401k contributions

[yofi]

I'm 52, $160K salary, wife is 55 $75K salary for a total of ~$225K. Expected yearly expenses in retirement would be max $150K.

My 401k has a Roth option, wife's does not.

If I want to max contributions for 2024, I was thinking of doing ~$23K in traditional 401k, and ~7,500 in Roth 401k, and wife would do ~23K in her traditional 401k. Should/could she do the catch up $7500 as well in her trad. 401k? Or is that not possible due to income limits between the two of us? Or would it be better not to do catch up for her? Would it better if I didn't do catch up into Roth?

For background, we have ~$2M in retirement 90% stocks, ~80K in taxable accounts (HYSA & ibonds), college fully funded for 2 kids (one in college, other in high school), ~$1.7M house with $290K mortgage. (Planning to downsize to less expensive area/condo). No pensions etc. I would like to retire at 60 (work is killing me) and wife is ok working until 65.

 

[madatrub]

Catch up contributions are individual based.

 

[LateToFIRE]

If I read that correctly, you only have $80K in taxable accounts, which strikes me as a potential trouble spot in retirement, especially as you are targeting retiring at 60 (wife at 65). If you're planning to take SS at age 67 (FRA) that may leave you short on taxable funds, unless you're planning to downsize before you hit 60, in order to tap your $1.4M home equity. There is, of course, your wife continuing to work as well. Guess, where I'm going is that maybe you could consider diverting some savings to taxable instead of maxing out 401k.

 

[yofi]

Guess, where I'm going is that maybe you could consider diverting some savings to taxable instead of maxing out 401k.

That's what I was wondering myself. But if I retire at 60, can't I just withdraw from the 401k directly without penalty?

 

[Al18]

It’s probably a good idea to start a Roth 401K, since starting in 2024 the withdrawals are treated the same as RothIRA - meaning there are no RMDs.

There are no withdrawal penalties from a 401K once you are 59 1/2. Some 401K allow you to start withdrawing without penalty once you are 55 and have separated from service. Check your Summary Plan Description to confirm.

 

[yofi]

It’s probably a good idea to start a Roth 401K, since starting in 2024 the withdrawals are treated the same as RothIRA - meaning there are no RMDs.

Ok, I do have ~15K in a Roth 401k and plan to add the 7500 catch-up to this Roth 401k as well.

Since my joint income of ~225k is higher than the expected 150k withdrawal then I think I'm better off keeping the rest in a regular 401k from a tax perspective. I do have ~400k in Roth IRAs currently.

 

[LateToFIRE]

That's what I was wondering myself. But if I retire at 60, can't I just withdraw from the 401k directly without penalty?

Yes, you could. And I read further after my post that you have some Roth 401k funds, so that could also help. I was just channeling a bit of my own anxiety - I have similar amounts of 401k/tIRA funds as you, ~$2M, have been contributing the legal max for 30 years, plus catch-up contributions. So now I see a big fat RMD wall hitting in ~15 years at age 75, in part because if I don't touch those funds will grow to something approaching $4M at that time, so now have to think about Roth conversions to soften that. Of course, I enjoyed the 401k contribution tax breaks, no free lunch.

Adding: By my calcs, no reasonable amount of Roth conversions is going to fully tame this 401k/tIRA beast - RMD's will be large and will bump me into a higher tax bracket. Hence, why I was saying to you, give some thought to just how much pre-tax dollars you want to save vs Taxable and Roth.

 

[yofi]

give some thought to just how much pre-tax dollars you want to save vs Taxable and Roth.

Thanks for the reminder, admittedly I haven't really focused on RMDs as it seems so far out for me that I've been focused on other things.