When to stop contributing to a Roth IRA?

[PDXstash]

(Preface:  MMM has addressed the issue a bit with his "how much is too much" retirement savings article, but I am curious how others handle this issue.)  When do you say that enough is enough in your retirement accounts?  Assuming a 4% after-inflation return from now until my spouse and I are 59.5 (20+ years), the amount we have invested in retirement accounts (50-50 between traditional/Roth) should be more than enough to sustain us indefinitely, even using a 3% withdrawal rate. 

What we don't have, however, is sufficient stash in non-retirement accounts to ER now.  I'm aware of the Roth conversion ladder but have always viewed early retirement as a two-pronged problem, the first prong being retirement account funding (most important, to provide compounding time), and the second prong being taxable account/paid off house to sustain us until 59.5.  The problem is, as compared to a taxable account, the Roth is so great that it's hard to stop!  Maybe I should abandon this bifurcated approach and keep contributing to the Roth knowing that I plan to withdraw those years of contributions before 59.5?  (I don't find traditional IRAs, 401ks, etc very compelling as I am in the 15% bracket and there are more restrictions.)

Thoughts?

[dandarc]

https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/

[dandarc]

Sorry - saw 59.5 multiple times, and figured it was another "how do I get to retirement accounts early?" question.

The more basis you have in Roth, the easier it is to get your Roth-Ladder going.  Personally, I wouldn't do a taxable account if I had any tax-advantaged investment space still available.

[tarheeldan]

I think this is just another version of that dandarc, and that the link you provided was very appropriate.

OP, do you have 25x annual spending in your total portfolio right now? Then you could be done, just make sure you have enough in taxable + Roth to cover the next 5 years before the ladder gets going. See dandarc's link. Sounds like you are more conservative than 4% swr, so tweak accordingly.

If not, then figure out when you want to FIRE and plan accordingly. I didn't see a FIRE date in there anywhere.

[PDXstash]

@dandarc,

Fair enough.  It just feels strange not to do much in taxable . . .

Speaking of the Roth ladder, it doesn't seems like anyone on the forum is concerned that the laws that enable this might change in the future.  I suppose people are just willing to take the 10% penalty risk (on top of lower ER tax rates, so maybe a wash) if the Roth ladder becomes unavailable?

[PDXstash]

@tarheeldan

No, don't have that much yet.  On the general nature of the post, I suppose my real question is whether everyone is taking the max out tax advantaged accounts then find ways to get to them later approach or if anyone follows the two-prong approach.  I get the logic behind the tax-advantaged all the way approach, but I find myself resisting a bit nonetheless . . .

[Gone Fishing]

Speaking of the Roth ladder, it doesn't seems like anyone on the forum is concerned that the laws that enable this might change in the future.  I suppose people are just willing to take the 10% penalty risk (on top of lower ER tax rates, so maybe a wash) if the Roth ladder becomes unavailable?

Rule 72(t) is the backup to the ladder.  http://www.investopedia.com/terms/r/rule72t.asp
It is less flexible (once you start you are pretty much locked in until 59.5), but there is nothing to say you have to spend it all.

[dandarc]

Another possible law change - what if the capital gains and dividend tax rates go up?  They haven't always been 0% for the lower tax brackets. 

Or you could work enough time in a higher bracket in the future for the drag from the capital gains / dividend taxes to be significant.

All this is very specific to your situation.

[sser]

Fair enough.  It just feels strange not to do much in taxable . . .

Speaking of the Roth ladder, it doesn't seems like anyone on the forum is concerned that the laws that enable this might change in the future.  I suppose people are just willing to take the 10% penalty risk (on top of lower ER tax rates, so maybe a wash) if the Roth ladder becomes unavailable?

I share some of these same concerns, especially knowing that tax laws can change.

Because I do not currently have any big-purchase investments (like a house) and do not know when in the future I may choose to pursue one, I have been worried that I could put too much into the retirement accounts. Based on advice from this forum, though, I did increased the contributions but likely will not max them out yet.

Going by my current situation/ preferences, I want to maintain flexibility. Though I also want to put my saving to work in some way. It's sitting in a savings account with 1% APY right now, but I have been giving serious consideration to putting a good portion of it into a Vanguard taxable account with a more conservative ration (and leaning towards muni bonds).

If I already had a house and/or other big-purchases out of the way (or do not plan to make one), I would follow the general advice to max out the 401k and then contribute to the taxable account. Hoping that I will get to this point soon! Likely after I have built up a reasonable amount in a taxable account.

[MDM]

When do you say that enough is enough in your retirement accounts?

When IRS regulations prevent us from adding more.  Why pay more taxes than required?  Sure, tax law can change to penalize Roths, but it could also change to penalize capital gains in taxable accounts instead (as already mentioned).

Maybe I should abandon this bifurcated approach and keep contributing to the Roth knowing that I plan to withdraw those years of contributions before 59.5?

That seems a fine plan.

(I don't find traditional IRAs, 401ks, etc very compelling as I am in the 15% bracket and there are more restrictions.)

As long as you aren't missing out on a significant saver's credit by forgoing the traditional 401k...are you?

[GGNoob]

I don't find traditional IRAs, 401ks, etc very compelling as I am in the 15% bracket and there are more restrictions.

My wife and I are contributing enough to retirement accounts that we'll officially be in the 15% tax bracket this year. I decided we'll start contributing to a Traditional IRA so we can take the 15% tax savings. Our effective federal tax rate for this year should be under 5% (we are very similar to the example here with no kids). When we retire early, we'll use the Roth IRA ladder to fund our retirement after our taxable account and my 457 account have been depleted. Even if we are in the 15% tax bracket, our effective tax rate will be less, so we'll still save money.

Here's a couple of good articles:
http://www.gocurrycracker.com/roth-sucks/
http://www.madfientist.com/traditional-ira-vs-roth-ira/

[MDM]

Even if we are in the 15% tax bracket, our effective tax rate will be less, so we'll still save money.

Effective is irrelevant in the Roth vs. Traditional comparison.  Marginal is all that matters.  See comments in the gocurrycracker article.