A Creative Plan to Keep a Cheap NYC Apartment

From the Wall Street Journal we learn the way that wealthy people who live in New York’s rent controlled apartments keep them.

 He was a married professor in his late 60s who lived in a four-bedroom place in downtown Manhattan high-rise. His rent was set at just $2,000 a month; a comparable apartment at a market rental rate would run about $10,000 monthly.

The problem: The rules governing rent-stabilized apartments in New York disqualify tenants who make more than $200,000 a year in adjusted gross income for two years in a row. And required distributions from the client’s retirement accounts were going to push him above that threshold.

The professor’s AGI was $170,000. But thanks to diligent saving during a long corporate career before he started teaching, the professor had managed to accumulate $3 million in a handful of IRA and 401(k) accounts.

He had another $1 million in a 430(b), giving him a net worth of over $4 million.  The problem?  He didn’t want to pay market rates for his apartment and …

As soon as he hit age 70 1/2, he’d have to start taking required minimum distributions on those accounts…. at about $100,000 a year–immediately putting the [him] well over the rent-stabilization income limit.

The answer:

  1. … transfer $1.5 million from his old tax-deferred accounts into his current employer’s 403(b) plan, which would shield them from RMDs as long as the professor stayed with his employer

  2. use the rest of the funds in [his] IRAs and 401(k)s to fund a Roth IRA conversion.

Suddenly the professor is too poor and can keep his rent controlled apartment.

Homework assignment: discuss the ethics of rent control.

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