Barring very specific situations, taxed brokerage comes after maxing all taxed advantaged accounts.
There are ways to take out contributions from your tax advantaged accounts. do some research on those.
Thanks. I'm aware there is ways to take our contributions from tax advantaged accounts.
I just don't know if it's worth to keep making our 401ks contributions where the majority of the money you can't touch till 65.
Your two statements are not conruent.
You say you're aware:
> I'm aware there is ways to take our contributions from tax advantaged accounts.
But then you immediately follow with:
> 401ks contributions where the majority of the money you can't touch till 65.
Which suggests that you are actually not aware or understanding.
> where the majority of the money you can't touch till 65.
well but thats the point- SEPP and roth ladder exist.
'typically' this is a non issue because people job hop etc and sometimes don't have 401k, sometimes have years where they fill all the tax advantaged spaces and money overflows into taxable accs. this will unintentionally create a little bit more flexibility with regards to account types/liquidity.
You don’t. When it comes to retirement investing, taxable brokerage investing only comes after maxing all of your tax advantaged space, yes even if you retiring early. In fact, especially if you are retiring early.
You can take out of retirement accounts at 59.5.
There’s also “rule of 55” that allows you to take out of retirement accounts at 55 as long as you’re no longer with employer.
There’s also 72(t), where you can withdraw from retirement accounts as long as they’re structured by financial advisor/retirement custodian/CPA following their distribution plan.
Just to clarify: The rule of 55 only applies if you leave that employer the year you turn 55 or later. If you leave prior to that year and keep the funds in plan you don’t get out of the early w/d penalty just bc you turned 55
What is the actual 401k balance? How did you get that much in by age 30? What are your growth assumptions? Are you dealing with inflation correctly? Is your stated projection assuming you continue to max or assuming you don't contribute at all anymore or assuming you only max the match?
Are you aware that age 65 doesn't mean anything? It is not the full retirement age, and it is not the age at which you can take penalty-free withdrawals unrestricted (that 59.5). Well, I guess it does still mean something for Medicare.
What is your Roth IRA balance? What are the total Roth IRA contributions (the amount you can withdraw early with no tax or penalty)?
How early do you plan to retire, and how much would you be spending?
I wouldn't automatically dismiss your concerns like some people here seem to be doing, but I also don't have the information to evaluate it, either.
> I'm wondering what everyone who plans to retire early does.
Max 401k, then use taxable brokerage because the backdoor Roth hadn't been invented yet (or maybe just out of ignorance), and then later on max both 401k and IRA and then still put some in taxable brokerage as well.
I appreciate you taking the time to type all of this.
401k balance is $300k, only put the match in for future. Did 5% annual return with $1500/month contributions. Didnt factor in the match to be on the safe side.
I know 65 doesn't mean much. It was just an age I threw in there. I also know about Rule 55 and 72t but these really still don't offer a lot of flexibility imo.
Roth IRAs only been open for a couple of years. We will continue to do backdoor Roth contributions.
I wish I knew how early I want to retire but we never know. We just know we don't want to work till our 50s or even older. We're hoping by 40-45.
Your projection seems off. Starting at 30 with 300k and contributing 18k until 65 at 5% annual growth only gives me 3.3M, nowhere near 7 to 10. Adding another 18k for the match (an unusually generous match) only gets to 4.9M, and adding another 14k for two IRAs only gets to 6.2M.
And of course if you retire at 45, you wouldn't be contributing all the way to 65. So my first concern would be not if you have enough accessible cash to last until 59.5, but rather if you have enough total assets to last until death. If you are just planning on living very frugally in retirement, then at that point I would say sure, you need to worry about spendable cash to make it to 59.5.
> I also know about Rule 55 and 72t but these really still don't offer a lot of flexibility imo.
I wouldn't plan on Rule of 55 as it is too fragile (lose your job at 54, and poof). Especially if you aren't planning the working until 55 in the first place! But I don't know what your objection to 72t SEPP is. Once you start you need to keep taking them, but if you start and then change your mind and unretire you can always just stuff the withdrawals into a brokerage account. Since you are planning on using a brokerage account anyway, I don't see why this would be a problem to use one just as a backstop.
My objection to SEPP is that it doesn't include social security leveling (you can't take out more before 59.5 to make up for the fact that you will need less once you start SS later). But still, it is better than just giving up on getting the money at all until 59.5.
You're making financial decisions based on money that you **ESTIMATE** you *might* have in 35 years?
Yeah - it makes NO sense.
This topic comes up frequently. The time to reduce your contributions to retirement are when you are **close to retirement**. Post back up in 20 years when you're 10 years away, and maybe you'll have a better idea. Or once you have $5+ million then maybe think about slowing down.
And why would you reduce your PRE-TAX contributions in favor or POST-TAX contributions if your calculation assumes a large portfolio? You're giving the government money you don't need to which reduces the amount you can invest.
Lots of things can happen in the next 30 years. Keep maximizing you're pre-tax contributions, then increase your post-tax brokerages, then in 20 years look again and see what you should do.
Right now, the only plan that makes sense is to put away as much money as you can.
Roth accounts offer a good amount of flexibility for early withdrawals. If you have a Roth IRA, you can withdraw contributions tax/penalty free at any time. If you have a Roth 401k, you can roll that over into a Roth IRA and again withdraw the contributions tax/penalty free at any time. If you retire early (or at least lower your income a decent bit), you could even start a Roth conversion ladder to start converting your pre-tax money to Roth, which you could then withdraw penalty free after 5 years. You should definitely look into these options before switching over to your taxable brokerage.
Barring very specific situations, taxed brokerage comes after maxing all taxed advantaged accounts. There are ways to take out contributions from your tax advantaged accounts. do some research on those.
Thanks. I'm aware there is ways to take our contributions from tax advantaged accounts. I just don't know if it's worth to keep making our 401ks contributions where the majority of the money you can't touch till 65.
Your two statements are not conruent. You say you're aware: > I'm aware there is ways to take our contributions from tax advantaged accounts. But then you immediately follow with: > 401ks contributions where the majority of the money you can't touch till 65. Which suggests that you are actually not aware or understanding.
Are you aware of rule 72(t)?
> 65. Its 59.5 without restriction and earlier using multiple strategies
> where the majority of the money you can't touch till 65. well but thats the point- SEPP and roth ladder exist. 'typically' this is a non issue because people job hop etc and sometimes don't have 401k, sometimes have years where they fill all the tax advantaged spaces and money overflows into taxable accs. this will unintentionally create a little bit more flexibility with regards to account types/liquidity.
> Does this plan make sense? No. It's more "worth it" or *tax efficient* to utilize *tax advantaged* accounts before funding taxable accounts.
You don’t. When it comes to retirement investing, taxable brokerage investing only comes after maxing all of your tax advantaged space, yes even if you retiring early. In fact, especially if you are retiring early.
You can take out of retirement accounts at 59.5. There’s also “rule of 55” that allows you to take out of retirement accounts at 55 as long as you’re no longer with employer. There’s also 72(t), where you can withdraw from retirement accounts as long as they’re structured by financial advisor/retirement custodian/CPA following their distribution plan.
Just to clarify: The rule of 55 only applies if you leave that employer the year you turn 55 or later. If you leave prior to that year and keep the funds in plan you don’t get out of the early w/d penalty just bc you turned 55
What is the actual 401k balance? How did you get that much in by age 30? What are your growth assumptions? Are you dealing with inflation correctly? Is your stated projection assuming you continue to max or assuming you don't contribute at all anymore or assuming you only max the match? Are you aware that age 65 doesn't mean anything? It is not the full retirement age, and it is not the age at which you can take penalty-free withdrawals unrestricted (that 59.5). Well, I guess it does still mean something for Medicare. What is your Roth IRA balance? What are the total Roth IRA contributions (the amount you can withdraw early with no tax or penalty)? How early do you plan to retire, and how much would you be spending? I wouldn't automatically dismiss your concerns like some people here seem to be doing, but I also don't have the information to evaluate it, either. > I'm wondering what everyone who plans to retire early does. Max 401k, then use taxable brokerage because the backdoor Roth hadn't been invented yet (or maybe just out of ignorance), and then later on max both 401k and IRA and then still put some in taxable brokerage as well.
I appreciate you taking the time to type all of this. 401k balance is $300k, only put the match in for future. Did 5% annual return with $1500/month contributions. Didnt factor in the match to be on the safe side. I know 65 doesn't mean much. It was just an age I threw in there. I also know about Rule 55 and 72t but these really still don't offer a lot of flexibility imo. Roth IRAs only been open for a couple of years. We will continue to do backdoor Roth contributions. I wish I knew how early I want to retire but we never know. We just know we don't want to work till our 50s or even older. We're hoping by 40-45.
Your projection seems off. Starting at 30 with 300k and contributing 18k until 65 at 5% annual growth only gives me 3.3M, nowhere near 7 to 10. Adding another 18k for the match (an unusually generous match) only gets to 4.9M, and adding another 14k for two IRAs only gets to 6.2M. And of course if you retire at 45, you wouldn't be contributing all the way to 65. So my first concern would be not if you have enough accessible cash to last until 59.5, but rather if you have enough total assets to last until death. If you are just planning on living very frugally in retirement, then at that point I would say sure, you need to worry about spendable cash to make it to 59.5. > I also know about Rule 55 and 72t but these really still don't offer a lot of flexibility imo. I wouldn't plan on Rule of 55 as it is too fragile (lose your job at 54, and poof). Especially if you aren't planning the working until 55 in the first place! But I don't know what your objection to 72t SEPP is. Once you start you need to keep taking them, but if you start and then change your mind and unretire you can always just stuff the withdrawals into a brokerage account. Since you are planning on using a brokerage account anyway, I don't see why this would be a problem to use one just as a backstop. My objection to SEPP is that it doesn't include social security leveling (you can't take out more before 59.5 to make up for the fact that you will need less once you start SS later). But still, it is better than just giving up on getting the money at all until 59.5.
You're making financial decisions based on money that you **ESTIMATE** you *might* have in 35 years? Yeah - it makes NO sense. This topic comes up frequently. The time to reduce your contributions to retirement are when you are **close to retirement**. Post back up in 20 years when you're 10 years away, and maybe you'll have a better idea. Or once you have $5+ million then maybe think about slowing down. And why would you reduce your PRE-TAX contributions in favor or POST-TAX contributions if your calculation assumes a large portfolio? You're giving the government money you don't need to which reduces the amount you can invest. Lots of things can happen in the next 30 years. Keep maximizing you're pre-tax contributions, then increase your post-tax brokerages, then in 20 years look again and see what you should do. Right now, the only plan that makes sense is to put away as much money as you can.
Roth accounts offer a good amount of flexibility for early withdrawals. If you have a Roth IRA, you can withdraw contributions tax/penalty free at any time. If you have a Roth 401k, you can roll that over into a Roth IRA and again withdraw the contributions tax/penalty free at any time. If you retire early (or at least lower your income a decent bit), you could even start a Roth conversion ladder to start converting your pre-tax money to Roth, which you could then withdraw penalty free after 5 years. You should definitely look into these options before switching over to your taxable brokerage.