Best account for early retirement funds

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dred pirate
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Joined: Tue Nov 27, 2018 11:46 am

Best account for early retirement funds

Post by dred pirate » Wed Mar 06, 2019 4:46 pm

We are on pace to retire comfortably (as of now) at age 60 - I am currently 41, wife is 37. I am contemplating pushing up our goal to 55. What is the best type of account to park the money to achieve this goal? We currently max out our 403b's, Roth IRA's, and my HSA. After doing this, are there any types of accounts (other than just a generic taxable investment account) that I am missing that would be best to provide income from age 55-59? (I know there are ways of withdrawing without penalty from these accounts between the ages 55-59)

In all honesty (depending on any health insurance changes) I probably see myself probably working part time to pay for insurance and cover basic living expenses and not contributing or withdrawing from the accounts and just letting them grow until I quit completely during this time.

thanks all

lassevirensghost
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Re: Best account for early retirement funds

Post by lassevirensghost » Wed Mar 06, 2019 4:50 pm

For age 55, look into the IRS "Rule of 55." When you leave your last employer between the ages of 55 and 59.5, you can use that final employer's specific 401k plan. Some people roll other accounts, even IRAs, into that work account if they plan to have 5 years from it at age 55.
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gtwhitegold
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Re: Best account for early retirement funds

Post by gtwhitegold » Wed Mar 06, 2019 4:59 pm

Aside from the 55 year rule, you can try doing Roth IRA conversion ladders.

livesoft
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Re: Best account for early retirement funds

Post by livesoft » Wed Mar 06, 2019 5:02 pm

I think all accounts are the best type of account. Certainly, a Roth IRA would work especially if started 5 years before retirement. Of course, contributions tend to be limited. Then again, a traditional IRA would work, too, because one can do the SEPP thing. A taxable account is fine if invested tax efficiently, too. Also note that money is fungible which quite a lot of people seem to not notice.

What tends to be very bad are whole life, universal life, equity index annuities, variable annuities, fixed income annuities, and things like that.
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Topic Author
dred pirate
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Re: Best account for early retirement funds

Post by dred pirate » Wed Mar 06, 2019 5:26 pm

thanks all - and yes livesoft - agree to avoid those, even thou I know they are pushed alot. I am aware of the 55 rule if leave your current job, have the 403b and roth maxed out - so probably will focus on taxed advantaged taxable funds. That being said - this is an area that I don't know a lot about - other than good generic index or growth and mutual funds, any specific vanguard funds you all recommend? Current I use target retirement date funds - I know they have slightly higher fees, but it does allow me to just put it in there and not worry about about re-balancing.

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willthrill81
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Re: Best account for early retirement funds

Post by willthrill81 » Wed Mar 06, 2019 5:29 pm

dred pirate wrote:
Wed Mar 06, 2019 5:26 pm
thanks all - and yes livesoft - agree to avoid those, even thou I know they are pushed alot. I am aware of the 55 rule if leave your current job, have the 403b and roth maxed out - so probably will focus on taxed advantaged taxable funds. That being said - this is an area that I don't know a lot about - other than good generic index or growth and mutual funds, any specific vanguard funds you all recommend? Current I use target retirement date funds - I know they have slightly higher fees, but it does allow me to just put it in there and not worry about about re-balancing.
This thread has the answers you seek.
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gtwhitegold
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Re: Best account for early retirement funds

Post by gtwhitegold » Thu Mar 07, 2019 7:38 am

Below is a link to the Mad Fientist blog comparing a Roth Conversion ladder to 72(t) Substantially Equal Periodic Payments (SEPP) (Age 55 Rule).

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

There is a lot of info if you dig for it regarding early access to retirement funds. I plan on doing Roth conversions when my taxes are low and keeping good records of it so that I know my basis, but the honest answer for someone is probably using a combination of Roth conversions, SEPP withdrawls, and taxable accounts.

remomnyc
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Re: Best account for early retirement funds

Post by remomnyc » Thu Mar 07, 2019 8:34 am

If you don't have a taxable account and you're maxing out your tax advantaged accounts, that's the one to open. In terms of what you should place there, check out the Boglehead wiki on tax efficiency. https://www.bogleheads.org/wiki/Tax-eff ... _placement In retirement (between 60 to 70-1/2), you could do Roth conversions and draw from your taxable and rebalance in your tax advantaged.

jsprag
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Re: Best account for early retirement funds

Post by jsprag » Thu Mar 07, 2019 9:08 am

Congratulations on maxing out your tax advantaged investment space!

When facing the same decision, I found the following Wiki pages helpful:
Tax-efficient fund placement
Tax-adjusted asset allocation
Placing cash needs in a tax-advantaged account

magicrat
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Re: Best account for early retirement funds

Post by magicrat » Thu Mar 07, 2019 9:36 am

dred pirate wrote:
Wed Mar 06, 2019 5:26 pm
any specific vanguard funds you all recommend? Current I use target retirement date funds - I know they have slightly higher fees, but it does allow me to just put it in there and not worry about about re-balancing.
Vanguard Total US Stock (VTSAX) and Vanguard Total International Stock (VTIAX). If you have run out of space for bonds in pre-tax, then either Vanguard Total Bond (VBTLX) or Vanguard Intermediate Term Tax Exempt (VWIUX), depending on your marginal tax rate.

Target date funds are generally not recommended for taxable accounts, because they are less tax efficient.

PaulF
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Re: Best account for early retirement funds

Post by PaulF » Thu Mar 07, 2019 10:34 pm

If you (or someone in your position) has access to a 457 account, that is probably the best for ER. (No penalty for withdrawing before 59.5.)

SoAnyway
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Re: Best account for early retirement funds

Post by SoAnyway » Thu Mar 07, 2019 11:35 pm

dred pirate wrote:
Wed Mar 06, 2019 5:26 pm
thanks all - and yes livesoft - agree to avoid those, even thou I know they are pushed alot. I am aware of the 55 rule if leave your current job, have the 403b and roth maxed out - so probably will focus on taxed advantaged taxable funds. That being said - this is an area that I don't know a lot about - other than good generic index or growth and mutual funds, any specific vanguard funds you all recommend? Current I use target retirement date funds - I know they have slightly higher fees, but it does allow me to just put it in there and not worry about about re-balancing.
OP, first and foremost, Congrats on doing everything right so far, maxing out all tax-preferred options; looking down the field toward where you and your spouse will be 20 years out; etc.!! Woo-hoo!! To fogies like me, your post was very comforting. Maybe the next generation DOES "get it". Hooray! :sharebeer SoAnyway....

I was in a similar boat as you years ago, except that I was enjoying my career and as a result, it never even occurred to me to think of "early retirement" as a goal. Rather, at the time all I knew was that even after maxing all tax-deferred options, I was paying a ton in taxes. So the first thing I did was look into ways to reduce that. The one tax-prefererred vehicle (with the exception of being self-employed - a total tax bonanza if you have any interest in starting your own thing, but your post indicates that you likely don't) you didn't mention was a 529.

I have no kids but my state offered a deduction for 529 contributions. Moreover, I'm a believer in education as it's benefitted me greatly and put me in the position I'm in. So I opened one of those, and named a relative as the successor owner if I croak before using it. My thinking: When I ultimately retire (at the time, it seemed eons away but oh look! Now it's here in my early 50s, hahaha), maybe I'll take some courses at a local university just for funsies. I could use the account for that. Or maybe down the road one of my loved ones might need a bit of help paying for college. I'd be honored to be in a position to help. SoAnyway, it's something to check out if you're looking for other tax-deferred or tax-free places to stash your money while in your prime earning years. Obviously, a 529 doesn't throw off cash to live on from 55-59 1/2, but if you won't need it, it might be a nice perk under the various tax rules, dep. on your situation.

Back to your question, +1 to LiveSoft's and others' guidance. It's a personal question how close you want to cut things, but I'm pretty risk-averse and decided a long time ago that given how I'm wired, if I were seriously considering/depending on a "Rule of 55"/72(t)/SEPP/Roth conversion ladder" strategy or any other such thing, something had gone HORRIBLY wrong in my planning! :o To be clear, that's just me. I'm grateful to all on this forum for educating me on all of the above. After all, those strategies comprise a good chunk of my plan F, plan G, or further down the hierarchy.

If you're wired along the same-ish vein, hear me now: Open a taxable account. It's not the end of the world. Just structure your holdings properly, in the ways that others have linked, i.e. 3-fund broadly-diversified portfolio of low-cost index funds with an AA suited to your risk tolerance, with tax-inefficient holdings in tax- preferred vehicles and tax-efficient holdings in your taxable account. Yes, it can be a bit scary at the tactical level if all you've known is tax-free or tax-prefererred holdings. But getting to the point of even being able to cross that bridge is an event to celebrate! It's a milestone, for sure. Enjoy it!! More to the point, I recognize that the recommended strategy is stupid-simple, but (thank you, Mr. Bogle!) IT WORKS.

BTW, now that I'm at the other side of it, I'm sooo glad I did as described way back when, scary as it was at the time. I'm now about a decade from Medicare, and (if all goes well, and God willing) not planning to tap SS until 70 or retirement accounts until 70 and a 1/2. I'm comfortable pulling the trigger on ER, knowing I have that "cushion". Good luck, OP! :happy

P.S. Target date retirement funds are great - Until you reach this point. (Again, this is GOOD, OP - high class headaches, for sure.) You might consider posting your info in the Help with Personal Investments sub-forum in the recommended format. Once everyone here has a better sense of your available options, they can give more helpful and specific guidance on how to transition from your "all tax-preferred target date portfolio" to an investment portfolio that's going to be split between tax-preferred and taxable.
Nothing in this post constitutes legal or medical advice. | Consult your attorney or physician to verify if/how anything stated might or might not be applicable to your specific situation.

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