Author Topic: Individual brokerage vs 401k percentages retirement  (Read 344 times)


  • 5 O'Clock Shadow
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Individual brokerage vs 401k percentages retirement
« on: April 06, 2021, 09:11:59 AM »
If someone wants to retire letís say late 30s early 40s what percentage of net worth should be in 401k vs individual after tax brokerage like a fidelity or vanguard account
50/50 ?.   And then fully deplete individual fund over the next 25 to 30 years and then tap into 401k assuming in the 25 years the 401k grows enough to sustain

I guess the 4 percent rule would still apply correct


  • Bristles
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Re: Individual brokerage vs 401k percentages retirement
« Reply #1 on: April 06, 2021, 09:17:08 AM »
Doesnít really matter.
A traditional 401(k) can be rolled over to an IRA.
Look up Rule 72t withdrawals. It is possible to withdraw from an IRA prior to 59.5 and avoid the 10% penalty.


  • Magnum Stache
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Re: Individual brokerage vs 401k percentages retirement
« Reply #2 on: April 06, 2021, 09:37:55 AM »
You seem to be dividing into traditional 401k and taxable brokerage, but Roth can be an important piece of your puzzle, as can IRA, both traditional and Roth.

If someone is going to retire that early, they will likely be able to take advantage of the Roth conversion ladder while still controlling taxes. As such, they need enough in taxable + Roth contributions to get them through the first five years.

If you are in a particularly high tax bracket now, then it may even be advantageous to take a tax deduction now, then pay a much lower tax rate + the 10% penalty in early retirement.

As you can see there is no general rule of thumb split, as the results depend a lot on your own spending. However, the general order of investments still applies in most cases. Don't give up on tax deferred space out of some misguided understanding that you can't touch those funds until a certain age.

We likely will not meet our original taxable goals because we found out about the mega backdoor Roth, so now we have an extra ~$30k each year going into Roth, along with all of its growth over the last few years.


  • Walrus Stache
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Re: Individual brokerage vs 401k percentages retirement
« Reply #3 on: April 06, 2021, 11:13:13 AM »
If we assume the Roth pipeline, does a ~1:4 ratio of penalty free:tax-deferred work?

If we assume 25x expenses using the 4% rule,  and 5 years of expenses, either from brokerage accounts or Roth contributions, to bridge the gap, then the remaining savings can be in tax-deferred vehicles.



  • Magnum Stache
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Re: Individual brokerage vs 401k percentages retirement
« Reply #4 on: April 06, 2021, 11:49:04 AM »
If you have the tax-advantaged space. 20% of assets in Roth contributions (and/or unclaimed HSA reimbursements) will probably provide sufficient flexibility. If you expect to use up all your tax-advantaged space, this value can be decreased (allowing more traditional space), but it might not be a 1:1 relationship because selling assets in taxable space will cause you to realize income in addition to the Roth conversions being used to fund the ladder. If the only concern were income taxes, a frugal early retiree would likely be in 0% LTCG territory (and a non-frugal early retiree probably ran out of tax advantaged space before hitting their target); however if ACA subsidies are in the mix, the target realized income level and target spending level may be a factor in how quickly the initial Roth conversion ladder can be built - there may be cases where taking an extra year to build the ladder is desirable which would require closer to 25%. Saving too much outside of tax deferred space could also be an issue for some early retirees who prefer ACA plans over medicaid and need to keep their realized income level high enough avoid medicaid qualification.


  • Magnum Stache
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Re: Individual brokerage vs 401k percentages retirement
« Reply #5 on: April 07, 2021, 04:59:00 AM »
What's your goal?  Early retirement?

Once you have a few years of financial runway, ie savings/taxable brokerage accounts you can access outside of your pre-tax buckets, it'll all work out