Investing order

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Topic Author
seannike
Posts: 2
Joined: Mon Aug 25, 2014 6:45 pm

Investing order

Post by seannike »

Hello, i have a question on investing order.
my status
87k gross income combine with wife
we are both 48 years old, would like to retire at 58..
we invest 20% gross to our 401k & 403b currently
401k bal 163k now
403b bal 48k now
IRA vang. 125k now
Was thinking about drop the percentage from 20% to 6% for our 401k and 403b for the match
invest the other 14% gross to newly open Roths
Or should we continue our current route until 58,then convert the balances to Roth then?
Any thoughts..

Sean
tenkuky
Posts: 1202
Joined: Sun Dec 14, 2014 4:28 pm

Re: Investing order

Post by tenkuky »

Most important part of the equation: what is your current tax bracket?
And what tax bracket do you expect to be in at 58?
That can help you decide if pre-tax or not (Roth).
retired@50
Posts: 3460
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Investing order

Post by retired@50 »

seannike wrote: Mon Sep 28, 2020 5:09 pm Hello, i have a question on investing order.
my status
87k gross income combine with wife
we are both 48 years old, would like to retire at 58..
we invest 20% gross to our 401k & 403b currently
401k bal 163k now
403b bal 48k now
IRA vang. 125k now
Was thinking about drop the percentage from 20% to 6% for our 401k and 403b for the match
invest the other 14% gross to newly open Roths
Or should we continue our current route until 58,then convert the balances to Roth then?
Any thoughts..

Sean
Welcome to the forum.

At $87,000 gross income, you're barely into the MFJ 22% Federal tax bracket. You should contribute enough to the 401k & 403b plans to get yourself into the 12% Federal tax bracket, which is around $80,250 if I'm reading this linked chart correctly.

Federal brackets: https://www.nerdwallet.com/article/taxe ... x-brackets

After you've managed to do that, then contribute to the Roth IRA for each spouse. The current annual contribution limit will go up for each contributor when they turn 50 years old.

Roth info: https://www.investopedia.com/retirement ... on-limits/

Regards,
This is one person's opinion. Nothing more.
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FiveK
Posts: 10285
Joined: Sun Mar 16, 2014 2:43 pm

Re: Investing order

Post by FiveK »

RyeBourbon
Posts: 59
Joined: Tue Sep 01, 2020 12:20 pm
Location: NJ/Philly

Re: Investing order

Post by RyeBourbon »

retired@50 wrote: Mon Sep 28, 2020 6:32 pm
seannike wrote: Mon Sep 28, 2020 5:09 pm Hello, i have a question on investing order.
my status
87k gross income combine with wife
we are both 48 years old, would like to retire at 58..
we invest 20% gross to our 401k & 403b currently
401k bal 163k now
403b bal 48k now
IRA vang. 125k now
Was thinking about drop the percentage from 20% to 6% for our 401k and 403b for the match
invest the other 14% gross to newly open Roths
Or should we continue our current route until 58,then convert the balances to Roth then?
Any thoughts..

Sean
Welcome to the forum.

At $87,000 gross income, you're barely into the MFJ 22% Federal tax bracket. You should contribute enough to the 401k & 403b plans to get yourself into the 12% Federal tax bracket, which is around $80,250 if I'm reading this linked chart correctly.

Federal brackets: https://www.nerdwallet.com/article/taxe ... x-brackets

After you've managed to do that, then contribute to the Roth IRA for each spouse. The current annual contribution limit will go up for each contributor when they turn 50 years old.

Roth info: https://www.investopedia.com/retirement ... on-limits/

Regards,
After the 24K standard deduction, I believe they are already solidly in the 12% tax bracket.
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Brianmcg321
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Joined: Mon Jul 15, 2019 8:23 am

Re: Investing order

Post by Brianmcg321 »

Do your 401k and 403b have Roth versions?
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
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David Jay
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Location: Michigan

Re: Investing order

Post by David Jay »

Brianmcg321 wrote: Mon Sep 28, 2020 7:27 pm Being in the 12% tax bracket I would put it all in a Roth. If you get up in the higher brackets then it might make sense to put it in traditional.

Unless your 401k/403b have high fees in them, it wouldn't be necessary to invest in your IRA unless you start maxing it out.
I mostly agree, I would go ahead and get the match on the 401K and 403B, then everything else in Roth.

You are safely in the 12% tax bracket (22% starts at $105,050 this year when you include the standard deduction).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Peter Foley
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Re: Investing order

Post by Peter Foley »

It has not been mentioned where you expect to draw money from when you retire at age 58.

401k's require age 59.5 age for non penalty withdrawals.
403b has a provision where there is no penalty if you separate from your employer after age 55.

I think it is prudent to have a mix of tax deferred and Roth.

Separate issue: Depending on your circumstances it may be more beneficial to use the 403b than the 401k based on your projected retirement age. If you don't anticipate using tax deferred accounts until after age 59.5 it doesn't make a difference. However, you might find it to be to your advantage to withdraw some funds from a tax deferred account at age 58 if those withdrawals are essentially tax free.
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FiveK
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Re: Investing order

Post by FiveK »

Peter Foley wrote: Mon Sep 28, 2020 7:53 pm 401k's require age 59.5 age for non penalty withdrawals.
403b has a provision where there is no penalty if you separate from your employer after age 55.
401k also follows the "Rule of 55". See Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other than IRAs | Internal Revenue Service.
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David Jay
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Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Investing order

Post by David Jay »

FiveK wrote: Mon Sep 28, 2020 8:08 pm
Peter Foley wrote: Mon Sep 28, 2020 7:53 pm 401k's require age 59.5 age for non penalty withdrawals.
403b has a provision where there is no penalty if you separate from your employer after age 55.
401k also follows the "Rule of 55". See Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other than IRAs | Internal Revenue Service.
To effectively utilize the "Rule of 55", your employer's 401K plan must allow for partial withdrawals before age 59.5. Check your plan documents before assuming your plan allows for partial withdrawals before age 59.5. Many plans (including the plan of my previous employer) do not.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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9mm
Posts: 20
Joined: Tue Jun 02, 2020 9:25 am
Location: usa

Re: Investing order

Post by 9mm »

seannike wrote: Mon Sep 28, 2020 5:09 pm Hello, i have a question on investing order.
my status
87k gross income combine with wife
we are both 48 years old, would like to retire at 58..
we invest 20% gross to our 401k & 403b currently
401k bal 163k now
403b bal 48k now
IRA vang. 125k now
Was thinking about drop the percentage from 20% to 6% for our 401k and 403b for the match
invest the other 14% gross to newly open Roths
Or should we continue our current route until 58,then convert the balances to Roth then?
Any thoughts..

Sean
You would be surprised by how great a pretax 401(k) is as a retirement vehicle. I would usually recommend max out the 401K first. After maxing it out, then do the Roth, after the Roth, then do taxable. But it depends on the scenario so check out the wiki links that another poster provided above.

May I ask how much do you spend per year? What location are you generally?
Topic Author
seannike
Posts: 2
Joined: Mon Aug 25, 2014 6:45 pm

Re: Investing order

Post by seannike »

Thanks everyone for help! Great article's..
Going to make the changes today..
6% match
14% to roth

Sean
terran
Posts: 1698
Joined: Sat Jan 10, 2015 10:50 pm

Re: Investing order

Post by terran »

David Jay wrote: Mon Sep 28, 2020 9:08 pm
FiveK wrote: Mon Sep 28, 2020 8:08 pm
Peter Foley wrote: Mon Sep 28, 2020 7:53 pm 401k's require age 59.5 age for non penalty withdrawals.
403b has a provision where there is no penalty if you separate from your employer after age 55.
401k also follows the "Rule of 55". See Topic No. 558 Additional Tax on Early Distributions from Retirement Plans Other than IRAs | Internal Revenue Service.
To effectively utilize the "Rule of 55", your employer's 401K plan must allow for partial withdrawals before age 59.5. Check your plan documents before assuming your plan allows for partial withdrawals before age 59.5. Many plans (including the plan of my previous employer) do not.
If the plan only allows full withdrawals you can also take the full withdrawal, retain enough to pay for living expenses until 59.5 and roll the rest over to an IRA. With only 1.5 years until 59.5 this would work particularly well, and present little difference compared to a plan that allows partial withdrawals.

With retiring before medicare age and a current 12% tax bracket it likely makes sense to get as much as you can into Roth (contributions to which can be withdrawn anytime without tax or penalty) since that will give you an income source that won't reduce ACA subsidies.

If your employer plans allow it you might even consider making in-plan Roth conversions. Once these sit for 5 years you'll be able to withdrawn the amount converted, but not gains after conversion, tax and penalty free even before age 59.5. Make sure you leave enough in tax deferred to produce at least 100-138% (depending on the state) of the Federal Poverty level until you hit medicare age after accounting for social security (if you take it early), because otherwise you won't be eligible for ACA subsidies and might be forced on to medicaid if you're in a medicaid expansion state.

With the current balances and not huge additional contributions over the next 10 years you're likely going to rely somewhat heavily on social security, so make sure you know where you stand with that including the effect of retiring early (and your various starting age options).
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