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Location of cash
Old 08-24-2005, 06:43 PM   #1
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Location of cash

Hi all.

My wife and I have been working toward ER for several years now. As we continue to work toward our goal, it has struck me that a lot of our savings will be in Roth IRAs and our 401(k)s. Obviously, if we can't access our savings until we are ~60 years old, it kind of defeats the purpose of saving to ER (we are both currently under 30 years old).

Our idea of ER is to be able to work at whatever we want to and not have that decision impacted by the need to earn much $. We both plan to continue doing SOMETHING to earn a little extra cash during our ER, so that will help with our monthly income needs.

Our goal is to ER by the time we're 40. A couple years into it and we're right on track. (This amount seems OK to ER based on calculations I've done... any comments are appreciated.)

Anyway, how have y'all dealt with having a significant portion of your savings in "age restricted" accounts as part of your ER plan?

THANK YOU!!!
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Re: Location of cash
Old 08-24-2005, 06:52 PM   #2
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Re: Location of cash

Welcome to the board Jay. Here is a thread on early withdrawals:

http://early-retirement.org/forums/i...32341#msg32341

Also, see www.72t.net

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Re: Location of cash
Old 08-24-2005, 07:20 PM   #3
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Re: Location of cash

Yes, and I think the other issue is to plan some other taxable investments beyond the 401k and iras. also, a roth isnt to hard to take you initial deposits out (as I understand).
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Re: Location of cash
Old 08-24-2005, 09:01 PM   #4
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Re: Location of cash

I'm planning to bail in 7.5 years at age 56. I want to avoid Rule 72t as it isn't very flexible.

My workaround is to fund the 401k and Roth, but also tuck away after tax money in I bonds. I won't have to pay tax on the interest until I cash them in, and there is no state tax - which for me is 9%.

My early retirement years are going to be the years I travel the most, so I want that money in a relatively safe investment.

I did a spreadsheet that breaks down all my investments by type of account and projects my savings rates, so that I can plan which accounts to fund by how much.

-helen
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Re: Location of cash
Old 08-24-2005, 10:39 PM   #5
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Re: Location of cash

I am in a similar position, under 30 and trying to accumulate wealth that I can tap for ER long before I'm 65. I'm using Vanguard's municpial bond funds for a portion of my portfolio. The intermediate term fund (not too much interest rate risk) is yielding 3.75% and no taxes (until you sell, but thats a problem for your heirs to worry about). I am dollar cost averaging in every month so I'm not too worried about rising rates...Vanguard also has a good article on their site that shows rising rates are not the kiss of death for bond investors, contrary to conventional wisdom.
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Re: Location of cash
Old 08-25-2005, 08:48 AM   #6
 
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Re: Location of cash

It's a crime that 72t information isn't widely known (or isn't publicized enough). *I've heard stories of people paying penalties simply because they didn't know they could take money before 59.

I myself cut down on SEP-IRA contributions at one point because I didn't know there was a way to make withdrawals before 59.
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Re: Location of cash
Old 08-25-2005, 09:46 AM   #7
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Re: Location of cash

Quote:
Originally Posted by TromboneAl
It's a crime that 72t information isn't widely known (or isn't publicized enough). *I've heard stories of people paying penalties simply because they didn't know they could take money before 59.

I myself cut down on SEP-IRA contributions at one point because I didn't know there was a way to make withdrawals before 59.
When your CPA prepares your tax return and advises you to contribute the maximum to your SEP-IRA, and you say you don't want to because you may want to take distributions before age 59 1/2, you would have been advised that could do both, or least opened up a discussion as to the pros and cons of a maximum SEP-IRA and 72(t) in your particular situation.
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Re: Location of cash
Old 08-25-2005, 10:36 AM   #8
 
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Re: Location of cash

Yes, but that assumes that you have a CPA or that you say to the CPA "I'm going to put less in my SEP-IRA because I will need money before 59." instead of "I only put $4,000 in my SEP-IRA this year."

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Re: Location of cash
Old 08-25-2005, 11:59 AM   #9
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Re: Location of cash

Quote:
Originally Posted by TromboneAl
Yes, but that assumes that you have a CPA or that you say to the CPA "I'm going to put less in my SEP-IRA because I will need money before 59." instead of "I only put $4,000 in my SEP-IRA this year."
True, but if you said you only put $4K in your SEP-IRA, your CPA would probably recommend that you put more in up to the max, at which point you may tell him that you may need the money before 59 1/2, at which point he would mention 72(t).

Also, if you have a SEP-IRA, chances are you have your own business. Most small businesses have a CPA as an advisor for their business to help with situations like this.
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Re: Location of cash
Old 08-25-2005, 09:46 PM   #10
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Re: Location of cash

How about treasury direct?
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Re: Location of cash
Old 09-04-2005, 11:13 PM   #11
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Re: Location of cash

Quote:
Originally Posted by retire@40
True, but if you said you only put $4K in your SEP-IRA, your CPA would probably recommend that you put more in up to the max, at which point you may tell him that you may need the money before 59 1/2, at which point he would mention 72(t).

Also, if you have a SEP-IRA, chances are you have your own business.* Most small businesses have a CPA as an advisor for their business to help with situations like this.
Gosh, Retire, I can't imagine why Al hasn't said "Thanks!" yet. There's nothin' quite like having the courage to admit a mistake and then getting a lecture on why you actually screwed up even worse by not paying the right kind of person to help you avoid your mistakes.

Maybe you could lighten up on these critiques and recommend a website or two that could help people learn more about SEP-IRAs... like the 72(t) website or Greaney's articles or the IRS pubs.

I think it's all too easy to have a blissfully ignorant faith in the CPA or the HR dept or the other professionals that one could hire to do painful tasks like taxes. I don't butcher my own hogs or pluck chickens, but it's worth more to learn about these subjects than it is to try to figure out how to hire the "right" people to understand them for you.
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Re: Location of cash
Old 09-05-2005, 02:39 PM   #12
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Re: Location of cash

Since the maximum amounts that one is allowed to contribute to a tax-deferred plan like a 401(k), 403(b) or IRA are so limited, it has never been a problem for us to do that and contribute to after-tax accounts such as straight-up mutual fund and/or brokerage accounts.

As we worked toward FIRE, we have found that we have more assets in taxable accounts than in so-called retirement accounts even after contributing the max to the latter for years.* *I cannot image that one could retire early by only contributing $14K a year plus $4K a year to a 401(k) and IRA.* Or even $36K a year if both you and your spouse work.

It seems that you need to max those out and also get money from elsewhere.* From reading this board, I see folks who have pension payouts, folks who have a working spouse, folks who have social security and folks who have money from their taxable accounts that are FIREd.* I do not see folks who have failed to contribute outside their 401(k) or 403(b) or other tax-deferred retirement account enjoying early retirement. But I'm willing to hear from folks who have done it on retirement accounts alone.
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Re: Location of cash
Old 09-13-2006, 07:58 PM   #13
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Re: Location of cash

Quote:
Originally Posted by TromboneAl
It's a crime that 72t information isn't widely known (or isn't publicized enough). *I've heard stories of people paying penalties simply because they didn't know they could take money before 59.

I myself cut down on SEP-IRA contributions at one point because I didn't know there was a way to make withdrawals before 59.
I agree 100%.....it REALLY is a crime. I am convinced that 59.5 is a gov't conspiracy. The seperated at age 55 rule for 401k's is obscure also (except on this board).

I disagree with Helen about 72t's being in-flexible. From my understanding they are extremely flexible if properly setup. Anyone interested should check www.72t.net
Disclaimer: I only read the manual, I never set one up!

As for CPA's, don't get me started. I just had too too many awful experiences. My taxes are too complicated for a "tax preparer" and not complex enough for a CPA that specializes in taxes. If they do specialize in taxes, I can't afford them. I had a non-specialist CPA one year due to moving expenses, blah blah blah........I had to explain to him about T-Notes not being subject to state taxes........now Im a turbo-tax guy!
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Re: Location of cash
Old 09-14-2006, 07:55 AM   #14
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Re: Location of cash

Quote:
Originally Posted by jazz4cash
As for CPA's, don't get me started.* I just had too too many awful experiences.* My taxes are too complicated for a "tax preparer" and not complex enough for a CPA that specializes in taxes.* If they do specialize in taxes, I can't afford them.* I had a non-specialist CPA one year due to moving expenses, blah blah blah........I had to explain to him about T-Notes not being subject to state taxes........now Im a turbo-tax guy!
I just reviewed my MIL 's taxes that involved a residual trust which cost $3K to be prepared by a CPA. Not all CPA's understand the difference between short term capital gain and long term capital gain. What a mess!
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Re: Location of cash
Old 09-14-2006, 08:21 AM   #15
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Re: Location of cash

Quote:
My wife and I have been working toward ER for several years now.* As we continue to work toward our goal, it has struck me that a lot of our savings will be in Roth IRAs and our 401(k)s.* Obviously, if we can't access our savings until we are ~60 years old, it kind of defeats the purpose of saving to ER (we are both currently under 30 years old).
As Maddy hinted at, and i'll clarifly, Roth contributions can be withdrawn at any time and for any reason without penalty.* *I presume they allowed that because you already paid taxes on the contributions in the year you put them in.* *The only "work" involved would probably be some entries/adjustments on your 1040.* *Since i've never withdrawn from mine, i cant say exactly what's involved, but probably not much of anything.

I've found from other websites, this is a benefit of the Roth not everyone is aware of.
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Re: Location of cash
Old 09-14-2006, 05:20 PM   #16
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Re: Location of cash

Quote:
Originally Posted by Jay_007

Our idea of ER is to be able to work at whatever we want to and not have that decision impacted by the need to earn much $.* We both plan to continue doing SOMETHING to earn a little extra cash during our ER, so that will help with our monthly income needs.
I hear what you're saying.* I'm taking a very similar approach.* I'm 30 and maxing out 401(k) and roth and and only able to save a few grand a year after that in taxable accounts.* *So although I'll have a nice nest egg by the time I'm in my early to mid 40s, probably 80% of it will be wrapped up in retirement accounts that I can't touch until my 60s.*

That doesn't bother me too much though, because I know that I'm always going to want to do a little something in the way of work.* So my version of "early retirement" is actually going to be more of part time work that I find relatively fun and stress-free.* Basically, I will be able to completely stop saving for retirement in my early 40s, and just work for fun, health benefits, and to pay my share of a smallish mortgage.* My retirement nest egg will compound for about 25 years with no additional contributions from me, and by the time I'm 65, it will be pretty substantial.
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