What is my next step?

[mistymoney]

Been thinking more seriously about money and eventual retirement the past few months. I know a few people struggling with covid issues months after being discharged. Will they be permanently disabled? One person I know didn't get discharged :(. 

Sometimes, I think - what would I do if I knew I was going to die in the next 12 months? What would I do if I knew that my health and vitality would take a huge and long lasting if not permanent hit? I wouldn't be waking up early tomorrow and starting the work day. I'd live off my retirement funds, even if I had to pay penalties, because I wouldn't likely get a chance to use them all up anyway.

On the other hand - what would I do if I knew that the economy and the stock market and the housing market were all going to take a huge hit and there would be another depression that lagged on for years and even decades? What if even getting food became difficult and very expensive? Yep, I'd be going to work and making all the benjamins I could while I could.

I am 54 and total retirement savings recently crossed the 900k threshold due to stocks doing well right now. It does give me some options - or at least - I think I have options.

2019 income was 128 salary, 10k bonus
2020 income 128k salary (no bonus expected, but should end year with about 13k in 1099 income)


So looking at the investment order"
           
0. Establish an emergency fund to your satisfaction  done, 3 months/15k           
1. Contribute to your 401k up to any company match  done         
2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.  done         
3. Max Health Savings Account (HSA) if eligible. done
4. Max Traditional IRA or Roth (or backdoor Roth) based on income level  I believe I'm ineligible for roth/deductible IRA?        
5. Max 401k (if  set up to max in 2021
    - 401k fees are lower than available in an IRA, or
    - you need the 401k deduction to be eligible for (and desire) a tIRA deduction, or
    - you earn too much for an IRA deduction and prefer traditional to Roth, then
    swap #4 and #5)           
6. Fund a mega backdoor Roth if applicable.  I'm not even sure what this means, let alone how to do it    
7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield. done, temporarily , as SLs @ 0%, currently paying about 3-500/month to bring down principal, but not sure if should just suspend and see where things go?
8. Invest in a taxable account and/or fund a 529 with any extra.  No need for 529s 

I've just upped my 401k to a percentage that will max it over a year, 2020 won't max as I was at 10% or lower earlier in the year, but is set so 2021 will. Have about 1k a month that I've been sending to EF and student loans, but still have a bit left over from time to time - so - what's my next step?

am I even eligible for Roth contributions income wise? How do you calculate MAGI?  Mega back door? huh?

work has a roth 401k option - should I consider that? how does it work? I've really been needing the tax advantages of the reg 401k, but now maybe I could think otherwise. Is the total limit the same? so I could do 75% regular and 25% roth?

I might not be able to max if I do a lot of roth and then all those taxes. How is roth 401k different from roth IRA in terms of usage, benefits, etc?

Thanks for any info!

[mistymoney]

Wanted to add: 401k balance at current company is only 175k. The other 725k of retirements are Roth (77K, and the rest are rollovers from previous jobs)

So - if I wanted to bug out - which, maybe? - then I only have 175k that I can start to use at 55, the rest are on hold until 59.5 so I need to amass more money into current companies 401k and/or taxable to even be able to consider retirement - I think? loopholes on waiting until 59.5?

Bare bones expense for me currently is 60/year, so need 1.5m to retire. But - maybe looking into part time/more 1099, then I could quit sooner?

Would like to plan on a post retirement of 75k/year just to be safe.

[ctuser1]

2019 income was 128 salary, 10k bonus
2020 income 128k salary (no bonus expected, but should end year with about 13k in 1099 income)
.....

I've just upped my 401k to a percentage that will max it over a year, 2020 won't max as I was at 10% or lower earlier in the year, but is set so 2021 will. Have about 1k a month that I've been sending to EF and student loans, but still have a bit left over from time to time - so - what's my next step?

am I even eligible for Roth contributions income wise?

Almost certainly yes, based on your income ($138) and 401k contribution for this year.

How do you calculate MAGI? 

For me, in 2019, MAGI == AGI.
If you have things like student loan interest, were self employed etc. etc - then it is possible your MAGI > AGI. However, even that is likely inconsequential for the Roth eligibility purposes.
https://www.schwab.com/ira/roth-ira/contribution-limits#:~:text=If%20you%20file%20taxes%20as,206%2C000%20for%20the%20tax%20year

Your income - 401k will almost certainly push your MAGI below the $137k limit for Roth eligibility. If you are married filing jointly, limit is higher.

Mega back door? huh?

work has a roth 401k option - should I consider that? how does it work? I've really been needing the tax advantages of the reg 401k, but now maybe I could think otherwise. Is the total limit the same? so I could do 75% regular and 25% roth?

I might not be able to max if I do a lot of roth and then all those taxes. How is roth 401k different from roth IRA in terms of usage, benefits, etc?

Thanks for any info!

Here is a nerdwallet article how mega-backdoor roth works.
https://www.nerdwallet.com/blog/investing/mega-backdoor-roths-work/

At a high level, it allows some people to sock away as much as $37.5k in a Roth IRA per year.

I considered, and then abandoned this idea because of two reasons:
1. My 401k does not allow in-service distributions. I did not clarify if they allow "after-tax contributions", because of #2.
2. My tax rates will most likely be lower in retirement than they are now. So it makes no sense to pay taxes now. If, by chance, the tax rates I am subjected to are higher in retirement, then that is a good problem to have, so I see no reason to pay extra taxes today to protect against that possibility.

I think #2 may apply to you as well, based on your current income and desired spending numbers in retirement.

[MDM]

I am 54 and total retirement savings recently crossed the 900k threshold due to stocks doing well right now. It does give me some options - or at least - I think I have options.

2019 income was 128 salary, 10k bonus
2020 income 128k salary (no bonus expected, but should end year with about 13k in 1099 income)

4. Max Traditional IRA or Roth (or backdoor Roth) based on income level  I believe I'm ineligible for roth/deductible IRA?

Yes, you are ineligible to deduct a tIRA contribution due to your income and that You ARE Covered by a Retirement Plan at Work.

You may be close to the start of the phase-out zone for making direct Roth IRA Contributions.

But if you have no pre-tax balance in any tIRA now, using the backdoor Roth IRA process allows you to ignore the income limits for direct contributions, and yet achieve the same result.  You may use the backdoor Roth process regardless of whether you are above the income limit for direct contributions or below it.

7. Pay off any debts with interest rates ~3% or more above the current 10-year Treasury note yield. done, temporarily , as SLs @ 0%, currently paying about 3-500/month to bring down principal, but not sure if should just suspend and see where things go?

Depends on the interest rate you'll be paying when that kicks back in.

8. Invest in a taxable account and/or fund a 529 with any extra.  No need for 529s 

I've just upped my 401k to a percentage that will max it over a year, 2020 won't max as I was at 10% or lower earlier in the year, but is set so 2021 will. Have about 1k a month that I've been sending to EF and student loans, but still have a bit left over from time to time - so - what's my next step?

Invest in a taxable account.

am I even eligible for Roth contributions income wise? How do you calculate MAGI?  Mega back door?

Roth eligibility covered above.  See MAGI - Bogleheads for links to the MAGI of interest.  ctuser1 addressed the mega backdoor (aka After-tax 401(k)) - any follow-up questions on that?

work has a roth 401k option - should I consider that? how does it work? I've really been needing the tax advantages of the reg 401k, but now maybe I could think otherwise. Is the total limit the same? so I could do 75% regular and 25% roth?

Always good to consider things (and perhaps reconsider each year), but for now saving 24% (plus whatever state) on the t401k seems good.  See Traditional versus Roth for more.

[Dicey]

What is your housing situation?

I didn't get married until I was 54, and people started looking for flying pigs. I always thought my retirement would be entirely self funded, so I can relate to your thinking and questions.

Off the top, I don't like the ratio of income to savings. How much of your current income are you saving?

If you don't hate your job, and since traveling and most forms of entertainment are off the table right now, I'd keep working. To make it interesting, I'd do some Frugalwoods style budget cutting and see how little you can live on and how much you can amass. If your three month EF means you're living on 5K net per month, I think there are a plenty of opportunities to squirrel away a lot more nuts.

[mistymoney]

What is your housing situation?

I am a homeowner with a mortgage. PITI is included in my yearly spend. Although the mortgage will go away someday, I'm choosing not to model that in my plan, and it could be a bumb at some point, or make up for any previous shortfalls.

If you don't hate your job, and since traveling and most forms of entertainment are off the table right now, I'd keep working. To make it interesting, I'd do some Frugalwoods style budget cutting and see how little you can live on and how much you can amass. If your three month EF means you're living on 5K net per month, I think there are a plenty of opportunities to squirrel away a lot more nuts.

I used to really enjoy my work, but it's quickly becoming intolerable. Many weeks I am working 6-7 days and sometimes late to 7pm or later 1-2 evening per week. Work loads have increased as we try to deal with covid issues while revenue is down and staffing is 30% reduced. I'm trying to hang on, but as my stache approaches the 7 figure mark, I keep thinking about trying to make RE work, or at least take a 1-2 year sabbatical while covid blow overs.

I will get SS someday, I can seek out part time or more 1099 work, I have some valuable skills. I feel like personally, my life is going up in smoke. I want to get a therapist, I want to exercise and eat right, but usually I am just quickly cramming food into my mouth before the next zoom meeting. I am wrung out by the time work is over and good for nothing but a few hours on the couch, then climb into bed exhausted only to have insomnia for hours. Even on my precious few days a month that I have off, I find my thinking about work issues.

I've run a lot of models, and there is a slim chance that I could retire today and make it to 90 just fine. If I can pull in about 20-30k/year somehow, my chances are excellent.

I'm trying to hold on, but I'm exhausted and depressed. On the other hand, I know after a month or three or six, I'd likely be pretty bored what with no travel, or anything.

If I just think and plan for a 1-year sabbatical, maybe I can get through this.

[mistymoney]

In terms of saving rate, I'm currently at about 28% of gross, maybe 33% of net. I anticipate about 20% tax on the 1099 income?, but could be off on that.

Not included in my noted savings is the money for DDs last college semester. I didn't include as that is going to be spent in Jan, and then that expense is done. Well, except for paying off the parent plus loans I took out for early years.

I am paying on the loans, but considering trying to refi those to a 30 year payoff and then just perma-include that amount in my yearly spend number like the mortgage.

[mistymoney]

What I see as my largest current issue towards any kind of radical change is that all my money is tied up in retirement savings. If I can get to 55, I can draw without penalty on my current employers 401k account.

While I think that is my best bet, I honestly don't know if I can make it that long.

Maybe it is a little personal crisis that will pass and the company will recover workload improve and covid situation get improved, and.....maybe....

[mozar]

If you could prevent yourself from dying in the next 12 months, would you do it?

That would entail:
Limiting yourself to only working 40 hours a week, no more
Improving your diet
Getting treatment for insomnia
Leaving your job and on ramping into something part time or a sabbatical
Figuring out how to reduce your expenses to 40k so you can live off 1m

How many months until you turn 55? Taking a ten percent hit for the next few months until you turn 55 isn't the worst thing in the world.

[terran]

What I see as my largest current issue towards any kind of radical change is that all my money is tied up in retirement savings...

If that's the only thing stopping you from retiring, there are other options: https://www.madfientist.com/how-to-access-retirement-funds-early/

[mistymoney]

What I see as my largest current issue towards any kind of radical change is that all my money is tied up in retirement savings...

If that's the only thing stopping you from retiring, there are other options: https://www.madfientist.com/how-to-access-retirement-funds-early/

Wow - thanks for this. It was eye-opening and surprising! There was a time when I really prioritized Roth over 401k, but for past decade have done 401k to be able to invest a little more. So glad to see that was a very viable strategy!

[mistymoney]

If you could prevent yourself from dying in the next 12 months, would you do it?

That would entail:
Limiting yourself to only working 40 hours a week, no more
Improving your diet
Getting treatment for insomnia
Leaving your job and on ramping into something part time or a sabbatical
Figuring out how to reduce your expenses to 40k so you can live off 1m

How many months until you turn 55? Taking a ten percent hit for the next few months until you turn 55 isn't the worst thing in the world.

Thank you. This really nails it. I need to to something different.

The post immediately below yours shows the efficacy of just taking the 10% penalty. It isn't the worst thing, and is a viable alternative.

I will turn 55 in 12.25 months. My 54th is next week. I was rounding a bit.

I'm going to stop working so much, and if the SHTF, I'll be ready. I'm going to start putting things in place and if work gets better, I can continue on, and if it gets worse or continues as is, I'll take my sabbatical and test drive RE.

Since the 10% penalty will likely be a better outcome than going the taxable route, I will continue with trad 401k, continue to put a few hundred into the EF each month, and funnel any extra into a Roth if I qualify with MAGI.

[mistymoney]

2019 income was 128 salary, 10k bonus
2020 income 128k salary (no bonus expected, but should end year with about 13k in 1099 income)
.....

I've just upped my 401k to a percentage that will max it over a year, 2020 won't max as I was at 10% or lower earlier in the year, but is set so 2021 will. Have about 1k a month that I've been sending to EF and student loans, but still have a bit left over from time to time - so - what's my next step?

am I even eligible for Roth contributions income wise?

Almost certainly yes, based on your income ($138) and 401k contribution for this year.

How do you calculate MAGI? 

For me, in 2019, MAGI == AGI.
If you have things like student loan interest, were self employed etc. etc - then it is possible your MAGI > AGI. However, even that is likely inconsequential for the Roth eligibility purposes.
https://www.schwab.com/ira/roth-ira/contribution-limits#:~:text=If%20you%20file%20taxes%20as,206%2C000%20for%20the%20tax%20year

Your income - 401k will almost certainly push your MAGI below the $137k limit for Roth eligibility. If you are married filing jointly, limit is higher.

Mega back door? huh?

work has a roth 401k option - should I consider that? how does it work? I've really been needing the tax advantages of the reg 401k, but now maybe I could think otherwise. Is the total limit the same? so I could do 75% regular and 25% roth?

I might not be able to max if I do a lot of roth and then all those taxes. How is roth 401k different from roth IRA in terms of usage, benefits, etc?

Thanks for any info!

Here is a nerdwallet article how mega-backdoor roth works.
https://www.nerdwallet.com/blog/investing/mega-backdoor-roths-work/

At a high level, it allows some people to sock away as much as $37.5k in a Roth IRA per year.

I considered, and then abandoned this idea because of two reasons:
1. My 401k does not allow in-service distributions. I did not clarify if they allow "after-tax contributions", because of #2.
2. My tax rates will most likely be lower in retirement than they are now. So it makes no sense to pay taxes now. If, by chance, the tax rates I am subjected to are higher in retirement, then that is a good problem to have, so I see no reason to pay extra taxes today to protect against that possibility.

I think #2 may apply to you as well, based on your current income and desired spending numbers in retirement.

Thanks - lots of good info here and practical considerations.

[Igelfreundin]

Sorry to hear that you've already lost someone to covid. I'm going to answer the question you didn't exactly ask- what should you be doing in your life, given that you might live for a year or might live until 90?

I struggle with this question frequently because my husband died suddenly, very young. So I know death at age 30 can happen, but also that it doesn't happen very often. My answer is to add as much joy, health, and happiness to my work life right now as I can. Quit the workday at 5, regardless of how much is left to do or how much pressure your boss puts on you. Spend time with your family. Get sleep. Eat some healthy food, but enjoy treats too. Find a hobby, any hobby, that makes you happy. If you are so burned out that this all sounds like too much, start with a tiny daily walk or a check up with a doctor or a therapist.

Even if you live until 90, you will never get this time back.

Sent from my LM-V350 using Tapatalk

[terran]

I will turn 55 in 12.25 months. My 54th is next week. I was rounding a bit.

Also note that you're eligible for penalty free withdrawals from your current employer's 401(k) as long as you separate from service in or after the year you turn 55, so if you turn 55 in 2021 as it sounds like you do then you only need to make it until January 1, 2021. https://www.irs.gov/taxtopics/tc558