Author Topic: Investment Order for Roth Pipeline  (Read 656 times)

yachi

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Investment Order for Roth Pipeline
« on: December 18, 2018, 07:04:40 AM »
I've looked over the Investment Order, but I don't have enough outside of retirement accounts to fund expenses until I can finish a Roth Pipeline.  I think I need 5 years of expenses outside of my retirement accounts.  Should I focus then on saving outside of these retirement accounts?
656K in IRA (roughly half Roth, half Traditional Rollover)
80k in 401(k) (nearly all Traditional)
71K in Cash Trading account
10k in checking account
Age: 35
Rough FIRE budget: $45k
Current Income: $80k

MDM

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Re: Investment Order for Roth Pipeline
« Reply #1 on: December 18, 2018, 08:09:53 AM »
656K in IRA (roughly half Roth, half Traditional Rollover)
71K in Cash Trading account
10k in checking account
Rough FIRE budget: $45k
Unless you have huge gains in the Roth IRA, it appears you already have the ~$225K needed for five years by using cash plus Roth contributions. 
As it will be a few more years (at least) until FIRE, continuing with the investment order and growing all accounts seems reasonable.

terran

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Re: Investment Order for Roth Pipeline
« Reply #2 on: December 18, 2018, 10:38:27 AM »
656K in IRA (roughly half Roth, half Traditional Rollover)
71K in Cash Trading account
10k in checking account
Rough FIRE budget: $45k
Unless you have huge gains in the Roth IRA, it appears you already have the ~$225K needed for five years by using cash plus Roth contributions. 
As it will be a few more years (at least) until FIRE, continuing with the investment order and growing all accounts seems reasonable.

Right, Roth contributions (not gains) can be withdrawn at any time tax and penalty free.

Remember to include tax on the conversions in your FIRE budget, so $45kx5=$225k only works if you've already accounted for paying tax out of that in addition to living expenses.

secondcor521

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Re: Investment Order for Roth Pipeline
« Reply #3 on: December 18, 2018, 11:55:56 AM »
656K in IRA (roughly half Roth, half Traditional Rollover)
71K in Cash Trading account
10k in checking account
Rough FIRE budget: $45k
Unless you have huge gains in the Roth IRA, it appears you already have the ~$225K needed for five years by using cash plus Roth contributions. 
As it will be a few more years (at least) until FIRE, continuing with the investment order and growing all accounts seems reasonable.

OP's Roth balance probably includes gains in addition to contributions.  We don't know if there's enough based on the Roth balance alone.

OP, I decided to switch from the 72(t) early retirement method to the Roth pipeline shortly before I retired.  I did the same thing as you did and totalled up my assets that were available for funding those first 5 years.  In my case I was close, so I went ahead and focused on saving in taxable accounts for a year or two which was enough to get me there.  But I was making a good income and also maxxing out my 401(k) and Roth IRA because I was saving 60% of my income, so it wasn't a hard decision.  If there were a tradeoff between tax-deferred and taxable investments, I guess one would just have to decide if it was worth it, which is a subjective decision.  Maybe you can time it and allocate your savings such that you'll hit your FI target at the same time that your 5 year pipeline is funded.

One additional wrinkle that may reduce the amount needed to about 4 years of expenses:  Roth conversions are considered made on January 1st of the year in which the conversion takes place, and can be removed and spent on January 1st of the fifth tax year afterward.  So a Roth conversion made today (12/18/18) would be treated as made on 1/1/18 and could be removed and spent as of 1/1/23.  Note that the actual time elapsed between 12/18/18 and 1/1/23 is a little more than 4 years.

Daisy

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Re: Investment Order for Roth Pipeline
« Reply #4 on: December 18, 2018, 02:02:32 PM »
You may want to contribute to an IRA or 401k and take the tax deduction while earning a high income and just pull out the money from the IRA and pay the 10% penalty while you wait for your Roth conversion pipeline to age the 5 years.

MadFIentist did a good analysis on this. Don't be afraid of the penalty, especially if you are in a high tax bracket during your earning years!

https://www.madfientist.com/how-to-access-retirement-funds-early/
« Last Edit: December 18, 2018, 02:55:57 PM by Daisy »