Cheers!

[katb]

Hi All
I've been reading the board for awhile now and decided to finally jump in! I'm 37, and I recently moved to Virginia from Boulder, CO. Also, I'm between jobs ...therefore converting 401k/IRAs to Roths We've been interested in early retirement for a long time, so I am happy to have found a group of very wise people from which to learn.

Since I have the stage, I'd like to go ahead and throw out a couple of questions:

1) Since we are hoping to retire early without tapping into our retirement accounts, does that mean we need to mirror our desired asset allocation/percentages in both our taxable and retirement accounts?

2) Given we are trying to generate enough income to live on from our taxable accounts while having a $100,000+ income, how can we best make that transition from a tax perspective?

Your insights are greatly appreciated!
=kat=

 

[Nords]

I've been reading the board for awhile now and decided to finally jump in! I'm 37, and I recently moved to Virginia from Boulder, CO. Also, I'm between jobs ...therefore converting 401k/IRAs to Roths We've been interested in early retirement for a long time, so I am happy to have found a group of very wise people from which to learn.

Welcome to the board, kat. Good move on the IRA conversion.

1) Since we are hoping to retire early without tapping into our retirement accounts, does that mean we need to mirror our desired asset allocation/percentages in both our taxable and retirement accounts?

I'm not sure I understand the question.

Conventional wisdom says that the investments with high taxes (or phantom income tax, like TIPS) should go into the tax-deferred account. That's why a lot of people end up putting their bonds in their IRAs.

Cap gains & dividend taxes are the lowest they've been in decades, especially at your income bracket, so it's no problem to have equities in a taxable account. However if you're planning to trade frequently (for whatever reason) then it's better to do that in an IRA where you're not paying short-term cap gains taxes.

Then people learn that their 401(k) choices suck for their asset allocations, and it's probably better to buy a low-cost fund in a taxable account than it is to buy a high-cost fund in a tax-deferred account, so much of the taxable/tax-deferred asset allocation issues are derailed by 401(k) choices.

Since you can tap into IRAs via 72(t) and Roth contributions anytime, I'm not sure why the emphasis on not touching the tax-deferred accounts.

One approach would be to allocate your savings into their most tax-efficient accounts, and then a year or two before retirement shift your money for living expenses into cash/MMs/CDs in the taxable accounts. You'd enter ER planning to draw down the taxable accounts unless you encountered a terrible bear market and needed to "rebalance" by drawing down all taxable/tax-deferred accounts.

2) Given we are trying to generate enough income to live on from our taxable accounts while having a $100,000+ income, how can we best make that transition from a tax perspective?

Don't understand the question. If you're trying to generate $100,000/year dividend income from a taxable account, assuming you could find a fund paying a 3% dividend, then you'd need about $4M just to generate the $100K/year and to pay the taxes. But the people with that type of issue (and income) rarely post here!

How 'bout you shift that question over to "FIRE & money" and expand on it...