Author Topic: One thing I don't get, and its probably obvious..  (Read 1583 times)

Dano

  • 5 O'Clock Shadow
  • *
  • Posts: 2
One thing I don't get, and its probably obvious..
« on: March 29, 2017, 09:14:03 AM »
Long time reader/lurker.  Appreciate anyone who can break this down for me in simple terms.

Accelerated savings rate until you reach the magical jump off point, got it.  What I don't get is this:

I have been steadily increasing my savings rate to my 401 k which I shifted to Roth 401k once available, for some time, and will continue to do so.  Say I reach my number for FIRE at 40 something, how do you actually access the funds if its primarily in retirement accounts that don't allow you to withdraw until a certain point?

I have read the various sticky's on this but don't feel like I have a solid understanding.

I work for a mega corp who has a very nice retirement situation for us with Fidelity with very low fees.  Seems like I would just sock it all away in there in index funds.


2Birds1Stone

  • Walrus Stache
  • *******
  • Posts: 5616
  • Age: 1
  • Location: Earth
  • K Thnx Bye
Re: One thing I don't get, and its probably obvious..
« Reply #1 on: March 29, 2017, 09:27:32 AM »
You can roll the 401k into an IRA when you leave your employer, you can then create something called a Roth Ladder in your new low income tax bracket.

After the money is moved to Roth you wait 5 years and take it out without paying any further tax.

I would also advise taxable investing once your 401k is maxed out.

Dano

  • 5 O'Clock Shadow
  • *
  • Posts: 2
Re: One thing I don't get, and its probably obvious..
« Reply #2 on: March 29, 2017, 10:54:47 AM »
Thanks for the reply, a couple of followups:

-Since I will be working for some time, you are saying the best way to go about this would be to max my Roth 401k out, then invest the rest in a taxable account.  This account could help me bridge the years before the ladder opens up the other funds correct?

-But even after the 5 years, I can only pull the earnings correct?


rugorak

  • Bristles
  • ***
  • Posts: 382
Re: One thing I don't get, and its probably obvious..
« Reply #3 on: March 29, 2017, 11:10:43 AM »
Thanks for the reply, a couple of followups:

-Since I will be working for some time, you are saying the best way to go about this would be to max my Roth 401k out, then invest the rest in a taxable account.  This account could help me bridge the years before the ladder opens up the other funds correct?
Yes max out your tax advantaged accounts first and then invest the rest in taxable.
-But even after the 5 years, I can only pull the earnings correct?
Actually just the opposite. You can only pull out your contributions. You cannot touch the earnings until 59 1/2 no matter what.
Read this - http://www.madfientist.com/how-to-access-retirement-funds-early/

And after reading that you may want to go back to a normal 401k as well. It can make more financial sense assuming you will be in a lower tax bracket in FIRE.

NoStacheOhio

  • Handlebar Stache
  • *****
  • Posts: 2143
  • Location: Cleveland
Re: One thing I don't get, and its probably obvious..
« Reply #4 on: March 29, 2017, 11:15:54 AM »
Thanks for the reply, a couple of followups:

-Since I will be working for some time, you are saying the best way to go about this would be to max my Roth 401k out, then invest the rest in a taxable account.  This account could help me bridge the years before the ladder opens up the other funds correct?

-But even after the 5 years, I can only pull the earnings correct?

Principal, not earnings.

Depending on your specific situation, traditional may still make more sense than Roth.

Unless you're in the bottom tax bracket, (very generally) you come out ahead deferring taxes.