Author Topic: Additional Retirement Savings After 401k Funded  (Read 1416 times)

tombiowami

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Additional Retirement Savings After 401k Funded
« on: April 11, 2019, 06:31:15 AM »
Good Day!

I am 55, 95k salary; fully funding work 401k.

$400k in 401k; $30k in pension fund; owe $225 on house appraised at $400k. Do not want to move for at least 5 years.
No other debt.

Will likely inherit ~$650k worth of private stock within 5 years. Don't want to bank on that per se though. If that does happen, I would likely retire soon afterward, if it doesn't, then probably closer to 62 when SS would start.

I have started saving more and will have ~30k shortly and then likely another 15k per year going forward. I am currently looking at other jobs that would likely result in another 20k I could save.

My question is where should I start putting the new money I am saving? I typically like the standard US Total index fund, just wondering about the myriad of IRA and 401k options.

My employer offers post tax 401k contributions and a Roth. I could also setup a roth or ira outside of work; or simply invest in index funds outside of any retirement fund.

My current AGI is around 50k, so it seems it would it make sense for me to put 7k/year into a non-work standard IRA as I can deduct that money from federal taxes?
Any other ideas? I am thinking after the IRA of setting up a Roth IRA either with work or outside.
Thanks for any help!
Tommy

Gin1984

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Re: Additional Retirement Savings After 401k Funded
« Reply #1 on: April 11, 2019, 07:13:25 AM »
If you are above the deductibility of a traditional IRA, yes get a Roth.  But you are confusing two questions: should you take advantage of tax advantaged accounts and what funds should you invest in.  They are separate.  That said, I believe you should have tax diversity and have pre-tax accounts, a tax free account or accounts (like an Roth or HSA) and a taxable account if at all possible.  It gives you options.

RWD

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Re: Additional Retirement Savings After 401k Funded
« Reply #2 on: April 11, 2019, 07:18:18 AM »
Have you looked at the Investment Order post?

MDM

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Re: Additional Retirement Savings After 401k Funded
« Reply #3 on: April 11, 2019, 04:47:54 PM »
...probably closer to 62 when SS would start.

You might consider Social Security at 62? Letís Run the Numbers for this choice.

Finances_With_Purpose

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Re: Additional Retirement Savings After 401k Funded
« Reply #4 on: April 11, 2019, 08:38:50 PM »
Yes, as other poster said: you have separate questions.

First, your main question: what type of account should I pick?  I would diversify, especially at your age, and put some in a taxable account or at least a Roth. 

Tip: social security taxation is weird, and when you hit 70.5 the IRS makes you withdraw significant sums from those 401ks or you pay huge penalties (50%).  So you're going to want a lot in *NON* in tax-advantaged accounts before then, if possible, so you don't eat more in taxes. 

Second, and what I'm more familiar with: you want your higher-return investments NOT in tax-advantaged accounts once you're close to retirement.  I don't know whether you're that close, at 55, but once you get to 62, for instance, and take benefits, you want to be making more income outside of tax-advantaged accounts rather than paying full income taxes on it + incurring social security taxes if you have more gains in your IRA and have to withdraw that. 

With all of that said, you want to consult a CPA from here forward, because taxes are likely #1 for you from here on out in all your planning.  Even what I said above assumes that tax laws don't change in the next 10-15 years, which they are sure to. 

EvenSteven

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Re: Additional Retirement Savings After 401k Funded
« Reply #5 on: April 12, 2019, 08:15:16 AM »
Yes, as other poster said: you have separate questions.

First, your main question: what type of account should I pick?  I would diversify, especially at your age, and put some in a taxable account or at least a Roth. 

Tip: social security taxation is weird, and when you hit 70.5 the IRS makes you withdraw significant sums from those 401ks or you pay huge penalties (50%).  So you're going to want a lot in *NON* in tax-advantaged accounts before then, if possible, so you don't eat more in taxes. 

Second, and what I'm more familiar with: you want your higher-return investments NOT in tax-advantaged accounts once you're close to retirement.  I don't know whether you're that close, at 55, but once you get to 62, for instance, and take benefits, you want to be making more income outside of tax-advantaged accounts rather than paying full income taxes on it + incurring social security taxes if you have more gains in your IRA and have to withdraw that. 

With all of that said, you want to consult a CPA from here forward, because taxes are likely #1 for you from here on out in all your planning.  Even what I said above assumes that tax laws don't change in the next 10-15 years, which they are sure to.

As a general rule I would disagree with the bolded. Most people should have enough time between when they quit working and and when RMDs become onerous to do enough Roth conversions to make the RMDs a non-issue.

TomTX

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Re: Additional Retirement Savings After 401k Funded
« Reply #6 on: April 13, 2019, 03:46:46 PM »
Contribute $5,500 to a 2018 Roth IRA on Monday. Plus $6,000 for your 2019 Roth IRA.

Finances_With_Purpose

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Re: Additional Retirement Savings After 401k Funded
« Reply #7 on: April 14, 2019, 10:50:20 AM »
@EvenSteven I agree with that in general.  But with someone who's looking at potentially moving money the other way within five to seven years, maybe not.  And once you get to that point, maybe not, especially if you don't have enough in them to take you above the 85% taxable threshold.  Plus, even once retired, you get a certain bit of capital gains tax-free if your income is sufficiently low. 

The tough thing is that it's complicated enough and depends on the individual situation, which is precisely why OP needs a CPA, not random internet posters.  I pointed it out because it's counter-intuitive yet good for some folks, and OP's rough numbers indicate he might be in that bucket (depending upon the size of his SS benefit, etc.).  Really, my #1 suggestion is to get a really good CPA to optimize taxes tailored to your individual situation.  And spend some time planning for future years. 

The upshot here is that, either way, that one thing probably won't make a massive difference.