Author Topic: A very basic saving question for a newbie  (Read 4527 times)

Jules13

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A very basic saving question for a newbie
« on: May 06, 2013, 09:09:15 AM »
So, I'm obviously a newbie to this concept, though not to the saving part.  We are good savers, though not as good as we used to be.  Wanting to get back to that and implement more of an actual plan.

My question is about how most of you save.  If you are aiming for "early" retirement, does this mean that you forgo the traditional routes of saving, such as 401k and Roth IRA, for other investment strategies?

Or is the strategy to first max out those to a certain point for "true" retirement age, then aim for saving for early retirement?  And, if so, how do you know when to switch from the traditional/401k/Roth savings to the "early" retirement saving?  How do you figure out that magic number of "enough" in your retirement account?

Thanks!
Julie

matchewed

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Re: A very basic saving question for a newbie
« Reply #1 on: May 06, 2013, 09:32:12 AM »
It depends on your plan. Some people will do what you are saying and save their "old man" money first then save their "young man" money. Some save or build it separately, some combine it into one big, dare I say, "man bucket".

I personally treat all my accounts as one big net worth. I plan on doing a 401k to Roth conversion annually with small amounts and over the years pare down my deferred tax accounts into my taxed accounts. But that's only one plan amongst several diverse plans.

the fixer

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Joet

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Re: A very basic saving question for a newbie
« Reply #3 on: May 06, 2013, 01:48:52 PM »
Unless the law changes, take the tax advantages of the 401k maximum contribution now [plus any other taxable or backdoor Roth contributions you can], and plan for a low/zero income year to convert the "excess" 401k to a Roth thereby making the 'contribution' portion of the Roth immediately available.

also lets not forget the 72(t) withdrawl option that pays income tax normally yet avoids the 10% pre 59.5 penalty. Personally I wouldnt consider a 401k balance excessive until it was say 400-500k ish in your 30s/40s. Even then it might not be.

the fixer

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Re: A very basic saving question for a newbie
« Reply #4 on: May 06, 2013, 03:20:35 PM »
Unless the law changes, take the tax advantages of the 401k maximum contribution now [plus any other taxable or backdoor Roth contributions you can], and plan for a low/zero income year to convert the "excess" 401k to a Roth thereby making the 'contribution' portion of the Roth immediately available.
I'm pretty sure you have to wait five years after a conversion before you can touch that money.

madage

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Re: A very basic saving question for a newbie
« Reply #5 on: May 06, 2013, 06:28:49 PM »
Unless the law changes, take the tax advantages of the 401k maximum contribution now [plus any other taxable or backdoor Roth contributions you can], and plan for a low/zero income year to convert the "excess" 401k to a Roth thereby making the 'contribution' portion of the Roth immediately available.
I'm pretty sure you have to wait five years after a conversion before you can touch that money.

You don't have to wait five years, but there may be tax implications: ordering rules for distributions (IRS)

Joet

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Re: A very basic saving question for a newbie
« Reply #6 on: May 06, 2013, 06:35:09 PM »
the time of ownership of the Roth account must be 5 in total, only. After that freely take any/all contributions you want out if you must

aka the account must be 5+ years old

madage

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Re: A very basic saving question for a newbie
« Reply #7 on: May 06, 2013, 06:42:08 PM »
the time of ownership of the Roth account must be 5 in total, only. After that freely take any/all contributions you want out if you must

aka the account must be 5+ years old

That's not correct for rollovers. It's complicated.

Also, there is no "five year rule" for contributions made directly to a Roth IRA. You can contribute $5,500 to a Roth IRA today and remove $5,500 tomorrow with absolutely no penalty, assuming you qualify to contribute to a Roth in the first place.

edit: Apologies, Jules13, for taking your simple question and making it all complicated!

nktokyo

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Re: A very basic saving question for a newbie
« Reply #8 on: May 06, 2013, 07:08:39 PM »
I try to convert all my money into income producing assets and get that army back out there earning on my behalf. YMMV but it worked for me, I retired at a younger age than MMM.

the fixer

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Re: A very basic saving question for a newbie
« Reply #9 on: May 06, 2013, 08:33:02 PM »
Thanks madage, I was being overly simplistic. I tend to equate in my head "you'll pay a penalty" with "you can't do it!"

Joet

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Re: A very basic saving question for a newbie
« Reply #10 on: May 06, 2013, 08:59:18 PM »
Yep, back to Roth school for me too

oldtoyota

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Re: A very basic saving question for a newbie
« Reply #11 on: May 06, 2013, 09:15:04 PM »
Hi Julie--

I max out my 401K and IRA.

Some folks say that you should calculate your spending per year and then multiply by that by anywhere from 25 to 40 to get the number you need in retirement.