Author Topic: Most of my savings are in a tax-deferred account (401k, etc)  (Read 4134 times)

dragon

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Most of my savings are in a tax-deferred account (401k, etc)
« on: August 05, 2014, 11:57:54 PM »
How does one retire and draw down income from the 'stash if most of it is tied up in tax-advantaged accounts?

70% of my stash is in one of the following: 401k (both traditional and Roth) ; 401k rollover; Roth IRA; pension (cash value) or 529
11% is in home equity
15% in cash or stock - this is the money I have access to
4% in cars

I've been reading the blog over the last 2 weeks.  This is something I think I can do in the next 2-3 years; or sooner if I depend on a side job. 
I just can't figure out how I would use the retirement assets to provide our income before turning 59 1/2; as I understand that is the earliest I can access those funds.

I'm 37 with a wife and 2 young kids.

Thanks

-Dragon

little_owl

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #1 on: August 06, 2014, 03:29:09 AM »
Read up on SEPPs, which provide a mechanism to access some of that money prior to government "retirement age.". Here is one article to get you started.

http://www.investopedia.com/articles/retirement/02/112602.asp

I don't recommend even thinking about things like cars (even though they are only 4%), unless you are absolutely going to sell them for cash and your time horizon is within the next 12 months (given depreciation).

How do your assets break down across the retirement accounts?  If 35% is in the pension, for example, that may be more difficult to access before, say, your 401k.  Pensions are very unique (not all designed the same) so you will need to do some research.  Ask your HR department how you can learn more about the details of the pension plan, and read the fine print to understand how it is set up and administered, etc.  You may not want to count the cash value, for example, if delaying access means a signficant increase in distributions.

And, congrats on being so close to fire!  How old are you, out of curiosity?  Good luck.

lakemom

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #2 on: August 06, 2014, 05:12:26 AM »
A good place to start is to look at your cash needs over the years until 59.5 and calculate what you need annually for those years.  Once you have a number, explore how you can reallocate current savings.  Instead of chunking everything at the retirement accounts, start sending more to nonretirement accounts while still investing at least up to the company match in your 401K.  Once you reach a point you can live on your investment accounts you can start once again allocating more to tax defered accounts.  M3 has at least one blog post regarding this that I just read last night you might go to the 'complete list' and try and find that to help you make your plan.

Cheddar Stacker

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #3 on: August 06, 2014, 06:08:06 AM »
You can access roth contributions anytime without tax or penalty, but not the earnings until 59.5 without penalty.
SEPP (aka 72t) or a roth pipeline are great ways to access these fund. There are many people who write about this stuff. Go checkout madfientist.com

dude

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #4 on: August 06, 2014, 06:58:24 AM »
You can access roth contributions anytime without tax or penalty, but not the earnings until 59.5 without penalty.
SEPP (aka 72t) or a roth pipeline are great ways to access these fund. There are many people who write about this stuff. Go checkout madfientist.com

I believe you can access Roth contributions without penalty only after five years.

JGB

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #5 on: August 06, 2014, 07:25:48 AM »
You can access roth contributions anytime without tax or penalty, but not the earnings until 59.5 without penalty.
SEPP (aka 72t) or a roth pipeline are great ways to access these fund. There are many people who write about this stuff. Go checkout madfientist.com

I believe you can access Roth contributions without penalty only after five years.

Roth contributions can be accessed without penalty at any time. Money rolled over from another retirement account (such as a 401k or traditional IRA) requires a 5 year waiting period.

Cheddar Stacker

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #6 on: August 06, 2014, 09:40:46 AM »
You can access roth contributions anytime without tax or penalty, but not the earnings until 59.5 without penalty.
SEPP (aka 72t) or a roth pipeline are great ways to access these fund. There are many people who write about this stuff. Go checkout madfientist.com

I believe you can access Roth contributions without penalty only after five years.

Roth contributions can be accessed without penalty at any time. Money rolled over from another retirement account (such as a 401k or traditional IRA) requires a 5 year waiting period.

^ Yep, that. I used to think the same thing dude until someone here showed me the light. It's the roth pipeline contributions that need 5 years of seasoning.

Eric

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #7 on: August 06, 2014, 10:41:37 AM »
This post spells out the detail on how the Roth Pipeline would work.  Since you'll have approximately 20 years until you could touch your 401k/IRA by traditional methods, I'm guessing that this will work best for you.

http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/

dragon

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #8 on: August 06, 2014, 02:27:12 PM »
Thanks for your feedback, I'll look into those sources.

The pension is  a defined contribution pension,that the company funds at 6% of salary and grows at the 10-year T-bond rate. It's about 6% of net worth. I'm 37 years old.

I'll look into how much I contributed to Roth IRA's. I've been kept out due to income limits the last several years, though I have been funding a back door Roth for my wife.

I'm maxed out on what I contribute at work. I put in 6%, they put in 6% to the 401k, and another 6% to the pension mentioned above, so 18% of base plus cash bonus.   I only put in 6% because that gets me to the IRS limit of 17.5k.

If I buckle down the next couple of years I can grow the taxable account quickly, and use that to draw on; but it won't be enough alone to fund our expenses (using the 4% rule). I have a side job (300 hours per year) that can cover our expenses (once we reduce them), and then the taxable account money would be a cushion.

Right now I'm trying to cut expenses and debt (one of the cars), and get clarity on what assets I can use. I'm also doing the sell on my wife, she's not very happy about this idea - "what kind of man are you if you don't work"; when you have old ideas in your head, it can be hard to change them.
I told her I'd be a man that was able to provide for all the family needs before turning 40; and I'd be home to help raise the kids (and cook more).

She likes her nice things. So do I. But, it's not worth working 2,000 hours a year for these luxuries.   
I let our expenses ballon the last 5 years as my income doubled; and now I want to pull that back.

Every $100 I can cut from monthly expenses reduces my capital need by $30,000 (using 4%). That's HUGE!

-dragon




NathanDrake

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Re: Most of my savings are in a tax-deferred account (401k, etc)
« Reply #9 on: August 06, 2014, 09:07:21 PM »
6% and already reaching the max? You make a lot of money. If you don't mind me asking, how did you manage to double your salary like that? I'm assuming you make close to 300K....and if you're only working 2000 hours a year, that's extremely good.