Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 12-13-2014, 08:35 PM   #21
Thinks s/he gets paid by the post
MooreBonds's Avatar
 
Join Date: Aug 2004
Location: St. Louis
Posts: 2,091
Quote:
Originally Posted by photoguy View Post
Unless you're like Romney (with millions in IRA), I don't think one can retire at 45 or earlier without accumulating a huge chunk in taxable accounts.

Obviously there may be some exceptions but I think the majority of people who retire that early have substantial taxable assets.
Quote:
Originally Posted by pb4uski View Post
I'm not sure what your point is other than perhaps some political jab.

Is it that if you have zillions in your IRA that you can just afford to pay the 10% penalty?
My guess is that it's purely a comment at the mathematics behind it.

In order to retire at 45, unless you only live on a $5,000 budget, you'll likely need a good $2MM to do so. Barring someone who has access to the ways that the super IRAs accumulate tens of millions of dollars, it's mathematically impossible for a "non-Romney" 45 year old to accumulate $2MM with a majority of it in IRAs, since you are only allowed to put in $17,000/year. In order to accumulate $2MM in IRAs with $17k annual contributions, you would need to quit your job and roll it over into a self-directed IRA to place excessively risky bets on penny stocks and long positions in options (and most IRAs prohibit owning long positions in options, usually just covered calls).

So the only other realistic way to accumulate a few million by age 45 is to earn quite a large salary, and save it - and with only $17k/year going to 401ks, you'd wind up with far more going to taxable savings.

Yes, there are ways to be self-employed with SEP IRAs, or even creating your own pension plan that you'd fund with ginormous contributions each year....but this is aimed at the 90%-95% of people who are able to retire at 45.
__________________

__________________
Dryer sheets Schmyer sheets
MooreBonds is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-13-2014, 08:47 PM   #22
Recycles dryer sheets
 
Join Date: Oct 2011
Posts: 404
Definitely an interesting topic.

I used a financial advisor for a short time. Before I kicked his over-priced butt to the curb, he did say one thing that rang in my ears: "A risk a lot of my clients under-estimate is being so dedicated to tax efficient vehicles that they become unable to access their wealth." At the time I had no real wealth so this seemed an absurdly high class problem. Now it rings true.

For all of my adult life, I've been in the mode of "slam away savings in every vehicle possible with a preference for tax advantaged accounts wherever possible." Suddenly, I'm starting to think seriously about ER and for the first time thinking about how I get access to the money.

This may be a "blind squirrel finds a nut" moment however. I'm contemplating a plan where I hang it up at 51 or 52, allow my deferred comp to mature funding my 50s and the access the retirement accts at 60+. I will need to finesse the maturation dates to manage taxes, but it's starting to seem like a viable plan.
__________________

__________________
Luck is when Preparation meets Opportunity.
Closet_Gamer is online now   Reply With Quote
Old 12-13-2014, 09:16 PM   #23
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Quote:
Originally Posted by MooreBonds View Post
My guess is that it's purely a comment at the mathematics behind it.

In order to retire at 45, unless you only live on a $5,000 budget, you'll likely need a good $2MM to do so. Barring someone who has access to the ways that the super IRAs accumulate tens of millions of dollars, it's mathematically impossible for a "non-Romney" 45 year old to accumulate $2MM with a majority of it in IRAs, since you are only allowed to put in $17,000/year. In order to accumulate $2MM in IRAs with $17k annual contributions, you would need to quit your job and roll it over into a self-directed IRA to place excessively risky bets on penny stocks and long positions in options (and most IRAs prohibit owning long positions in options, usually just covered calls).

So the only other realistic way to accumulate a few million by age 45 is to earn quite a large salary, and save it - and with only $17k/year going to 401ks, you'd wind up with far more going to taxable savings.

Yes, there are ways to be self-employed with SEP IRAs, or even creating your own pension plan that you'd fund with ginormous contributions each year....but this is aimed at the 90%-95% of people who are able to retire at 45.

Annual 401 limit is 52,000 with employer match. 53 next year. Add in a roth, maybe a spouse, you can get to 2 million with compounding.




Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 12-13-2014, 09:44 PM   #24
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Posts: 1,842
Quote:
Originally Posted by dallas27 View Post
Annual 401 limit is 52,000 with employer match. 53 next year. Add in a roth, maybe a spouse, you can get to 2 million with compounding.

.....
And, if you maxed out since 1990, rolled to an IRA with mid-career job switch, and invested aggressively/smartly, you can flirt with 3,000,000 at mid/late 50's retirement without Roths and without considering your spouse's accounts.

(That's DW, unless the excrement hits the fan)
__________________
OMY * 3 2ish Done 7.28.17
2017ish is online now   Reply With Quote
Old 12-13-2014, 10:09 PM   #25
Recycles dryer sheets
 
Join Date: Aug 2013
Location: Cocoa Beach
Posts: 406
Quote:
Originally Posted by dallas27 View Post
Annual 401 limit is 52,000 with employer match. 53 next year. Add in a roth, maybe a spouse, you can get to 2 million with compounding.
+1: that is what I have been doing.
When my wife and I retire in 2017, at age 50, we should be at about 46% of assets in taxable (cover us from 2017 through 2027) and the other 54% in tax deferred (free to grow until 2027 and then fund our living from there). Hopefully anyways.....
__________________
Lucantes is offline   Reply With Quote
Saving too much (pretax)
Old 12-13-2014, 10:46 PM   #26
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Saving too much (pretax)

Fwiw, i try to save everything pre-tax. I don't have a fear of the 10% penalty, in fact i think it works in my favor including the penalty.

I think the work people do to avoid it is very often wrong and they are hurting themselves.


Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 12-13-2014, 11:07 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
Quote:
Originally Posted by photoguy View Post
No political jab intended. ....
Yeah, right. You could have made the same point without the first part of your earlier post, the part that started "Unless you're like Romney (with millions in IRA),". In fact, your point, which I think was that it is almost impossible to retire at 45 without substantial taxable savings, would have been clearer.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-14-2014, 08:43 AM   #28
Recycles dryer sheets
jetpack's Avatar
 
Join Date: Aug 2013
Posts: 317
Thanks guys, this has been helpful. I didn't know about the SEPP payments possibility, so you can always get some money. If there is any big purchase, you might have to bite the bullet.

For me, I had been maxing out my SEP-IRA, with $50k / year, and the returns have been good, so indeed, much of my wealth is pre-tax. I should be able to live off it, with out too much penalty.

One other thing to mention: We don't know what future tax rates are going to be. Indeed, 20 years down the road things could be a lot different. I can only think tax rates are going up.. especially if I'd have to make a big withdraw in one year.
__________________
jetpack is offline   Reply With Quote
Old 12-14-2014, 10:18 AM   #29
Thinks s/he gets paid by the post
 
Join Date: Nov 2009
Posts: 3,854
Quote:
Originally Posted by MooreBonds View Post
My guess is that it's purely a comment at the mathematics behind it.

In order to retire at 45, unless you only live on a $5,000 budget, you'll likely need a good $2MM to do so. Barring someone who has access to the ways that the super IRAs accumulate tens of millions of dollars, it's mathematically impossible for a "non-Romney" 45 year old to accumulate $2MM with a majority of it in IRAs, since you are only allowed to put in $17,000/year. In order to accumulate $2MM in IRAs with $17k annual contributions, you would need to quit your job and roll it over into a self-directed IRA to place excessively risky bets on penny stocks and long positions in options (and most IRAs prohibit owning long positions in options, usually just covered calls).

So the only other realistic way to accumulate a few million by age 45 is to earn quite a large salary, and save it - and with only $17k/year going to 401ks, you'd wind up with far more going to taxable savings.

Yes, there are ways to be self-employed with SEP IRAs, or even creating your own pension plan that you'd fund with ginormous contributions each year....but this is aimed at the 90%-95% of people who are able to retire at 45.
Not for me. When I ERed in late 2008 at age 45, I had about $840k with $600k of it in taxable accounts. This included the company stock I cashed out using NUA but did not reflect the income taxes I would eventually pay on it (about $75k). This was late 2008 when the markets were crashing and that was a terrific break for me because I was able to buy an extra 25% shares in the big bond fund whose monthly dividends support me today.

Without adding a single dollar from the outside, the Rollover IRA's value has doubled in the last 6 years. The taxable account's value has, despite having used a lot of its earnings to cover my ER expenses (about $21k per year), risen about 30%.
__________________
Retired in late 2008 at age 45. Cashed in company stock, bought a lot of shares in a big bond fund and am living nicely off its dividends. IRA, SS, and a pension await me at age 60 and later. No kids, no debts.

"I want my money working for me instead of me working for my money!"
scrabbler1 is offline   Reply With Quote
Old 12-14-2014, 05:41 PM   #30
Recycles dryer sheets
swakyaby's Avatar
 
Join Date: Feb 2011
Location: Northern Cal
Posts: 228
This has been a really informative thread!

Can anyone tell me if, between the years of early retirement and RMD, if there is a dollar limit on the amount of Roth conversions one can make each year? Can one convert from a SEP-IRA or a Rollover IRA? Or is it limited to conversions from a traditional IRA? About half my assets are tax-deferred.
__________________
swakyaby is offline   Reply With Quote
Old 12-14-2014, 06:09 PM   #31
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,418
Quote:
Originally Posted by dallas27 View Post
Fwiw, i try to save everything pre-tax. I don't have a fear of the 10% penalty, in fact i think it works in my favor including the penalty.

I think the work people do to avoid it is very often wrong and they are hurting themselves.


Sent from my iPhone using Early Retirement Forum
Just curious, got any logic to back this up? Or is it just a feeling you have? How can the 10% penalty work in your favor? What is wrong with avoiding the penalty, and especially what is wrong with saving outside the pre-tax vehicles?
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers, or maybe Sam Clemens
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 12-14-2014, 06:22 PM   #32
Moderator
Alan's Avatar
 
Join Date: Jul 2005
Location: Eee Bah Gum
Posts: 21,074
Quote:
Originally Posted by swakyaby View Post
This has been a really informative thread!

Can anyone tell me if, between the years of early retirement and RMD, if there is a dollar limit on the amount of Roth conversions one can make each year? Can one convert from a SEP-IRA or a Rollover IRA? Or is it limited to conversions from a traditional IRA? About half my assets are tax-deferred.
No restrictions at all as far as I am aware, on any of the types of IRA you mention. The more you convert in any given tax year the more tax you pay. It is the tax bands that cause folks to self limit what they convert.
__________________
Retired in Jan, 2010 at 55, moved to England in May 2016
Now it's adventure before dementia
Alan is offline   Reply With Quote
Old 12-14-2014, 06:26 PM   #33
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
I figure that I'm saving a ton in taxes by having deferred income to my 401k when working and my marginal tax rate was probably ~30%+ between federal and state and now I'm converting tIRA money to ,my Roth at ~11.5%.

I see nothing wrong with saving post-tax, but IMO it makes sense only if you have maxed out pre-tax (tax-deferred) savings first if you are in a high tax bracket. If you are not in a high tax bracket then the benefit is more modest.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-14-2014, 06:29 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
harley's Avatar
 
Join Date: May 2008
Location: Following the nice weather
Posts: 6,418
Quote:
Originally Posted by pb4uski View Post
I figure that I'm saving a ton in taxes by having deferred income to my 401k when working and my marginal tax rate was probably ~30%+ between federal and state and now I'm converting tIRA money to ,my Roth at ~11.5%.

I see nothing wrong with saving post-tax, but IMO it makes sense only if you have maxed out pre-tax (tax-deferred) savings first if you are in a high tax bracket. If you are not in a high tax bracket then the benefit is more modest.
No argument there. But I suspect that only saving in pre-tax, even maxing it out, won't get you to ER. And even if it does, it complicates creating a draw down strategy set, even with the 72t. Max out your pre-tax if you are in high brackets, but supplement that with after tax. A higher savings rate, and flexibility in managing your draw down and your taxes.
__________________
"Good judgment comes from experience. Experience comes from bad judgement." - Will Rogers, or maybe Sam Clemens
DW and I - FIREd at 50 (7/06), living off assets
harley is offline   Reply With Quote
Old 12-14-2014, 11:29 PM   #35
Thinks s/he gets paid by the post
 
Join Date: Jun 2014
Posts: 1,035
Quote:
Originally Posted by harley View Post
Just curious, got any logic to back this up? Or is it just a feeling you have? How can the 10% penalty work in your favor? What is wrong with avoiding the penalty, and especially what is wrong with saving outside the pre-tax vehicles?

By matching my 401k in my business, i avoid fica, which well exceeds 10%. So the 10% is not a significant deterrent.


Sent from my iPhone using Early Retirement Forum
__________________
dallas27 is offline   Reply With Quote
Old 12-15-2014, 07:57 AM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 16,387
That makes sense, but would paying less self-employment tax have a second order effect of reducing the amount of SS retirement benefits that you are entitled to?

It would not make sense for anyone who is not self employed though so you need to be clear about that when posting.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
pb4uski is offline   Reply With Quote
Old 12-15-2014, 08:17 AM   #37
Thinks s/he gets paid by the post
growing_older's Avatar
 
Join Date: Jun 2007
Posts: 2,608
Quote:
Annual 401 limit is 52,000 with employer match. 53 next year. Add in a roth, maybe a spouse, you can get to 2 million with compounding.
Never have I worked at (or even heard of) a company that matched 3x up to the annual limit, except small family businesses that were essentially an individual setting up their own plan for themselves in their own company. Even in the rare cases that I worked at a company that allowed after-tax contributions which theoretically meant you could approach the larger 52k limit, the HCE fairness rules (even if Safe Harbor, you still need to demonstrate HCE compliance for after-tax) never allowed anyone to contribute that much. Sure, the tax code allows it, but only people who control the company are likely to be able to setup the situation to make it possible.

Despite all that, since I know if I ER I will be able to access IRA through 72t (SEPP) substantially equal payments, I can easily avoid the penalty even if all my money is locked up under IRA rules. Further, it's virtually guaranteed that I will have some taxable savings, or even house equity, that I can tap until I reach age 59 1/2. In fact because I'm likely to be drawing on non-tax-advantaged savings during at least the early part of ER, I will also have a great opportunity for tax rate arbitrage by converting pre-tax IRA to post-tax IRA (Roth) during those years that my "taxable" income is low in ER because I'm essentially living off savings. Of course, all this changes somewhat if you have a pension to account for, but those are increasingly rare.
__________________
growing_older is online now   Reply With Quote
Old 12-15-2014, 08:22 AM   #38
Thinks s/he gets paid by the post
 
Join Date: Sep 2012
Location: Seattle
Posts: 2,904
Quote:
Originally Posted by growing_older View Post
Even in the rare cases that I worked at a company that allowed after-tax contributions which theoretically meant you could approach the larger 52k limit, the HCE fairness rules (even if Safe Harbor, you still need to demonstrate HCE compliance for after-tax) never allowed anyone to contribute that much. Sure, the tax code allows it, but only people who control the company are likely to be able to setup the situation to make it possible.
At the very large software company, you can contribute $18,000 to 401K, get about a $6,000 match, and make a after tax contribution of $20,000 to your 401K then do an immediate conversion of that to a Roth.

It isn't $52,000, but it is $44,000 a year which is not bad. I could see doing that for 20 years and having at least 1.5 million with even marginal market returns.
__________________
Fermion is offline   Reply With Quote
Old 12-15-2014, 07:07 PM   #39
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Quote:
Originally Posted by growing_older View Post
Never have I worked at (or even heard of) a company that matched 3x up to the annual limit, except small family businesses that were essentially an individual setting up their own plan for themselves in their own company. Even in the rare cases that I worked at a company that allowed after-tax contributions which theoretically meant you could approach the larger 52k limit, the HCE fairness rules (even if Safe Harbor, you still need to demonstrate HCE compliance for after-tax) never allowed anyone to contribute that much. Sure, the tax code allows it, but only people who control the company are likely to be able to setup the situation to make it possible.
More than a few people around here are contributing the 52k or so to their 401k combing pre-tax and after-tax contributions. DW and I have been doing this since around 2010 or so (until I FIRED). There is no need to have an abnormally large company match to get to the 52k level. You just need a plan that will accept after-tax contributions. These plans seem to be more common in the older large legacy corporations.

We have never had a problem with this, but I don't think either of us have risen to the level of (HCE) Highly Compensated Employee since then either.

Come to think of it, when DW was HCE in the past, they just limited her pre-tax contributions but allowed after-tax instead.

FWIW, both of our MegaCorps did limit our contributions to no more than 50% of our gross income.


-gauss
__________________
gauss is offline   Reply With Quote
Old 12-15-2014, 07:49 PM   #40
Thinks s/he gets paid by the post
2017ish's Avatar
 
Join Date: Apr 2012
Posts: 1,842
Quote:
Originally Posted by growing_older View Post
Never have I worked at (or even heard of) a company that matched 3x up to the annual limit, except small family businesses that were essentially an individual setting up their own plan for themselves in their own company. Even in the rare cases that I worked at a company that allowed after-tax contributions which theoretically meant you could approach the larger 52k limit, the HCE fairness rules (even if Safe Harbor, you still need to demonstrate HCE compliance for after-tax) never allowed anyone to contribute that much. Sure, the tax code allows it, but only people who control the company are likely to be able to setup the situation to make it possible.

///.
Pretty common in professional corporations (or LLCs, etc.) in the Med/Law fields, where the funds over the 401k limits are put into owners accounts as before-tax pension/profit sharing. Granted, these are, almost by definition, outliers.

Also, from financial advising conversations with DS, I gather that substantial aftertax contributions are frequently allowed in silicon valley (and, at least in some cases, that is after 1 for 1 pre-tax match).
__________________

__________________
OMY * 3 2ish Done 7.28.17
2017ish is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Maxing out pretax and taking 72t vs. taxable and no 72t whipsaw Young Dreamers 3 07-29-2014 08:26 AM
pretax saving, i dont get it endthefed Other topics 37 06-06-2010 09:49 AM
Planning and saving too much? dusk_to_dawn FIRE and Money 31 04-11-2006 10:00 AM
Scott Burns -- You're Saving Too Much to Retire intercst FIRE and Money 64 07-19-2005 08:15 AM
48% of pretax income spent on housing? I think not Syarzhuk Other topics 7 02-09-2003 07:09 AM

 

 
All times are GMT -6. The time now is 08:24 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.