Taking the next step - build cash flow through taxable account

[NWOutlier]

Hi Everyone!

This is my first post, but - I stumbled across this blog a few months back and can't get enough!  I'll be short, over time - I'll share more of my story with all of you.

We carry no debt outside my mortgage (I'm attacking the mortgage now)
I have a fully funded 401k (also have a pension)
We contribute to a spousal IRA for my wife
I have a standard IRA that I don't contribute to (because of the 401k) - but may convert it to Roth and start contributing

to me, this covers me for 'retirement' @ age 59 (this is where I can start making withdrawals without penalty - BUT!!! here's the question.....)

I have enough money left over each month after expense to begin a taxable savings account... this taxable account could allow me to live the life of badassity (retire earlier than 59) and I could allow the retirement accounts to stew as I live off my taxable account for; 5 - 10, 15 or more years.

From what I've read; Vanguard would be the best option for this...  are any of you doing something like this?  meaning having your retirements funded and creating the taxable account to retire earlier? 

Looking forward to your responses...

Steve

[chasesfish]

I'm in a similar situation and have chosen to go the route of individual stocks and use Fidelity as a discount brokerage.

You can also use Vanguard and buy a fund or two.  I prefer the tax benefits of owning a few stocks.  You. An also buy a vanguard etf like VIG

[NWOutlier]

Hi Everyone,

I also wonder;  I have a fully funded 401k, a spousal traditional IRA, a traditional IRA for myself ( I don't fund this).  I am wondering if I should fund a ROTH IRA for myself?  Can I do that?  I guess I need to speak with a tax person; I would only get the tax benefit for my 401k and Spouse IRA, but I could get a future benefit with the ROTH... 

So this is how it would look:
401k - Fully Funded
Spouse IRA - Fully Funded
Roth IRA - Fully Funded
My IRA - Just sits there for when I leave my job and move my 401k money into it
Liquid Savings (Cap One 360 - low .75%) - fully funded 6-12 months living expenses
Taxable Account (my F-U money) Vanguard: VTSAX


Thoughts? Debates? Ideas I haven't thought of?

Thanks in advance,

Steve

[NWOutlier]

Ah, forgot one more thing- -- I don't have an HSA yet; I have to wait for my company annual enrollment.. but I will include that for health care later in life.

Steve

[Spork]

I AM NOT A TAX EXPERT!

ok, that said... I'm pretty sure that in a given year you can either fund the Roth or the traditional, but not both.  You certainly can fund both a Roth and the 401k (and leave the traditional idle).  Ain't nothing wrong with that.

[beltim]

You can fund both, you just are limited in the amount you contribute.  The $5500 limit is for all IRAs, not just one type.

[Jamesqf]

...meaning having your retirements funded and creating the taxable account to retire earlier?

Sure, with the caveat that I have no intention of retiring :-)  But I have pretty much always done this, starting from when 401K & IRA plans were first available.  Enough went into those to get the employer match/good tax deduction, then extra savings went into personal mutual funds.  (I keep mine with T. Rowe Price on the not keeping everything in one basket principle, since the retirement accounts are with Vanguard.)

The goal was, after all, financial independence, and if I had a bunch of money locked up where I couldn't withdraw it without penalty, I was less independent than I wanted to be.

[vespito]

So this is how it would look:
401k - Fully Funded
Spouse IRA - Fully Funded
Roth IRA - Fully Funded
My IRA - Just sits there for when I leave my job and move my 401k money into it
Liquid Savings (Cap One 360 - low .75%) - fully funded 6-12 months living expenses
Taxable Account (my F-U money) Vanguard: VTSAX

I like this.  I'm biased though as the above is almost exactly what we have in place, right down to VTSAX.  (well diversified 401k, Roth IRA, spouse Roth IRA, brokerage holding only VTSAX)  We need to keep a little more cash on hand as my wife's job isn't 100% secure.

[NWOutlier]

@Jamesqf -- Good point about 'not retiring' James...  I keep using that word, but my definition of retired would be that I no longer "have to work" at my current job and I can work where I want, and on 'what' I want to.... I do what I do for money right now and it's killing me... I need a more enjoyable job.. :) sometimes those don't pay as much.

Thanks everyone for the replies, gives me a little more confidence I'm balanced....

Still working at it..


Steve

[NeverWasACornflakeGirl]

I have chosen only to fund the 401k to the match, and to put the rest into a Roth and into taxable funds in response to this article:  http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/.

Has anyone else reached the point where you've decided your 401ks and traditional IRAs are funded enough, and you are funding now for ER?  Or do you think the 401k can never be funded enough?

Thanks

[justchristine]

I've just hit the point where if I didn't contribute anymore to my 401k, I would be able to retire at 65 on the proceeds.  So everything I save from here on out is for moving that retirement date closer.  This may not be a popular opinion, but I've chosen to spread out my savings.  I have the luxury of both a regular 410k and a Roth 401k to contribute to in addition to taxable savings.  I'm shooting to have roughly equal amounts in each when I retire.  I realize I'm giving up some tax savings but I gain some flexibilty in the future when I start taking distributions.  With retirement still 8-10 yrs off and a drawdawn period of 40+ yrs, I think flexibility will be important in navigating whatever tax landscape the nut-jobs in Washington decide to dream up.

[NWOutlier]

Hi Justchristine,

I like the way you put it actually; the way my stuff is configured, I will have what I need "just" in my 401k... anything I make in my spousal IRA, traditional IRA, Roth IRA, H.S.A and Taxable savings account is just "freedom" or "flexibility" money....

Now that I have a plan, a check list and I'm working through it - my challenge now is; waiting for the money to come in (from my job) so I can save it.. :)

Steve

[frugalcoconut]

Most of my assets are in Roth accounts so I'll be able to easily withdraw the contributions without penalty at any age.  My first priority is to max out all of those retirement accounts (Roth 401k, Roth IRA, HSA) to take full advantage of the tax-deferred growth.  So far I haven't been able to put away much besides that ... but eventually I'm hoping to use any spillover to fund some income-producing taxable investments (e.g. dividends).