How much of your nest egg is after-tax money?

[Rich_by_the_Bay]

So I'm saving all this money in my 403b, 457, etc. and I realized that more than 93% of my FIRE money is in sheltered/qualified accounts. We are trying to save some after-tax money, but only after maxing out on the deferrals.

I'm not sure if this is good or bad, but it really pinches to have to "gross up" my goals by 20% or so to account for taxes after FIRE, then face minimal withdrawals later. Maybe transfer some to Roths in 2010... Any reason to save more after-tax money in lieu of maxing out the deferred opportunities?

Wondered if my situation is the exception or the rule.

 

[milmoose]

I'm in the lower half of the range, probably about 40% tax-sheltered, 60% taxable (of approx. $1.1M net worth). I'm trying to tax-shelter every penny I can, but I guess I'm just saving too much!

- M

 

[haha]

Mine is > 80% post tax -I mean not tax advantaged like 401k or IRA.

Ha

 

[Rich_by_the_Bay]

Mine is > 80% post tax -I mean not tax advantaged like 401k or IRA.

Curious - was that your intent, or did you just not have the opportunity to defer more?

 

[haha]

Curious - was that your intent, or did you just not have the opportunity to defer more?

I became FI by trading, not working and saving.

Ha

 

[free4now]

I'm someone who is approx 80% post tax. I would be more tax sheltered but I took the most risks with my 401k, putting it into some tech funds that tanked in the dotcom fallout. My 401k balance is around half what I contributed to it over 13 years.

I still think it's a good idea to max the 401k and invest it in the most volatile equities of your portfolio, because that should be the longest time-horizon money. But if I had it to do over again I would have probably put it into a small cap index rather than tech funds.


When I was working my net worth was mostly in unexercised NQ employee stock options, pre-tax. It was frustrating that the 25x rules didn't apply to me since my net worth would be reduced by almost half due to option exercise taxes as soon as I left work. It was more like 40x for me.

 

[Nords]

I'm not sure if this is good or bad, but it really pinches to have to "gross up" my goals by 20% or so to account for taxes after FIRE, then face minimal withdrawals later. Maybe transfer some to Roths in 2010... Any reason to save more after-tax money in lieu of maxing out the deferred opportunities?

The military didn't start offering tax-deferred savings opportunities until the late '90s. So we were only able to put about 20% of our savings in IRAs.

It seems that you'd have to pay taxes now or pay them later. It would be an advantage to be able to defer taxes until you could pay them in a lower bracket, either via Roth IRA conversions or ER withdrawals (or if by some miracle the tax laws were changed to reduce taxes). So maybe "plusing up" by 20% is only necessary because you haven't had to pay those taxes along the way...

 

[saluki9]

Right now I'm about 2/3 after tax money.

I can see that is about as high as it's going to get. With a new house and kids (hopefully) soon I can see the writing on the wall that my days of banking 25% of my takehome gross plus banking my bonus are certainly over.

 

[Andre1969]

I still have about 9 years to go before I hit my retirement goal, but right now I'm about 40% tax deferred, 60% after tax with my investments. Main reason is simply that I started investing in after-tax stuff before I got into 401k's, IRAs, etc. When I was younger, I was a bit scared about locking money up in an account that I couldn't touch until I was retired, which seemed a million years away at the time. But in retrospect, I kinda wish I had started putting into my 401k earlier. Especially in those early days when I started with McDonnell-Douglas, and their stock was going for about $20-30 per share. Since the early 90's, it did a 3:1 split, a 2:1 split, then a 1.3:1 split when it converted to Boeing, and nowadays goes for about $90 per share!

But, as they say, hindsight is always 20/20.

 

[brewer12345]

With a new house and kids (hopefully) soon I can see the writing on the wall that my days of banking 25% of my takehome gross plus banking my bonus are certainly over.

Welcome to the club, pal. Its OK, the rewards are generally well worth it.

We are at about 50% taxable. We were on a track to be more lopsided in taxable, but the one gigantic homerun I hit in the portfolio was mostly in tax deferred accounts. I imagine that we will become increasingly weighted to taxable money unless I decide to pay off the mortgage early.

 

[donheff]

I'm not sure if this is good or bad, but it really pinches to have to "gross up" my goals by 20% or so to account for taxes after FIRE, then face minimal withdrawals later. Maybe transfer some to Roths in 2010... Any reason to save more after-tax money in lieu of maxing out the deferred opportunities?

Rich. We are about 2/3 in pre-tax accounts but more like about 4/5 if we count my mostly taxable pension. So we will be in a high bracket. In years past when I did guestimates of the tax hit in ER I always assumed they would be very high. But due to DW's complicated situation we use a accountant and really were just guessing. Based on a mention on this forum a few months back I downloaded the free version of H&R Tax Cut this year and have run a number of scenarios based on estimated withdrawals after DW stops working. I was pleasantly surprised to see that total taxes will be quite a bit lower than what I anticipated - even when I calculate them only pre-tax withdrawals. The marginal rates are still high but they hit a limited number of dollars. Have you run actual numbers through Turbo Tax or Tax Cut to see what the results are?

 

[kat]

Mine is 85% after tax, mostly because I did not have access to a 401k.

 

[Rich_by_the_Bay]

I was pleasantly surprised to see that total taxes will be quite a bit lower than what I anticipated - even when I calculate them only pre-tax withdrawals. The marginal rates are still high but they hit a limited number of dollars. Have you run actual numbers through Turbo Tax or Tax Cut to see what the results are?

Don,

Haven't run the numbers, but with a plan to work part-time, I won't likely get down in a low enough bracke to save a whole lot. Nice problem to have, I guess. Given the uncertainties, I figure my best option is to watch the Roth regulations and when the stars align some time before full SS retirement age, make my move as a rollover in years I don't work much.

So far, it looks like there are quite a few with big bundles of already-taxed money in hand.

 

[LOL!]

It seems we have always invested in after-tax investments about the same amount as we put in tax-deferred investments. So we have about 50% on each side of the fence.

 

[CyclingInvestor]

I retired at 48 last year with 87% in IRAs, mainly because my job
from 1983-1997 offered a very good 401k plan (I put in the max
10%, they put in 15% even if I put in nothing) which was rolled over
into an IRA where the money performed well for the last 10 years.

I have already started 72t'ing, using the easy-to-calculate way.

 

[HFWR]

~8%

 

[jIMOh]

I think this is two issues

1) how much net worth is in post tax investments? Should be more than 50% for FIRE, IMO.

2) How much nest egg is held in a taxable account? 25-50% is what I am shooting for.

within 5 years I plan to stop deferring $$ to 401k and start upping taxable contributions based on FIRE goals.

 

[Corporateburnout]

80%

401k and deductible IRAs are available to us and I plan to keep it at the same percentage. Why pay more taxes now?

 

[hogtied]

We've maxed out the 401K for years with an additional 9% going in from my employer plus at 50 I maxed out the catch-up election, therefore 80% is in the 401k. With 2 years to go to FIRE we've also been trying to put more $$ aside in aftertax. The thought being that even with a pension, we will need to fund additional expenses for 1.5 years before I turn 59 to avoid the 10% penalty. Don't want to go the 72t route either since the minimum time for that is 5 years and I prefer not to be locked in. Much rather have flexibility. I know I will have a hard time spending that aftertax money for 1.5 years being that I've been in the accumulation stage all my life. I'll have to recondition my brain.

 

[Rich_by_the_Bay]

I think this is two issues

1) how much net worth is in post tax investments? Should be more than 50% for FIRE, IMO.

Not sure I can identify a "should" or "shouldn't" here. Seems highly dependent on individual circumstances as we've seen here. For example, in one case it's post tax because shelters were not available, while in others it's huge gains that happened to be on post tax investments. Perhaps in other cases, their post tax holdings would have been a lot higher had they been qualified holdings.

At any rate, one way or another I guess you have to "discount" deferred holdings when you sell them compared to post-tax holdings to account for the tax implications. But their pre-tax earnings over the years might have benefitted you more than the tax implications will hurt you.

 

[DangerMouse]

We are at the lower end of the scale, approx. 10% due to our circumstances. Moving between countries made it hard and as we always knew we would be retiring to Australia where withdrawal from retirement funds is not allowed under any circumstances before you hit 62, we figured we would just suck it up and pay tax as we go.


The good news for us is as early retirees we will have access to the majority of our money, without incurring any penalties.

 

[SteveR]

35% in After tax buckets. This includes cash too. My after tax started out as a "training wheels" for getting into the equities market. I never dreamed it would be worth what it is today (especially with some of the hits it took in 1999-2002. Wall Street giveith and Wall Stree taketh away.

The after tax bucket is our bridge to age 60 to not get locked into the 72(t) restrictions. We will also rebalance over then next couple of years once our income level goes down after ER to limit taxes as much as possible.

The was always to have an income stream from the after tax assets to carry over until we can tap our IRAs from our 401K rollovers.

 

[SamHouston]

I'm at about 27% in after tax money. Since I spent almost 30 years working for a company that provided both a pension plan and a 401-k plan, I'm surprised that the percentage is actually that high.

 

[chinaco]

1/3 in after tax account

2/3 in tax deferred accounts

 

[Moemg]

65% .Thanks to some smart stock picks.