Author Topic: Non-Tax Sheltered Investments a Requirement for Early Retirement??  (Read 2688 times)

TheSonganator

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Does it make sense while preparing for early retirement to be investing everything into tax-sheltered retirement accounts?

Perhaps Iím missing something, but it seems like in order to retire early and live off of my investments I have to invest in non-tax sheltered accounts.

Letís use my situation as an example:
-Contributing $29k/yr to Roth TSP/IRAs.
-Not contributing anything non-tax sheltered accounts.
-Spouse is a student (no income), but weíre maxing out a spousal Roth IRA.
-~$200K in tax-sheltered investments (TSP/IRA).
-~$100k in non-tax sheltered investments.

My goal is to reach FI by age 42 (Iím 31), however, I canít draw on any of my tax-sheltered accounts without penalties (59.5 age minimum). By age 42 I estimate Iíll have about ~$1m in total investments, but only ~$200k Iíll be able to withdraw without penalties from my taxable accounts.

For simplicity, letís assume my economic situation doesnít change and is stagnant over the next 11 years. Stretching $200,000 over a 17 year time frame will be tough, so does it make sense to be investing all $29,000 into tax sheltered retirement accounts?

forummm

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Alabaster

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Re: Non-Tax Sheltered Investments a Requirement for Early Retirement??
« Reply #2 on: April 11, 2015, 04:23:10 PM »
To save enough that I'm comfortable retiring early, I run out of tax advantaged space. So in that way I guess they are required...

SaintM

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Re: Non-Tax Sheltered Investments a Requirement for Early Retirement??
« Reply #3 on: April 11, 2015, 06:11:30 PM »
Once a Roth account (TSP or IRA) is open for 5 years, you can withdraw your contributions at any time...no tax or penalty.

Frankies Girl

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Re: Non-Tax Sheltered Investments a Requirement for Early Retirement??
« Reply #4 on: April 11, 2015, 06:56:09 PM »
Once a Roth account (TSP or IRA) is open for 5 years, you can withdraw your contributions at any time...no tax or penalty.

Slight correction. You can withdraw the contributions ANY time. You can put in $5,500 on December 1, 2015, and take it out the next day with no penalty.

You have to wait 5 years for a conversion to "season" before taking it out (a conversion from a traditional IRA). This is part of the Roth Pipeline method, and you can research further for the details.

And in most cases, you have to wait until 59.5  to withdraw any growth earned.


SaintM

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Re: Non-Tax Sheltered Investments a Requirement for Early Retirement??
« Reply #5 on: April 11, 2015, 08:45:31 PM »
Once a Roth account (TSP or IRA) is open for 5 years, you can withdraw your contributions at any time...no tax or penalty.

Slight correction. You can withdraw the contributions ANY time. You can put in $5,500 on December 1, 2015, and take it out the next day with no penalty.

You have to wait 5 years for a conversion to "season" before taking it out (a conversion from a traditional IRA). This is part of the Roth Pipeline method, and you can research further for the details.

And in most cases, you have to wait until 59.5  to withdraw any growth earned.

That's correct.

MDM

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Re: Non-Tax Sheltered Investments a Requirement for Early Retirement??
« Reply #6 on: April 11, 2015, 11:09:07 PM »
-Contributing $29k/yr to Roth TSP/IRAs.

As others have already mentioned, your Roth contributions are freely withdrawable at any time, so no problems there.

If you are able to contribute that much, you might be better off (depending on your tax bracket) contributing some or even all to traditional plans instead of Roth.