Author Topic: Tax benefits and investments....  (Read 2129 times)

JPWI

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Tax benefits and investments....
« on: February 18, 2014, 03:20:33 PM »
Hey all,

I'm looking for some advice regarding where and how to invest, allowing me to retire early.

Background:
38 Yrs.   Hoping to Retire around 50.

My wife and I are in education.  We both pay into our state pension system.  We also contribute $22,500/year to our 403(b) accounts (combined).  Combined, we're just into the 25% tax bracket with our current contributions and deductions.

I have a roth IRA with Vanguard
We have some taxable index funds with Vanguard as well. (just starting - about $20k)

In order to retire early, we'll obviously need to be able to access some funds.   So, I know I can add more to our 403(b) accounts and max out Roth IRAs, but I'm concerned that I won't have money available at 50....

From looking at various calculations, I think our funds are looking good after age 60, even with less than what we're currently contributing to 403(b) accounts.

In addition to what we contribute to our 403(b) accounts, we have about $2000/month available to invest.

I know I can benefit tax-wise from putting more into my 403(b) or Roth IRA right now, but I'm concerned that I won't have the money when I want it (i.e. age 50) and also a bit concerned that withdrawal rules may change and force me to grind longer....

Are there better ways around this?

RootofGood

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Re: Tax benefits and investments....
« Reply #1 on: February 18, 2014, 06:39:16 PM »
Definitely max the Roth vs. not maxing the Roth.  You can withdraw contributions tax free and penalty free at any time. Contributions = $5500/yr x2.  Not the gains. 

For your withdrawals during retirement, will your pensions be enough to fund your living expenses?  And can you draw them at 50 at retirement or do you have to wait until 60 or 65?

There are ways to get to your tax deferred money earlier.  Like the Roth IRA conversion ladder (converting from 403b to Roth IRA and then withdrawing those converted amounts after 5 years).  Also looks like 403bs can be accessed without penalty at 55 typically. 

So you may need to bridge only a 5 year gap between 50 and 55? 

foobar

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Re: Tax benefits and investments....
« Reply #2 on: February 18, 2014, 08:27:19 PM »
google 72(t) or SEP (substanially equal payments). With the roth you can take out your contribution pretty much any time. With a ROTH rollover you would have to wait 5 years.

Given you have 2k/month, after maxing out the ROTH you are going to be investing 18.5k for 12 years. Thats going to be 222k in real dollars if you just match inflation. You are also likely to be getting raises above inflation over the next 12 years so if can save any of that you should have even more cash. Between that and 72(t)s, I think you should be fine.

Check back in when your like 45 and maybe it might make sense to invest more in taxable funds but it isn't something you should worry about till then.





Hey all,

I'm looking for some advice regarding where and how to invest, allowing me to retire early.

Background:
38 Yrs.   Hoping to Retire around 50.

My wife and I are in education.  We both pay into our state pension system.  We also contribute $22,500/year to our 403(b) accounts (combined).  Combined, we're just into the 25% tax bracket with our current contributions and deductions.

I have a roth IRA with Vanguard
We have some taxable index funds with Vanguard as well. (just starting - about $20k)

In order to retire early, we'll obviously need to be able to access some funds.   So, I know I can add more to our 403(b) accounts and max out Roth IRAs, but I'm concerned that I won't have money available at 50....

From looking at various calculations, I think our funds are looking good after age 60, even with less than what we're currently contributing to 403(b) accounts.

In addition to what we contribute to our 403(b) accounts, we have about $2000/month available to invest.

I know I can benefit tax-wise from putting more into my 403(b) or Roth IRA right now, but I'm concerned that I won't have the money when I want it (i.e. age 50) and also a bit concerned that withdrawal rules may change and force me to grind longer....

Are there better ways around this?

JPWI

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Re: Tax benefits and investments....
« Reply #3 on: February 19, 2014, 07:25:59 AM »
Quote
For your withdrawals during retirement, will your pensions be enough to fund your living expenses?  And can you draw them at 50 at retirement or do you have to wait until 60 or 65?

Then pensions are likely not going to be enough in and of themselves.  My wife stayed home for 7 years when the kids were young and not yet in school, so hers is lower than mine.  I am 'vested' in 2 states, and similar to how social security works, the longer I wait to withdraw from either of them, the more I can receive on a monthly basis.  The lowest age possible is between 55 and 57, depending on the state.

We have about 50k in our 403b's right now, which is all in Vanguard Target Retirement funds.  With continued contributions, those + pension should be adequate. 

I estimate, for our family of 4, right now, we are living on about $40k, which includes about 12 years remaining on our mortgage but doesn't include health insurance premiums.