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Too much in tax-sheltered, not enough in taxable?
Old 03-15-2015, 12:03 AM   #1
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Too much in tax-sheltered, not enough in taxable?

I'm 45, still working, and my nest egg is 10% more than I need to retire and start living off SWR.

However, most of that nest egg is locked up in tax-sheltered accounts for another 14.5 years (when I turn 59 1/2).

My taxable accounts make up only a small portion of my nest egg. in fact, if I did retire now, calculations project my taxable would run out by the time I turn 54.

Any suggestions? Anyone FIRE at an early age, and burn through their taxable accounts before they hit 59 1/2? I'd like to avoid SEPP'ing if I can.
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Old 03-15-2015, 12:10 AM   #2
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Roth conversion pipeline would be worth looking into.
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Old 03-15-2015, 01:23 AM   #3
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or use the 72t.
Or keep working but stuff it into taxable accounts.
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Old 03-15-2015, 02:58 AM   #4
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If you want to avoid 72t (SEPP) distributions, how about a plan to work for another 5 years, focused mainly on beefing up the after-tax accounts. That does 2 things...increases the amount you have to live on before you turn 59.5 and decreases the number of years you have to pay for with it. If I were you I would still contribute to the 401k if your employer has a matching program. It doesn't have to be 5 years...try to calculate how much your after-tax accounts will grow per year and what your cumulative expenses are likely to be until you're 59.5, and when the curves cross, pull the trigger!
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Old 03-15-2015, 06:52 AM   #5
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Roth conversions can be withdrawn (converted amount only, no earnings) after 5 years before 59.5 without penalty. You would need 5 years worth of spending in after tax before the Roth conversion could be useful.
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Old 03-15-2015, 09:09 AM   #6
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I agree with brewer12345 on using Roth conversions to get some of your tax sheltered money to where it can be withdrawn penalty free before age 59 1/2. Any money you convert to a Roth in 2015 can be withdrawn in 2020 without penalty. Similarly, conversions in 2016 will be penalty free in 2021. With so many years to plan ahead, you can easily make enough Roth conversions early in retirement to satisfy the five year rule and have enough in penalty free withdrawals to bridge the gap until you turn 59 1/2.
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Old 03-15-2015, 10:06 AM   #7
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An SEPP is also viable. You only need ~6 years to bridge the gap. The rules say that as long as your SEPP has been running at least 5 years by the time you hit 59.5 you can stop the payouts without any penalty.
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Old 03-15-2015, 10:42 AM   #8
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Just to mention it: If the tax-deferred money is in a 401K, you may be able to get at it penalty-free starting when you are 55. The problems are:
1) You have to separate from service in that year or after (not before). It sounds like you don't want to wait that long to quit. But if you worked part time there or somewhere else (roll it over to the new employer), you'd still be "in service"--if you wanted to do that for 10 years.
2) The "plan document" for the 401K must allow for these finds of withdrawals. Some do, some don't.

Other than that--SEPP or Roth Conversion is what occur to me.
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Old 03-15-2015, 11:56 AM   #9
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The E-R thread below has some good suggestions.

Saving too much (pretax)
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Old 03-15-2015, 04:42 PM   #10
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+1 with brewer. Since your gap is only 5 1/2 years, I suspect that Roth conversions alone would probably do the trick. Or SEPP. Or both if necessary.
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