Retirement account vs. taxable account allocation

[naturelover]

Hi, all. I'm new around here but have been reading this great forum for a while. I am 39 y.o. and hope to RE between 45-50. I need some advice about allocating my savings so that I have enough to fund the years before I can access my 401k and Roth at 59.5 without penalty. Here's a breakdown of my approx. current savings:

401k - 191k
Roth - 52k
Taxable - 51k
Cash - 45k

My conundrum is that my relatively modest salary (55k) does not leave much left over for my taxable account once I've maxed out my 401k and Roth. I have about $5k left for my taxable account (Vanguard index funds). Saving at this rate in my taxable account is not going to yield the amount I need to RE by my target age. I am aiming for about $250k in my taxable account to utilize prior to age 59.5. I haven't itemized my current expenses (planning to do that soon), but I estimate annual expenses of about $20-25k.

So, my question for you knowlegeable folks is this: Is it worth it to forfeit some tax-advantaged savings in order to contribute more to my taxable account? For example, instead of maxing the 401k at $17,500, I am considering putting $10k in the 401k and diverting the rest to my taxable account (which, of course, will be less than $7,500 because it will be taxed before hitting my account). I will continue to max the Roth since my contributions can be withdrawn prior to 59.5. I am somewhat familiar with the loophole of moving money from a 401k to an IRA and then withdrawing it from the IRA after the 5-year waiting period. I am concerned that this option might not still be available in 10-15 years.

Anyone have any other strategies for allocating savings between retirement and non-retirement accounts for those of us with more modest salaries who still want to RE?

Many thanks for any advice and for reading my post!

[Jags4186]

Run a projected growth of your assets and projected retirement date. If you stopped (or lowered) your retirement vehicle contributions in order to bulk up your taxable, would you still have enough money after you turn 59.5 in your retirement accounts?

If not then you need to either make more money or put off RE til later.

[Zaga]

Is there a reason why your cash position is so large?  That is FAR above even a 1 year emergency fund.  For us we keep a 3 month emergency fund, but I understand why some people choose to have a 6 month or even 1 year fund.  More than that seems excessive.

I would keep doing what you are doing.  Remember that there are ways to access your money before 60.  There's the Roth pipeline, which you seem to be perfectly positioned to take advantage of.  Contributions to your Roth can be taken out at any time with no tax or penalty.  Plus, if you invest half of your cash (leaving a 1 year emergency fund) that will increase the amount in your taxable account that can grow.

I think you are doing pretty awesome on a modest income!

[naturelover]

Thanks for the responses. I should have mentioned that I have been gradually decreasing my cash position by contributing more to my taxable account on a weekly basis to take advantage of dollar cost averaging instead of plunking $10-$20k in at once. As for an emergency fund, I am comfortable with a larger amount as I work in a very specific job and am a bit pigeon-holed with little options to become re-employed doing the same work should I find myself laid off (would expect to have to take something in another field paying a lot less should that happen). Don't see any warning of a lay-off, although no one really ever knows, so I could stand to be less conservative with the cash. Thanks, Zaga, for bringing up the question about cash position. You also said that there are ways to access the money before 60. Other than the Roth pipeline and withdrawing Roth contributions penalty-free, are there other options?

Thanks again!

[nicknageli]

I would keep doing what you are doing.  Remember that there are ways to access your money before 60.

Rule 72(t) for your tax deferred accounts will allow you to pull sooner than 59-1/2.

http://www.forbes.com/sites/advisor/2012/02/13/the-72t-early-distribution-from-your-ira/

[wtjbatman]

I would keep doing what you are doing.  Remember that there are ways to access your money before 60.

Rule 72(t) for your tax deferred accounts will allow you to pull sooner than 59-1/2.

http://www.forbes.com/sites/advisor/2012/02/13/the-72t-early-distribution-from-your-ira/

This. You need to do the math for your own situation, but you can easily be pulling 20k a year from your IRA (I think the last example I saw was a 40yo male with 500k in an IRA could pull around 20k a year, but don't quote me on that. Just check the charts and do the math). Retire, roll the 401k over into a Traditional IRA, then start SEPP (Substantially Equal Periodic Payments/72t). Combine that with whatever you have saved in taxable, and I bet you will have enough to cover your expenses until you turn 59.5 and no longer have to worry about distribution rules.