The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: OutBy40 on May 01, 2015, 09:25:37 AM
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Here's the situation. My goal is to retire in about 7 years by the time that I am 40.
Both my wife and I work and contribute to our 401k accounts at the maximum. By the time that we turn 59.5, we will EASILY have over a million in our 401k, and that's using a conservative estimate at 4 to 5% growth. That part isn't the problem.
The question is, knowing that our 401k accounts will provide plenty of income once we get older, would it be wiser to REDUCE our 401k contribution down to our company match point, then devote all additional money into our brokerage account that we can use much earlier - say, in 4 or 5 years? We have a couple hundred thousand in there now, so we need to kick that amount up pretty nicely in order to live off of that money for the long term until we hit 59.5.
The tax implications of not reducing our income as much as we are now by maximizing our 401k accounts is my main concern.
Has anyone performed this kind of switch before?
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You might find https://seattlecyclone.com/ of interest.
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You're sitting pretty. Review seattlecyclone's entry that MDM posted, but you're in a great position here.
You don't need to cover all the way from FIRE to 59.5 out of the taxable account (or Roth IRA basis, if you have any), just 5 years to allow your Roth pipeline to fully come on line.
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Additional reading. http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/
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You're in a great position to use the Roth conversion pipeline strategy. You already have plenty of money in taxable accounts to last five years. Spend that money first, and start making Roth conversions during your first full year of retirement to build up some tax-free, penalty-free principal in your Roth account to withdraw once the taxable brokerage account has been exhausted.
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+1 to seattlecyclone
here is an article explaining what he's talking about in more detail
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/
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Thanks everyone, very much appreciate the feedback. I have read about the Roth conversion pipeline before - looks like that might be my best course of action here.
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I'd keep maxing out the 401ks and IRAs to reduce your taxes as much as possible while you can.