Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Max 401k & IRA... What's next?
Old 07-28-2017, 06:02 PM   #1
Dryer sheet aficionado
 
Join Date: Nov 2016
Posts: 44
Max 401k & IRA... What's next?

Hi,

My wife & I are both 33 and planning to retire around 50-55. 2017 will be the first year that we both max out both of our Roth 401k & Roth IRA accounts. We just switched to Roth 401k this year and were previously both contributing to traditional 401k. We have basically no real amount of money in any brokerage accounts or other non-retirement accounts.

My question is about what to do after maxing both of those?? Maybe later this year or definitely in 2018,we'll have additional money to contribute to our retirement and I'm not quite sure where to put it.

We have cash emergency savings. No kids, so we don't need a 529. We don't have access to a HSA.

My wife's 401k allows additional after-tax contributions, so I was considering that. But I'm unclear on the rules to access that money. Something about needing to withdraw some of the 401k at the same time as the after tax money? If that's true then we'll be hit with the 10% penalty if we wanted access to that money before 59 1/2. That doesn't sound appealing!

Then, the other option that I was considering is to contribute to a brokerage account.

Are there other options that I'm missing?

Thoughts or suggestions on what to do next??

Thanks!
__________________

SkinsFan0521 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-28-2017, 06:12 PM   #2
Thinks s/he gets paid by the post
Koolau's Avatar
 
Join Date: Jul 2008
Location: Leeward Oahu
Posts: 3,700
I'm no longer up on the "rules" (how much allowed in which type account, etc.) but I do think you need to consider some balance between Roth type accounts and deferred accounts. I think there must be a sweet spot in terms of saving tax dollars now and yet not paying too much in the future. Personally, we committed too much to the deferred accounts and are paying the price now with RMDs. Still, deferring money from taxes for a while can be powerful if you play it right. Having said that, I lover Roths. I never had the opportunity for a Roth 401(k) but I'm so glad that I have several Roths and glad I got a chance to convert a fair amount to Roths. These vehicles can be gold. YMMV
__________________

__________________
Ko'olau's Law -

Anything which can be used can be misused. Anything which can be misused will be.
Koolau is offline   Reply With Quote
Old 07-28-2017, 06:32 PM   #3
Dryer sheet aficionado
 
Join Date: Nov 2016
Posts: 44
Quote:
Originally Posted by Koolau View Post
I'm no longer up on the "rules" (how much allowed in which type account, etc.) but I do think you need to consider some balance between Roth type accounts and deferred accounts. I think there must be a sweet spot in terms of saving tax dollars now and yet not paying too much in the future. Personally, we committed too much to the deferred accounts and are paying the price now with RMDs. Still, deferring money from taxes for a while can be powerful if you play it right. Having said that, I lover Roths. I never had the opportunity for a Roth 401(k) but I'm so glad that I have several Roths and glad I got a chance to convert a fair amount to Roths. These vehicles can be gold. YMMV
Hi,

I completely agree on the balance but a bunch of the research says that if you max out a Roth 401k, it's a better deal than going the traditional route and investing the tax savings.

Also, my (admittedly very rough) plan is to switch back to traditional 401k at some point closer to retirement. Also, like I mentioned... This is our first year in Roth 401k and the previous 10 years have been into traditional. We weren't maxing those years, but still putting in 10-15% of our income even at the beginning. Plus, the employer match still goes into traditional even when we're contributing to Roth.

But, regardless, I agree that there needs to be some balance.

Thanks for your reply!
SkinsFan0521 is offline   Reply With Quote
Old 07-28-2017, 06:36 PM   #4
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Charlotte
Posts: 222
I retired last year at 57. The reason I could was that I had long planned to have non-taxed deferred monies saved. I used one of the well known discount brokerage firms and consistantly deposited there from age 30-57. Invested mostly in individual growth stocks but that was just my preference.

Ended up with assets about 25% taxable and 75% 401k which I rolled to an IRA at the same brokerage.

Should be ok to span my spending needs until SS without touching the IRA.
bw5972 is offline   Reply With Quote
Old 07-28-2017, 06:46 PM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 12,082
Quote:
Originally Posted by SkinsFan0521 View Post
...........
My wife's 401k allows additional after-tax contributions, so I was considering that. But I'm unclear on the rules to access that money. Something about needing to withdraw some of the 401k at the same time as the after tax money? If that's true then we'll be hit with the 10% penalty if we wanted access to that money before 59 1/2. That doesn't sound appealing!
The sharpest person I know is Alan S. over at Fairmark forum re after-tax 401(k) contributions to Roth IRA rules. He helped me do a roll over before the IRS clarified the finer points.
Quote:
Then, the other option that I was considering is to contribute to a brokerage account.............
I have way too much in IRAs and will subsequently be slammed by RMDs in a couple of years. In retrospect, I wish I had more after-tax investments. You can invest in something like Berkshire that pay no dividends, so you don't have to pay taxes yearly on dividends.
__________________
You probably mean principal not principle. Judgment only has one "e".
travelover is offline   Reply With Quote
Old 07-28-2017, 07:00 PM   #6
Recycles dryer sheets
 
Join Date: Aug 2016
Location: Cottage Grove
Posts: 212
Quote:
Originally Posted by SkinsFan0521 View Post
Hi,

I completely agree on the balance but a bunch of the research says that if you max out a Roth 401k, it's a better deal than going the traditional route and investing the tax savings.
Do you have links to that research? Everything I've seen lately (besides Dave Ramsey and he is giving an opinion) is that traditional 401K is a better deal.
Johanson is offline   Reply With Quote
Old 07-28-2017, 07:15 PM   #7
Dryer sheet aficionado
 
Join Date: Nov 2016
Posts: 44
Quote:
Originally Posted by Johanson View Post
Do you have links to that research? Everything I've seen lately (besides Dave Ramsey and he is giving an opinion) is that traditional 401K is a better deal.
There is a section m the bogleheads forum that discusses it and has a link to a spreadsheet where you can input different variables and it'll do the calculations for you:

https://www.bogleheads.org/wiki/Traditional_versus_Roth

Also, here are a couple I've read recently :

http://millennialmoney.com/roth-401k...ditional-401k/

https://thefinancebuff.com/roth-401k...ibute-max.html

Plus another thing that I think I've read is that even though you may run into RMD with Roth 401k, they can be rolled into a Roth IRA easily and avoid any issues. I may be wrong about that but I believe that to be true.

But, like pretty much everything else when it comes to retirement investing... There are multiple schools of thought.
SkinsFan0521 is offline   Reply With Quote
Old 07-28-2017, 11:08 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,138
I recommend you invest in a brokerage account. When we ER'd at 56/57, about 2/3 of our portfolio was in a taxable brokerage account. Not only does this mean we don't have to worry about bridging income between our ER date and age 59.5, but also the RMD hit should not be as bad for us since only about 1/3 of our assets are in tax deferred vehicles.
Scuba is offline   Reply With Quote
Old 07-29-2017, 05:55 AM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,794
+1 Having taxable account money is critical for those who plan to retire before 59 1/2 (or 55 with 401k money). Plus, if your taxable account money is in equities then qualified dividends and long-term capital gains get taxed at lower rates (0% for taxpayers in the 15% tax bracket or lower and 15% for most other taxpayers).

But my question is why Roth? Wouldn't tax-deferred savings save you a bunch in taxes? When I was working I avoided paying 28% or more and now in early retirement am paying ~7% on withdrawals/Roth conversions... saving me ~21%... very substantial benefit.

While I know future earnings on the Roth are tax-free, I'm not sure if the benefit of that would be worth paying 28% (or 21%) for the privilege.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is online now   Reply With Quote
Old 07-29-2017, 06:21 AM   #10
Full time employment: Posting here.
Luck_Club's Avatar
 
Join Date: Dec 2016
Posts: 717
Consider rental real estate. Uses after tax money, can provide positive cash flow while reducing taxable income.
Luck_Club is online now   Reply With Quote
Old 07-29-2017, 07:20 AM   #11
Full time employment: Posting here.
 
Join Date: Nov 2013
Posts: 584
Check out madfientist as well for insights into why tax deferred is great for ER. If you max out the Roth it is true that you essentially have contributed more as you have $18k after tax invested. But the tax savings now are important, allowing you to invest elsewhere.
After tax 401k is something I'm a fan of, I roll the aftertax portion into a Roth every month and can use those contributions at any time before 59.5.
NgineER is offline   Reply With Quote
Old 07-29-2017, 08:19 AM   #12
Full time employment: Posting here.
 
Join Date: Apr 2013
Location: Beach and Mountain
Posts: 539
Many moons ago (23 years), I was in a similar situation: mid 30's, maxed out, etc. At the time, I decided to put some money (5%) in a Single Premium Deferred Annuity through Fidelity. In hindsight, I would not recommend this, because there are so many more options today. With such favorable capital gains tax rules, I would put it in Vanguard, Fidelity, etc. mutual funds that have very few capital gains distributions. Problem with what I did is that when I pull out the gains, I will be taxed at ordinary income tax rates (maybe 15% fed and 5% state). With a low turnover mutual fund, those gains would be taxed at 0% fed and 5% state.

Of course, this is a first world problem as the funds have returned, on average, 8.5% and are worth six times the original investment.
Z3Dreamer is offline   Reply With Quote
Old 07-29-2017, 08:27 AM   #13
Dryer sheet aficionado
 
Join Date: Nov 2016
Posts: 44
Quote:
Originally Posted by NgineER View Post
Check out madfientist as well for insights into why tax deferred is great for ER. If you max out the Roth it is true that you essentially have contributed more as you have $18k after tax invested. But the tax savings now are important, allowing you to invest elsewhere.
After tax 401k is something I'm a fan of, I roll the aftertax portion into a Roth every month and can use those contributions at any time before 59.5.
Can you please explain how you roll the after tax into a Roth every month? Does your plan have to allow in service distributions for this? Or is it a rule that you can do this in any plan that allows after tax? Also, you can just roll out the after tax portion without touching the other contributions?

Thanks!
SkinsFan0521 is offline   Reply With Quote
Old 07-29-2017, 08:29 AM   #14
Full time employment: Posting here.
 
Join Date: Oct 2011
Posts: 538
I'd use a brokerage.

Easy to diversify....including diversifying across evolving tax policies..
It's liquid...buy a house, send a kid to college, etc. Goals evolve.
It's flexible...use dividends to build passive income or focus on cap gain.
It's cheap...focus on index funds .

My $0.02. Good job on saving.
__________________
Luck is when Preparation meets Opportunity.
Closet_Gamer is offline   Reply With Quote
Old 07-29-2017, 08:32 AM   #15
Dryer sheet aficionado
 
Join Date: Nov 2016
Posts: 44
I was already leaning towards going the brokerage account route and am the feedback here seems to validate that thought.

But, one question that I have is why not do the after tax 401k and then roll into a Roth right away? Then I would be able to withdraw all contributions at any time (i.e between whenever we retire and 59.5). What am I missing with that strategy?

Thanks to everyone for the help so far!
SkinsFan0521 is offline   Reply With Quote
Old 07-29-2017, 09:06 AM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 24,794
I think you could do that and it would be a sensible alternative but I'm not sure if you can roll it right away unless your 401k plan allows in-service rollovers... I think most plans only allow rollovers once you have separated from the company but unless your 401k options stink it might not be much of a substantive difference.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA
pb4uski is online now   Reply With Quote
Old 07-29-2017, 09:24 AM   #17
Thinks s/he gets paid by the post
Senator's Avatar
 
Join Date: Feb 2014
Location: Williston, FL
Posts: 3,925
If you can put money in an HSA, and leave it there, that is better than a Roth. pay medical expenses out of your after tax accounts.

Do a back door Roth. Contribute to a IRA, and then convert it to a Roth. The more money in a Roth, the better.
__________________
FIRE no later than 7/5/2016 at 56 (done), securing '16 401K match (done), getting '15 401K match (done), LTI Bonus (done), Perf bonus (done), maxing out 401K (done), picking up 1,000 hours to get another year of pension (done), July 1st benefits (vacation day, healthcare) (done), July 4th holiday. 0 days left. (done) OFFICIALLY RETIRED 7/5/2016!!
Senator is offline   Reply With Quote
Old 07-29-2017, 11:47 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,138
Quote:
Originally Posted by Closet_Gamer View Post
I'd use a brokerage.

Easy to diversify....including diversifying across evolving tax policies..
It's liquid...buy a house, send a kid to college, etc. Goals evolve.
It's flexible...use dividends to build passive income or focus on cap gain.
It's cheap...focus on index funds .

My $0.02. Good job on saving.


+1
And if you want tax efficiency, use index ETF's rather than mutual funds. No taxes on capital gains of ETF's until you actually sell them.
Scuba is offline   Reply With Quote
Old 07-29-2017, 11:52 AM   #19
Thinks s/he gets paid by the post
 
Join Date: Jun 2016
Posts: 3,138
I am not a tax expert but my CPA recommended against doing after-tax IRA contributions. When you have both tax-deferred and after-tax funds in an IRA, it gets complicated as earnings have to be allocated. Maybe if one immediately converts after tax $ to a Roth, this is mitigated, but I'm not sure about that.

Regardless, I'd still advocate for a brokerage account. Sounds like most of your savings now are tax-deferred. It would be better to put saving beyond your employer max into brokerage account so you can build substantial assets you can tap at any age with low tax rates.
Scuba is offline   Reply With Quote
Old 07-29-2017, 12:19 PM   #20
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 12,082
Quote:
Originally Posted by Scuba View Post
............When you have both tax-deferred and after-tax funds in an IRA, it gets complicated as earnings have to be allocated. ............
I think that this varies. My employer kept careful accounting of earnings on pre and after tax contributions and when I rolled it out there was no issue.
__________________

__________________
You probably mean principal not principle. Judgment only has one "e".
travelover is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Noticed more people holding signs "need work or food" rayinpenn Other topics 3 05-03-2015 03:51 PM
IRA contribution after 401k max-out? Marquette Young Dreamers 4 01-31-2008 07:21 PM
Can I max out my Roth IRA, Trad. IRA, and SIMPLE IRA? thefed FIRE and Money 9 09-24-2007 05:52 PM
IRA Max. Growth Next 5 Years flpanhandle FIRE and Money 6 06-15-2007 08:52 PM

» Quick Links

 
All times are GMT -6. The time now is 07:32 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.
×