Access to Retirement Funds

[Jluke]

Starting this one based on other conversations.

Here we all are, saving up in a 401k, a ROTH or a traditional IRA, 403B, etc etc etc. I've seen suggestions to just do the employer match or max it out for tax benefits now or anywhere in between.

We're also utilizing taxable accounts (savings, investments, etc) and
/or real estate property for rental income.

All of these retirement accounts have rules for accessing your money and tax consequences.

Ignoring pensions and social security, and inheritances.

What does your retirement future look like as far as accessing your retirement funds for each of the accounts? when, how, why?

If you have hopes of early retirement, how do you plan to bridge the gap between retirement and having access to your 401k?

[disneysteve]

I have a traditional IRA, a ROTH IRA, a SEP IRA, and taxable accounts. I don't have a 401k. My wife does have a 401k and 403b as well as IRAs.

The retirement stuff can all be accessed at 59.5 years of age. I don't plan to retire before then so that's no problem. If for some reason I did retire before then, I would just use the taxable accounts until I was old enough to access the retirement accounts.

[tripods68]

If you want to retire prior to age 59.5 the best approach is to save much into Taxable account equivalent to your annual expenses at retirement until you reach the retirement age without penalty 59.5.

Say you want to retire at age 55 with a minimum annual expenses of $40K (5 years X 40K =$200K). Your goal is to start saving for the next 15 years starting at age 40. That's $13,333 annual saving rate for the next 15 years to reach that goal of $200K.

At the same you time, you need to grow tax deferred accounts (preferably at maximum contributions consistent every year) for the next 20 years. Because assuming you never invested taxable in the market, you will run out taxable money once you reach age 60 at 40K withdrawal rate starting age 55.

[corn18]

If I can retire before 60, I plan to use my taxable investments to bridge me to 60. I also have a good chunk going into Roth accounts that I can access right now if I needed to.

[disneysteve]

I also have a good chunk going into Roth accounts that I can access right now if I needed to.

I forgot that piece. True, your Roth funds can be withdrawn at any time without penalty. So that makes it a perfect vehicle for saving even if early retirement is part of the plan.

[sv2007]

...
Ignoring pensions and social security, and inheritances.

What does your retirement future look like as far as accessing your retirement funds for each of the accounts? when, how, why?

If you have hopes of early retirement, how do you plan to bridge the gap between retirement and having access to your 401k?

I'm currently retired, so it's my "retirement present".

My taxable accounts produce enough ROI to easily support my lifestyle. So technically, NO NEED to ever access my retirement accounts. However, for tax purposes, I'm planning a distribution strategy.

I'm young for somebody who's retired; but because of my investments, I don't need to worry about "gap". Like I said, the only thing I'm worried about is paying less taxes. Maybe I'll develop an interest in IRS tax code (I doubt it).

For folks that want to retire early but don't have enough money. I've suggest trading your residence and move to the lower cost of living area; immediately you'll unlock the most valuable asset (for most people, but seems not for most on this forum). I don't recommend taking out early regular distributions from retirement accounts (I mean, the issues is that there is not enough money, so reducing retirement account early will make the future much worse).

Also, retirement doesn't mean (as least for me) not working. I still work, but just enough to make the IRA contributions (which I'm beginning to wonder if it's just going to cause me a bigger tax headache later). My marginal tax rate is still is same during retirement as pre-retirement, which somehow I feel "cheated".

[97guns]

why do people let their investment dictate at what age they can access the funds i will never understand. the size of the funds, not the age of the holder should be the deciding factor for the aspiring retiree. dont get me wrong i like free money and have had 401k's but i never was comfotable with the fact that my retirement was in their hands. controll your own destiny, retirement and money.

Americans need a lot more decontrolling but i dont think they can manage on their own

[disneysteve]

why do people let their investment dictate at what age they can access the funds i will never understand.

The government sweetens the pot with tax breaks. Employers sweeten the pot with matching funds. It's not to hard to understand why people jump at the chance to get a guaranteed 50% return on their investment.

For Roths, I get to invest tax-free for the rest of my life. While not a 50% return, it is a guaranteed 15% or so return since I never have to pay capital gains taxes on those investments. I'm good with that.

[rennigade]

The government sweetens the pot with tax breaks. Employers sweeten the pot with matching funds. It's not to hard to understand why people jump at the chance to get a guaranteed 50% return on their investment.

For Roths, I get to invest tax-free for the rest of my life. While not a 50% return, it is a guaranteed 15% or so return since I never have to pay capital gains taxes on those investments. I'm good with that.

Oh disneysteve...there you go again throwing facts and logic around. How dare you.

I still cant bring myself to NOT accept free money from my employer by simply redirecting money to an account that I pay myself with.

[corn18]

And if you schedule it all out just right, you can end up with 1/3 401k, 1/3 Roth and 1/3 taxable. Now I get the best of all worlds:

1. 401K: match + tax break
2. Roth: grows tax free forever
3. Taxable: I control my destiny

This balance can be tilted if you prefer a different route. I just love all the comments about the gubment stepping in and taking it all away. They could also change the capital gains and qualified dividend rules to be treated as normal income. Or stop all deductions. Or start a civil war. Or take away the tax breaks for real estate. All investments are equally vulnerable to stupid.

[Jluke]

Any comments on After-Tax contributions in a 401k? It is not a Roth 401k.

I have that option, but never considered it up until now

My rookie understanding for 2016 is:

5.5k max for ROTH IRA
18k max for 401k pre-tax contributions
35k max for after tax 401k contributions. (subtract employer match portion from 35k)

Are you supposed to do something with the after-tax contributions each year - move to a ROTH?

[corn18]

IF you can do an in-service rollover of the after tax 401k contributions to a ROTH IRA, then they can be a great tool. Do a google search for mega backdoor Roth. This rule could change at any time, so if your plan only allows you to do the in-service rollover to Roth once you leave the company, then you may want to not do after tax 401k contributions. If the rules changes while you are still employed at that company, then you lose any benefits and you would have been better off just putting that money into taxable accounts.

Keep in mind the $53k 401k contribution limit includes your contributions and the employer match. So you could do 18K + employer match + after tax.

[97guns]

and if you figure it out more once you can access the funds youll have 20 years left to enjoy it, maybe 10 years with the ability to travel and enjoy it unless you want to sit on the couch in depends eating cheetos

life is too short for me not to be in full controll of it, what good is access to a million bucks when your 65 pushing 70 like a lot of "retiring" americans

[Jluke]

IF you can do an in-service rollover of the after tax 401k contributions to a ROTH IRA, then they can be a great tool.

here is my discussion with the 401k provider:
"Your plan does allow for a source specific rollover, however; whatever the after-tax money earns in the market also needs to be removed.

That means that if you rollover the after-tax to Roth, you would need to take out the pre-tax earnings as well.

You would have the option of opening a pre-tax IRA for those earnings."

the person knew what I was trying to accomplish with the backdoor roth, but the ability to do so does not exist without removing the pre-tax earnings.

am I right that the pre-tax earnings was the deal breaker?

[disneysteve]

what good is access to a million bucks when your 65 pushing 70 like a lot of "retiring" americans

Why do you say access at 65? I'm not aware of any retirement account that can't be accessed at 59.5. And Roths can be accessed at any time.