Early retirement without taxable assets?

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6p24qtn
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Early retirement without taxable assets?

Post by 6p24qtn » Sun Jan 12, 2020 6:57 pm

Hello,
I've lately been thinking that I do not have enough taxable assets or a plan to acquire them in the case that my wife and I desire to retire early.

I'm married, late 30's and have just enough income to max out retirement accounts. We have lived relatively frugally and have made regular investment contributions. We recently joined the two-comma club but approximately 85% of our investable assets are in 403b, 401k, traditional IRA, roth IRAs, etc...

So let's presume that we continue maxing out retirement accounts for the next 15-20 years but have little extra for taxable investment. We hit our "magic number" at 55. We'll have no spending money until we hit 59.5 when we can starting pulling from our accounts.

What do the wise people here suggest? Stop maxing out the retirement accounts to put some aside for taxable? Or worry about that when the time comes?

Lalamimi
Posts: 198
Joined: Mon Jun 24, 2019 4:22 pm

Re: Early retirement without taxable assets?

Post by Lalamimi » Sun Jan 12, 2020 7:00 pm

not wise, new here, but I am 66 and recently retired. We had no taxable investments until last year, when I finally sold the crappy company stock that vested when I was laid off and then it tanked. Our IRAs are doing well, and we recently converted some to a Roth. Most of our money was "saved" since 2000. You are fine in my humble opinion.

livesoft
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Re: Early retirement without taxable assets?

Post by livesoft » Sun Jan 12, 2020 7:02 pm

SEPP / 72(t) withdrawals. Look it up.
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Afty
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Re: Early retirement without taxable assets?

Post by Afty » Sun Jan 12, 2020 7:04 pm

I believe there are some options for withdrawing from retirement accounts before 59.5. For example: https://www.thebalance.com/what-is-the- ... 55-2894280

KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Early retirement without taxable assets?

Post by KlangFool » Sun Jan 12, 2020 7:05 pm

OP,

You need to read this URL. You do not need a taxable account for early retirement.

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

KlangFool

1moreyr
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Re: Early retirement without taxable assets?

Post by 1moreyr » Sun Jan 12, 2020 7:18 pm

Do you expect to not get another raise or spend all future increases?

if you have maxed out the 401k/IRA route, next step is to start a fund at %50 /month until you can do more.

I have asked myself the same question every year (if i get a promotion or merit increase). Did I need this extra money last year? The answer is typically no and that is my greenlight to increase my savings of taxable funds through auto withdrawal from my check book.

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6p24qtn
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Re: Early retirement without taxable assets?

Post by 6p24qtn » Sun Jan 12, 2020 7:39 pm

Thank you for the replies! I have been so focused on the accumulation phase and retirement is just so far away that I really had never paid much attention to all of the different ways for early access to tax-sheltered funds.

I guess I can put this recent taxable concern to bed. There are good options!

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6p24qtn
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Re: Early retirement without taxable assets?

Post by 6p24qtn » Sun Jan 12, 2020 8:17 pm

1moreyr wrote:
Sun Jan 12, 2020 7:18 pm
Do you expect to not get another raise or spend all future increases?

if you have maxed out the 401k/IRA route, next step is to start a fund at %50 /month until you can do more.

I have asked myself the same question every year (if i get a promotion or merit increase). Did I need this extra money last year? The answer is typically no and that is my greenlight to increase my savings of taxable funds through auto withdrawal from my check book.
Short of a career change, I do not expect a significant increase in compensation unless I get a graduate degree or take on substantially more responsibility. It may change in the future, but I am not pursuing these right now.

Also, we are expecting a little one any day now. So expenses will climb and it will become more difficult to maximize the tax shelters. I will be looking into 529 plans next :)

smectym
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Re: Early retirement without taxable assets?

Post by smectym » Sun Jan 12, 2020 8:20 pm

6p24qtn wrote:
Sun Jan 12, 2020 7:39 pm
Thank you for the replies! I have been so focused on the accumulation phase and retirement is just so far away that I really had never paid much attention to all of the different ways for early access to tax-sheltered funds.

I guess I can put this recent taxable concern to bed. There are good options!
I don''t disagree with the advice offered, but that doesn't mean OP's desire to have assets other than 401(k)/IRA is misguided. There are lots of reasons to have significant assets in taxable accounts. You don't want to break into a 401(k) to come up with a down payment for a home, for example. If that concern doesn't happen to be applicable in OP's case, some other hypothetical does apply or will apply.

So as it becomes feasible, I'd encourage OP to start to beef up his after-tax accounts. Perhaps a bar-bell approach would work at least to start: 50% in a money market fund such as Vanguard Federal, 50% in a low-cost growth stock index fund?

272 Sheep
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Re: Early retirement without taxable assets?

Post by 272 Sheep » Sun Jan 12, 2020 9:56 pm

smectym wrote:
Sun Jan 12, 2020 8:20 pm
6p24qtn wrote:
Sun Jan 12, 2020 7:39 pm
Thank you for the replies! I have been so focused on the accumulation phase and retirement is just so far away that I really had never paid much attention to all of the different ways for early access to tax-sheltered funds.

I guess I can put this recent taxable concern to bed. There are good options!
I don''t disagree with the advice offered, but that doesn't mean OP's desire to have assets other than 401(k)/IRA is misguided. There are lots of reasons to have significant assets in taxable accounts. You don't want to break into a 401(k) to come up with a down payment for a home, for example. If that concern doesn't happen to be applicable in OP's case, some other hypothetical does apply or will apply.

So as it becomes feasible, I'd encourage OP to start to beef up his after-tax accounts. Perhaps a bar-bell approach would work at least to start: 50% in a money market fund such as Vanguard Federal, 50% in a low-cost growth stock index fund?
Whether you retire early or not, its good to have some amount in a designated emergency fund for unknown surprise expenses. A taxable account would also add diversity to your other accounts. Taxable can be another source to get easy access to needed cash.
The order of spending:
1. Taxable -spend first.
2. Tax-Deferred, 403(b), 401(k) and TIRAs -spend second.
3. Roth IRAs -(most valuable) last to be spent.
Hope that helps.
Carl W.

1moreyr
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Re: Early retirement without taxable assets?

Post by 1moreyr » Mon Jan 13, 2020 5:39 am

6p24qtn wrote:
Sun Jan 12, 2020 8:17 pm
1moreyr wrote:
Sun Jan 12, 2020 7:18 pm
Short of a career change, I do not expect a significant increase in compensation unless I get a graduate degree or take on substantially more responsibility. It may change in the future, but I am not pursuing these right now.

Also, we are expecting a little one any day now. So expenses will climb and it will become more difficult to maximize the tax shelters. I will be looking into 529 plans next :)
[/quote

Ah,, understand, ,,, thank you for the reply...

not to take the thread sideways, I had read a forbes article years ago. it said to be careful with 529s and how much you put in them. You don't know if your child will actually go to college , trade school or whatever.... I decided to save money in efficient taxable funds for college. It turned out my wife went back to work when my oldest started college and the mortgage was paid (we are bogleheads after all).

As the college chosen was not as expensive as expected, we were able to fund it from our income and leave the "college" funds alone. At the end of the day $250K earmarked for college became taxable funds for my retirement... sometimes a plan isn't a plan but you get lucky.

not saying 529s don't have a place, but if I had overstocked them, it could have been a problem (or expensive getting it out) in my case not using a single one definitely worked out for me......

ChicagoC
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Re: Early retirement without taxable assets?

Post by ChicagoC » Mon Jan 13, 2020 6:25 am

When you say you max out the retirement accounts, what exactLy do you mean? Are you 19k maxing the 401k or doing 57k to a mega back door roth. More detail on your specific accounts and contribution would help.

Dottie57
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Re: Early retirement without taxable assets?

Post by Dottie57 » Mon Jan 13, 2020 10:10 am

6p24qtn wrote:
Sun Jan 12, 2020 8:17 pm
1moreyr wrote:
Sun Jan 12, 2020 7:18 pm
Do you expect to not get another raise or spend all future increases?

if you have maxed out the 401k/IRA route, next step is to start a fund at %50 /month until you can do more.

I have asked myself the same question every year (if i get a promotion or merit increase). Did I need this extra money last year? The answer is typically no and that is my greenlight to increase my savings of taxable funds through auto withdrawal from my check book.
Short of a career change, I do not expect a significant increase in compensation unless I get a graduate degree or take on substantially more responsibility. It may change in the future, but I am not pursuing these right now.

Also, we are expecting a little one any day now. So expenses will climb and it will become more difficult to maximize the tax shelters. I will be looking into 529 plans next :)
+1. I wish I had started taxable sooner. Even $25 a month will grow.

rj342
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Joined: Tue Apr 30, 2019 12:21 pm

Re: Early retirement without taxable assets?

Post by rj342 » Mon Jan 13, 2020 1:01 pm

Re accessing tax deferred accounts early wihtout penalty befroe 59-1/2:

SEPP/72 substanially equal periodic payments? is one way, but there is also the special Rule of 55:

If you stop working for an employer after age 55 (whether let go or you simply quit!) where you have an active 401k/403b etc plan through that employer, on 'separation of service', you can begin accessing that money immediately without penalties, just pay the normal taxes).

This only applies to your plan at that employer you left, at >=55!
Money still in any prior employers plan, or a standalone tIRA etc, is NOT accessible this way. Some people will roll other money into their employer plan to have this added flexibility between 55 and 59-1/2. I don't know about any timing issues in doing that.

From what I understand you do NOT have to be unemployed/'retired' to do this -- just no longer at that company.

bb
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Re: Early retirement without taxable assets?

Post by bb » Mon Jan 13, 2020 4:35 pm

I don't believe all plans have to allow this. Also what if they allow the penalty free access but only a single lump sum withdrawal - what good would that do? Would have to transfer to IRA and then you would not get the benefit of penalty free withdrawals @ 55.

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