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Saving strategy
Old 04-16-2007, 01:22 PM   #1
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Saving strategy


Ok,
I'm just getting going on all this planning, but I'm confused about where the RE money comes from. I'm a teacher, so I'm "expecting" a healthy pension. My "magic numbers" are 30 years in and 60 years of age. I started teaching at 30 and am planning to "buy" 5 years of sevice credit to get me to that 30 years by age 55. Then I'd like to retire and wait 5 years to file for the pension.

My question is, how I go about saving for that 5 years of ER? As I understand, my 403b, and Roth will be out of the picture until 59.5. Given my income and spending, I won't max out my 403b, Roth, and then still have After tax money to put away. Should I be skipping the Roth and opting for After tax instead? Should I be looking into this SEPP(barely know what that is)? Does SEPP even apply to 403b? I've heard that principal can be taken from a 403b without penalty...should that be considered?


How did you save your ER money (ER - 59.5)?
Thanks,
devo
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Re: Saving strategy
Old 04-16-2007, 01:48 PM   #2
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Re: Saving strategy

fyi - I believe that you can pull your contributions from a Roth IRA out at any time without penalty. Might want to check on that though.

Not sure about the 403(b) withdrawals, but I believe that if you've got a 457, once you separate from service you can withdraw without penalty, and of course pay taxes on the earnings that you withdraw.

Might want to check with your district or retirement plan provider about doing SEPP from 403(b).

- Alec
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Re: Saving strategy
Old 04-16-2007, 10:52 PM   #3
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Re: Saving strategy

Just to clarify, roth is an after tax investment vehicle.

I believe you can use Substantually Equall Payment Plan (SEPP) with all IRA like vehicles (IRA, 401K, 403b, SEP). I am not sure about if you can do SEPP with either a Roth 401k or a Roth IRA. It would be worth investigating.

BTW don't confuss a SEP (Self Emplyed Pension) with a SEPP.

How old are you now?

How much do you spend a month?

What debts do you have?

Can you continue to get health care through the school union, even after you quit?
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Re: Saving strategy
Old 04-18-2007, 09:48 AM   #4
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Re: Saving strategy

I plan to have enough in my taxable accounts to get me from 52 to 59 1/2.

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Re: Saving strategy
Old 04-18-2007, 10:10 AM   #5
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Re: Saving strategy

Devo, check out IRS pub 575 regarding additional taxes on early distributions from qualified retirement plans. You can generally withdraw penalty free if you terminate from service in or after the year you turn 55.

I don't know of any way to withdraw contributions early penalty-free, except perhaps for Roth 403bs.

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Re: Saving strategy
Old 04-18-2007, 11:33 AM   #6
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Re: Saving strategy

Quote:
Originally Posted by rw86347
Just to clarify, roth is an after tax investment vehicle.

I believe you can use Substantually Equall Payment Plan (SEPP) with all IRA like vehicles (IRA, 401K, 403b, SEP). I am not sure about if you can do SEPP with either a Roth 401k or a Roth IRA. It would be worth investigating.
You can do a SEPP with a Roth IRA and presumably a Roth 401(k), but it would generally be a silly thing to do, because you would pay income taxes on the withdrawals, whereas if you waited until 59.5 your withdrawals would be tax-free.

Edited to add: Actually I don't think you can do SEPP's from company-like plans like a 401(k) and 403(b). Don't know about a SEP.

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Re: Saving strategy
Old 04-18-2007, 12:18 PM   #7
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Re: Saving strategy


Sorry,
been out of the loop on this one for a bit. Here's what I found on 403bwise.com:

Quote:
Generally, penalty-free distribution from a 403(b) cannot occur until the participant:

-Reaches age 59 1/2

-Separates from service in the year turning 55 (and must be retired)

-Retire before age 55 eligible for Substantially Equal Periodic Payments (SEPP). Participants who have retired early (before age 55), but want access to their 403(b) without penalty can do so using SEPP. This provision requires that you take a series of substantially equal periodic payments. The key is that once you start these payments they must continue for five years or until you reach 59 1/2, whichever takes longer. If you start at age 58 you must continue until you are 63 (minimum 5 years).

-Becomes disabled (as defined in section 72(m)(7) of the Internal Revenue Code)

-Through a loan (some investment companies allow this, some do not)

-Dies
I'm hoping the last option won't be the one for me It looks like at 55 I can begin SWR from 403b without penalty or SEPP.

I'm 33 now. We spend an incredible amount/mo (7500). Many debts, two mortgages, one car note, a student loan. No CC or "bad" debt. Highest int rate is at 5.875 (rental home).

I know this doesn't give the whole picture. Honestly, I know this site is all about LBYM. Although we save 15% of gross, plus money to my pension, we stink at LBYM. I hate it and I know I'm bad. We just like to eat out and buy ipods and cameras and other depreciating gizmos. It's as much balance as I can get DW to commit to. I am in awe of those of you who can put away 50+% of pay. Kudos!

Thanks for the input!
devo
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Re: Saving strategy
Old 04-21-2007, 09:09 AM   #8
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Re: Saving strategy

Quote:
Originally Posted by devo

I'm 33 now. We spend an incredible amount/mo (7500). Many debts, two mortgages, one car note, a student loan. No CC or "bad" debt. Highest int rate is at 5.875 (rental home).

I know this doesn't give the whole picture. Honestly, I know this site is all about LBYM. Although we save 15% of gross, plus money to my pension, we stink at LBYM. I hate it and I know I'm bad. We just like to eat out and buy ipods and cameras and other depreciating gizmos. It's as much balance as I can get DW to commit to. I am in awe of those of you who can put away 50+% of pay. Kudos!
Devo, don't be too hard on yourself. You are planning for retirement and you are saving 15% of your gross at the age of 33. If 15% plus your pension plus social security is enough to live on then you are doing as well as the rest of us.

You have a long way to go before reaching retirement, enjoy the ride.
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Re: Saving strategy
Old 04-21-2007, 09:44 AM   #9
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Re: Saving strategy

max out your 403b for a few months and see. in my case i was surprised how the actuall net pay differed very little from maxing out my 401k instead of nothing. and a few years ago for a few months i stopped contributing to my 401k and the net pay changed very little again. the tax benefits are great.
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Re: Saving strategy
Old 04-23-2007, 10:15 AM   #10
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Re: Saving strategy

Quote:
Originally Posted by devo

I'm 33 now. We spend an incredible amount/mo (7500). Many debts, two mortgages, one car note, a student loan. No CC or "bad" debt. Highest int rate is at 5.875 (rental home).

devo
Get your wife to listen to Dave Ramsey. Ramsey's point is that saving is about motivation. You have to get mad to be successful. At my last job my boss was a prick. I don't want anyone to have that much control over my life. Next time I work for a prick I want to be able to walk out the door, and still pay my bills.

Debt is slavery. Find a way to get mad. Get motivated. Channeled emotion is the only thing that will lead you to success. Dream of a better life.
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Re: Saving strategy
Old 04-30-2007, 09:25 PM   #11
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Re: Saving strategy

Its good that you found 403bwise, a great site for teachers and others with 403bs. One thing I know from my wife, sister & other teachers is that most 403bs are really miserable, hope you have a good one. My wife's district had a 30 yrs at 60 as the target for retirement so there was a 'penalty' for her retiring at 58 last year but we can do it as I am still working and we have only our youngest son at home, going away to college in the fall.
Anyway, you have to look closely at your 403b to make sure it is decent (is there a match?) and you will want some after tax money and some tax free money (Roth) to have a choice which to withdraw from.

You are still doing well, I had a negative net worth until after 30, went through a divorce and other financial disasters but time, LBYM and saving will work wonders.
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Re: Saving strategy
Old 05-01-2007, 07:22 AM   #12
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Re: Saving strategy

Quote:
Originally Posted by devo
Sorry,
been out of the loop on this one for a bit. Here's what I found on 403bwise.com:

I'm hoping the last option won't be the one for me It looks like at 55 I can begin SWR from 403b without penalty or SEPP.

I'm 33 now. We spend an incredible amount/mo (7500). Many debts, two mortgages, one car note, a student loan. No CC or "bad" debt. Highest int rate is at 5.875 (rental home).

I know this doesn't give the whole picture. Honestly, I know this site is all about LBYM. Although we save 15% of gross, plus money to my pension, we stink at LBYM. I hate it and I know I'm bad. We just like to eat out and buy ipods and cameras and other depreciating gizmos. It's as much balance as I can get DW to commit to. I am in awe of those of you who can put away 50+% of pay. Kudos!

Thanks for the input!
devo
Devo,

Don't be so hard on yourself. For many of us, it's a constant struggle to wittle down debts and attempt to LBYM, especially for my wife those of us who want to do everything to our houses now. Just realize that it's not an overnight process to pay down debts. It may take years, depending on salary and level of debts.

Another reason I love 401(k)'s and such is that you never see the money b/c it's automatically deducted from your paycheck. We take full advantage of that.

- Alec
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