax return. I have most of the investment income done, leaving the rental income and expenses as my remaining hurdles.
| 1040 Schedule B | Taxable |
| Interest | $1,311 |
| Dividends | $6,995 |
| Total | $8,306 |
$8k is nowhere near enough to live on but provides a month or two of family expenses. As I prepared to leave my W-2 income behind, I did change most of our taxable dividends from share reinvestment to cash transfers to our joint checking account. This cash flow helps pay for property taxes, home/auto insurance, Christmas gifts.
I decided to manually count up our nontaxable dividends to get a better picture of where we stand in the years to come.
| Account | Nontaxable Dividends |
| Mrs. 403B | $8,112 |
| Mrs. 457B | $4,603 |
| Mrs. Roth IRA | $1,749 |
| Mr. Rollover IRA | $17,629 |
| Mr. Roth IRA | $6,071 |
| Mr. HSA | $1,322 |
| Total | $39,486 |
$39k, now we are talking. And total passive income of almost $48k. It still may not provide an entire year’s worth of family expenses, but it would come close when we are in uber frugal mode.
More interesting perhaps is that we could formulate an eventual withdrawal strategy where 50% of our income came from dividends directly deposited into our joint checking account and 50% of our income coming from investment principal and growth. Put another way instead of withdrawing 4% of our portfolio to live off every year, we could withdraw 2% of our portfolio and dividends would provide the other 2%.
Touching those nontaxable dividends without penalty is still 12.5 years away for me and 18.5 years away for Mrs. Dress Pockets. Mrs. Dress Pocket’s 457B and our taxable investments will be the magic bridge that provide 5-15 years of income whenever she decides to hang up her working shoes.
End note: Taking the math full circle and 47,792 / 2,537,151 (2023 year end net worth) = 1.88%. I guess I shouldn’t be that surprised. The nontaxable dividends just aren’t as visible as the taxable ones to me. VTSAX dividend yield is 1.37%, VBTLX: 4.43%, VMRXX: 5.28%.
