Author Topic: First post, need some 5 year advice.  (Read 2907 times)

nsmall

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First post, need some 5 year advice.
« on: November 02, 2018, 10:58:04 PM »
Trying to keep this brief.  First off, love this site and all of you.  What a great place!!!!

I am a little uncomfortable sharing my entire financial #'s so I will try to be vague and hopefully that is okay.

Im 39, and I need some advice.

I have a 403b ROTH IRA that I max out each year.  I am a public school teacher. 

My wife and I max out our personal ROTH's each year. 

I would like to retire when I'm 50.   I live in CA but want to move to WA state in 5 years.

My concern is my employer claims I CANT take out money from my 403B until I'm 59.5 without being penalized.

In 7 months my house (rather expensive house as I live in CA) will be paid off.  My 5 year plan is to sell my home in CA and move to WA when I'm 45, buy a house with cash and work for 5 more yearsish and then retire.

So I will have 90k a year to invest in 7 months.  Right now Im only investing 30k a year into the ROTHs mentioned above.

Should I quit investing into my 30k a year into the ROTH's and just invest the 30k into Vangaurds total stock market fund?

In 7 months I will have 90k a year to invest because the mortgage will be gone.

I'm thinking I have way to much into these ROTH accounts, especially if I cant take money out of the 403B ROTH until I'm 59.5.

I'm also thinking of doing a traditional 403B for 2019 as I sold some rentals this year so my tax bill is going to be expensive for 2019.

I can answer any questions you may have.  My main concern is having money tied up, whereas when I am 50 I would like the option to retire. 

I also have 2 rentals I will sell in 5 years when I retire.

Thanks in advance

nsmall

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Re: First post, need some 5 year advice.
« Reply #1 on: November 02, 2018, 11:12:40 PM »
Just wanted to mention I never planned to retire before 60 until being inspired by the stories on this site and realizing its possible.

I dont have to pay much in taxes because of the rentals, I have three kids and dont earn much.  So that is why I have been obessed with the ROTH's.

In order to retire in 10 years, I need some help trying to plan wheres the best place to invest.  I would talk to a financial planner, but they just want me to sign up with their "ideas" which never made much sense (annuities, whole life stuff).

I just want to invest in mutual funds, vanguard of course.

MDM

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Re: First post, need some 5 year advice.
« Reply #2 on: November 02, 2018, 11:49:24 PM »
nsmall, welcome to the forum.

Might be worthwhile for you to review
- the 'Basic Terms' tab of the case study spreadsheet
- Investment Order
- Getting started - Bogleheads
- Stock Series
- www.etf.com/docs/IfYouCan.pdf
- How to withdraw funds from your IRA and 401k without penalty before age 59.5

One problem with an internet forum is the difficulty distinguishing between typos and misunderstanding.  E.g., there is no such thing as a "403b ROTH IRA."

For most people (early retirees in particular), traditional accounts work better than Roth.  But it all depends on your marginal rate (not necessarily the same as tax bracket) now vs. in retirement.

« Last Edit: November 03, 2018, 05:21:54 PM by MDM »

dmmms

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Re: First post, need some 5 year advice.
« Reply #3 on: November 03, 2018, 06:12:14 AM »
If you are a public school teacher you likely have access to a 457b which is 1. Tax deferred like a 401k/403b but 2. Can be accessed upon separation from your current teaching position. It's a great tool for early retirees!

Also any pension/years of service in CA to consider? If you are going to work in WA later, will you be teaching? If yes, check reciprocity for yor teaching license and WA' vesting time. Always good to have information!

FatFI2025

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Re: First post, need some 5 year advice.
« Reply #4 on: November 03, 2018, 03:30:40 PM »
You can access your money before 59.5, but there are intermediate steps. You should do some reading-up on rules for different retirement account types. As @MDM points out, there isn't such a thing as a 403b ROTH IRA -- knowing deets will be critical to execute your strategy. I think your research will lead to a Roth 403b rollover to a Roth IRA five years before you retire.

It's great that you have amassed so much wealth on a modest salary, but I would encourage you to revisit traditional, tax-deferred contributions. If you're moving to Washington state, where there's no state income tax, you could rollover your existing Roth contributions and combine that with a post-retirement Roth ladder (conversions) to lower your long-term tax liability.

Also think about how you will structure your conversions and the sale of your rental properties. Selling rental properties is a huge tax event, but there are ways to spread the tax hit out over several years if needed.
« Last Edit: November 03, 2018, 03:36:08 PM by RyaninLA »

MrMathMustache

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Re: First post, need some 5 year advice.
« Reply #5 on: November 03, 2018, 04:27:17 PM »
Iím a public school teacher in Florida and wanted to second the earlier comment about the 457 option - itís funded with pretax dollars like a 403b but you can withdraw from it without penalty before age 59.5. Most school systems offer both.  I max out my 457 every year and then put another $5500 into a 403b and $5500 into a traditional IRA since I want that flexibility to withdraw if need be. 

nsmall

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Re: First post, need some 5 year advice.
« Reply #6 on: November 03, 2018, 05:09:26 PM »
I am certain I have a 403B ROTH and its with Vanguard funds.  The payments made to the 403B ROTH come out after taxes and say 403B ROTH on my check stubs.  I hope you folks are wrong.  Here is the link....https://www.calstrs.com/pension2


I will look into the 457, thanks.  Problem with the 457 is that it is with only one company that is NOT Vanguard and there are commissions for the local company who allows us to use them as a vendor.

If I decide against the 457, I can at least quit doing the ROTH 403B and max out my 403B traditional IRA to save on taxes.  My current ROTH 403B is with Vanguard funds.

I need to do a lot of research as I know nothing about these conversion ladders I keep reading about. 

I will sell one rental per year to avoid huge tax hits.

Thanks for your advice so far and keep the ideas coming.

Thanks again,

Neil

MDM

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Re: First post, need some 5 year advice.
« Reply #7 on: November 03, 2018, 05:19:34 PM »
I am certain I have a 403B ROTH and its with Vanguard funds.
You may very well have a Roth 403b.  Note that Roth is a name, not an acronym.  You could also have a Roth IRA.  But not a 403b Roth IRA. ;)

Have you had a chance to look at the 'Basic Terms' mentioned in a previous post?

dmmms

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Re: First post, need some 5 year advice.
« Reply #8 on: November 03, 2018, 07:14:09 PM »
It's hard to find low fees on the 457b, but for a short time frame (5years), its still worth the tax benefits now and accessibility when you leave. Mine will be my "ladder" to 59.5!

nsmall

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Re: First post, need some 5 year advice.
« Reply #9 on: November 03, 2018, 08:16:06 PM »

Okay.  Thanks MDM.  I get it now.

Could someone point me to info on the ladder?   

I am wondering if I should completely STOP contributing to my 403b Roth, my ROTH IRA and my wifes ROTH IRA?

I just went all out on the ROTH as my life goal before finding this site was to retire at 59.5.

If I want to retire 10 years before I am 60, I need to figure out whats the best way to invest and have the ability to get to the money.

I really like the 4% rule.  I honestly wasnt even thinking of retiring as I do like working, but to call it quits at 50 sounds like a nice goal to me.


MDM

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Re: First post, need some 5 year advice.
« Reply #10 on: November 03, 2018, 08:36:35 PM »

Okay.  Thanks MDM.  I get it now.

Could someone point me to info on the ladder?
See links previously posted.

Quote
I am wondering if I should completely STOP contributing to my 403b Roth
Traditional 403b is probably better.  "Probably" as in "for most people."  Without more info on your finances, ...?
Quote
...my ROTH IRA and my wifes ROTH IRA?
Probably not, unless you are in the somewhat narrow income range for which a traditional IRA is both deductible and attractive.

Quote
If I want to retire 10 years before I am 60, I need to figure out whats the best way to invest and have the ability to get to the money.

I really like the 4% rule.  I honestly wasnt even thinking of retiring as I do like working, but to call it quits at 50 sounds like a nice goal to me.
What do you think of the "investment order" suggestions?

nsmall

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Re: First post, need some 5 year advice.
« Reply #11 on: November 03, 2018, 09:00:31 PM »
@MDM

Man, I already really like you. You are very helpful.  I finally started reading the links you sent.  I have so much to learn.

0Establish an emergency fund to your satisfaction  DONE           
1. Contribute to your 401k up to any company match   I GET NO MATCH ON ANYTHING         
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.    SEE MY ANSWER TO #7       
3. Max HSA             I HAVE NO IDEA WHAT THAT IS
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level   DONE           
5. Max 401k (if 401k fees are lower than available in an IRA, or if you need the 401k deduction to be eligible for a tIRA deduction, swap #4 and #5)            DOING THE 403B ROTH
6. Fund a mega backdoor Roth if applicable.   I HAVE NO IDEA WHAT THIS IS     
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.  I DONT HAVE ANY DEBT BESIDES MY HOME         
8. Invest in a taxable account and/or fund a 529 with any extra.           I WAS THINKING THE VTSMX WOULD BE THE #3 PLACE FOR MY EXTRA $$$$$ (WHAT I HAVE BEEN DOING FUNDING THE 403b ROTH AND MY WIFE AND I'S ROTH IRA), PROBABLY SHOULD DO THE 529, I HAVE THREE SMALL KIDS.

This ladder thing is really tripping me out. 
« Last Edit: November 03, 2018, 09:14:24 PM by nsmall »

nsmall

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Re: First post, need some 5 year advice.
« Reply #12 on: November 03, 2018, 09:06:10 PM »

Okay.  Thanks MDM.  I get it now.

Could someone point me to info on the ladder?
See links previously posted.

Quote
I am wondering if I should completely STOP contributing to my 403b Roth
Traditional 403b is probably better.  "Probably" as in "for most people."  Without more info on your finances, ...?
Quote
...my ROTH IRA and my wifes ROTH IRA?
Probably not, unless you are in the somewhat narrow income range for which a traditional IRA is both deductible and attractive.

Quote
If I want to retire 10 years before I am 60, I need to figure out whats the best way to invest and have the ability to get to the money.

I really like the 4% rule.  I honestly wasnt even thinking of retiring as I do like working, but to call it quits at 50 sounds like a nice goal to me.
What do you think of the "investment order" suggestions?

I make 108k a year, live in CA, have 2 rentals, one wife, and 3 kids to help with the tax bill.  So does a traditional 403B seem better for my situation?  I sold 2 rentals this year and my tax lady made it sound like the new tax law makes it to where the rentals wont save me much on my taxes so maybe I start funding the tradtional 403b. 

I have so much work to do as I just found a treasure    https://forum.mrmoneymustache.com/investor-alley/how-to-withdraw-funds-from-your-ira-and-401k-without-penalty-before-age-59-5/

BUT I THOUGHT YOU CANT TOUCH A 403B until you are 59.5?  I am so confused, but at least I am willing to work to figure out what to do.  This website is a so great.

lhamo

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Re: First post, need some 5 year advice.
« Reply #13 on: November 03, 2018, 09:20:21 PM »
I contributed to a Roth 403b while working for a non-profit.

Upon separation from service at age 46, I was able to roll the entire amount over to a Roth IRA.  At that point in time, I had made about $113k in contributions to the account.  My understanding is that because I already had other Roth accounts established for at least five years, I can withdraw up to my full contributions to all of those accounts at any time, even before age 59.5.  If my withdrawals exceed the contribution amounts prior to age 59.5, then I would pay penalties and be taxed on the difference.

If I were you I would:

1) Confirm with your plan that you can roll your Roth 403(b) account balances out to a Roth IRA when you separate from service

2)  Confirm with whoever you plan to roll the accounts to that your original contributions will be accessible tax- and penalty-free once they are in the Roth IRA.

One thing to consider with your plan is that WA has no income tax, so you might want to shift to investing in deductible retirement accounts now, since CA income taxes automatically push your marginal taxes quite a bit higher, and then gradually roll your retirement funds into laddered Roth IRAs after you are no longer drawing a salary.  That approach should allow you to both lower your taxes now AND stay in a low bracket for many years post-retirement.

nsmall

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Re: First post, need some 5 year advice.
« Reply #14 on: November 03, 2018, 10:05:13 PM »
@lhamo Dang, you Walrus Stache folks are really good.

I forgot to mention I get around 4k a month from adopting kids out of the foster care system.  I dont have to pay taxes on this money.

So I will talk to our third party administrator of the 403b as the lady at the district office knows next to NOTHING about 403b's.

Please help me with the questions I should ask.
1) I will ask if I can move the Roth 403(b) account balances out to a Roth IRA when you separate from service

2) Are there any taxes or penalties I have to pay when I transfer the money from the 403b ROTH to my ROTH IRA?

A question for you is that you wrote..."gradually roll your retirement funds into laddered Roth IRAs after you are no longer drawing a salary"  Can you roll a traditional 403b into a ROTH IRA?  If so, I feel like an idiot doing this 403b ROTH.  I will do some research on this. 

MDM

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Re: First post, need some 5 year advice.
« Reply #15 on: November 03, 2018, 10:09:59 PM »
BUT I THOUGHT YOU CANT TOUCH A 403B until you are 59.5?
Depends what you mean by "touch".  Also, it makes a huge difference whether you are still employed by the 403b provider vs. retired.  As lhamo suggested, after retirement (regardless of age) you can roll the 403b money into IRAs, and then it's the IRA laws that govern what you can do. 

To answer a question from the post made while I was writing this: you may convert (not roll over - the IRS is very particular about wording) a traditional 403b into a Roth IRA after retirement, but you'll pay tax on the amount converted.  You probably won't want to pay tax on the entire 403b balance in one year, thus the pipeline/ladder idea of a smaller amount over multiple years.

MDM

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Re: First post, need some 5 year advice.
« Reply #16 on: November 03, 2018, 10:12:32 PM »
1) I will ask if I can move the Roth 403(b) account balances out to a Roth IRA when you separate from service
2) Are there any taxes or penalties I have to pay when I transfer the money from the 403b ROTH to my ROTH IRA?
1) Yes.  That's federal law.
2) No.

MDM

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Re: First post, need some 5 year advice.
« Reply #17 on: November 03, 2018, 10:21:00 PM »
I make 108k a year, live in CA, have 2 rentals, one wife, and 3 kids to help with the tax bill.  So does a traditional 403B seem better for my situation?  I sold 2 rentals this year and my tax lady made it sound like the new tax law makes it to where the rentals wont save me much on my taxes so maybe I start funding the tradtional 403b.
Assuming the rentals have zero tax impact (e.g., the real and depreciation expenses exactly offset the income), below is based on $108K W-2 income, filing MFJ w/ 3 kids in CA.  Numbers on the y-axis are negative because taxes decrease as 403b contributions increase.


The CA tax may not be exactly correct but the federal component should be very good.  Nothing you can do about Roth 403b contributions already made this year, but saving 30% (22% fed + 8% CA) on ~$6500 of traditional contributions (either 403b or tIRA) if you can arrange those, seems worth doing.

There's more, but perhaps best to give you time to absorb.... ;)

Dee18

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Re: First post, need some 5 year advice.
« Reply #18 on: November 04, 2018, 04:36:16 AM »
Just posting to say that where I work we have the choice to have our 403(b) be Roth or Traditional.  We can change back and forth on that whenever we want.  When you choose Roth, it says that right on your pay statements and right on the Fidelity monthly statements. 

nsmall

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Re: First post, need some 5 year advice.
« Reply #19 on: November 04, 2018, 02:59:52 PM »
1) So when you do the conversion ladder on a Roth 403b you DONT have to pay any taxes OR fees on the transfer of funds to Roth IRA as they were already taxed.  Correct?

2) From what I am reading you have to pay taxes on the traditional 403b money (principle and interest/dividends earned) when do the ladder.  Correct?

3) Can you do a 403b Roth and 403b traditional ladder at the same time?

4)  If I am using the ladder and putting in 20k a year, do I have to take out 20k on the 5th year or can I just take out lest say 14k on that 5th year.

5)  Do I have to be retired to take money out of my Roth IRA from using the ladder?

Sorry for all of the questions.  I thought I knew a lot about retirement, but retiring early is going to take some smart planning.

Thanks

Dee18

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Re: First post, need some 5 year advice.
« Reply #20 on: November 04, 2018, 03:16:57 PM »
I would talk to the 403(b) provider, Fidelity, Vanguard, or other.  They should be able to answer your questions.  Withdrawals before 59.5 are discussed here:
http://time.com/money/4535619/retirement-withdrawals-age-55-401k-403b/


MDM

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Re: First post, need some 5 year advice.
« Reply #21 on: November 04, 2018, 05:19:24 PM »
1) So when you do the conversion ladder on a Roth 403b you DONT have to pay any taxes OR fees on the transfer of funds to Roth IRA as they were already taxed.  Correct?
No tax or fee, correct, because it is not "included in income."  See https://www.irs.gov/pub/irs-tege/rollover_chart.pdf for an overview.  Because there are no tax implications, there is no need to "ladder" Roth to Roth transfers.

Quote
2) From what I am reading you have to pay taxes on the traditional 403b money (principle and interest/dividends earned) when do the ladder.  Correct?
Correct.

Quote
3) Can you do a 403b Roth and 403b traditional ladder at the same time?
You can, but there is no need to do so.

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4)  If I am using the ladder and putting in 20k a year, do I have to take out 20k on the 5th year or can I just take out lest say 14k on that 5th year.
The main point of the ladder is to minimize tax on the traditional to Roth amounts, by keeping annual income low(er).  How much you choose to withdraw from the Roth, when the time comes, is up to you.

Quote
5)  Do I have to be retired to take money out of my Roth IRA from using the ladder?
No.

nsmall

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Re: First post, need some 5 year advice.
« Reply #22 on: November 04, 2018, 10:40:03 PM »
MDM  Thanks again.  You are the man or woman, not sure which, but thanks for your help. 

So when I leave CA, I can just dump my ROTH 403b into my ROTH IRA account?  I can do this even if I am begin a new job in a new state?

It might be best to keep them in the 403b as I have access to Vanguard Institutional index fund VINIX.  Should I be using VINIX over VAnguard Total Stock Market Fund?  I can share my 403b fees if that helps.  I have a 50/50 blend of the two funds and they seem to be similar.  Just curious if anyone thinks one is better vs the other.


So it sounds like I would just use the ladder if I wanted to use traditional 403b money before I retire?

 I would then set this up 5 years before I retire, correct?

I am convinced its time to back away from the 403b roth and start a traditional 403b to save on taxes.

The Roth is cool, but I am now expecting my yearly income to be WAY smaller than I originally anticipated.  My pay in WA will be 1/2 what I make in CA and if I retire at 55, my monthly pension will be pretty small so I need to save on taxes now.

Thanks again

nsmall

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Re: First post, need some 5 year advice.
« Reply #23 on: November 05, 2018, 10:35:28 AM »
https://securitybenefit.se2.com/#53&RID=35&prodID=28&prodOpt=3&prodCat=RP

That is my only option for a 457 at work.

besides the fund fees mentioned in the link click on this https://www.securitybenefit.com/individuals/products/mutual-fund-custodial/security-benefit-advisor-mutual-fund.aspx
 
Once on the site scroll down and click....OPTION #

Helpful Resources
Fact Sheets (PDF): Option 3, Option 4

There is another 1% fee per year.

So basically it costs 2-2.5% to have this account.  Doesnt that sound really expensive?

Thanks

MDM

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Re: First post, need some 5 year advice.
« Reply #24 on: November 05, 2018, 10:43:48 AM »
2-2.5% is atrocious.

But can you use Security Benefit Web?  Scroll to the bottom of that page for the Vanguard funds....

nsmall

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Re: First post, need some 5 year advice.
« Reply #25 on: November 05, 2018, 11:06:28 AM »
I was told I CANT use vanguard funds.   When I say 2-2.5 its because the funds cost 1-1.5 and THEN I have to pay another 1%.  Ughhhhh

MDM

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Re: First post, need some 5 year advice.
« Reply #26 on: November 05, 2018, 11:18:34 AM »
I was told I CANT use vanguard funds.   When I say 2-2.5 its because the funds cost 1-1.5 and THEN I have to pay another 1%.  Ughhhhh
See Great 403b for teachers? - Bogleheads.org and 403bCompare - Home.  Is any of that relevant to you?

Jon Bon

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Re: First post, need some 5 year advice.
« Reply #27 on: November 05, 2018, 11:19:05 AM »
I was told I CANT use vanguard funds.   When I say 2-2.5 its because the funds cost 1-1.5 and THEN I have to pay another 1%.  Ughhhhh

@nsmall you are doing great! you are in the right place and willing to learn. That is like 95% of it, honestly learning about it is the best part. Because the rest of it is just sitting around watching your balances go up! Which of course is good but its not exactly as exciting as learning that FIRE is an option.

So read around, ask questions there is LOTS going on and LOTS of different schools of optimization. Maybe before you get too into the weeds on the investing ladder, what kind of retirement do you want?

Do you truly want the sit on the beach doing nothing retirement? Do you want to volunteer, run a small side gig, work on your own terms ? etc. If you could answer that it might help us a little in terms of what type of retirement you should get into.

Like you mentioned you had rentals. Those are a fantastic FIRE tool IMO. They take just a little amount of work to keep you busy and you get mailbox money.  Maybe you could work 10 hours a week as a handy man, or tutor kids on the side as well. Most of this community has found that when we actually retire none of us really sit around we end up doing all kinds of work. But it is on our terms and work we enjoy. Good luck and happy reading!




nsmall

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Re: First post, need some 5 year advice.
« Reply #28 on: November 05, 2018, 11:32:38 AM »
Jon Bon, I will answer your questions later.  I have to go to work in 10 minutes.  Lol

As for my 403b, I have the https://www.calstrs.com/pension2 program which is awesome.  Took me 4 years to get my district to approve them as a vendor.  Sigh

As for 457 plans, I will work to get them approved as a vendor, but my district is tough to work with.  pension2 has 457's and they are NOT 2-2.5%, rather .25%

Thanks