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How to ER with 100% savings in retirement accounts
Old 01-20-2020, 02:28 PM   #1
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How to ER with 100% savings in retirement accounts

Hi,
I have accumulated about $2,000,000 in savings but it is all tied up in retirement accounts. $730k in a 401k and IRA and $1,270,000 in Roth IRAs.
I am only 41 and live fairly modestly on 100k per year.
I would like to start withdrawing $30-50k to supplement my income and decrease my work load.
I am going to withdraw my Roth contributions so I can start investing and grow some money in a non retirement account.

Any ideas on the most tax-advantous ways to withdraw money?

I have been researching 72(t) plans but if I am only able to do this on the non-Roth accounts Iím looking at about $20k per year after income taxes.

I also thought about rolling TIRA funds into my Roth each year and withdrawing the rollover amounts each year after 5 years. But I have to wait 5 years to make withdrawals AND pay taxes 5 years in advance.

Any other thoughts or ideas?
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Old 01-20-2020, 02:31 PM   #2
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My only idea is to withdraw the ROTH IRA contributions first, along with 72(t) distributions. The ROTH contributions can be taken out tax-free, without penalty.
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Old 01-20-2020, 02:49 PM   #3
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I would leave the Roth contributions for now.

In your Roth IRA, how much is contributions and how much is growth? I suspect not much conributions because even 20 years of max contributions would be less than $100k.

You can do SEPP distributions from an Roth IRA and avoid the 10% penalty but you would need to pay tax on the withdrawal.... so it would be best to withdraw contribtions first and then initiate a SEPP plan for the Roth.

I'm getting that a 48 yo with a $730k tIRA could withdraw ~$27k a year which is a good start toward your $30-50k goal... and at least initially you could supplement that with $3-23k withdrawals of contributions from the Roth. You'll have to schedule it out year by year but that should do you for the first 5 years, at which point you might be able to start using rollover money.

Another possibility if you have a paid off house, is to do mortgage loan to raise taxable account funds... which would be used for living and of course, mortgage payments. Or a HELOC.
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Old 01-20-2020, 02:51 PM   #4
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How much of the Roth is contributions, and how much is growth? You seem to correctly understand that you can only take Roth contributions out now, tax and penalty free.

If you have enough in contributions to make it to 59 1/2, I'd just take the Roth withdrawals each year as needed to supplement your income. If you can't make it that far, you'll have to figure out if withdrawing all of the conversions now and trying to make them grow in taxable where you can access them is better than doing 72T withdrawals on the tIRA. I'd be modelling this in a spreadsheet.

I'm not sure that doing Roth conversions (you called it a rollover but I believe that conversion is the correct term, or at least what we use here to avoid confusion) will help you any since they are not contributions that you can withdraw before 59 1/2. I'm a little fuzzy on this since I'm 58 and have no need to withdraw from the Roth in the next year+.

If you are still making IRA contributions from your paycheck, I'd do only up to the company match.

Interesting case. When I first read you wanted to withdraw the Roth conversions to grow them in your taxable account I thought it was crazy to give up the tax-free Roth growth. But I see your issue is access to that money.
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Old 01-20-2020, 04:35 PM   #5
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I don't have the answer for you. It's a tough problem. If it was me I would pay a financial adviser {fee only} and see what your options are. None are probably ideal, but there might be a way.
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Old 01-20-2020, 05:19 PM   #6
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I am 41.5 years old so I still have 18 years until I can fully access my retirement funds. My wife is 46.5 so my plan really only needs to make it 13 years since we will be able to access her Roth funds at that point.

The mortgage Loan is an interesting idea. It might be something I consider if Iím in a pickle. Actually the more I think about this the more it makes sense. I have been getting 35% yearly returns on my retirement investments so with the low interest rate of a mortgage, this could be a good way to build my non-retirement savings. Thank you for this idea!! Any downsides to doing this?

I am going to check with TD Ameritrade tomorrow on my Wife and Iís Roth contribution totals, but I think they should be around $60-70k.
I want to withdraw that as soon as possible to start investing it outside of my retirement accounts.
I really donít want to pay taxes on early Roth withdrawals so I will avoid a 72(t) on my Roth at all costs.

For the 72(t) on my TIRA Iím getting $26,000 for a 42 year old using 2% as the 120% midterm rate, but after subtracting 22% income taxes Iíll be left with only $20,000/year.
I would also be leaving around 100k in my simple IRA instead of rolling it all into my TIRA so I can use it for my childís college expenses in 5 years. So the withdrawals would be even less since my starting balance will be less ($630k).

I think my goal is to get as much money out as quickly as possible, not to spend it, but to start growing the balance in an accessible account.

Thanks for the thorough responses!!
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Old 01-20-2020, 07:41 PM   #7
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$60-70K grew to $1.3MM. That seems really high. Are you sure thatís all your contributions?
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Old 01-20-2020, 08:04 PM   #8
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$60-70K grew to $1.3MM. That seems really high. Are you sure thatís all your contributions?
Iím fairly certain it is around 60-70k but I will find out exactly tomorrow.
I was very fortunate to have put $7000 into Netflix in 2007. I didnít sell a single share until last year, but by that time it had grown over 10,000% to $800,000.
I also got into Amazon and Apple.
You gotta love compounding interest.
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Old 01-20-2020, 08:15 PM   #9
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I was going to say, how in the hell did a 41 year old get 1.2 million in a Roth?

Great job on the Netflix pic!
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Old 01-20-2020, 09:10 PM   #10
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I was going to say, how in the hell did a 41 year old get 1.2 million in a Roth?

Great job on the Netflix pic!
Thanks!
I am very fortunate. Especially considering I almost went with Blockbuster😱😂
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