Desert Dreaming-Intro

[azdre]

Hi! My husband and I are 38 and planning to retire at 50. We have a 3 year old son and I'm dreaming of taking him to live abroad for many of his summers in high school and college. I'm hoping he's onboard with that idea when the time comes. I'm also hoping my husband can semi-retire sooner than 50. His job isn't fulfilling.

My initial questions1)
Luckily I get free advice through my work but I'm definitely on the hunt for a good, strategic accountant to help me setup the right tax situation now and in the future. I'm in the central Phoenix area if anyone has any recommendations. With early retirement I'm worried about being overly biased in retirement accounts that will incur penalties for early withdrawals. I'd love to get someone on my side that can track my basis and make sure I'm setup for success.

(2) can you recommend a good budgeting app that can focus easily on discretionary expenditures? Mint is a bit of a pain for budgeting. I want to get an idea of my historical trends, set new limits and track my adherence to these limits.

 

[broadway]

Welcome.

I didn't intend to retire, but I am essentially.

Anyway, the rule-of-thumb is to
1. maximize your 401(k) to employer's match
2. contribute to Roth IRA
3. maximize your 401(k) to maximum allowed
4. contribute to taxable account

 

[FlaGator]

Welcome.

I didn't intend to retire, but I am essentially.

Anyway, the rule-of-thumb is to
1. maximize your 401(k) to employer's match
2. contribute to Roth IRA
3. maximize your 401(k) to maximum allowed
4. contribute to taxable account

With a goal of stepping back at 50, one of your biggest hurdles is to ensure you have enough in taxable (non-IRA/401k) accounts until you can tap the tax-deferred assets.

I would re-order Broadway's advice, putting taxable savings #3, and dropping Roth contributions to #4 for the following reasons:
1. You need 9X+ your annual spending to bridge the gap between your target date 50 and being able to access tax-advantaged accounts at 59.5.
2. Traditional IRAs can be converted to Roth accounts after you're done working, drawing down taxable accounts, and your tax rate is lower.

Also would plan on transferring your 401k upon separation to an IRA unless you're one of the few that has a plan allowing for equal distributions upon separation (can't remember the tax code nomenclature)

Having accessible cash to bridge you is the key.

 

[broadway]

I would re-order Broadway's advice, putting taxable savings #3, and dropping Roth contributions to #4 for the following reasons:

Do you mean:
1. maximize your 401(k) to employer's match
2. contribute to taxable account
3. maximize your 401(k) to maximum allowed
4. contribute to Roth IRA
?

or is 3 and 4 interchangeable?

 

[Ready]

I would suggest that if you are planning on retiring by 50, it should go without saying that you are maxing out the 401K at the full $18K/year per person that is allowed by law, and each contributing $5,500 to an IRA each year.

Once you are done with that, you should still have plenty of money left to put away into taxable savings accounts. If you don't, my guess is you are not going to be ready to retire by 50.

 

[FlaGator]

Do you mean:
1. maximize your 401(k) to employer's match
2. contribute to taxable account
3. maximize your 401(k) to maximum allowed
4. contribute to Roth IRA
?

or is 3 and 4 interchangeable?

Thanks for the question, wasn't as clear I should have been.

What made sense for me was:

1. maximize your 401(k) to employer's match
2. maximize your 401(k) to maximum allowed
3. contribute to Roth IRA, if eligible
4. contribute to taxable account

Take full advantage of the tax savings from a 401k, irrespective of match, use a Roth if you're eligible, and pump as much as you can into taxable accounts. Different approaches can work, this is what I did.

It's all about finding a way to ensure you can cover the bridge years, assuming there's enough tax-deferred to meet one's needs later

 

[azdre]

Thanks all! We are maxing out 2 401ks, HSA, non-deductible traditional IRA, and saving about 30-40k taxable each year. We're very good to retire at 50 if I can get the right situation in place to cover years 1-9 and pay for half of my kid's college during the middle of that period. I've read about some interesting strategery. (Also assuming markets don't tank at the wrong time).

I'll need to look into the strategy of waiting to convert my non-deductible IRA to Roth until I stop working. That's a great idea! I'm at 25% deductible 75% non deductible and Roth currently. I was considering rolling the deductible portion to my 401k to continue to defer the taxes on that chunk. My 401k is extremely low fee, but it still might not be worth it now. Lots to research and frankly I just want to hire a good accountant to consult with. It seems that every strategy I read about is tied closely to other strategies or has income limits or special tax treatment.

 

[Bryan Barnfellow]

One nice thing about FIRE is that you have more time to spend researching and managing your investments if that fits your personality. It does mine.

 

[broadway]

Lots to research and frankly I just want to hire a good accountant to consult with. It seems that every strategy I read about is tied closely to other strategies or has income limits or special tax treatment.

You could hire an accountant who can help with "special tax treatment".
There is no magic formula.
The people here have done it as in RE.
If your accountant is still working, what does he/she know?

 

[evilanne]

Thanks all! We are maxing out 2 401ks, HSA, non-deductible traditional IRA, and saving about 30-40k taxable each year. We're very good to retire at 50 if I can get the right situation in place to cover years 1-9 and pay for half of my kid's college during the middle of that period. I've read about some interesting strategery. (Also assuming markets don't tank at the wrong time).

I'll need to look into the strategy of waiting to convert my non-deductible IRA to Roth until I stop working. That's a great idea! I'm at 25% deductible 75% non deductible and Roth currently.

I know converting traditional to Roth IRA is taxable but the tax free growth may be more advantageous in the long run. Also their is an exception to early withdrawal for education expenses but I believe you need to have it for at least 5 years, it would be worth looking into since you stated the need to cover a few years of education expenses. In retrospect, I wish I would have seen the advantage of the Roth sooner rather than later. I agree with broadway's rule-of-thumb:

1. maximize your 401(k) to employer's match
2. contribute to Roth IRA
3. maximize your 401(k) to maximum allowed
4. contribute to taxable account