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Maxing out pretax and taking 72t vs. taxable and no 72t
Old 07-25-2014, 08:40 AM   #1
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Maxing out pretax and taking 72t vs. taxable and no 72t

Wife and I (34 and 32) make about 180k total gross, and to this point have been maxing out my 401k but only contributing up to the match for hers. We would like to retire well in advance of 59.5 and will need funds from somewhere in order to bridge that gap, either from 72t out of our pretax accounts or our taxable accounts. With our income we are in the 28% bracket, so would it be better to up our pretax contributions and live with the fact that we will have to lock ourselves into a 72t later on, or eat the tax now and have the flexibility down the road? Anyone else had this dilemma in their FIRE planning?

I think the answer is probably to avoid the 28% and prepare to get really knowledgeable about SEPPs in about 20 years. We should have a healthy taxable account at retirement too but probably not enough to bridge fully until 59.5.

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Old 07-25-2014, 08:55 AM   #2
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Why not do the roth conversion ladder? Save up 5 years of expenses in your taxable. Shove the rest in your pre tax accounts. Get all the tax breaks you can now.

Then when you stop working and income is down convert 1 year of expenses each year for 5 year all the while living on the 5 years of expenses in the taxable account.

Then your first conversion from 5 years previous will be "seasoned" you can take it out tax and penalty free just leave the earnings. You can keep doing this under 59.5 while paying taxes in 1 year worth of expenses for each conversion. This is what i am planning on doing.

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Old 07-25-2014, 08:59 AM   #3
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Yes, but I'm no better prepared to tackle it than you are.

DW and I will likely have a healthy pension to count on to bridge the gap, and we're fortunate enough to be building a substantial taxable account along with our IRA/403bs. I plan on looking in about four years and seeing how we're doing to determine if I need to plan for 72t. Most of our IRA money is Roth, so we'll have a couple of years worth of expenses in there as contributions we can pull at any time.

We may be pushed into the 28% tax bracket soon as well, so more to figure on that one.
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Old 07-29-2014, 07:26 AM   #4
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Being in the 28% bracket, I would max out any available pretax savings, then save more in Roth's, as $17,500/$35,000 a year isn't likely to get you to RE.

I was thinking we'd have to 72t, but now consider the Roth conversion path that borrom details as our likely route.

Due to our projected retirement at age 47, we aren't comfortable locking in 72t for 13 years.

If we run out of Roth, before 59.5 then we'll reevaluate starting a 72t.
Awaiting cash out of Corp retirement plan, saving, saving and saving more, in hopes of RE in 2016 at age 47.
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