Author Topic: Skip the 401k?  (Read 2124 times)

John Dough

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Skip the 401k?
« on: July 15, 2016, 03:48:47 PM »
I got my house paid off, now I have extra cash.

Should I max out my 401k? At my age (53) I can stash $24,000 a year. But, there is no match from the employer and it's got a 1% annual load. Hint, it's not Vanguard.

I want to retire ASAP, but I won't be able to touch these funds until I'm 59 1/2.
 
I can almost retire now on my tenant rents income of 2k a month, but I need a little more to feel safe.

I can bank away about 50-60k a year if I keep working. Should I put 24k in the 401k, and only 26k in a Vanguard index fund, or should I put the whole 50-60k nut in Vanguard?

Would the tax benefits be worth putting 24k a year into the 401k?

Thanks,

JD

braje

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Re: Skip the 401k?
« Reply #1 on: July 15, 2016, 05:01:13 PM »
If you leave your employer at age 55 you can take distributions (from 401K) without penalties.  Also look up 72T regarding early distributions.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions.

Whether the tax benefit is worth it depends on your current tax rate and the possible tax rate in retirement.

seattlecyclone

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Re: Skip the 401k?
« Reply #2 on: July 16, 2016, 04:10:03 PM »
The tax benefits generally make a 401(k) worthwhile. The 55-year-old rule for 401(k) accounts is nice, but less so when that 401(k) has higher fees.

See https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/ for information about a couple of other ways you can access the money before you turn 60 if you decide to move it into an IRA to get lower fees on the investments.

GrOW

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Re: Skip the 401k?
« Reply #3 on: July 16, 2016, 04:25:33 PM »
See latest blog post over at madfientist.com. The article is on how to withdrawn money for early retirement. Very solid article with tons of analysis and charts. Like weeks worth of effort.

While you may love the whole article, the section on pre-tax contributions WITH paying the early withdrawal penalty beating both Roth IRA contributions and after tax investing that I think you may really like.

JLee

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Re: Skip the 401k?
« Reply #4 on: July 16, 2016, 05:25:21 PM »
I got my house paid off, now I have extra cash.

Should I max out my 401k? At my age (53) I can stash $24,000 a year. But, there is no match from the employer and it's got a 1% annual load. Hint, it's not Vanguard.

I want to retire ASAP, but I won't be able to touch these funds until I'm 59 1/2.
 
I can almost retire now on my tenant rents income of 2k a month, but I need a little more to feel safe.

I can bank away about 50-60k a year if I keep working. Should I put 24k in the 401k, and only 26k in a Vanguard index fund, or should I put the whole 50-60k nut in Vanguard?

Would the tax benefits be worth putting 24k a year into the 401k?

Thanks,

JD

If you're saving $50-60k/year you're solidly in the 25% (or higher?) federal tax bracket.  Putting $24k into a 401k saves/defers $6k in Federal taxes.

MDM

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Re: Skip the 401k?
« Reply #5 on: July 16, 2016, 06:13:20 PM »
Would the tax benefits be worth putting 24k a year into the 401k?
Probably.

See http://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/ and links therein for more.