Author Topic: How to retire early when your money is locked up in 401k?  (Read 5706 times)

Dsurf

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How to retire early when your money is locked up in 401k?
« on: December 07, 2014, 01:56:16 PM »
hello,
I am new to the idea of retiring early. My question is -

How can you retire early if your money is locked up in 401ks that don't allow you to withdraw later in life?

I am 32 now and want to put 20-50k a year into investments. Can someone point me in a direction of how much this will be in 15 years or how you figure plans?

OutBy40

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Re: How to retire early when your money is locked up in 401k?
« Reply #1 on: December 07, 2014, 02:13:20 PM »
I opened a brokerage account and devote every spare penny to it. It'll build like your regular retirement fund will and does not contain the same restrictions that your 401k does.

Dsurf

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Re: How to retire early when your money is locked up in 401k?
« Reply #2 on: December 07, 2014, 02:29:15 PM »
How do taxes work on your regular account? I'm sorry I'm at the ground floor of understanding and am just trying to wrap my head on taxes and how to do this is 12 years, and if it's even possible.

The first would be the plan. Thanks for responding

shuffler

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Re: How to retire early when your money is locked up in 401k?
« Reply #3 on: December 07, 2014, 02:34:13 PM »
How can you retire early if your money is locked up in 401ks that don't allow you to withdraw later in life?
There are ways to get the money out earlier in life.  Search for "roth pipeline" or "72(t)".

I am 32 now and want to put 20-50k a year into investments. Can someone point me in a direction of how much this will be in 15 years or how you figure plans?
This is such a broad question that it's hard to answer.  20k-50k is a wide range, and "investments" isn't specific enough to have an idea of what returns to expect.

The basic way to go about this is to pick a specific amount you want to invest (say $20k yearly), estimate what you think your yearly return from your investments might be (say 8%), and what the yearly rate of inflation may be (say 3%).  Then you can start doing math like this:
Year #1 = Investment * (1+InvestemntReturn - Inflation) = $20,000 * 1.05 = $21,000
Year #2 = (Year1Total + Year2Contribution)*(1+InvestmentReturn - Inflation) = ($21,000 + $20,000)*(1.05) = $43,050
Year #3 = (Year2Total + Year3Contribution)*(1+InvestmentReturn - Inflation) = ...

... this is a great place to use a spreadsheet rather than doing the math by hand.

Carlos

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Re: How to retire early when your money is locked up in 401k?
« Reply #4 on: December 07, 2014, 02:43:46 PM »
You can always access your retirement accounts if you retire early. The question is how much will accessing them cost you.

There is a 10% penalty for distributions before 59.5 years old in most cases however through a Roth Conversion Ladder strategy you can avoid the penalty. Do an internet search on this as suggested by Shuffler.

Personally I'd so the conversion ladder approach and stay away from the 72t.

Dsurf

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Re: How to retire early when your money is locked up in 401k?
« Reply #5 on: December 07, 2014, 03:04:33 PM »
What about defined benefit pensions in addition to a solo 401k and a Roth? And good resources on how to combine all these accounts? Im an entrepreneur. Thanks for the above comments.

Anus Hurricane

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Re: How to retire early when your money is locked up in 401k?
« Reply #6 on: December 07, 2014, 04:33:38 PM »
I too am of the noob.  I am greatly ashamed of my failure to begin this process 10 years ago.

Why bother with a ROTH if I can just open a brokerage and invest as much as I please?  I can only contribute $5500/yr to a ROTH anyway, that's essentially nothing.

kpd905

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Re: How to retire early when your money is locked up in 401k?
« Reply #7 on: December 07, 2014, 04:54:22 PM »
I too am of the noob.  I am greatly ashamed of my failure to begin this process 10 years ago.

Why bother with a ROTH if I can just open a brokerage and invest as much as I please?  I can only contribute $5500/yr to a ROTH anyway, that's essentially nothing.

You will never pay taxes on the gains in a Roth IRA.  If you put money into a taxable account, you could end up paying capital gains tax or tax on dividends, depending on your tax bracket.

shuffler

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Re: How to retire early when your money is locked up in 401k?
« Reply #8 on: December 07, 2014, 05:08:29 PM »
Why bother with a ROTH if I can just open a brokerage and invest as much as I please?
http://www.madfientist.com/retire-even-earlier/

Anus Hurricane

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Re: How to retire early when your money is locked up in 401k?
« Reply #9 on: December 07, 2014, 06:02:20 PM »
You honkies is the pimp.  Damn, I am stupid.  I should have started at 23.  I didn't have a clue, not a goddamn clue.  Best get one now.

Don't I pay taxes on the gains when I withdraw them from mine ROTH? 

I needs to learn up about not getting socked in the groin with the 10 percent penalty when I retire early.

Dsurf

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Re: How to retire early when your money is locked up in 401k?
« Reply #10 on: December 07, 2014, 06:37:53 PM »
Does anyone know about defined benefit pensions and combining this with a solo 401k?

kendallf

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Re: How to retire early when your money is locked up in 401k?
« Reply #11 on: December 07, 2014, 07:07:53 PM »
The general answer to most of the questions above is to maximize your contributions to tax advantaged accounts.  If you're married and both have 401(k)s, IRAs and an HSA, for example, you can contribute over $50k tax deferred.  If you're in the 25% tax bracket, the immediate tax avoidance would be ~$12.5k.  The immediate tax benefits and tax deferred growth are huge advantages over taxable accounts. 

Also, if you retire needing only a moderate income each year, it's possible to avoid ever paying taxes on your accounts by utilizing the Roth pipeline mentioned above.  See this post by Go Curry Cracker for more info:

http://www.gocurrycracker.com/never-pay-taxes-again/

Read the Mad Fientist's posts on retirement accounts and Roth pipelining:

http://www.madfientist.com/archives/

Finally, for general info, J L Collins has a great series on stock investing:

http://jlcollinsnh.com/stock-series/

JGB

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Re: How to retire early when your money is locked up in 401k?
« Reply #12 on: December 08, 2014, 08:07:49 AM »
Don't I pay taxes on the gains when I withdraw them from mine ROTH? 

You do not pay taxes on any of the gains from a ROTH. That's one of the key defining points of a ROTH.

You would face a penalty if you withdraw the gains before age 59.5. The contributions, on the other hand, can be withdrawn at any point with no penalty. Whoever holds your ROTH should track how much you contributed throughout the years.

arebelspy

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Re: How to retire early when your money is locked up in 401k?
« Reply #13 on: December 08, 2014, 03:32:43 PM »
My favorite link to answer the question in the OP hasn't been posted yet (besides being one of many parts in one of kendallf's links):
http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

Read and understand that, and you'll see how to get your retirement money early, penalty free.  Sol also posted a good summary of it recently here on the forums, you can look for that as well.
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