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taxable vs. tax-deferred accounts - revise my plan?
Old 03-18-2007, 08:37 AM   #1
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taxable vs. tax-deferred accounts - revise my plan?

I think I need to revise my savings plan.

I know the standard advice for retirement savings is to max out all the tax-advantaged plans you have access to, and then put anything else into taxable accounts. Which of course makes sense. But I wasn't completely doing it, because we plan on retiring well before 59 1/2, and I thought I needed some money in the taxable accounts to pay for those years until we can get the IRAs and TSP without penalty. So we've always maxed out the Roth IRAs and the rest has gone into taxable accounts.

Now that I've had the benefit of hanging around here and learning about 72T withdrawals, I see that the traditional advice is still the best. The better way to go would be to max the IRAs, then the TSP, and anything extra goes into the taxable accounts. At ER, we'd roll the TSP into a traditional IRA. If we do need that money between ER and 59 1/2 (we may not, due to pension and rental income), we can withdraw our contributions from the Roths without penalty, and/or do a 72T withdrawal from the new traditional IRAs.

Right?

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Re: taxable vs. tax-deferred accounts - revise my plan?
Old 03-18-2007, 08:41 AM   #2
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Re: taxable vs. tax-deferred accounts - revise my plan?

Depends on your marginal income tax bracket now and your average tax rate in retirement (i.e. apples and oranges). Unless you are in the sub-8% marginal income tax bracket now, contributing to a Roth IRA first does not make sense.

We always maxed tax-deferred like 401(k) (your TSP), then contributed to IRAs, then after-tax accounts.
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Re: taxable vs. tax-deferred accounts - revise my plan?
Old 03-18-2007, 10:50 AM   #3
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Re: taxable vs. tax-deferred accounts - revise my plan?

Quote:
Originally Posted by WM
At ER, we'd roll the TSP into a traditional IRA. If we do need that money between ER and 59 1/2 (we may not, due to pension and rental income), we can withdraw our contributions from the Roths without penalty, and/or do a 72T withdrawal from the new traditional IRAs.

Right?


Remember, you can withdraw from the TSP without penalty between age 55 and 59.5 if you are retired. You do have to select a monthly amount and can only change it once a year but you can do it and at any later time move the whole amount into an IRA. But the TSP is a good thing and not to be easily discarded even if you only want to keep your bond portfolio in the G fund.
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Re: taxable vs. tax-deferred accounts - revise my plan?
Old 03-19-2007, 08:49 AM   #4
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Re: taxable vs. tax-deferred accounts - revise my plan?

Quote:
Originally Posted by LOL!
Depends on your marginal income tax bracket now and your average tax rate in retirement (i.e. apples and oranges). Unless you are in the sub-8% marginal income tax bracket now, contributing to a Roth IRA first does not make sense.
Why is that? I thought that as long as your marginal rate now is lower than what it's likely to be in retirement (which as far as I can tell is true for us right now) then the Roth is better because you'd rather pay the taxes upfront.

Also, thanks for the TSP tips, yakers, I will need to look at the withdrawal rules more carefully.
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