Cash poor, retirement fund rich

[Music Lover]

Some day we need to start a thread on hobby costs, highest to lowest...it could be mind blowing...

Some hobbies pay...I get paid to play bass, and when not gigging it costs nothing to play...well maybe $50 a year for strings, maintenance, etc. It's definitely cheaper than horses!!

 

[free2020]

I am wondering about this myself. I’m not quite sure if I’m five years out or if I’m working say 7-8 more years but the idea is the same.

While I haven’t stopped contributing to my 401k I am putting more than half of my contributions into the Roth 401k option. I’m also going to try and boost my taxable account contributions.

I watched a You Tube video from a financial planner. He went over the scenario of someone in their mid-60s with a $1 million 401k. He explained that depending on your age there was a good chance that $1 million 401k would turn into $2 million by the time RMDs kicked in if that person did nothing. That could push people into higher tax brackets based on their larger RMDs.

He advocated the Roth conversion strategy up to certain tax levels. I certainly see that as an option but my thinking is to just contribute more to the Roth 401k now so I can just roll that over to my Roth IRA in retirement. I’ve had the Roth IRA for over five years and it seems like a good plan to reduce my need for massive Roth conversions of my 401k balance after I retire before I hit the RMDs.

I just want to make sure I have access to enough unrestricted non-retirement funds when I retire early to make it to 59.5 years old. I’m also going to check with HR to see if my 401k plan has the Rule of 55 provision which will potentially impact all of this planning.

The other issue I’m debating is how to handle the catch up provision for my 401k when I reach 50 years old. Do I not take advantage of the ability to contribute additional funds and direct that money to taxable accounts? Do I take advantage of the catch up contribution option and put it into the Roth 401k side of my 401k plan?

I was always excited before about reaching 50 years old so I could contribute all of that extra money into my 401k plan but now that I’m only a few years away from reaching 50 and I see my 401k growing faster than I expected I’m not 100% sure catch up contributions is a good idea. It might create more of a tax nightmare down the road as I try to plan withdrawal strategies in retirement.

Your situation mirrors mine, although I'm 61 now. Your thinking is correct, there is such a thing as being oversaved in the tIRA. No fun being forced to pay taxes without consumption at age 72. Loading up the Roth 401K including the catch up contribution makes sense to me.

Since you brought up the age 55 provision, one more avenue to draw down in the years leading unto 59.5 is the 72T withdrawal. AKA SEPP, without incurring the 10% early withdrawal penalty. I took advantage of this between 54-59.5. Only need to have funds in a tIRA to do a 72T - not possible in a 401K (my understanding).

All said, this is a first world problem! Congratulations on your saving habit which got you here.