Author Topic: Accessing funds after retiring early?  (Read 2128 times)

ThePhilosopher

  • 5 O'Clock Shadow
  • *
  • Posts: 18
Accessing funds after retiring early?
« on: November 20, 2017, 04:38:18 PM »
Hello all,

I've read the pinned articles "Investment Order" and "How to withdraw funds from your IRA..." but I still don't fully understand how you are able to retire young (let's say at age 40) when the majority of your investments are in a 401k, IRA, HSA, and/or Roth IRA. To my understanding, these all have limitations on what you are able to withdraw.

Currently, I'm investing in the following manner:

  • $70,000 income before taxes
  • I've put 6% of my income in my company offered 401k to max out their one-to-one matching and they also have an addition 3% for free (15% total)
  • The remaining 50% of my take home income is being invested into Vanguard mutual funds

So I could potentially be putting more money in my 401k, open an HSA, and also a Traditional/Roth IRA. Since I planned to retire early, I wanted to be able to access my money, and if I put them in the above mentioned accounts, I didn't think I would be able to retrieve the ~$25-30,000 required to live.

Am I missing something, and should I be placing more money in these accounts to match the recommendations of the "Investment Order" thread?

Thanks!

SuperSecretName

  • Bristles
  • ***
  • Posts: 353
Re: Accessing funds after retiring early?
« Reply #1 on: November 20, 2017, 04:52:50 PM »
Am I missing something
yes.  roth conversion ladder + 5 years living expenses in taxable.

terran

  • Magnum Stache
  • ******
  • Posts: 3480
Re: Accessing funds after retiring early?
« Reply #2 on: November 20, 2017, 10:03:35 PM »
Am I missing something
yes.  roth conversion ladder + 5 years living expenses in taxable.

Yep, sounds like you need to reread "How to withdraw funds from your IRA..." It's all in there.

You'll need enough in roth contributions (not including gains) and taxable to cover 5 years of expenses including taxes on traditional to roth conversions and then you can withdraw the conversions tax and penalty free after the 5 year waiting period.

Mrbeardedbigbucks

  • Stubble
  • **
  • Posts: 179
  • Age: 47
  • Location: NH
Re: Accessing funds after retiring early?
« Reply #3 on: November 21, 2017, 04:21:55 AM »
Like the others have said, read more about the roth conversion ladder but at the same time, don't rely solely on roth conversions to provide the income you need during early retirement. It's certainly possible that legislation could eliminate or put a cap on roth conversions at some point in the future. I believe there was a bill drafted in senate last year to eliminate the backdoor roth and roth conversions.  I think it's smart to diversify account types.





boarder42

  • Walrus Stache
  • *******
  • Posts: 8097
Re: Accessing funds after retiring early?
« Reply #4 on: November 21, 2017, 04:26:14 AM »
You don't need 5 years expenses in taxable. You just need a 5 year bridge of funds which could include taxable or Roth contributions  hsa expenses not yet claimed  Or other income streams.

But it's quite simple. Convert what you'll need in 5 years from trad IRA to Roth IRA. Pay tax on it today then in 5 years the principal you rolled is withdrwabale tax free

kpd905

  • Handlebar Stache
  • *****
  • Posts: 1915
Re: Accessing funds after retiring early?
« Reply #5 on: November 21, 2017, 05:38:37 AM »
I'd start maxing out your 401k and a traditional IRA.  Go with the HSA if possible as well.

boarder42

  • Walrus Stache
  • *******
  • Posts: 8097
Re: Accessing funds after retiring early?
« Reply #6 on: November 21, 2017, 05:57:09 AM »
https://www.madfientist.com/how-to-access-retirement-funds-early/

also read this in most cases its even better to pay the 10% penalty and invest in the tax advantaged account than it is to do taxable.


nereo

  • Senior Mustachian
  • ********
  • Posts: 14913
  • Location: Just south of Canada
    • Here's how you can support science today:
Re: Accessing funds after retiring early?
« Reply #7 on: November 21, 2017, 06:29:10 AM »

Currently, I'm investing in the following manner:

  • $70,000 income before taxes
  • I've put 6% of my income in my company offered 401k to max out their one-to-one matching and they also have an addition 3% for free (15% total)
  • The remaining 50% of my take home income is being invested into Vanguard mutual funds

Why are you putting so little into your 401(k)?  ...and you are ignoring your IRA and HSA.
As others have said its easy to take money out, and even with a 10% penalty (largely avoidable) you'd come out ahead leveraging your tax-advantaged accounts. In short you are paying far more in taxes than you need to.