possible to have TOO MUCH in 401k account?

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manwithnoname
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Re: possible to have TOO MUCH in 401k account?

Post by manwithnoname »

Gattamelata wrote:
manwithnoname wrote: Just how much would the Inherited IRA increase your income? If you are 55 when you inherit the IRA the initial payment is only about 1/30 of the account balance which would be a minimum payment of about $3333 on an account value of 100,000.
I'll use my own numbers.

For my father's IRA: the account value at the end of last year was a bit under 400k, but let's just use 400k for simplicity. I'm 39 now. My dad was born in 1940 and died in 2005. Using Schwab's calculator and assuming a 6% rate of return, my RMD will be $41,560 the year I'm 65. Not exactly insignificant for income tax purposes.

For my uncle's IRA, which my father inherited and then passed on to me: last year's year end value was 270k. Since it was inherited from my father who inherited it from my uncle, my RMDs are over my father's life span. I use the same calculator, but the in this case the orimary beneficiary's date of birth is 1940, and original account holder's date of death is 2001. My RMD for this year will be $25,234, increasing over the next ten years. It won't impact my retirement tax rate, since I won't retire in that time, but if I had inherited it shortly before I retired it would have.
manwithnoname wrote: If you don't want the taxable income you can disclaim.
You're right, that is a way of dealing with this situation. In my case I'm the sole heir, so I never considered it an option.
Assuming that you are receiving 41k at 65 why not use it to pay your living expenses while you are in a low tax bracket so that you can transfer TIRA and 401k funds to a roth account which will reduce RMDs at 70 1/2. You can delay SS to 70 to reduce taxable income.

Since tax brackets are adjusted for inflation, at 2.5% inflation for 25 years the 15% bracket for a married couple when you are 65 will be about 137k (68.5k single) which will leave at least 27k in taxable space each year to transfer TIRAs at 15% bracket. If you don't need all of the income from the inherited IRA before retirement you could increase your fixed income AA in the inherited IRA to reduce the amount of the RMD and increase the equity allocation in the taxable investments which will lower your taxes if the taxable funds are invested in stocks that pay qualified dividends and capital gains. You could invest the RMDs of the inherited IRAs in muni bonds to reduce taxable income.
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Gattamelata
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Re: possible to have TOO MUCH in 401k account?

Post by Gattamelata »

BrandonBogle wrote:So if the problem is too much in distribution from your inherited IRA, then why not placing typical low paying assets, such as bonds into the IRA and place equity holdings in taxable? That will quickly bring the rate of return down and today's withdrawals with have a more serious impact against future value.
manwithnoname wrote: If you don't need all of the income from the inherited IRA before retirement you could increase your fixed income AA in the inherited IRA to reduce the amount of the RMD and increase the equity allocation in the taxable investments which will lower your taxes if the taxable funds are invested in stocks that pay qualified dividends and capital gains. You could invest the RMDs of the inherited IRAs in muni bonds to reduce taxable income.
Thanks, you guys, these are great ideas, and I'll work them into my plan. I think moving my bonds into the inherited IRA is a great idea. I have to take the lower returns, so it might as well be in the account where I have the least control of when the assets are taxed.

I do stand by my original point, which goes back to the OP: I think it is possible to have an unfavorably large proportion of assets in traditional-style retirement accounts. I'd be much happier if I had more of my own retirement assets in Roth vehicles. I've seen this concept referred to as "taxation diversification" - having some assets in traditional plans and some assets in Roth plans provides a measure of protection and flexibility. I envy people starting out now who have more options!
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zaboomafoozarg
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Re: possible to have TOO MUCH in 401k account?

Post by zaboomafoozarg »

The Wizard wrote:
zaboomafoozarg wrote:If returns are low going forward as is expected, then having too much in tax-deffer probably won't be as much of a problem as it was in the past.
Expected by whom?
I don't think last year's 30% gain in the S&P500 was expected by too many people.
You haven't been reading Financial P*rn again, have you?
Eh, probably just a lot of talking heads whose opinions don't matter. :happy Though I thought I even saw Jack mention it. I've seen enough people saying to expect low percentage returns to lower my hopes for the next 10 years or so.

Of course, if that happens it will actually be better for me since I'll still be buying instead of selling for the next 20 years.

But the talk still gets depressing at times. And trying to save as much as I possibly can and hoping that it all works out in the end gets tiring.
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Re: possible to have TOO MUCH in 401k account?

Post by z3r0c00l »

deuceplus wrote: 2) What if taxes are higher when you retire? http://taxfoundation.org/article/us-fed ... d-brackets for example, in 1983 the tax rate for income exceeding $34,100 (~80k in todays dollars) was 40%. Historically speaking, our taxes are low right now, especially compared to european countries. What happens if taxes take a turn significantly higher?
Yes, this is why I only contribute to get the max company match and no more. My company "temporarily" suspended the matching money, and so I now contribute only the minimum 2%. I am nearly certain that taxes will increase in the future and am happy to pay now because they are relatively low and I relatively poor.

Also, the fees in my 401K are 5 times higher than in taxable. Not insignificant, losing .25 - .35% to fees.
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House Blend
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Re: possible to have TOO MUCH in 401k account?

Post by House Blend »

z3r0c00l wrote:
deuceplus wrote: 2) What if taxes are higher when you retire? http://taxfoundation.org/article/us-fed ... d-brackets for example, in 1983 the tax rate for income exceeding $34,100 (~80k in todays dollars) was 40%. Historically speaking, our taxes are low right now, especially compared to european countries. What happens if taxes take a turn significantly higher?
Yes, this is why I only contribute to get the max company match and no more. My company "temporarily" suspended the matching money, and so I now contribute only the minimum 2%. I am nearly certain that taxes will increase in the future and am happy to pay now because they are relatively low and I relatively poor.

Also, the fees in my 401K are 5 times higher than in taxable. Not insignificant, losing .25 - .35% to fees.
Your bet may pay off, but the ratio of ERs is not what matters, it's the difference.

And a difference of 0.25 to 0.35 percent is actually pretty small. Depending on your tax rates (NYS/NYC of course is famous for high taxes) and what you are invested in, you could be losing at least twice that amount every year just from the taxes on dividends. And you should expect to pay capital gains tax, eventually.

And the bleeding from ERs will stop as soon as you change jobs and roll the accumulations over to an IRA. If at that point you are still convinced that you will pay higher taxes in retirement, you can convert to Roth. (Or use a Roth option now, if your employer offers it.) A year of dipping into a low tax bracket, such as might happen when you are between jobs, can make Roth conversions very attractive.

So your bet is something like
* tax rates you pay on your retirement account withdrawals (or at the point of Roth conversion), and
* compounding effects of ER differences (until a rollover occurs)
will be higher than the net of
* your current tax rate, and
* eventual cap gains taxes, and
* compounding effects of tax on dividends.

And note that since you are expecting tax rate increases, you should also be expecting increasing tax costs from dividends and cap gains.
latesaver
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
KlangFool
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
latesaver,

A) Would you work longer when your portfolio growth/income far exceeds your salary income? That is the first question that you need to answer. I know my answer would be no.

B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free.

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latesaver
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

KlangFool wrote: Wed Feb 20, 2019 2:38 pm
latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
latesaver,

A) Would you work longer when your portfolio growth/income far exceeds your salary income? That is the first question that you need to answer. I know my answer would be no.

B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free.

KlangFool
A) depending on the markets, my portfolio growth could exceed my salary. i am not sure how that is a proxy for measuring "too much" in a 401K

B) if i make $500K/year for example, pay 40% tax, i take home $300K. how does that contribute nothing to my take home pay?
senex
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Re: possible to have TOO MUCH in 401k account?

Post by senex »

latesaver wrote: Wed Feb 20, 2019 2:16 pm so, i ask - can you have too much in a 401K?
The creditor protections for a 401k are very good. The tax-free compounding and ability to tax-free rebalance are valuable.

The two main downsides are (a) inability to spend the money before retirement and (b) the gains must be withdrawn eventually and taxed at ordinary income tax rates.

It sounds (based on your after-tax savings) that (a) is a non-issue for you. That leaves (b), which is essentially impossible to model because of the uncertainty of tax rates 40 years hence. I don't know any reasonable way to model it: your tax bracket could be 0% or could be 70%.

I personally aim to have a mix of pre-tax, roth, and post-tax accounts.
02nz
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Re: possible to have TOO MUCH in 401k account?

Post by 02nz »

Latesaver, you might be taking KF a bit too literally. His point is that with a "large enough" 401k balance - and $2.7 M is large enough for many - you'll be able to just retire early and have lots of time in which to do Roth conversions at very attractive rates. For example, currently a couple with no other income can withdraw (and/or do Roth conversions) on $100K a year from their 401k's/traditoinal IRAs and pay just 9% federal income tax overall.

But yes, if you intend to keep working until 67-70, then it might make sense to switch some contributions to Roth, particularly at current lower tax rates (scheduled to expire in '25).
WhiteMaxima
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Re: possible to have TOO MUCH in 401k account?

Post by WhiteMaxima »

if your future RMD Taxed higher THAn today's rate, then it is too much. If you plan to retire early, then you can do planned Roth conversion to reduce future RMD. remember, you have to take RMD and SS at 70.
smitcat
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Re: possible to have TOO MUCH in 401k account?

Post by smitcat »

KlangFool wrote: Wed Feb 20, 2019 2:38 pm
latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
latesaver,

A) Would you work longer when your portfolio growth/income far exceeds your salary income? That is the first question that you need to answer. I know my answer would be no.

B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free.

KlangFool
What does this mean?
"B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free."
Tax rates are progressive but making more salary does not lead you to little or nothing in take home.
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Re: possible to have TOO MUCH in 401k account?

Post by RadAudit »

latesaver wrote: Wed Feb 20, 2019 2:16 pm can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
Probably. Not me. I was concerned about having enough - among other things. But, after retiring, I was able to live off SS, a small pension and a little inheritance for about 8 years. (Also I was unaware about Roth conversions and a lot of other things.) Now, at 70 1/2, with RMDs and with a good ten year run in stocks, income and taxes are higher than at any time in my life - which really isn't that high, all things considered. (I know. Poor me. First world problem.) Probably anchoring.

So, to answer your question, You might have to push a few numbers around the page and guess. How much money do you want? (Enough is a good answer. And that changes over time.) How much more than enough do you want vs. how much do you value the rapidly decreasing time you have left to do what you want to do? If you value time, may be the extra income from working isn't as important as you may think. May be not, if you really like working for money just to have more than enough. Which way are the markets going to go? Taxes?

It's sort of an individual thing.
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Admiral
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Re: possible to have TOO MUCH in 401k account?

Post by Admiral »

Latesaver:

a portion of the money in your retirement account (the amount that you received in lieu of paying the tax) is not yours. It's the government's. You are the custodian. In your case, you're getting to make a lot of money on that money...because it's a lot to begin with. Yes, there are ways to minimize the tax hit(s) later on. But at your salaries it's HIGHLY unlikely you will pay 35% tax on your withdrawals. And even if you do, because of progressive taxation, you will only be paying that rate after filling up many lower brackets first. This is one of the key benefits of pre-tax saving: you're saving the tax on your last dollar, but--upon withdrawal--paying it on your first.

You can always give money away to charity and pay nothing in tax if you have too much. If you're sitting on many many millions, I'd say that you can easily pay what you owe to the tax man as a "thank you" and not have it affect your lifestyle in the least.

Just my $.02.
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Re: possible to have TOO MUCH in 401k account?

Post by Darth Xanadu »

RadAudit wrote: Wed Feb 20, 2019 3:23 pm
So, to answer your question, You might have to push a few numbers around the page and guess. How much money do you want? (Enough is a good answer. And that changes over time.) How much more than enough do you want vs. how much do you value the rapidly decreasing time you have left to do what you want to do? If you value time, may be the extra income from working isn't as important as you may think. May be not, if you really like working for money just to have more than enough. Which way are the markets going to go? Taxes?

It's sort of an individual thing.
Very good answer.

To latesaver, I would say, generally, no, you can't have too much in tax-deferred accounts. Of course, hypothetically at least, there comes a point of diminishing returns, where enormous RMDs puts you well into the highest possible income tax bracket, which may at that point be even higher than the top marginal rates at which you deferred the taxes.

Realistically, it sounds like you are adding to taxable as well, so I think as long as you balance saving into various accounts with different tax treatments, you will end up with flexibility to adapt to the unknown future.
Last edited by Darth Xanadu on Wed Feb 20, 2019 3:42 pm, edited 1 time in total.
retire2022
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Re: possible to have TOO MUCH in 401k account?

Post by retire2022 »

NYnative wrote: Wed Jun 04, 2014 8:10 pm IMHO, it's very possible to have too much of your assets tied up in tax deferred accounts of any kind. Not being able to touch them until separated is a big factor, but more importantly are the problems that can result from raising your tax bracket, losing deductions and possibly raising your Medicare premium. If you have very little in non tax differed accounts and have to pull too much money out of the tax deferred ones, you can face tax issues, especially since new brackets and penalties for high earners have been recently created.

We have all been told to put as much as we can into IRAs, 401ks, 203bs, etc. That's great if you expect a significant drop in living expenses and income when you retire. But, for many of us, especially in our early retirement years, we are way to active for such a drop to happen.

If I had it to do over again, I'd save more in taxable accounts and Roth type accounts, which, unfortunately, were not offered to me until my last 2 years of work.
I agree, my 457b is 1.million and I've decided to retire early this coming year for the RMD issue. I have a pension projected at 60K per year. I am projected to have a 1.6 million, that is 1.0 million @6% from compound interest in 11 years ( 70.5) lots of folks will disagree with anti traditional.

I am single and in 24% tax bracket. Yes I received tax deduction during the 29 years I've contributed 351K to traditional but in 11 years I will be taxed on my profits, not fair trade in my opinion.

This will make me a more conservative investor, like 1% rate of return and Roth Ladder, which is lot higher than if I had not taken tax deduction, but Roth was not available in 1990, and was not available until 2011.
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

latesaver wrote: Wed Feb 20, 2019 2:49 pm
KlangFool wrote: Wed Feb 20, 2019 2:38 pm
latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
latesaver,

A) Would you work longer when your portfolio growth/income far exceeds your salary income? That is the first question that you need to answer. I know my answer would be no.

B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free.

KlangFool
A) depending on the markets, my portfolio growth could exceed my salary. i am not sure how that is a proxy for measuring "too much" in a 401K

B) if i make $500K/year for example, pay 40% tax, i take home $300K. how does that contribute nothing to my take home pay?
latesaver,

A) If you retire at 50 years old instead of 65, you would not have "too much" in a 401K.

B) If your salary income is $500K/year but your investment income is 300K/year, then, how much does your 500K/year salary translate into take-home pay? Is it worth the effort?

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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

smitcat wrote: Wed Feb 20, 2019 3:21 pm
What does this mean?
"B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free."
Tax rates are progressive but making more salary does not lead you to little or nothing in take home.
smitcat,

It is relative. If your investment income is several times bigger than your salary income, then, your salary income would have a high marginal tax rate and low contribution to the bottom line.

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Re: possible to have TOO MUCH in 401k account?

Post by ray.james »

Compounded tax free on untaxed amount leads to far larger net worth especially for prolific savers. However when we did the math it had to be over 1.8million per person when combined with social security etc to matter. So for a couple this is 3.5 million which is an extremely large number. Combine that with career uncertainty, early retirement(as in before 67 social security age) etc., can stretch this number further. Further, if one have charity aspiration in future; QCD can help substantially and this further stretches that number. We have come to realize we do not need to worry at all as we may never make that much even if both of us saved.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

smitcat wrote: Wed Feb 20, 2019 3:21 pmWhat does this mean?
"B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free."
Tax rates are progressive but making more salary does not lead you to little or nothing in take home.
It's not that you would be working for free, but you would be working without any personal need to. If your portfolio is 25X or 30X your annual spending needs, then you do not need to keep working for money.
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

willthrill81 wrote: Wed Feb 20, 2019 3:48 pm
smitcat wrote: Wed Feb 20, 2019 3:21 pmWhat does this mean?
"B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free."
Tax rates are progressive but making more salary does not lead you to little or nothing in take home.
It's not that you would be working for free, but you would be working without any personal need to. If your portfolio is 25X or 30X your annual spending needs, then you do not need to keep working for money.
willthrill81,

One of my peers received 10 million from his startup job at 40+ years old. He quit his day job as an Engineer earning 150K to 200K per year.

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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
As others have noted, there's rarely a good reason to favor a taxable account over a tax-deferred account like a 401k.

You didn't say anything about your spending needs, but it sounds like you might be a great candidate for early retirement.
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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

KlangFool wrote: Wed Feb 20, 2019 3:52 pm
willthrill81 wrote: Wed Feb 20, 2019 3:48 pm
smitcat wrote: Wed Feb 20, 2019 3:21 pmWhat does this mean?
"B) Especially when you know that your salary income would be heavily taxed until it really contributes little to nothing to your take-home pay. Aka, you are working for free."
Tax rates are progressive but making more salary does not lead you to little or nothing in take home.
It's not that you would be working for free, but you would be working without any personal need to. If your portfolio is 25X or 30X your annual spending needs, then you do not need to keep working for money.
willthrill81,

One of my peers received 10 million from his startup job at 40+ years old. He quit his day job as an Engineer earning 150K to 200K per year.

KlangFool
And justly so. Why would you keep working 2,000 hours a year (or more) when your portfolio is likely returning double that? I know that there are many things I would rather do in life than work for money.
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

thanks to all for the comments.

creditor protection is a good point, as is charitable giving, as are many others.

FWIW i do plan to retire early. assuming i don't lose my current job, probably in 5-10 years. my illustration above was assuming that both my wife and i work only 5 more years, contributing the max, and we both retire in our mid/early 40s. the 401K balances would still be large when RMDs would kick in.

in reality we have an 18 month old and will have another hopefully so were i to post a "can i retire" thread, the answer would probably be no even though we have ~30 years of expenses saved up in investments, a $750K house and no debt.

i will be doing roth conversions to minimize the tax hit.

[OT comment removed by admin LadyGeek]
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

willthrill81 wrote: Wed Feb 20, 2019 3:54 pm
latesaver wrote: Wed Feb 20, 2019 2:16 pm
freddie wrote: Wed Jun 04, 2014 9:16 pm I would love to pay 1 billion in taxes on my 401(k):) It is impossible to have too much money in a 401(k). It is possible that other actions may have been more optimal.
I am reviving this old thread rather than starting a new one.

my wife (35 y/o) and I (39 y/o) have around $900K in our combined 401Ks. She has a great company match (safe harbor) and i can reliably put in $55K per year in a solo 401K. combined, i estimate we can contribute $90K per year.

assuming we contribute $90K (no increases) just another 5 years and stop, and then FV that to when i am 65 yrs old, our account balances would be anywhere from $2.7M at 3% growth to $8M at an 8% growth.

we do contribute sizable amounts to taxable accounts as well.

so, i ask - can you have too much in a 401K?

has anyone tried to quantify or optimize the amount contributed to their 401K?
As others have noted, there's rarely a good reason to favor a taxable account over a tax-deferred account like a 401k.

You didn't say anything about your spending needs, but it sounds like you might be a great candidate for early retirement.
Please note that if his tax-deferred account is at size X, his taxable account is at least at the same size if not larger.

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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

latesaver wrote: Wed Feb 20, 2019 3:56 pm thanks to all for the comments.

creditor protection is a good point, as is charitable giving, as are many others.

FWIW i do plan to retire early. assuming i don't lose my current job, probably in 5-10 years. my illustration above was assuming that both my wife and i work only 5 more years, contributing the max, and we both retire in our mid/early 40s. the 401K balances would still be large when RMDs would kick in.

in reality we have an 18 month old and will have another hopefully so were i to post a "can i retire" thread, the answer would probably be no even though we have ~30 years of expenses saved up in investments, a $750K house and no debt.

i will be doing roth conversions to minimize the tax hit.

[OT comment removed by admin LadyGeek]
latesaver,

<<we both retire in our mid/early 40s. the 401K balances would still be large when RMDs would kick in.>>
<<i will be doing roth conversions to minimize the tax hit.>>

You have 20 to 30 years to do your Roth conversion before 70 1/2 years old. So, how could your 401K be large when the RMD kick in? If it does, it is because you choose not to Roth convert that money.

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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

latesaver wrote: Wed Feb 20, 2019 3:56 pm thanks to all for the comments.

creditor protection is a good point, as is charitable giving, as are many others.

FWIW i do plan to retire early. assuming i don't lose my current job, probably in 5-10 years. my illustration above was assuming that both my wife and i work only 5 more years, contributing the max, and we both retire in our mid/early 40s. the 401K balances would still be large when RMDs would kick in.

in reality we have an 18 month old and will have another hopefully so were i to post a "can i retire" thread, the answer would probably be no even though we have ~30 years of expenses saved up in investments, a $750K house and no debt.

i will be doing roth conversions to minimize the tax hit.

[OT comment removed by admin LadyGeek]
If you have over 30 times what your annual spending would be if you were retired (e.g. paying your own health insurance and any other potential employment benefits), then I'd say that you're a solid candidate for early retirement right now.

Don't worry about RMDs. They are very unlikely to be a problem if you retire early. It takes about $4.8 million of tax-deferred income to fill up the standard deduction, the 10%, 12%, 22%, and 24% tax brackets. My guess is that you're at least in the 24% bracket right now, probably higher.

Roth conversions will be a big boon to you as well.
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Re: possible to have TOO MUCH in 401k account?

Post by gluskap »

Yes it's possible to have too much in a 401k account but if you do it also probably means that you worked longer than you needed to. We plan to contribute the max to our 401k while we are working. Luckily for us we also make enough to also contribute to a backdoor Roth IRA as well as to taxable accounts so we are using a tax diversification strategy. I'd be interested in knowing what the exact number is in the 401k before it makes sense to stop contributing or stop working. I think this will depend on what your income is, how much you are saving, and how much your expenses will be in retirement. For us, back of the envelope calculation we plan to retire when we have $2-2.5M in investments and a paid off house. Hopefully this will be in another 10 years or so when we are around 50 and 52. Ideal ratio for us would be 50/50 tax deferred/taxable but unfortunately we are not able to save quite that much in taxable. I think currently we have about $600k tax deferred and about $200k taxable so more of a 75/25 ratio. With max contributions to 401k at $19k each ($38k/year for both), backdoor Roth IRA ($11k/year for both), and taxable contributions at about $24k/year for both we should be somewhere between the two ratios at the time we retire. That will give us plenty of time to do Roth conversions from 50/52 to 70 when we plan to collect SS. I think everyone will have to do the math depending on their circumstances and when they plan to retire to determine the optimum amount in their 401k. But I think this amount can easily go up to $2M which most people will probably not have that much saved so for most maxing out their 401k with an early retirement should not be an issue.
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

again, i appreciate everyone's comments.

i wanted to stay away from specifics but without specifics the comments don't always hit the point.

we are indeed candidates for early retirement. however i do not think my wife will retire and she alone makes over $200K per year. so roth conversions aren't really available until she stops making income. if we retire with too much money b/c we worked until 50 instead of 45 (oh the horror), we will spend it or pass it on.

i am not encouraging her to retire either, she enjoys her job, has unbelievable benefits, and has moved up the corp ladder faster than almost anyone in her organization. plus as i said we will likely have a second child and her benefits will come in handy. even if i told her to retire b/c we don't need it, she would want to keep working. and i am fine with that.

we are lucky in that we LBYM and earn, after tax, anywhere from 7 to 10 times what our annual spending needs are. i will reiterate - we are lucky. that luck allows us to potentially have huge 401K balances. i would rather leave an inheritance to my kids or to a charity than pay the government.
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

latesaver wrote: Wed Feb 20, 2019 6:35 pm again, i appreciate everyone's comments.

i wanted to stay away from specifics but without specifics the comments don't always hit the point.

we are indeed candidates for early retirement. however i do not think my wife will retire and she alone makes over $200K per year. so roth conversions aren't really available until she stops making income. if we retire with too much money b/c we worked until 50 instead of 45 (oh the horror), we will spend it or pass it on.
latesaver,

<< however i do not think my wife will retire and she alone makes over $200K per year. >>

That is not necessarily true. Instead of pay 30+% tax, you Roth convert at 20+%. You still save taxes. It is just not as much as you like.

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Re: possible to have TOO MUCH in 401k account?

Post by Dottie57 »

You are right. Specifics always are needed to give good feedback.

But still I don’t see that maxing 401k is a problem. I would always push for at least 15% of gross to go to 401k up to max allowed. After that is done , taxable is fine. I can see the need for available finds for various needs.

Long term needs needed to start being financed now. Really good to do it in a way that benefits you yax wise now in the present.
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Re: possible to have TOO MUCH in 401k account?

Post by pdavi21 »

If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
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Re: possible to have TOO MUCH in 401k account?

Post by randomguy »

pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

randomguy wrote: Wed Feb 20, 2019 7:08 pm
pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
If I understand you correctly that is absolutely not true in our situation. There is clearly a cost to oversaving in a 401k in my situation.
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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

latesaver wrote: Wed Feb 20, 2019 8:49 pm
randomguy wrote: Wed Feb 20, 2019 7:08 pm
pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
If I understand you correctly that is absolutely not true in our situation. There is clearly a cost to oversaving in a 401k in my situation.
What is not true in your situation? You can access 401k funds prior to age 59.5 without too much difficulty.
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Re: possible to have TOO MUCH in 401k account?

Post by KlangFool »

latesaver wrote: Wed Feb 20, 2019 8:49 pm
randomguy wrote: Wed Feb 20, 2019 7:08 pm
pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
If I understand you correctly that is absolutely not true in our situation. There is clearly a cost to oversaving in a 401k in my situation.
latesaver,

You should check out this link.

https://www.madfientist.com/how-to-acce ... nds-early/

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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

KlangFool wrote: Wed Feb 20, 2019 8:57 pm
latesaver wrote: Wed Feb 20, 2019 8:49 pm
randomguy wrote: Wed Feb 20, 2019 7:08 pm
pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
If I understand you correctly that is absolutely not true in our situation. There is clearly a cost to oversaving in a 401k in my situation.
latesaver,

You should check out this link.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
I have read mad fientist, kitces, etc.

My point is that if my wife continues to work and earn $200k per year, I cannot convert 401k funds to Roth at tax rates that most folks deem “acceptable”.

I could perhaps do 72(t). Admittedly I haven’t looked into that.
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Re: possible to have TOO MUCH in 401k account?

Post by LadyGeek »

This thread is now in the Investing - Theory, News & General forum (general discussion).
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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

latesaver wrote: Wed Feb 20, 2019 9:40 pm
KlangFool wrote: Wed Feb 20, 2019 8:57 pm
latesaver wrote: Wed Feb 20, 2019 8:49 pm
randomguy wrote: Wed Feb 20, 2019 7:08 pm
pdavi21 wrote: Wed Feb 20, 2019 7:05 pm If your retirement account balance is going to cover all expenses from age 59.5-death, and your taxable account is not going to have enough to cover the expenses from early retirement-59.5, you might have too much in retirement accounts. Most retire after 59.5, so maxing is optimal.
Nah. If you had more money in retirement accounts, you could use it for retirement expenses before 59.5. There are plenty of ways to do it penalty free.
If I understand you correctly that is absolutely not true in our situation. There is clearly a cost to oversaving in a 401k in my situation.
latesaver,

You should check out this link.

https://www.madfientist.com/how-to-acce ... nds-early/

KlangFool
I have read mad fientist, kitces, etc.

My point is that if my wife continues to work and earn $200k per year, I cannot convert 401k funds to Roth at tax rates that most folks deem “acceptable”.
The tax rate is "acceptable," by my way of thinking, if your withdrawals down the road from will put you into at least the same tax bracket. For instance, we plan to be in the 12% bracket throughout retirement (unless the market treats us really well and we move into the 22% bracket), and it's extremely unlikely that we'll go below that level. Therefore, it makes sense for us to do Roth conversions up to the top of the 12% bracket, prepaying what we would otherwise be paying in withdrawals from tax-deferred accounts. This is better for heirs and reduces RMDs (not that I'm really worried about RMDs mind you). This works especially well for us because we will likely defer Social Security benefits until age 70 and will do Roth conversions until that time.
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Re: possible to have TOO MUCH in 401k account?

Post by wx27 »

If your wife continues to work, it seems your living expenses are adequately covered by her current employment income plus taxable investment income, so there's no need to think about tapping retirement assets early. Even if you both finally retire before retirement accounts can be tapped without complication, it seems you will have plenty in taxable to make ends meet in the meantime. Funding $X in expenses can be done fairly efficiently using taxable investment income and, if necessary, tax-planned withdrawals from taxable investments. Selling $Y of taxable assets will be part return-of-capital and part capital gain. Under current tax law, if your sole source of income is from investments, MFJ filers that have only qualified dividends and long-term capital gains can have just over $100k of income and have no federal tax liability after taking the standard deduction.

Your present marginal tax rate is likely the highest it will be, so the trade you are making with a traditional 401k contribution is the tax savings at your present marginal tax rate vs the average tax you pay on your 401k withdrawals later (or average tax paid on conversions to Roth). A potential downside to having "too much" in traditional 401k assets is having a high enough RMD that your capital gains from taxable accounts get pushed from 0% to 15%/20%/23.8%.

Hopefully your taxable assets are invested in tax-efficient vehicles where you have more control over realized gains over time. Unexpected capital gain distributions from actively managed mutual funds can wreak havoc on your ability to do tax planning/optimization year by year.

Getting back to that 18-month-old, have you started thinking about 529 plan maximization strategies? Double that if you plan to have a 2nd child...
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Re: possible to have TOO MUCH in 401k account?

Post by wx27 »

willthrill81 wrote: Wed Feb 20, 2019 9:55 pm
The tax rate is "acceptable," by my way of thinking, if your withdrawals down the road from will put you into at least the same tax bracket. For instance, we plan to be in the 12% bracket throughout retirement (unless the market treats us really well and we move into the 22% bracket), and it's extremely unlikely that we'll go below that level. Therefore, it makes sense for us to do Roth conversions up to the top of the 12% bracket, prepaying what we would otherwise be paying in withdrawals from tax-deferred accounts. This is better for heirs and reduces RMDs (not that I'm really worried about RMDs mind you). This works especially well for us because we will likely defer Social Security benefits until age 70 and will do Roth conversions until that time.
Don't forget that your tax impact when doing those Roth conversions isn't just 12% when filling up the 12% bracket if you also have any QD or LTCG that year. Filling up the 12% bracket with Roth conversion will shift the favorable taxation of QD/LTCG from 0% to 15%, so your true marginal rate for that last dollar of Roth conversion is 12%+15%=27%. Worth it only if you deferred present-day marginal taxes of 27% or higher (simplified analysis).
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Re: possible to have TOO MUCH in 401k account?

Post by willthrill81 »

wx27 wrote: Wed Feb 20, 2019 10:41 pm
willthrill81 wrote: Wed Feb 20, 2019 9:55 pm
The tax rate is "acceptable," by my way of thinking, if your withdrawals down the road from will put you into at least the same tax bracket. For instance, we plan to be in the 12% bracket throughout retirement (unless the market treats us really well and we move into the 22% bracket), and it's extremely unlikely that we'll go below that level. Therefore, it makes sense for us to do Roth conversions up to the top of the 12% bracket, prepaying what we would otherwise be paying in withdrawals from tax-deferred accounts. This is better for heirs and reduces RMDs (not that I'm really worried about RMDs mind you). This works especially well for us because we will likely defer Social Security benefits until age 70 and will do Roth conversions until that time.
Don't forget that your tax impact when doing those Roth conversions isn't just 12% when filling up the 12% bracket if you also have any QD or LTCG that year. Filling up the 12% bracket with Roth conversion will shift the favorable taxation of QD/LTCG from 0% to 15%, so your true marginal rate for that last dollar of Roth conversion is 12%+15%=27%. Worth it only if you deferred present-day marginal taxes of 27% or higher (simplified analysis).
Thankfully, I can put over 50% of my gross income into tax-advantaged accounts and so have no need for taxable accounts.
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

wx27 wrote: Wed Feb 20, 2019 10:35 pm If your wife continues to work, it seems your living expenses are adequately covered by her current employment income plus taxable investment income, so there's no need to think about tapping retirement assets early. Even if you both finally retire before retirement accounts can be tapped without complication, it seems you will have plenty in taxable to make ends meet in the meantime. Funding $X in expenses can be done fairly efficiently using taxable investment income and, if necessary, tax-planned withdrawals from taxable investments. Selling $Y of taxable assets will be part return-of-capital and part capital gain. Under current tax law, if your sole source of income is from investments, MFJ filers that have only qualified dividends and long-term capital gains can have just over $100k of income and have no federal tax liability after taking the standard deduction.

Your present marginal tax rate is likely the highest it will be, so the trade you are making with a traditional 401k contribution is the tax savings at your present marginal tax rate vs the average tax you pay on your 401k withdrawals later (or average tax paid on conversions to Roth). A potential downside to having "too much" in traditional 401k assets is having a high enough RMD that your capital gains from taxable accounts get pushed from 0% to 15%/20%/23.8%.

Hopefully your taxable assets are invested in tax-efficient vehicles where you have more control over realized gains over time. Unexpected capital gain distributions from actively managed mutual funds can wreak havoc on your ability to do tax planning/optimization year by year.

Getting back to that 18-month-old, have you started thinking about 529 plan maximization strategies? Double that if you plan to have a 2nd child...
Very thoughtful response.

Also, to no one in particular, my issues are mostly good problems to have, I get it. Good problems are still problems though.

It may sound sexist but if I were to retire i wouldn’t feel right asking my wife to pay the bills with her salary while
I pursued my hobbies. So I’d need to come up with my fair share somehow. I have enough in taxable to do so.

Re the 529, I funded a NY Saves 529 as soon as I had the little ones SSN. At 19 months old with $23K in it already, he’ll be fine.
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Re: possible to have TOO MUCH in 401k account?

Post by smitcat »

latesaver wrote: Wed Feb 20, 2019 6:35 pm again, i appreciate everyone's comments.

i wanted to stay away from specifics but without specifics the comments don't always hit the point.

we are indeed candidates for early retirement. however i do not think my wife will retire and she alone makes over $200K per year. so roth conversions aren't really available until she stops making income. if we retire with too much money b/c we worked until 50 instead of 45 (oh the horror), we will spend it or pass it on.

i am not encouraging her to retire either, she enjoys her job, has unbelievable benefits, and has moved up the corp ladder faster than almost anyone in her organization. plus as i said we will likely have a second child and her benefits will come in handy. even if i told her to retire b/c we don't need it, she would want to keep working. and i am fine with that.

we are lucky in that we LBYM and earn, after tax, anywhere from 7 to 10 times what our annual spending needs are. i will reiterate - we are lucky. that luck allows us to potentially have huge 401K balances. i would rather leave an inheritance to my kids or to a charity than pay the government.
With those types of savings and little drain by spending conversions should likely be modeled up to the $339K limit for the 24% bracket.
I have found that the extended IORP is a good start with the RPM spreadsheet/calculator giving the most detail and value but with much more work involved. Specifically if you are leaving assets to your heirs the placement of those might be important in your plans.
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Re: possible to have TOO MUCH in 401k account?

Post by TomatoTomahto »

latesaver wrote:It may sound sexist but if I were to retire i wouldn’t feel right asking my wife to pay the bills with her salary while
I pursued my hobbies. So I’d need to come up with my fair share somehow. I have enough in taxable to do so.
Well, it does sound sexist. You have an 18 month old and are considering having another child, but you think you’d pursue hobbies if you stopped working for a paycheck?

Ha :D Let me know how much time you have for hobbies after being a SAHD of 2. Not saying it will be zero time, but not enough to feel guilty about. Btw, I think many people would be offended by your reference to retirement; my kids “retired” me when they went off to college.
I get the FI part but not the RE part of FIRE.
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Re: possible to have TOO MUCH in 401k account?

Post by FoolMeOnce »

latesaver wrote: Thu Feb 21, 2019 5:24 am It may sound sexist but if I were to retire i wouldn’t feel right asking my wife to pay the bills with her salary while
I pursued my hobbies. So I’d need to come up with my fair share somehow. I have enough in taxable to do so.
To be clear, you'd pay LTCG taxes to withdraw from a taxable account while replacing that money in taxable via your wife's salary? That makes no sense. As long as she's maxing available tax-advantaged space, the rest should be used for expenses. (Also can fund a spousal backdoor Roth for you, or would that be off limits too?)
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Re: possible to have TOO MUCH in 401k account?

Post by latesaver »

TomatoTomahto wrote: Thu Feb 21, 2019 6:20 am
latesaver wrote:It may sound sexist but if I were to retire i wouldn’t feel right asking my wife to pay the bills with her salary while
I pursued my hobbies. So I’d need to come up with my fair share somehow. I have enough in taxable to do so.
Well, it does sound sexist. You have an 18 month old and are considering having another child, but you think you’d pursue hobbies if you stopped working for a paycheck?

Ha :D Let me know how much time you have for hobbies after being a SAHD of 2. Not saying it will be zero time, but not enough to feel guilty about. Btw, I think many people would be offended by your reference to retirement; my kids “retired” me when they went off to college.
Our son is in daycare from 8am-6pm. I would of course love to shuttle him and kid #2 back and forth. Retiring would not change our preference that our kids go to daycare.

Don’t follow the “reference to retirement” comment.

To the other poster above re LTCG, I have a few years of expenses in cash and munis.

My question from the start was more general in nature -can one have too much in a 401K. It sounds like for the most part, no. If you have too much there are ways around it via Roth conversions, charities, 72t, etc
The Wizard
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Re: possible to have TOO MUCH in 401k account?

Post by The Wizard »

willthrill81 wrote: Wed Feb 20, 2019 9:55 pm ...The tax rate is "acceptable," by my way of thinking, if your withdrawals down the road from will put you into at least the same tax bracket...
This is my thinking as well. So I did modest Roth conversions last year in the 24% Federal marginal bracket.
But I don't believe in converting to the top of any bracket.
So I converted enough to get my AGI up to where it will be in 2020 with zero Roth conversions.
Plan is to do same for 2019 as well.

My marginal bracket may revert back to 28% in six or seven years, we'll see...
Attempted new signature...
randomguy
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Re: possible to have TOO MUCH in 401k account?

Post by randomguy »

latesaver wrote: Wed Feb 20, 2019 9:40 pm
I have read mad fientist, kitces, etc.

My point is that if my wife continues to work and earn $200k per year, I cannot convert 401k funds to Roth at tax rates that most folks deem “acceptable”.

I could perhaps do 72(t). Admittedly I haven’t looked into that.
Is it more acceptable to pay those tax rates today? How is it better to pay 24% today and have the money in taxable where you will pay LTGG in the future versus paying 24% in the future and have the money end up in a ROTH with no future long term capital gains? Maybe there is some detail that is missing that makes it all clear but paying taxes now when you are at a high income (yours+wife) versus later doesn't seem like a great strategy. Feel free to let us know about the missing info that makes it all make sense.

And paying 24% is more than acceptable. It is much better than the 35%+ that the money went in at:) At lot of people don't make 200k/year. You shouldn't care what they consider acceptable.
wx27
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Re: possible to have TOO MUCH in 401k account?

Post by wx27 »

Important point:
Do you plan to stay in NY (are you presently in the NYC area?) when your kids are off to college/post-college?
There is a huge benefit for maxing out traditional 401k when living somewhere like NYC where your fed/state/city marginal rate is close to 50% and then just paying fed rates when withdrawing/converting if you happen later to switch to a state without an income tax.

Also, on the margin, there are some tax credits you may or may not qualify for depending on your AGI. The phaseout for the child tax credit (which in itself just doubled) is much higher than it used to be, so if you are close to the phaseout range, contributing to a traditional 401k can knock down the AGI so that your marginal tax savings are more than fed/state/city combined.

My view is that once you've accumulated enough assets to fund your expected future expenses/lifestyle, at that point continue to work if you find joy in what you are currently doing. If one or both of you still enjoy your current working environment, by all means continue doing so. If one of you gets more out of life pursuing hobbies or finding good volunteer causes, go for it. At that time, you'll have a better sense of how to tax-efficiently take care of current cash flow needs and other ways you can optimize your taxes, both with respect to current-year taxes and future taxes through Roth conversions or realizing LTCG in years when you have minimal income.
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