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Traditional/Roth/Taxable mix for early retirement
Old 04-17-2019, 09:03 AM   #1
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Traditional/Roth/Taxable mix for early retirement

My wife and I would like to semi-retire in around 18 years, or permanently retire to her home country which has a cheap COL. I know this is very far out but I'd like to start thinking about this now rather than later.

Our current situation:
Trad 401k: $128,000
Roth IRAs: $40,000
HSA Investments: $19,000
Cash: $42,000

2018 AGI: $130k (12% bracket since a lot of that is dividends from the company I co-own).

Only liability is our mortgage of $215,000 (15 year @ 3.875%). Want to have this paid off before the target retirement date.

I make enough to max my traditional 401k and max both my Roth IRA and my wife's spousal Roth, and our HSA. Any additional money has been going to savings, 529, some additional mortgage principal, and so on.

The question I have:
1. The principal in the Roth IRA can be accessed early w/o penalty. Is this also true for Roth 401ks? Should I perhaps start diverting some traditional 401k contributions into a Roth 401k?
2. Should I start taxable investing as well?
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Old 04-17-2019, 09:44 AM   #2
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1. I believe so. Others with first-hand knowlege will weigh in on that question.
2. Taxable would be good. Depending on how much headroom you have in the 12% tax bracket for dividend income, you might consider equities in taxable accounts... qualified dividends and LTCG are 0% tax rate, and if your internationa equities allocation is in taxable you can use the foreign tax credit.

Also, since you are so far out... do a plan in Quicken Lifetime Planner... included in Quicken Deluxe and higher... and then use Quicken to monitor your progress.
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Old 04-17-2019, 09:54 AM   #3
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If you plan on retiring to another country then before you start investing in after tax funds it would be worth checking whether that foreign country will tax your funds as passive foreign investments.

For example, before moving to the UK I read up on the tax agreement between the UK and USA. The UK recognizes IRAs, 401ks etc and will tax them as regular income once withdrawals are made, just like the USA. Similarly, withdrawals from Roth’s are also tax free in the UK. Mutual funds however in after tax accounts are fully taxed as regular income including capital gains. However there is a huge list of funds that report into the UK tax authorities that are treated as you would hope, in that equity funds receive favorable treatment for dividends and capital gains. Just about every VG ETF is an HMRC Reporting fund so I converted my mutual funds to their ETF equivalents.
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