Author Topic: Roth IRA and FI  (Read 2007 times)


  • 5 O'Clock Shadow
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Roth IRA and FI
« on: April 11, 2014, 08:24:30 PM »
My son is 30 years old and would like to be FI in 20 years (I was FI and retired at 52). He has a crummy 401K at work. They only match up to $400 (max) a year and their fund is rated one star by Morningstar. He owns a small Condo outright (got it as a foreclosure) and needs to save about $600,000 to go FI. Using the 4% rule he needs about $24,000 per year in investment income.

He has a Vanguard Life Strategy moderate Growth fund (VSMGH) ROTH IRA and the same fund in a taxable account.

My advice to him was to forget the 401K,  max out the Roth IRA at $6000 per year and put an additional $9000 per year into the taxable account. In 20 years he will have invested $120,000 in principle and have $126,000 in growth in the Roth IRA and ("assume 7% growth) $369,000 in his taxable account. Using the 4% rule He can take out about $10,000 a year from the Roth IRA until age 60 ($100,000 total) and not pay a penalty or taxes. And take $14,000 a year from has taxable. To make up the income difference.

I haven't seen anyone recommend using a Roth IRA as a core holding for a FI fund as long as you don't withdraw more than you put in as principle to avoid the tax penality. I don't see a down side and you save the taxes. Am I missing something?


  • Senior Mustachian
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Re: Roth IRA and FI
« Reply #1 on: April 11, 2014, 09:09:37 PM »
You have to make the best of what you have.  Having only one fund (really?) available in the 401k sure lends credence to "crummy".

One minor points: max Roth contribution is $5500/yr, and a somewhat more important point: in 20 years (assuming 3% inflation) he will need $43,347/yr instead of $24,000/yr.

Just guessing but I suspect the low contribution limit for the Roth (and the consequently low accumulation potential) is the reason it isn't used as the core holding.  Making the most use of it is still a good idea.

Has he talked with the HR folks at his workplace about improving the 401k?