Should I Max Out Tax-Deferred Accounts?

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bryanm
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Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 12:16 pm

I am in the lucky position of having both a high contribution limit to 401(k) or equivalent accounts and the potential ability in the coming years to max them out. I'm a (junior) partner at a firm, and I can contribute to the employer side of my 401(k). Between that and my wife's 403(b), we have a contribution limit of around $60k. I also have access to a cash balance plan with substantial contributions limits (age-based, maxing out at over $100k), which is funded pre-tax and rolls into a traditional IRA periodically. If all goes well, I hope to be saving enough in the coming years to potentially max those out. I'm in my early thirties, so they will have some time to grow. I'm in a significant marginal tax bracket (~35+%).

I don't know yet if I want to work until 55, or potentially retire earlier. If I did retire early, I would likely be looking for total assets of around $2.5M (25*$100k). My concern is that if I max out my tax-advantaged accounts, I will reach that goal pretty quickly, but be locked into working until 55 to avoid penalties. Is it rational to put some money into a taxable account instead, to allow for potentially earlier withdraws, or am I throwing away money by not maxing tax-advantaged accounts?
Last edited by bryanm on Wed Aug 15, 2018 12:27 pm, edited 1 time in total.

rasta
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Re: Should I Max Out Tax-Deferred Accounts?

Post by rasta » Wed Aug 15, 2018 12:21 pm

if you retire early and need to use money from IRA's, you can set up 72t plans to avoid the 10% early withdraw penalty prior to age 59.5

TheHouse7
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Re: Should I Max Out Tax-Deferred Accounts?

Post by TheHouse7 » Wed Aug 15, 2018 12:24 pm

Yes, there are more than one ways to skin a cat. (you just have to catch it first) :annoyed
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.

bryanm
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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 12:26 pm

Had totally missed this option. Thank you! I will research. I assume that I would be able to pull at least 4% a year out using RMDs?

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FiveK
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Re: Should I Max Out Tax-Deferred Accounts?

Post by FiveK » Wed Aug 15, 2018 12:41 pm

bryanm wrote:
Wed Aug 15, 2018 12:26 pm
Had totally missed this option. Thank you! I will research. I assume that I would be able to pull at least 4% a year out using RMDs?
Investment Order and How to withdraw funds from your IRA and 401k without penalty before age 59.5, and links therein, may aid your research.

bryanm
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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 1:16 pm

FiveK wrote:
Wed Aug 15, 2018 12:41 pm
bryanm wrote:
Wed Aug 15, 2018 12:26 pm
Had totally missed this option. Thank you! I will research. I assume that I would be able to pull at least 4% a year out using RMDs?
Investment Order and How to withdraw funds from your IRA and 401k without penalty before age 59.5, and links therein, may aid your research.
Thank you!

aristotelian
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Re: Should I Max Out Tax-Deferred Accounts?

Post by aristotelian » Wed Aug 15, 2018 2:05 pm

rasta wrote:
Wed Aug 15, 2018 12:21 pm
if you retire early and need to use money from IRA's, you can set up 72t plans to avoid the 10% early withdraw penalty prior to age 59.5
TheHouse7 wrote:
Wed Aug 15, 2018 12:24 pm
Yes, there are more than one ways to skin a cat. (you just have to catch it first) :annoyed
Also take a look at Roth Conversion Ladder. Yes, you should max your pre-tax.

Dottie57
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Re: Should I Max Out Tax-Deferred Accounts?

Post by Dottie57 » Wed Aug 15, 2018 2:15 pm

Max it out and start/add to a taxable. I wish I had started taxable earlier.

bryanm
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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 2:56 pm

aristotelian wrote:
Wed Aug 15, 2018 2:05 pm
rasta wrote:
Wed Aug 15, 2018 12:21 pm
if you retire early and need to use money from IRA's, you can set up 72t plans to avoid the 10% early withdraw penalty prior to age 59.5
TheHouse7 wrote:
Wed Aug 15, 2018 12:24 pm
Yes, there are more than one ways to skin a cat. (you just have to catch it first) :annoyed
Also take a look at Roth Conversion Ladder. Yes, you should max your pre-tax.
Appreciate it! I am very rapidly coming to that realization.

Pigeye Brewster
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Re: Should I Max Out Tax-Deferred Accounts?

Post by Pigeye Brewster » Wed Aug 15, 2018 3:10 pm

Dottie57 wrote:
Wed Aug 15, 2018 2:15 pm
Max it out and start/add to a taxable. I wish I had started taxable earlier.
Good advice. I wish I had emphasized taxable sooner as well.

retiredjg
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Re: Should I Max Out Tax-Deferred Accounts?

Post by retiredjg » Wed Aug 15, 2018 4:50 pm

Welcome to the forum.

I'm don't think I'm going to jump on this "yes, max them out" train just yet. You may be deferring tax on too much income.

bryanm wrote:
Wed Aug 15, 2018 12:16 pm
I am in the lucky position of having both a high contribution limit to 401(k) or equivalent accounts and the potential ability in the coming years to max them out.
What does this mean? You have $18.5k of space in a 401k, what else do you have available?

I'm a (junior) partner at a firm, and I can contribute to the employer side of my 401(k).
I've never heard of that. Can you tell us more?

Between that and my wife's 403(b), we have a contribution limit of around $60k.
$60k in tax deferral over many years may be too much. Or if you retire very early and do Roth conversions, it may not be too much. But you'll need money in taxable to pay the tax for the Roth conversions if you do them young....

I also have access to a cash balance plan with substantial contributions limits (age-based, maxing out at over $100k), which is funded pre-tax and rolls into a traditional IRA periodically.
What does this mean? What kind of plan is this?

I don't know yet if I want to work until 55, or potentially retire earlier. If I did retire early, I would likely be looking for total assets of around $2.5M (25*$100k). My concern is that if I max out my tax-advantaged accounts, I will reach that goal pretty quickly, but be locked into working until 55 to avoid penalties.
Maybe. Maybe not. You could use the already mentioned SEPP or 72t route, but it is very restrictive and not at all forgiving if things run amuck. If you plan to retire early, you need a fair amount of assets in a taxable account and a Roth account if you can manage it.

Is it rational to put some money into a taxable account instead, to allow for potentially earlier withdraws, or am I throwing away money by not maxing tax-advantaged accounts?
You will need a taxable account. And it is certainly possible to put too much into tax deferral. Let's go over the list of accounts - what kind of account, how much you put in there, etc - and think about it some more.


The one thing you did not mention is the ability to do after tax (not the same as Roth) employee contributions to your 401k. This would be an important piece of the puzzle for you. Find out if your plan offers this.

bryanm
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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 6:55 pm

Retiredjg,

Thanks for your post! I am a contrarian at heart, so I appreciate anyone who doesn't jump on a bandwagon. A thorough response deserves a thorough reply. I'll try to answer each of your questions in turn:
retiredjg wrote:
Wed Aug 15, 2018 4:50 pm
bryanm wrote:
Wed Aug 15, 2018 12:16 pm
I am in the lucky position of having both a high contribution limit to 401(k) or equivalent accounts and the potential ability in the coming years to max them out.
What does this mean? You have $18.5k of space in a 401k, what else do you have available?
I have a 401(k) which has an $18.5k employee contribution limit. But since I'm part owner of the firm, I (as my own employer) can also make an employer-side contribution. (I think employer-side contributions are discussed here:https://www.whitecoatinvestor.com/multiple-401k-rules/.) This allows me to contribute about $23k more. (The specific value here varies, and is calculated by our accountant. I believe it is based on means testing our 401(k) or some similar metric). So that's a bit over $40k. My wife has a 403(b) with an $18.5k limit. So a total of about $60k between us.
retiredjg wrote:
Wed Aug 15, 2018 4:50 pm
I also have access to a cash balance plan with substantial contributions limits (age-based, maxing out at over $100k), which is funded pre-tax and rolls into a traditional IRA periodically.
What does this mean? What kind of plan is this?
I'm new to it too. I found some details here: https://www.whitecoatinvestor.com/cash- ... essionals/. My understanding is that it functions a bit like a 401(k) in that it's pretax, but has fixed (low) returns. For that reason, my firm opens and closes it's cash balance plan periodically. When the plan closes, the (pre-tax) funds go into a traditional IRA.
retiredjg wrote:
Wed Aug 15, 2018 4:50 pm
The one thing you did not mention is the ability to do after tax (not the same as Roth) employee contributions to your 401k. This would be an important piece of the puzzle for you. Find out if your plan offers this.
I unfortunately do not believe I have this ability.

So, a breakdown of the above is that I might be able to sock away up to $160k per year in accounts that end up in a 401(k) or traditional IRA. That's a whole lot.

I think your other comments basically mention that while it's possible to get dollars out of a 401(k) or traditional IRA, it's difficult. The Roth conversion pipeline seems plausible, but I need 5 years of living expenses to get that rolling. A taxable account would seem to be the place to put that. This is my fear.

One point I've learned in my research is that my wife also has access to a 457 account (or "deferred compensation plan"). To my understanding, this acts like a 401(k) with no early withdrawal penalty. The particulars look good: the plan allows you to take money out over time to avoid expenses. If I front-load $18.5k per year into that account, I may be able to live for 5 years on that balance while the Roth pipeline works. But I'm not sure. In any case loading the 457 up before other tax-advantaged accounts seems like a good call.

michaeljc70
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Re: Should I Max Out Tax-Deferred Accounts?

Post by michaeljc70 » Wed Aug 15, 2018 7:05 pm

I think others hit on it. Between 72t and Roth conversions, maxing out tax-deferred accounts when expecting to retire early is a good plan. If you decide to work longer or for some other reason tax brackets wind up hire in retirement, at your income (guesstimating based on what you posted), you probably won't be much worse off if at all.

retiredjg
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Re: Should I Max Out Tax-Deferred Accounts?

Post by retiredjg » Wed Aug 15, 2018 7:10 pm

I'll have to respond to your post tomorrow or the next day. But for now, keep in mind that some of the responses that say "fill all your tax-deferred accounts" do not seem to understand the amount of money you are talking about.

It is good advice for 1 plan or a couple with two plans total. You are talking about a lot more money that that. Filling all that you can fill will likely be a mistake in my opinion.

bryanm
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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Wed Aug 15, 2018 11:13 pm

Thanks. I Retiredjg. It's a tricky problem to get my head around. I agree others might not have realized the amounts. More fundamentally, my first post might not have been clear: if I max out my pre-tax funds, it will almost certainly be the vast majority of my savings. (Obviously saving more is preferable if I'm able.) That's great if I don't retire early. But if I do, it may make the first years after retirement lean. From my research so far, it seems like 72t distributions are going to be a lot less than 4%, and there isn't a great option for getting cash it in under five years otherwise. So I'm left balancing that issue against the avoidance of taxes via these accounts.

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FiveK
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Re: Should I Max Out Tax-Deferred Accounts?

Post by FiveK » Wed Aug 15, 2018 11:24 pm

bryanm wrote:
Wed Aug 15, 2018 12:16 pm
I'm in a significant marginal tax bracket (~35+%).

I don't know yet if I want to work until 55, or potentially retire earlier. If I did retire early, I would likely be looking for total assets of around $2.5M (25*$100k). My concern is that if I max out my tax-advantaged accounts, I will reach that goal pretty quickly, but be locked into working until 55 to avoid penalties.
Note that "paying penalties" does not make you a bad person any more than paying 35% marginal tax does. :)

If your income in retirement is $100K/yr, that (just barely) keeps you in the 12% federal bracket. If you pay a 10% penalty, that's still only a 22% marginal rate, which beats 35%.

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Tamarind
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Re: Should I Max Out Tax-Deferred Accounts?

Post by Tamarind » Thu Aug 16, 2018 5:14 am

If you would hit your $2.5M number very quickly by maxing, why not do so as soon as you can manage and in later years pay somewhat higher taxes to establish the taxable cushion you'll need for your early retirement years when converting? You'll put together your taxable account in the last few years counting down to your early retirement (whenever that is). As you get closer to retirement you'll have a better idea of how much you need and in which accounts.

ccf
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Re: Should I Max Out Tax-Deferred Accounts?

Post by ccf » Thu Aug 16, 2018 5:34 am

Tamarind wrote:
Thu Aug 16, 2018 5:14 am
If you would hit your $2.5M number very quickly by maxing, why not do so as soon as you can manage and in later years pay somewhat higher taxes to establish the taxable cushion you'll need for your early retirement years when converting? You'll put together your taxable account in the last few years counting down to your early retirement (whenever that is). As you get closer to retirement you'll have a better idea of how much you need and in which accounts.
I like this idea and I'll add:

The maximum that you can contribute is going to increase, but very slowly. Cash balance plans let you put away a little more each year as you age: https://www.cashbalancedesign.com/resou ... on-limits/

Hopefully your firm's profits / your salary will increase, and you'll have excess that will go in taxable. If not, you can re-evaluate.

SchruteB&B
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Re: Should I Max Out Tax-Deferred Accounts?

Post by SchruteB&B » Thu Aug 16, 2018 5:41 am

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

Very interesting blog that analyzes the pros and cons of various early withdrawal methods, including “just pay the penalty” (Which the author concludes is actually a pretty decent option)

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blaugranamd
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Re: Should I Max Out Tax-Deferred Accounts?

Post by blaugranamd » Thu Aug 16, 2018 5:42 am

If you're in the 35% tax bracket that means current income is $400-600k assuming MFJ. A $2.5M portfolio will provide about $100k/year at 4% withdrawal rate. Are you sure you are going to be able to cut your income needs by 75+%? Especially if you are asking about whether $60k tax advantaged should be maxed and assuming that means less than 10% of income is going to retirement savings currently?

I don't know enough about a cash balance plan to comment there, but $60k/year in other tax advantaged isn't excessive even for early retirement especially if it's all deductible at your marginal rate. You should have more than enough income to do create a sizeable taxable account by retirement at your current income.
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retiredjg
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Re: Should I Max Out Tax-Deferred Accounts?

Post by retiredjg » Thu Aug 16, 2018 8:11 am

Some thoughts I've had reading this over.

Your estimation of needing $2.5 Million ($100k x 25) tells me that you do not intend to live a very lavish lifestyle in retirement. It seems your intent is to be comfortable, not spendy. But it seems unlikely that $100k will accomplish that by the time you get there. I think you may need much more than $2.5 million.

I think putting $60k a year into tax-deferral is plenty - maybe more than plenty. That is just a little more than the equivalent of three 401k type accounts. Many people manage to save enough just filling two. Or even just filling 1 401k. I don't think the $60k would be a mistake, but I definitely think increasing that to $160 (with the cash balance plan) would be a mistake.

When you reach retirement, it is good to have money in tax-deferred accounts, Roth accounts, and a taxable account if you make enough money to do it (obviously you do). If you retire early enough, you can do Roth conversions year after year using the money in taxable to pay the taxes. If you are in a lower tax bracket at that point, you get to convert pre-tax money to Roth at some rate lower than the 35% you are paying now. That means you keep more of your money.

After age 59.5, you have the option of using money in the tIRA to pay the taxes for the Roth conversion, but this results in less money getting into Roth IRA. So it is preferable to pay the taxes out of taxable if you have that choice.

About the SEPP. A SEPP is useful for a number of situations, but I do not see it as very useful in your case. They are inflexible and if you "bust" your SEPP, you run into penalties. I would NOT plan to use a SEPP unless you get into a bind and it solves a problem for you. With the kind of money you are making, you should not get into such a bind.

Regarding the infamous Roth pipeline.....it probably has a use somewhere, but it is is not really going to solve a problem for you (in my opinion). You would be converting tIRA to Roth IRA for some years right before retirement. Right before retirement will likely be your highest income years....the same as your highest tax bracket years. What's the point of doing Roth conversions in your highest tax bracket years?

We need to know about her 457b plan. If it is a non-governmental plan, it would be better to use that than her 403b because there is no age 59.5 requirement on the 457b. If it is not a noon-governmental plan, you need to find out about the withdrawal options/requirements before making this decision.

My recommendation is to fill at least 2 401k type plans (total of $37k) up to the $60k you are doing now. This should be His 401k and Her 457 (if governmental). If you decide to use the cash balance plan, reduce what you put into His 401k.

The next goal would be Roth assets - looks like slim pickings unless you find a mega-back door opportunity. However, using the ordinary back door for His and Her Roth IRAs should be something you consider for $11k year year. I no longer specifically recommend the back door because so many people mess it up, but you should learn about it and decide for yourself.

The next goal would be HSA if high deductible health insurance fits your family's needs (it may not). An HSA can be used as a "stealth IRA" for years when health costs are low. Then used later in life for medical care.

The next goal would be a taxable account for retirement money. This would be money to live on during early retirement. It would be the money you pay your Roth conversion taxes with.


I do not follow the whitecoatinvestor enough to know how much he suggests for high earners to put away in tax deferral. From that one link, it seems he may be suggesting more than I am. Jim certainly knows more about the needs of high earners than I do. It is also possible he is saying "there are all these avenues you can use" rather "you should use every avenue available to you". I don't know.

What I do know is that over the last few years, many people have reported here they wish they had not saved as much in tax deferred accounts. This was a shock to me at first, but I'm understanding it better now. They are approaching RMDs which are going to push them into higher tax brackets than when they were working. When the first person of a couple dies, it gets worse because the survivor is frequently pushed into yet another higher tax bracket.

Your situation may be different in that you are already at or near the top federal bracket (or was that a joint state and federal tax rate?) but tax rates may be significantly higher when you retire too.

Rather that just jump on the "fill them all" train, you need to do some modeling of what will happen over the years and decide for yourself. This means you need to learn about things that won't affect you for many years. There's no hurry, but do it.

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Tamarind
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Re: Should I Max Out Tax-Deferred Accounts?

Post by Tamarind » Thu Aug 16, 2018 8:25 am

retiredjg wrote:
Thu Aug 16, 2018 8:11 am
Regarding the infamous Roth pipeline.....it probably has a use somewhere, but it is is not really going to solve a problem for you (in my opinion). You would be converting tIRA to Roth IRA for some years right before retirement. Right before retirement will likely be your highest income years....the same as your highest tax bracket years. What's the point of doing Roth conversions in your highest tax bracket years?
Why would the Roth pipeline have OP plan to convert while still working? Why not convert during the initial years of retirement? In the case of an early retiree with no SS or RMDs, income can be made as low as you want it to be. Anyone in the OP's situation (no doubt that they will have "enough" to retire so no need to pay for one more year, planned retirement expenses much lower than compensation while working) should be able to make good use of Roth conversions by doing them early in retirement when income is not only lower than while working, but is also lower than it will be later in retirement. OP might well have a 10-year window to convert some each year at 12%.

That said I also strongly agree with the parts of this post pointing out that one can model the most optimum path, that there is no rush, and that optimization may call for OP to save differently in different years.

retiredjg
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Re: Should I Max Out Tax-Deferred Accounts?

Post by retiredjg » Thu Aug 16, 2018 9:17 am

Tamarind wrote:
Thu Aug 16, 2018 8:25 am
retiredjg wrote:
Thu Aug 16, 2018 8:11 am
Regarding the infamous Roth pipeline.....it probably has a use somewhere, but it is is not really going to solve a problem for you (in my opinion). You would be converting tIRA to Roth IRA for some years right before retirement. Right before retirement will likely be your highest income years....the same as your highest tax bracket years. What's the point of doing Roth conversions in your highest tax bracket years?
Why would the Roth pipeline have OP plan to convert while still working? Why not convert during the initial years of retirement?
I completely agree with you that conversions should be done early in retirement, while at a lower rate, before taking SS (usually) and before RMDs start. I was just addressing the suggestion of using the Roth pipeline.

This is one of the things I've never figured out about the Roth conversion pipeline (which I think is also known as the Roth conversion ladder). As I read it, you are supposed to do Roth conversions for 5 years before retirement so there will be money to live on for the first 5 years of retirement.


https://forum.mrmoneymustache.com/inves ... -age-59-5/

That's always been a head scratcher for me since those are the years most likely to be at the highest tax rate. So I have yet to figure out why someone would do that. Maybe I'm not understanding something.

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Re: Should I Max Out Tax-Deferred Accounts?

Post by Nate79 » Thu Aug 16, 2018 9:48 am

How about the other aspects of your financial life? Are you debt free? Kids in the picture (thus 529 plans)? Own your own home? Sufficient term and disability insurance? Etc etc.

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FiveK
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Re: Should I Max Out Tax-Deferred Accounts?

Post by FiveK » Thu Aug 16, 2018 10:41 am

retiredjg wrote:
Thu Aug 16, 2018 9:17 am
Tamarind wrote:
Thu Aug 16, 2018 8:25 am
retiredjg wrote:
Thu Aug 16, 2018 8:11 am
Regarding the infamous Roth pipeline.....it probably has a use somewhere, but it is is not really going to solve a problem for you (in my opinion). You would be converting tIRA to Roth IRA for some years right before retirement. Right before retirement will likely be your highest income years....the same as your highest tax bracket years. What's the point of doing Roth conversions in your highest tax bracket years?
Why would the Roth pipeline have OP plan to convert while still working? Why not convert during the initial years of retirement?
I completely agree with you that conversions should be done early in retirement, while at a lower rate, before taking SS (usually) and before RMDs start. I was just addressing the suggestion of using the Roth pipeline.

This is one of the things I've never figured out about the Roth conversion pipeline (which I think is also known as the Roth conversion ladder). As I read it, you are supposed to do Roth conversions for 5 years before retirement so there will be money to live on for the first 5 years of retirement.


https://forum.mrmoneymustache.com/inves ... -age-59-5/

That's always been a head scratcher for me since those are the years most likely to be at the highest tax rate. So I have yet to figure out why someone would do that. Maybe I'm not understanding something.
To make good use of that strategy, you need five years of expenses to fund your life for those first five years. E.g., some combination of taxable accounts and/or withdrawable Roth money.

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Re: Should I Max Out Tax-Deferred Accounts?

Post by retiredjg » Thu Aug 16, 2018 10:59 am

Well, that makes it make some sense. Thank you.

It still requires a person to have 5 years of expenses saved (in addition to money in taxable to pay the taxes on the Roth conversions).

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Re: Should I Max Out Tax-Deferred Accounts?

Post by cherijoh » Thu Aug 16, 2018 11:28 am

retiredjg wrote:
Wed Aug 15, 2018 7:10 pm
I'll have to respond to your post tomorrow or the next day. But for now, keep in mind that some of the responses that say "fill all your tax-deferred accounts" do not seem to understand the amount of money you are talking about.

It is good advice for 1 plan or a couple with two plans total. You are talking about a lot more money that that. Filling all that you can fill will likely be a mistake in my opinion.
I agree with retiredjg about the "max out tax-advantaged accounts" advice. Here's a couple of other things to keep in mind when calculating the optimum balance between tax-advantaged and after-tax savings/investments:
  • If your firm rolls the cash balance plan into IRAs periodically, you will not be able to do tax-efficient back door Roth contributions - if you have a balance in an IRA, any after-tax contributions to an IRA that are converted to a Roth will be taxed on a prorated basis.
  • Where do you stand relative to AMT under the new tax rules? How will various amounts of pre-tax contributions effect this?
  • Have you taken into account the 3.8% surcharge on net investment income for high earners? (For 2018 I think the AGI limit is $250K for MFJ)

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Re: Should I Max Out Tax-Deferred Accounts?

Post by bryanm » Thu Aug 16, 2018 1:11 pm

Thanks all for these super helpful comments. To answer some of the questions here:

Our combined income currently is about $350k (the 35% rate is accounting for the 2.9% medicare tax). By the time I'm actually able to hit $160k pre-tax contributions , I suspect that our income will be in the $500k range. (This is because the CBP limit floats with age, not because of my savings rate.)
I plan to put half or more of any raises into savings.

The 457 is governmental. Good withdrawal options. Seems like a clear winner.

$100k might be low for retirement--it's just a target I set at the moment. I agree it could change. I'm not too worried about inflation, as the firm's profits tend to keep track, so I've been doing some modeling based on conservative average real (inflation adjusted) gains of 4%. I suspect that if my debt payments were removed, we could live easily on $100k.

To Nate's questions: I do have a son, who's not yet started school. I would like to start a 529, but again am having trouble deciding whether to contribute to pre-tax retirement accounts or to a 529. Thoughts?

We have good long term disability and term life insurance. We "own" our home, though really a bank does. Debt currently is $80k in student loans at 3.4% interest and $450k in a mortgage at 3.9% interest rate. I'm not adverse to this type of debt, and I'm pretty happy with those rates. No other debt to speak of. I could aggressively pay those off, but it's a Peter-and-Paul situation: paying them means less tax-advantaged contributions, at least in the short term. I would definitely clear them before retirement.

To Cherijoh's point, I do think that participation in the cash balance plan kills backdoor Roths. An unfortunate side effect. I don't know where I stand on AMT this year--something I need to look into. I wasn't even aware of the investment surcharge for high earners. Something else to look into.

Right now it seems the best thing to do is to start trying to make as much pre-tax contributions as I can, up to at least 457 limit and the $60k 401k. I will probably also do the backdoor Roth while I can. After that, perhaps I can reassess as to how long my horizon is. I like the idea of aggressively contributing pre-tax, and then opening a taxable account a few years before retirement.

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FiveK
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Re: Should I Max Out Tax-Deferred Accounts?

Post by FiveK » Thu Aug 16, 2018 1:19 pm

bryanm wrote:
Thu Aug 16, 2018 1:11 pm
I don't know where I stand on AMT this year--something I need to look into. I wasn't even aware of the investment surcharge for high earners. Something else to look into.
The "what if?" worksheets of TurboTax, TaxAct, etc., or the personal finance toolbox or 1040 Tax Estimator spreadsheets are probably your best options for now.

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