Author Topic: Taxable vs Retirement accounts?  (Read 1282 times)

WFUDEAC

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Taxable vs Retirement accounts?
« on: November 27, 2021, 10:30:46 AM »

Trying to decide if I continue to max fund Retirement accounts? Current employer doesn't have a match, but does have a Roth option.
I am almost 36 and hoping to majorily downshift by 40. Wife is SAH and may or may not return to some kind of employment in ~4 years when both kids are in school.

In the high end of the 22% tax bracket.

I feel like getting to $1M in taxable would make wife comfortable with whatever form of work I wish to pursue and the fastest way to get there is diverting annual retirement funding.

Currently have the following:

Total Retirement Accounts = $630K (seems like this should grow to more than enough by the time we reach 59 1/2)
- $285K in Roth
- $345K in Traditional

HSA - $60K (will continue to max fund annually)

Taxable Accounts - $395K

terran

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Re: Taxable vs Retirement accounts?
« Reply #1 on: November 27, 2021, 12:00:10 PM »
More traditional. With only 4 years of work left in which to contribute, 22 to 32 years after that before social security starts, and $345k in traditional I doubt withdrawals from that will ever push you above the 22% bracket you're in now.

Based on your comment about 59 1/2 it sounds like you should read through https://www.madfientist.com/how-to-access-retirement-funds-early/


EvenSteven

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Re: Taxable vs Retirement accounts?
« Reply #2 on: November 27, 2021, 05:30:26 PM »
Agree with Terran. If you have reasonably low expenses when you downshift at 40, that should leave you with lots of time for Roth conversions, no need to wait till 59.5.

I would keep on saving in tax advantaged accounts rather than taxable if I were you.

MustacheAndaHalf

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Re: Taxable vs Retirement accounts?
« Reply #3 on: November 28, 2021, 01:36:57 AM »
I feel like getting to $1M in taxable would make wife comfortable with whatever form of work I wish to pursue and the fastest way to get there is diverting annual retirement funding.
The IRS has a long list of situations where people can withdraw from an IRA before age 59.5, and not pay a penalty.  If your wife worries about any of these, it might be comforting to know there isn't a penalty compared to taxable.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

Have you shown her summary pages for each account, added them together and shown her the result?  Your various accounts total over a million (even if you subtract 22% from the Trad IRA, for taxes).

With a $1M portfolio, the conventional withdrawal rate of 4% means withdrawing $3,300/month for all expenses.  Given your salary, is that enough to pay for everything?  Maybe it still works, if that money isn't needed for another 10+ years.

WFUDEAC

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Re: Taxable vs Retirement accounts?
« Reply #4 on: November 28, 2021, 11:29:23 AM »
Thanks for the responses. Yes - I know there are ways to access Retirement accounts penalty free before 59 1/2.

Yes - plenty of time for Roth conversions or years with little/no income to convert LTGC from taxable account tax-free.

Will continue to save tax-deferred while employed.


cool7hand

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Re: Taxable vs Retirement accounts?
« Reply #5 on: November 29, 2021, 07:27:16 AM »
I feel like getting to $1M in taxable would make wife comfortable with whatever form of work I wish to pursue and the fastest way to get there is diverting annual retirement funding.
The IRS has a long list of situations where people can withdraw from an IRA before age 59.5, and not pay a penalty.  If your wife worries about any of these, it might be comforting to know there isn't a penalty compared to taxable.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

Have you shown her summary pages for each account, added them together and shown her the result?  Your various accounts total over a million (even if you subtract 22% from the Trad IRA, for taxes).

With a $1M portfolio, the conventional withdrawal rate of 4% means withdrawing $3,300/month for all expenses.  Given your salary, is that enough to pay for everything?  Maybe it still works, if that money isn't needed for another 10+ years.
+1

DaTrill

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Re: Taxable vs Retirement accounts?
« Reply #6 on: November 30, 2021, 06:42:05 PM »
A general heuristic is to aim for 50/50 between Regular and ROTH balances.  Any law change can make any advice today a mistake.  2017 tax act reduced taxes making past Regular more desirable, but ending stretch IRA made them less desirable.  I always hope for 50/50 but have never been close as most employers did not offer ROTH until recently.