Author Topic: Help me optimize my withdrawl strategy in FIRE  (Read 655 times)

Goldy

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Help me optimize my withdrawl strategy in FIRE
« on: May 30, 2018, 11:35:30 AM »
We are looking to retire in 3-5 years so I have been starting to think about how to best set up our money to optimize taxes and income. 

Age 34/34
Kids, 0 but soon to be more
Income $230k evenly split

Assets total $1.6M, targeting $2.4
401k - 775k
Roth - 260k
Company Stock - 125k (I might liquidate this to pay off the mortgage if the rate adjusts to over 5% in 4 years.)
Taxable - 450k
Cash - 30k

Liabilities
Mortgage  180k @ 2.5% for three more years then increasing to 2.25% above prime to a cap of 7.5%.  Max annual adjustment is 2%.

FIRE expenses 75k/yr

I am shooting for a 3% SWR for a few reasons.  We still enjoy our jobs, there isn't an option for part time work in my field if we leave, and there are not many opportunities for employment locally outside of the gas station (rural).  Additionally, the cost of kids is a complete unknown to me so erroring on the safe side is something I am happy to trade a few years for.

I'm trying to determine where the money should come from for years 1-5 of FIRE and what steps I should be taking now to make that transition as smooth as possible.  I need to keep my income below the ACA subsidy limit so I think it needs to be a mix between taxable, dividends, and setting up a roth ladder.

The taxable accounts have about 140k worth of gains between funds with some having very little gains and others having up to 90% gain thanks to many years left in the market.  The goal with these is to withdraw only enough to fill my 0% cap gains bucket.

Its probably worth noting that I recently started a mega backdoor roth for both my and my wife instead of investing in taxable so the roth value should be increasing substantially over the next couple of years.

So here is what I am thinking for a plan for years 1-5.

Dividends     15k
taxable         40k (all gains first to take advantage of 0% Cap gains rate)
Cash/Roth    20k

401k Roth ladder 15k/yr  (I wouldn't see this money for 5 years but it would count towards my taxable income so I would offset this by using cash or roth.)

As the taxable gets depleated the dividends will also be reduced so this shortfall will be made up by increasing my roth withdrawls until I hit 59.5 when I can fully access the 401k.

Does that seem reasonable?



MDM

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Re: Help me optimize my withdrawl strategy in FIRE
« Reply #1 on: May 30, 2018, 11:52:05 AM »
Taking tax-free capital gains is not a bad idea.  You may, however, do even better by rolling all the 401k into an IRA, then doing annual tIRA->Roth conversions to fill the lower tax brackets.

See How to withdraw funds from your IRA and 401k without penalty before age 59.5.

Acastus

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Re: Help me optimize my withdrawl strategy in FIRE
« Reply #2 on: June 18, 2018, 01:12:12 PM »
Each dependent adds about $17k to your ACA max income for subsidies. Get going on those kids.