45 Year Old Looking for Some Advice

[WantToRetireEarly]

Hello,

I wanted to say hello and maybe get some advice.

Some background, first about my family, I am married, wife is 43, we have 4 children, and one grandson, oldest just graduated from college, middle daughter has 2 years of college left, which is paid for, son just graduated from high school and will be going into an apprenticeship program to become an electrician, my youngest just finished her freshman year of high school, hasn't decided for sure on career but will probably attend 4 year college (hopefully most will be paid for with academic and other scholarships but have about $20k in college fund for her).

Currently I am making around $125k per year with bonuses, wife is self-employed and makes around $50k per year. We have just over $1.7M in IRAs/401ks. We also are in the second year of fully funding our HSA.

We have recently started to put money into a taxable brokerage account, I know should have started a long time ago, but wanted to get the kids college all paid for and make sure they were covered. Right now I have just over $10k in it.

We have about $150k left to pay on our house that is valued at about $275k. Our expenses are what I would consider fairly normal, we are by no means frugal but we also don't spend lavishly, we have no credit card debt, 2 car payments, no other debt besides the mortgage.

Now on to my questions

Should I be looking to pump more money into my IRAs/401k (currently put enough into the 401k to get maximum matching company contributions currently or just pump all extra money into our taxable brokerage account?

Should I be looking to try and roll some of my IRA dollars into a Roth over the next few years? We are just into the 25% tax bracket with deductions etc, so we have room to take additional income without pushing us into the 28% bracket. Would this be an option? Does taking that as income put us at risk of our income being too high to rollover addition funds in following years, does this count against maximum earnings?

Would it be crazy to think about using a 72t to move some of those dollars from the IRAs to the taxable brokerage account? Not completely educated on this yet but it sound interesting.

We would like to leave our kids something for their retirement funds and also setup a college fund for our grandson. Should we consider setting up some kind of trust instead of just standard wills?

One of my concerns is that we have so many dollars tied up in tax deferred accounts and almost nothing in liquid assets, how can I fix this so I can retire early?

I don't want to do what I am doing until I am 59, burnout is catching up with me. I doubt I would/could retire completely but would find something that isn't 60-70 hours a week but I know that my income would come down dramatically from where it currently is without a relocation, which isn't an option even if we wanted to move. So I need to find a way to bridge from say 50-52 to 59.5 when I can fully retire.

I know I am all over the place on things, so I need to get some advice and figure out a plan of attack.

Sorry for such a long post and thanks for any and all advice to help me change course and help me reach that goal to retire early.

 

[broadway]

Contributing to a 401(k) to receive the company's match is a no-brainer.

My mother used to work at a place where the contributions were matched 100% and vested immediately and there were still people who pooh-poohed the free money.

 

[laurence]

How did you build up so much in retirement accounts without maxing them already? Congrats on having so much set aside at such a young age!

Do you have good choices (Vanguard) in your 401k fund? Think about how your taxable accounts will affect your youngest child's financial aid package for college, retirement accounts don't count towards your net worth, I believe.

I'm 42 DW 41 and we just set up our trust last year, a good attorney will review all of your records and find possible issues - ours found our rental property wasn't titled correctly, for example - so it was worth the ~$2k, especially since I have a special needs child.

Last time I checked the 72t rule let you pull around the safe withdrawal rate of 4% anyway, so it's not that much of a risk - but it does require you to stay at that withdrawal for five years before changing, so it's a little inflexible.

 

[WantToRetireEarly]

Contributing to a 401(k) to receive the company's match is a no-brainer.

My mother used to work at a place where the contributions were matched 100% and vested immediately and there were still people who pooh-poohed the free money.

Yeah, I will continue to put in the required amount to secure the free money, it would be a waste not to.

 

[WantToRetireEarly]

How did you build up so much in retirement accounts without maxing them already? Congrats on having so much set aside at such a young age!

Do you have good choices (Vanguard) in your 401k fund? Think about how your taxable accounts will affect your youngest child's financial aid package for college, retirement accounts don't count towards your net worth, I believe.

I'm 42 DW 41 and we just set up our trust last year, a good attorney will review all of your records and find possible issues - ours found our rental property wasn't titled correctly, for example - so it was worth the ~$2k, especially since I have a special needs child.

Last time I checked the 72t rule let you pull around the safe withdrawal rate of 4% anyway, so it's not that much of a risk - but it does require you to stay at that withdrawal for five years before changing, so it's a little inflexible.

The stock I accrued working for the company was bought back from me at a premium when the company was sold so it allowed me to get a serious jump start on things.

My 401k (about $950K) doesn't have as good of choices, but much lower fees, my IRA ($720k) does have access to almost all the Vanguard funds and I am in a good number of them with that account. I will have access to move about $800k from the 401k later this year to the IRA with better options, if I decide to make that choice.

I don't think my youngest will qualify for any financial aid or even reduced cost loans if we needed to go that route, I am making more then when my 1st went through and the second started college and they didn't get anything. My wife is all over them to fill out the forms and essays to get free scholarship money, there are tons out there if you want to put the time in to find them and apply, doesn't hurt that they are good students and had great grades. We will have 2 daughters through college and only had to take out one loan for my 1st and that was $10k and paid off already. We could have avoided that one if she wouldn't have changed majors a second time

Thanks for you feedback.

 

[Cobra9777]

I would continue putting only the amount needed into 401K to get company match and start pumping money into taxable at a very high rate. With 5-7 years to go, I think you will find that account will grow very quickly. If it's not enough to meet your needs after ER, then 72t is an option to supplement at that time.

I would not recommend Roth conversions at 25%. Some people do it, but I would wait until after ER when your tax rate is very low. For now, just focus on building the taxable account and you'll be fine.

We were in a similar spot at 45 and ended up with almost 50/50 taxable/tax-deferred. This resulted from: (1) peak earning years, (2) expenses down due to kids moving out, and (3) increased focus on savings once ER was in sight. Good luck.

 

[Katiek]

I agree with Cobra. I'd contribute to the 401(k) to get the match, and concentrate on building up the taxable. If your 401(k) has low fees, I'd see if there were some core investments you could use in that account. Leaving it in the 401(k) may also give you some extra asset protection.

And I'd use the next few years to carefully track expenses. You say your expenses are "normal" but do you have specific numbers? Building up a history of spending detail will help you make better decisions about retirement readiness when the time comes.

And welcome!

 

[nash031]

Good stuff here already. You're about where DW and I hope to be in 5 years at your age.

I don't understand why you would 72(t) to transfer money into a taxable account to use later. Why not just continue to let it grow where it is, then 72(t) it out to spend when you retire? I think you should look into 72(t) more.

The general order of operations I'm sure you've followed (or close to it) to get here, that a lot of folks use is:

- Max 401k/403b up to company match
- Max Roth accounts
- Max other tax-deferred accounts, including 401k/403b to annual limit
- Contribute to taxable savings

There are enough work arounds to get money loose from some of those tax-deferred accounts before 59.5. When you add in things like a 529 (as we recently did) or HSA, that comes out of the taxable contribution first, then work backwards.

That said, a number of people here spend the last few years working topping off a taxable account so they have money they can access easily right off the bat. If you're lucky, you can do this after maxing your tax-advantaged accounts. If not, I would work backwards on that above list as far as what money I move from one to the other in terms of saving. In the accumulation years so far, I've found it far more advantageous to just shift new contributions around than to physically move old money from account to account. YMMV.

 

[WantToRetireEarly]

Thanks everyone for the great advice and helping me work through things. It helps to have some knowledgeable people to bounce things off of.

Any thoughts on how to get my DW to want to pay more attention and be more involved in this process? She just says you take care of it, I say what if something happens to me?

 

[Walt34]

She just says you take care of it, I say what if something happens to me?

Then she will be a customer of some (hopefully honest) financial advisor and be paying the 1% or more a year. FAs, although generally disparaged on this forum, do have a place in this world for those who simply cannot or will not manage their own finances. Paying the 1% in fees or whatever is far better than putting everything in bonds or savings accounts because it is "safe", or panicking and taking everything out at the first sign of a minor downturn.

 

[Mdlerth]

Any thoughts on how to get my DW to want to pay more attention and be more involved in this process? She just says you take care of it, I say what if something happens to me?

I apologize in advance for what I am about to propose: Do not try.

I have concluded from years of observing people - including myself - that only a tiny sliver of the population has any interest in financial management.

That isn't to say that they don't like money. Au contraire, pretty much everybody wants to have money. Lots of it. The more the better.

But most folks find the nuts and bolts of managing money to be tedious. It's too much like work. Any gratification associated with it is delayed, and therefore, intangible and demotivating. Trying to make a boring subject interesting is akin to convincing a child to eat a food he dislikes. Once your back is turned, those lima beans are going on the floor for the dog.

People like simple. I suggest instead that you consider leaving instructions in a will to arrange your finances into a small number of easily understandable, self-managing compartments. In the event you can't be there, your DW will be provided for, you will have saved both of you a lot of frustration, and you can instead spend that time enjoying the present.

 

[Aerides]

Why do you think you have to wait until 59.5 to retire? I know that's the 401k wd timetable, but with your savings rate, if you started to focus on taxables as a balance/bridge you'd be retiring far sooner.

That said, I always maxed the tax savings threshold for my 401k and my HSA first. I would also pay off your cars before anything else, that will free up cash to redirect, and I'm assuming both notes are above 0.0.

But damn, grats on being where you are with those incomes and ages, and with all those kids!

 

[WantToRetireEarly]

Why do you think you have to wait until 59.5 to retire? I know that's the 401k wd timetable, but with your savings rate, if you started to focus on taxables as a balance/bridge you'd be retiring far sooner.

That said, I always maxed the tax savings threshold for my 401k and my HSA first. I would also pay off your cars before anything else, that will free up cash to redirect, and I'm assuming both notes are above 0.0.

But damn, grats on being where you are with those incomes and ages, and with all those kids!

I don't think I do, just worried about how I can do it without giving the government anymore of money than they already take I just know that I have to get more saved in the taxable side of things but I don't think I can convince the DW to stash anymore away then we already are.

Yeah car loans are really low interest at least, 1.25% and 1.4% respectively.

I am hoping that as I start kicking kids off the payroll I will find some more disposable income to sock away. We as in the DW and I, have been saying the last few years we are going to be rich when the kids are self-sufficient.

Thanks, there definitely has been some struggles along the way.

 

[evilanne]

Since wife is self employed, have you considered setting up Roth 401K for her?

If you want to convert some of your IRA to Roth while still employed, it is relatively simple. You can actually transfer securities from the tIRA to Roth IRA, you just have to pay the taxes based on value when transferred. As Cobra suggested, it may be better to wait until you actually retire but the sooner you start, the less you have to convert in the long run since earning will grow tax free. It also is beneficial as a means to leave a legacy for children/grandchildren since there are not RMDs.

For the 72t, if you chose to use it, you are locked in for 5 years or until you turn 59.5, whichever is longer. In your 50's, withdrawal rate will be ~2.5%-3%.

Good luck in your journey to early retirement

 

[pjigar]

I know this is opposite of what you are trying but if you are seriously thinking about 72t (which can give you income stream in the gap years) then you may want to make taxable contributions in 401K up to (54K - pretax - company match)/year. The after-tax 401K contributions can be transferred to Roth IRA (tax-free and penalty-free) when you leave the company or turn 59.5, whichever is sooner. The gains from those after-tax contributions are not eligible for tax-free transfer to Roth IRA. I like to think the "after-tax 401K contributions" as my tax advantaged brokerage account. Mind that my company offers 401K linked brokerage account so 401K fund fees are not a concern in my situation.

Let me update the list someone posted with couple of more options and clarification:
- Max 401k/403b up to company match (pre-tax)
- Max out HSA (pre-tax)
- Max Roth IRA accounts (after-tax) (if you can, i.e. not hit the income cap)
- Max other tax-deferred accounts, including 401k/403b to annual (pre-tax) limit
- Max Roth IRA accounts via backdoor IRA transfers (after-tax) (if you can, i.e. no balance in any IRA accounts)
- Max out 401K up to (54K - pretax - company match)/year for later Roth IRA conversion, or
- Contribute to taxable savings

 

[nash031]

Any thoughts on how to get my DW to want to pay more attention and be more involved in this process? She just says you take care of it, I say what if something happens to me?

You kind of have to force her to pay attention. I suggest making it a known scheduled event once or twice a year. That's worked for me, and now my wife is actually pretty interested in it, largely because of the "what if something happens to you?" factor.

When you're breaking her in on the discussion, be patient and let her take her time to understand it. I'm pretty bad about displaying impatience, so even without saying anything, my wife can tell when I'm thinking "how do you not get this?" Then I have to remember that I've been studying this stuff almost daily for about five years now, and she hasn't.

 

[OldShooter]

...

The general order of operations I'm sure you've followed (or close to it) to get here, that a lot of folks use is:

- Max 401k/403b up to company match
- Max Roth accounts
- Max other tax-deferred accounts, including 401k/403b to annual limit
- Contribute to taxable savings

This.

... Any thoughts on how to get my DW to want to pay more attention and be more involved in this process? She just says you take care of it, I say what if something happens to me?

Tough problem. My wife was an SVP in trusts & estates for a too-big-to-fail bank and the main solution to this issue that she saw is the the departed husband's estate plan included a trust FBO the wife with professional management and disbursement of the money. That is probably your best option. You can identify a trustee who will run the money the way you want it run, then write the investment instructions into the trust. This also protects the money from her next husband and from scammers. She can have as much or as little access to the principal and the interest as you think is wise.

A good estate plan might cost you a few thousand $$ but you are planning the disposition of serious money. Spending a tiny percentage to make sure it is handled the way you wish is IMO a no-brainer. The attorney will also make sure you have the right health care and legal powers and a living will.

 

[kimcdougc]

When we retired early, me at 50 and DH at 57, we did an NUA (Net Unrealized Appreciation) with company stock we had for over a year that was in the 401K. We only had to pay 15% in capital gains tax on it. saving a good bit in taxes. Got enough to cover us till 66 when we can start taking SS.

We have a budget and only take out a certain amount every month to live on. Makes us look like paupers on our tax returns every year as we have only a small pension as reported income. It works for us.