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MrFlish 01-26-2017 05:31 PM

Tax Deferred 401
My DW and I both have tax deferred 401's to the tune of 1.2mm currently but we have no other investment portfolios. Is this a problem we need to think about addressing before we retire or is it OK that we have a simple tax deferred portfolio?

We're 57/53 yrs young and plan to retire in 2017/2021. No debt and own our home. We anticipate we'll have around 60k in pension and SS when she turns 62 as our fix income base.

Thanks in advance for the insight...

Sunset 01-26-2017 05:45 PM

Yes it's a problem.

Are you able to take $$$ out of the 401K prior to 59.5 without penalty ?

You should have non-IRA/401K money stashed.

What will you live on from age 57 to 59.5 ? (once at 59.5 you can always rollover the 401K to an IRA and withdraw money without the 10% tax penalty).

2017ish 01-26-2017 05:53 PM

Could be a problem; might not be.

First off, as alluded to by Sunset, no problems if the first one retiring can tap the 401k periodically without penalty--read the SPD. (And this further assumes that the first one has significant 401 holdings--that they aren't disproportionately in the younger spouse's name)

Second tier of questions that could also mean no problem: Will the person working to 2021 make enough to meet all expenses? Do you have a HELOC on your house that you could tap for emergencies/urgencies that might arise before you are 59.5? Do you have cash or other liquid assets outside of the tax-deferred accounts (you say "no other investment portfolio," not "no other liquid assets").

respond2u 01-26-2017 06:00 PM

Probably not a problem.

If you are currently working at the company you have the 401k with, you can probably take money without penalty.

Also, you could start a SEPP (72t), which will lock you in to consistent withdrawals for 5 years. Read up at www.72t.net.

You're possibly in a similar spot as me, where the tax savings on contributions were too good to pass by.

MrFlish 01-26-2017 06:00 PM

Currently we live off my salary and are using her salary to save 2-3 years of expenses as a buffer for emergencies or if the market drops. Once I retire later this year we will live off DW incomes until I reach 59.5. That will slow our slush fund a bit but we've already got one year saved so we should be able to make by the time she retires at 57.

401 breakdown:

800k me
400k DW

RetireAge50 01-26-2017 06:09 PM

Should be fine. I'd probably throw $26,000 ($13,000 2016/2017) of the emergency money into a Roth IRA. Can be taken out without taxes or penalty if you need it.

jzajzz 02-01-2017 12:10 AM

You might want to diversify your tax liability .. taxes are definitely not on the high side given the history of taxes in the past 100+ years

bada bing 02-01-2017 03:34 AM

It isn't a "problem", but there are a couple considerations.

The first is that tax deferred money in a traditional retirement account isn't worth as much, dollar for dollar, as money in Roth or after tax savings. So your "$1.2 million" isn't worth as much as someone else who has $1.2 million in Roth and/or aftertax. It isn't a problem, but may require an adjustment in your expectations for spending. Exactly what the conversion factor will be for your tax deferred dollars depends on your tax bracket when you withdraw them.

Second is that you will be a little limited in strategies for moving your tax deferred dollars as efficiently as possible into Roth by a lack of after tax dollars. This may or may not be an important strategy for your situation. After tax dollars are great to have in early retirement years because they can support your spending requirements without contributing to taxable income. That allows you to live the spending plan you want and perhaps delay claiming SS while keeping your tax bracket low and allowing the most efficient transfer of tax deferred savings into Roth.

I would agree that contributing to Roths while one or both of you have earned income is something to consider

MBAustin 02-01-2017 10:33 AM

Welcome MrFlish! If you haven't found them already, we have a helpful list of things to think about before you pull the trigger:


We generally advise folks to run FIREcalc and/or other retirement calculators and to have a good handle on expenses in the run up to that last day in the office.

And feel free to join the Class of 2017.

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