Another 7-10 years to go

[BackHometown]

Hello to everyone! Finally I found a place to share thoughts about retirement plans.



I am 43 and DH is 39. Two kids in high school and elementary school. Both of us work for Mega corporations with almost same income end up $270k together.

I plan to FIRE in 7-10 years and DH in 15 years. Life is short and doesn't worth wasting on corporate politics.

As of Now, total asset is ~$1.5mm :
1. Both 401ks: 950k
2. Both Roth IRAs: 100k
3. HSA: 50k
4. 529: 80k
5. Cash: 250k (70/30 stock/bond)
6. Asset part in house: 100k


What we are saving each year (after the following not much money left):
1. Maxi 401k (~40k)
2. Roth IRA through backdoor (2*$6k=12k)
3. HSA: 7k
4. 529: 10k for both kids
5. mortgage has 10 years to go. (40k per year)

Expense without kids and mortgage should be below $130k before tax, or 100k after tax.

Going forward, I will update the value of asset every year as record of life growing.

I am a little concerned that pre tax 401k accounts too much in my asset. While no better ways to move it to after tax. (I am not living in tax-friendly states).

Please let me know what you think.

[MBAustin]

Welcome! Looks like you are doing a great job of building your financial stability to have options for ER. I'm sure you've noticed by now that many of us did so to escape corporate politics.

Since you are planning to ER in your early 50s (as I did), it is important that you have enough in after-tax accounts to support the years before you can withdraw funds without penalty from your tax-advantaged accounts. Once you figure out what you need, then you can focus on building up that portion of your assets appropriately.

Glad to have you on board!

[HI Bill]

Quote:

Originally Posted by BackHometown I am a little concerned that pre tax 401k accounts too much in my asset. While no better ways to move it to after tax.

Welcome! Since most of your assets will be in 401(k), I'd recommend looking into IRS rule 72(t), which allows you to take substantially equal periodic payments (SEPP), from all or a portion of your accounts. The SEPP payments are very rigid, and you must follow the rule's requirements closely, but you can avoid paying the 10% early withdrawal penalty. The downside is that the SEPP are generally based on your life expectancy, so you may be limited in how much you can take from these accounts annually.

Instead of looking at Net Worth, most of us look at "investable assets", and exclude house equity and college savings plans, as these can't be tapped for retirement expenses. I'd recommend creating a present and retirement budget, so that you'll have a better idea of what your expenses and income will be, including evaluating your withdrawal rate.

[BackHometown]

Thanks! That is my concern: too much of asset is before Tax 401k.



I anticipate tax will be much higher in the future as well as living cost as more and more people are using welfare. However, no solution for that.


Buying properties can be risky with maintenance cost and also more laws against landlord. Putting to stock market is also high risk. Don't know how to deal with high tax and inflation.

[kimcdougc]

Welcome to the forum. You are doing a good job of saving for retirement. As someone else stated, you might want to put more dollar in after tax accounts. We had a high 401K balance when we retired. DH retired at 57 by doing a NUA. Had lots of company stock and it worked out we used that as our in between until he turned 59 1/2.

[Bob_Walter]

Most of our accounts are regular taxable accounts. I didn't want to be tied to when I could use the money. Plus I think taxes will only go up.

[ILikeStarTrek]

Only thing I would add to what people have already said: It seems like you plan to retire about age 50-53 and DH at age 54. If either of you decides to work until age 55 (or almost 55 depending on your birthday), you can access your 401k at that point:
https://smartasset.com/retirement/401k-55-rule

Since the rule is that you have to work until the calendar year when you will turn 55, that could mean age 54.1 or 54.5 (for example) depending on when your birthday is. Just read the rules carefully and check the 401k plan itself which can impose more restrictions about withdrawals (such as withdrawing in a lump-sum, as the article notes).

[HI Bill]

Quote:

Originally Posted by ILikeStarTrek Since the rule is that you have to work until the calendar year when you will turn 55, that could mean age 54.1 or 54.5 (for example) depending on when your birthday is. Just read the rules carefully and check the 401k plan itself which can impose more restrictions about withdrawals (such as withdrawing in a lump-sum, as the article notes).

+1. In my OMYs, I didn't think I'd hit 55 before RE. But now, I'm holding out for the Rule of 55, as it will add some contingency funds to the years between 55 and 59.5.

[BackHometown]

Thanks everyone! These are all helpful information!

I am thinking whether I should switch 401K to Roth 401. Don’t know whether it will benefit to after tax asset. My current tax bracket is 24%.

[ILikeStarTrek]

Quote:

Originally Posted by BackHometown I am thinking whether I should switch 401K to Roth 401. Don’t know whether it will benefit to after tax asset. My current tax bracket is 24%.

If you have a Roth 401k option available, that could be a good choice for you. As you noted, much of the issue in deciding Traditional vs Roth is a tax issue. If your current income is $270k and you are trying to get to a retirement income of $130k, then your overall taxes will tend to be significantly higher now than in retirement years - which tends to lean in favor of using Traditional 401k, not Roth. I.e., even if your marginal tax rate is the same, with a higher overall income you will have a higher percentage of your income taxed at that higher marginal rate now than in retirement. On the other hand, tax brackets in general may be higher in the future. E.g., the current lower tax rates passed under Trump are set to expire in 2025. Many people on this forum also agree with your thinking that tax rates will tend to go up in the future for other reasons as well.

But in your case, you have the consideration of needing a way to get access to your money between retirement age and age 59.5 when retirement money is generally available. A couple ways have already been suggested in this thread (Rule 72(t) and Rule of age 55). But these rules have issues/limitations. Having money contributed into a Roth would be another way to make more of your money available before age 59.5. Even if you get taxed at a higher tax rate now compared to in retirement, that rate is unlikely to be 10% higher. Whereas, you would be paying 10% higher in the form of a penalty if you have to end up withdrawing pre-tax money before age 59.5 (with caveats for the exceptions already noted).

So yes, switching to a Roth 401k could be a good choice in your case.

[BackHometown]

Thanks so much for the detailed advice. This forum is so helpful to get advice and I learned a lot.

In addition to Roth 401K, I am also considering buying investment properties. It is hard to get positive cash flow as the current house price is too high but may be a way to deal with inflation.

Will update where I am on this journey from time to time.