Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
What proportion do you save after tax?
Old 08-07-2009, 09:19 AM   #1
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
What proportion do you save after tax?

I'm sure lots of us on this board started off saving for retirement in the usual pensions and tax deferred accounts. We probably maxed out our savings and started to accumulate after tax investments and then realized that to ER we needed to save more after tax unless we were prepared to 72t. So my question is what %age of your savings go in after tax accounts and have you you ever made the conscious decision to reduce your tax deferred contributions to save more after tax?

I'll start off.

I have access to a state run defined contribution plan, a 457 and a 403b so I could put about $50k a year away tax deferred, however I don't max out the 403b. My tax deferred to after tax ratio right now is 1.2. Maybe this ratio should start out high when you're young and as you get older it should reduce for a number of reasons like you max out your after tax accounts or you start to emphasize the after tax for ER
__________________

__________________
nun 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 08-07-2009, 09:40 AM   #2
Administrator
W2R's Avatar
 
Join Date: Jan 2007
Location: New Orleans
Posts: 38,890
I am 61 years old and about to retire. I have always contributed the maximum to my TSP (=401K), plus over-50 catchup. So, this year that is $22,000.

After that I try to save every penny that I can from my take-home pay, whether it is more or less than my TSP contributions. I challenge myself to save a certain amount each week and make a game of it. If I save more then I feel like I "won". If I don't save that much then I try to buckle down and make up for it. If I keep failing then I lower the goal amount.

So I guess my answer is that it varies, but also that I consider after tax savings to be a challenge and kind of fun.
__________________

__________________
Already we are boldly launched upon the deep; but soon we shall be lost in its unshored, harbourless immensities.

- - H. Melville, 1851
W2R is offline   Reply With Quote
Old 08-07-2009, 09:44 AM   #3
Full time employment: Posting here.
ProspectiveBum's Avatar
 
Join Date: Sep 2006
Location: SoCal
Posts: 667
Mostly tax deferred here, with ER 18-20 years away. We're maxing out our 401k contributions, and putting a bit more into taxable accounts. Pretty high mortgage & childcare expenses for us, or we'd be putting more into the taxable accounts. Current ratio is 5.5:1, tax-deferred to taxable.

If I had it to do over, I might have taken a 30 year mortgage, and diverted some of the extra cash to taxable accounts. As it stands, we'll start pumping our current mortgage payments into taxable accounts once the mortgage is retired.
__________________
I can't complain, but sometimes I still do.
- Joe Walsh
ProspectiveBum is offline   Reply With Quote
Old 08-07-2009, 09:48 AM   #4
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by ProspectiveBum View Post

If I had it to do over, I might have taken a 30 year mortgage, and diverted some of the extra cash to taxable accounts. As it stands, we'll start pumping our current mortgage payments into taxable accounts once the mortgage is retired.
I've included the extra principal I put towards the mortgage in my after tax savings as I consider it a 4.5% savings account. There's an argument to be made for including all the mortgage in after tax savings too.
__________________
nun is offline   Reply With Quote
Old 08-07-2009, 09:50 AM   #5
Recycles dryer sheets
 
Join Date: Mar 2009
Posts: 357
100% of mine go into tax deferred accounts. My DW and I are fortunate to have a lot of options for tax deferred accounts - pension, 403b, 457, 401k, Sep-IRA, Roth IRAs.

Maybe I'm missing something, but why pay taxes when you don't need to? You'll have your 457 and 72t for ER. Even if you didn't have those options, the early withdraw penalty is only 10% which is much lower than most marginal tax brackets.

Plus, lowering your AGI might enable you have more tax advantages - deducting student loan interest, contributing to a IRA, contributing 100% of charitable contributions, etc.
__________________
bank5 is offline   Reply With Quote
Old 08-07-2009, 10:10 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
NW-Bound's Avatar
 
Join Date: Jul 2008
Posts: 19,420
When still working, we always maxed out tax-deferred savings first to minimize taxes. We always had plenty leftover for after-tax savings, being LBYM'ers. And being true LBYM'ers, we never set any goal for savings. We spent money on what we needed or wanted, and there was simply money left over. And we stumbled onto ER by chance.

Some clarifications may be needed here. No, we did not have outrageous salaries. Many friends who envied us thought we made much more than they did. We were just frugal, and kept our lifestyle creep to a minimum. The only time we consciously had a budget was the first year we got married, and needed to pay off ASAP the money we borrowed from relatives for the house downpayment.
__________________
"Old age is the most unexpected of all things that can happen to a man" -- Leon Trotsky
NW-Bound is offline   Reply With Quote
Old 08-07-2009, 10:12 AM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
RunningBum's Avatar
 
Join Date: Jun 2007
Posts: 5,182
10% ESPP, plus I usually put my bonus (has ranged from 10-30% of pay) into mutual fund investments. I used to put about another 10% in mutual funds but when I went part time I had to drop that. I also had some big windfalls from exercising stock options so I've got plenty outside of 401K/IRAs to get me through 59 1/2 and beyond. I'm still maxing out the 401K.
__________________
RunningBum is offline   Reply With Quote
Old 08-07-2009, 10:16 AM   #8
Full time employment: Posting here.
Lusitan's Avatar
 
Join Date: Jan 2006
Location: Boston
Posts: 620
We have been maxing out our tax-favored plans (401K, IRAs, and some years SEP-IRAs) every year, and the taxable investments vary from year to year. I'd say 4-to-1 ratio between tax-favored and taxable investment account is the average.

I'm still uncertain when/what our FIRE plans are, and we're in our early thirties with young kids so who knows what the future holds. I have a vague idea that at some point, I'll downshift and do something that will earn very little income compared to my current j*b, but which will provide enough to live on without making any more investments. In this vague plan, I'll simply live off of my small income until I reach 59.5 when I can tap into my tax-favored accounts and stop working altogether.

I see my taxable investments as a way to simply trim back the 59.5 finish line, bit by bit as my taxable savings grow. Perhaps by the time my plan is set in motion, I'll work a seriously downshifted j*b (or a part-time j*b, or consulting, or my own invariably not-too-successful business) between age 40 and 50 and then pull the plug on w*rk at 50 altogether if I want.
__________________
Lusitan is offline   Reply With Quote
Old 08-07-2009, 10:38 AM   #9
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
As I'm hopefully about 4 years from ER I cut back on my 403b to pump up my after tax savings to give me some flexibility. The 72t is an option, but I like to keep things simple and the cost of some lost tax deferral is worth it to me to have tax free money that has no strings attached that I can live off in ER. I'll also be able to do some cheap IRA to ROTH conversions given my low taxable income.
__________________
nun is offline   Reply With Quote
Old 08-07-2009, 10:39 AM   #10
Moderator Emeritus
 
Join Date: May 2007
Posts: 11,044
About 80% of our savings goes to taxable accounts and the rest goes to 401Ks. There are several reasons why I like our investments to be mostly in taxable accounts. But we don't have much choice nowadays anyway because we do not qualify for roth or deductible IRAs.
__________________
FIREd is offline   Reply With Quote
Old 08-07-2009, 11:06 AM   #11
Recycles dryer sheets
obryanjf's Avatar
 
Join Date: May 2005
Location: Owensboro, KY
Posts: 138
We save all right now in 401K( 16% + companies 9%). We have Roths and Traditionals, although not adding right now.
We save another 3% to kids(3) future collage.
We save(divert) 3% to the future car/future roof/future furnace fund which will be fully funded next year.
__________________
obryanjf is offline   Reply With Quote
Old 08-07-2009, 11:47 AM   #12
Full time employment: Posting here.
ProspectiveBum's Avatar
 
Join Date: Sep 2006
Location: SoCal
Posts: 667
Quote:
Originally Posted by nun View Post
I've included the extra principal I put towards the mortgage in my after tax savings as I consider it a 4.5% savings account. There's an argument to be made for including all the mortgage in after tax savings too.
This is highly individual, but I've stopped including my home value when calculating net worth for ER purposes. We like where we live, and while there's a good chance that we'll downsize after the kids are gone, it's not a certainty. No sense (for me) in viewing it as a liquid asset until we actually decide to liquidate.

Your mileage will very likely vary.
__________________
I can't complain, but sometimes I still do.
- Joe Walsh
ProspectiveBum is offline   Reply With Quote
Old 08-07-2009, 12:57 PM   #13
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Nov 2007
Posts: 7,527
About 25% goes to taxable accounts, 75% goes to tax deferred accounts (401k, IRAs, ESOP). Our tax deferred savings are maxed out each year. But we are just starting some 529's, so that will change the mix to 15% taxable, 85% tax deferred.

We plan on having 2 decades between FIRE and age 59 1/2, so a 72t is a substantial certainty at some point. Unless our incomes go way up and we have to save a much larger proportion in taxable accounts in the future.

Our current split in our portfolio of what we own today is roughly 50/50 between taxable and tax deferred, but that ratio will obviously be skewed towards tax deferred as the years go by.
__________________
FUEGO is offline   Reply With Quote
Old 08-07-2009, 01:07 PM   #14
Full time employment: Posting here.
Kronk's Avatar
 
Join Date: Aug 2005
Location: Philly 'burbs
Posts: 547
Of our existing savings:
68% in 401k
17% in Roth
10% in post-tax accounts
5% in HSA account

Not really concerned about too much in pre-tax accounts. I'll do 72t's when the time comes. I max out all of my pre-tax options.
__________________
Kronk is offline   Reply With Quote
Old 08-07-2009, 01:35 PM   #15
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
For me it's

IRA 39%
State defined contribution plan 24%
457 7%
403b 3%
ROTH 3%

After tax 24%

I can get at the 457 plan as soon as I ER so I'm maxing that out
__________________
nun is offline   Reply With Quote
Old 08-07-2009, 02:00 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,619
Of existing assets, we are about 50:50 between taxable and tax-sheltered. Since going to part-time work, we don't contribute much to taxable anymore, but have become eligible for Roth IRAs. We max out tax-sheltered contributions ($56K per year).
__________________
LOL! is offline   Reply With Quote
Old 08-07-2009, 02:09 PM   #17
Recycles dryer sheets
Mill's Avatar
 
Join Date: Mar 2009
Location: Akron
Posts: 129
I would say my rate is somewhere around 60% tax deferred vehicles and 40% taxable accounts.
__________________
Mill is offline   Reply With Quote
Old 08-07-2009, 05:11 PM   #18
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 3,862
If you plan to retire before 59 1/2 you should probably make sure you have enough in non-retirement accounts to cover expenses until then. Though you can do the "substantially equal payments" thing to tap retirement funds early.

Otherwise I just tried to optimize after-tax returns and diversify tax treatments.
__________________
Animorph is offline   Reply With Quote
Old 08-07-2009, 07:52 PM   #19
Recycles dryer sheets
 
Join Date: Jan 2007
Posts: 398
I save as much as I can. Historically, about half has gone into some sort of tax deferred account and the other half has gone into pure after tax accounts. I turn 50 this year and can make slightly more before tax contributions due to catch up options. For this year, it will be about:

20%: before tax contributions into a 401k
30%: after tax contributions into a 401k (earnings tax deferred)
05%: after tax contributions into a traditional IRA (earnings tax deferred)
45%: after tax contributions into regular investment accounts

Ultimately, the after tax contributions made to the 401k and the traditional IRA will be rolled over into a Roth IRA.
__________________
Shawn is offline   Reply With Quote
Old 08-07-2009, 10:06 PM   #20
Recycles dryer sheets
 
Join Date: Apr 2009
Posts: 81
Our current annual savings distribution is:

~37% TSP (401K)
~23% Roth IRA
~40% Taxable

I'm still early enough in my ER planning to focus primarily upon fully funding our IRAs and my 401k.
__________________

__________________
av8er is offline   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
Tax Questions: 1. Cap Gains 2. Tax Rate TromboneAl FIRE and Money 2 12-12-2007 09:49 AM
Save money and time when you mail in your tax return samclem Other topics 12 04-15-2007 06:54 PM
How much would you save tax defered? nun FIRE and Money 11 10-27-2006 01:03 PM
How much do you save??? MedicalDoc FIRE and Money 13 03-20-2006 01:40 PM
How Much Do YOU Save? bbuzzard FIRE and Money 17 01-06-2006 05:18 PM

 

 
All times are GMT -6. The time now is 06:40 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.