Author Topic: Continue to fund Roth after FI? Yes or no?  (Read 4064 times)

earlyFI

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Continue to fund Roth after FI? Yes or no?
« on: June 24, 2013, 09:51:11 PM »
I expect to hit FI in 2 yrs. I will have some excess cash flow beyond my expenses, should I continue to fund my Roth, or just add it to my nest egg in a Vanguard index fund?

George_PA

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #1 on: June 24, 2013, 09:58:12 PM »
wow congrats on your close FI date!!

It probably depends upon how money is in it already and how long it has to go to compound;

If you plan on taking it out at 59.5 years of age, just try to figure out how much you would need to live on, and run some numbers in a compound interest retirement calculator; this will tell you whether you already have enough in it or not

earlyFI

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #2 on: June 24, 2013, 10:09:17 PM »
Thank you for your reply. To give more information...I think that I will let the money compound until closer to 70. I have a stash and pension that will get me through until then. Just thinking about tax shelter options. Is it worth the tax shelter, or should I keep it where I would have more flexibility?

Khan

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #3 on: June 25, 2013, 02:36:13 AM »
It all depends on what your cash sources are, but I'm debating quitting my job in the next couple of years to enjoy a mini partial FI spree(GI bill), and if I did do that, then during that time I would roll over enough from my 401k into the ROTH pipeline to max my ROTH.

But like I said, it depends on the whole of your finances. I'd do that because I like roth money more then I like 401k money, and I couldn't fund it without having some sort of income, and I'm 25, so wherever you are in life changes your thoughts on such matters a lot.

fiveoclockshadow

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #4 on: June 25, 2013, 09:00:57 AM »
Keep in mind that Roth *contributions* (IRA or 401k) may be taken out *at any time* (i.e. before 59.5 or any other age) at no penalty.  And with no tax either (you already paid tax on the contribution).

Roth *earnings* (i.e. growth of your contributions) are what you must wait to withdraw to avoid penalties.

This is not the case for a traditional IRA/401k in which your both your contributions and earnings are "locked up" until a late retirement age.

This is an often overlooked benefit of Roth accounts for FIRE folks.  You can start taking money out of a Roth at any time up to the total amount you contributed.  This makes contributing to a Roth very sensible for people planning to withdraw early.

As with anything tax related, do your own homework on this to make sure you understand the details.

matchewed

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #5 on: June 25, 2013, 09:04:38 AM »
Is this cash flow considered income? If so I would say yes. If not then I believe you will not be eligible to contribute to the Roth.

earlyFI

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #6 on: June 25, 2013, 10:50:56 AM »
Is this cash flow considered income? If so I would say yes. If not then I believe you will not be eligible to contribute to the Roth.

Yes, the cash flow beyond expenses is income. It would be from optional part time work.

Thanks for the reply!

arebelspy

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #7 on: June 25, 2013, 01:07:00 PM »
Is this cash flow considered income? If so I would say yes. If not then I believe you will not be eligible to contribute to the Roth.

Yes, the cash flow beyond expenses is income. It would be from optional part time work.

Thanks for the reply!

So your question is: if you make some money with part time work after FIRE and are going to invest it, should you stick it in Roth or taxable?

I'd say Roth is clearly better.  Solo 401k could be an option as well, depending on your tax bracket.  Likely the Roth is the best option.

Also said Roth could be invested in the Vanguard Index Fund you mention in your first post..
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earlyFI

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Re: Continue to fund Roth after FI? Yes or no?
« Reply #8 on: June 25, 2013, 01:30:08 PM »
Is this cash flow considered income? If so I would say yes. If not then I believe you will not be eligible to contribute to the Roth.

Yes, the cash flow beyond expenses is income. It would be from optional part time work.

Thanks for the reply!

So your question is: if you make some money with part time work after FIRE and are going to invest it, should you stick it in Roth or taxable?

I'd say Roth is clearly better.  Solo 401k could be an option as well, depending on your tax bracket.  Likely the Roth is the best option.

Also said Roth could be invested in the Vanguard Index Fund you mention in your first post..

Great Idea! Thanks arebelspy!