Author Topic: Losing retirement benefits with early retirement?  (Read 412 times)

natalie.coleman

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Losing retirement benefits with early retirement?
« on: December 05, 2017, 08:40:53 AM »
Hello! First time poster :)

I was just hoping to get other people's input regarding the downside of quitting a full time job with benefits in favor of early retirement, specifically with regard to retirement bank accounts. My hope is 'retire early' within the next year or two. I hope to still work, but as a contractor as opposed to full time.

At this time I am maxing out my Roth 401k ($18,000/yr) which I get through work, and I consider this a big benefit of my full time job. I also max out my Roth IRA ($5,500).

(We also own one rental property and plan to start collecting more in the next couple of years, hopefully as the market takes a downturn.)

For those of you who quit your full time jobs with benefits - is there anything that you did specifically with regard maintaining your retirement bank account? How big of a loss is that Roth 401k? Do you get a Solo Roth 401k?

And for the record, I am 110% percent in favor of early retirement and financial freedom, I am just looking for thoughts on the value of being able to contribute more than $5,000 into a Roth account. Or if you think that it doesn't matter, why?

Thank you!

Natalie

robartsd

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Re: Losing retirement benefits with early retirement?
« Reply #1 on: December 05, 2017, 09:00:59 AM »
If you fully retire, then you start withdrawing from those accounts so no loss not being able to contribute. If you start a business (as you intend), your business can create those accounts (Solo 401k you indicated). If you work part-time for an employer who doesn't offer retirement accounts, that is a loss (you still have access to IRA - everyone with earned income can

BTW, why everything in Roth? Tax deductible traditional accounts usually work out to be better for everyone (or does the tax deductiblity of 401k contributions get phased out with high income like it does for IRAs?), especially early retirees because they have a large difference between earnings and spending (use a Roth conversion ladder to access before 59.5).

natalie.coleman

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Re: Losing retirement benefits with early retirement?
« Reply #2 on: December 05, 2017, 09:46:48 AM »
I think I left out some pertinent information! I am 30 years old. My husband and I are contributing to Roth accounts because we can afford to pay taxes now. At this time I plan to not withdraw from the retirement account until I am of age. Am I thinking about this incorrectly? I appreciate your thoughts!

Cromacster

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Re: Losing retirement benefits with early retirement?
« Reply #3 on: December 05, 2017, 09:57:47 AM »
This is a good article to start:  Investment Order

For many on this forum traditonal 401ks and IRA tend to be better option over the Roth options
IRA vs Roth

It's not really a matter if you can afford to pay taxes now, it should be viewed as which gives you a better ROI or allows to retire earlier.  There are many factors for you to consider but those two links should get you started.
Mustachians are not the sort of people who sit around moaning about how the government is keeping them down.  We’re the people who look at what we got, figure out what we don’t like, and fix it.
~Mr. Frugal Toque

natalie.coleman

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Re: Losing retirement benefits with early retirement?
« Reply #4 on: December 05, 2017, 10:06:15 AM »
Totally. I think that ROI is much better for Roth for us. Some of the folks I work with prioritize deferring taxes, which is why I mentioned that (but it is irrelevant I think).

Thanks for the links, I'll check them out. I appreciate your thoughts!

Aggie1999

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Re: Losing retirement benefits with early retirement?
« Reply #5 on: December 05, 2017, 10:11:38 AM »
I think I left out some pertinent information! I am 30 years old. My husband and I are contributing to Roth accounts because we can afford to pay taxes now. At this time I plan to not withdraw from the retirement account until I am of age. Am I thinking about this incorrectly? I appreciate your thoughts!

Incorrect thinking. For the typical retiree living off their investments, Roth's rarely make sense if you can contribute to a tax deferred account and have a tax burden. Mainly because of the last dollar principle while working versus the first dollar principle when retired. Now if you have no tax burden Roth makes sense. If you are in the 10% tax bracket Roth might make sense. Any higher and it doesn't.

https://gocurrycracker.com/roth-sucks/

One caveat with the above article is his thinking that Roth should go after normal brokerage accounts in the list. That is certainly debatable and really only applies in somewhat narrow circumstances.