Hey all! Hoping to get some insights to this situation.
My fiancé and I are both in our mid-twenties and spent the first few years of our employment fully contributing to our Roth 401(k)s and Roth IRAs. This was before we thought about what would offer us the most flexibility in early retirement.
We recently switched to funding our tax-advantaged accounts with pre-tax money since that should give us more to save/invest with the tax break now, and we’ll have the option of getting that money out early with a Roth conversion ladder. Plus, if we anticipate spending $40k or less in retirement, it seems that Roth doesn’t have that much of a tax advantage since pulling $40k out of a taxable account per year wouldn’t incur capital gains either (with the only big tax advantage to Roth being the lack of taxing on dividends along the way).
However, now we’re stuck with over 40% of our portfolio consisting of Roth funds. Our combined net worth is $360k – of that, our combined Roth assets are around $150k. Holy crap. I’m concerned that we have way too much in Roth now. I know we can withdraw the principal, but assuming we keep holding them in a total stock market index fund and they double approximately every 10 years, I’m worried that eventually the Roth growth is going to take up a substantial amount of our portfolio as we draw down on everything else. That’d be locking up a huge amount of money that we can’t withdraw in early retirement without incurring a penalty. We’d need the rest of our money to comfortably last around 25 years before age 59 ½.
Currently, the majority of our Roth assets consist of the principal, so I was thinking of pulling all of the principal out now and transferring them to our taxable brokerage accounts, thus allowing all future growth on that money to be accessible in early retirement. My fiancé is more on the fence, since he thinks it may be a good idea to keep our Roth accounts around since he’s skeptical about how capital gains tax brackets might change in the future. Does anyone have any experience with this, and would transferring our Roth assets (or at least a portion of them) to taxable accounts be a sound idea, or a bad one? If we keep everything in the Roth, how does this affect 4% rule considerations since some of that money would be locked away till 59 ½?
Thanks so much in advance!
EDIT (Don't need to read this part):
In case anyone might be curious, I made a quick calculator, attached (that of course involves a lot of assumptions like a consistent 7% growth rate), but it seems that the Roth growth could have the potential to comprise an uncomfortably huge % of the portfolio by the time we're ~60 years old (estimated around 80%).