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by silverquiet2 hours ago |
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upvoteby bikelang1 hours ago|
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It takes planning but you can get your money out early via SEPP 72t disbursements and Roth conversion ladders. You can also just straight up pay the early withdrawal penalty. Depending on your effective tax brackets pre/post retirement - you may very well still come out ahead compared to a non-tax advantaged account.
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upvoteby silverquiet1 hours ago|
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How do you plan that? Particularly for an age 45 retirement?
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upvoteby bikelang51 minutes ago|
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If you’re the kind of saver that’s on target for an early retirement thru high retirement savings then you should have a pretty good idea of what your annual expenses are. Throw in a buffer + known liabilities (roof needs replacing, aging car, health issues, etc).

There’s a few methods here - and it’s going to depend on your mix of retirement accounts (ROTH vs Trad vs HSA vs non-tax advantaged). There’s lots of tools to help plan scenarios - I particularly like ProjectionLab. I would also recommend hiring a professional that can assist in the planning and especially taxes during early retirement.

For SEPP 72T you need to make similar withdrawals every year for at least 5 years or until you hit 59.5 of age. My plan is a mix of SEPP 72T + non-tax advantaged accounts for 5 years. During those 5 years I will also be making ROTH conversions from my Trad accounts. Once the 5 years are up - I will continue my ROTH conversions but can finally start withdrawing the money I converted 5 years ago (this is a ROTH conversion ladder).

I was a bit of a late bloomer and spent my 20s working my way into tech - so I won’t retire at 45 - but am on target for 50ish.

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upvoteby parliament322 hours ago|
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Yeah exactly. This is what makes RRSPs/401ks the absolute worst place to park your money. You are locking away your funds, and deferring taxes to 1) the stage in your life you probably want to pay the least tax possible, and 2) a time when the tax rate will probably be higher than it is now (after all, tax rates pretty much exclusively go up).

If your employer offers a match, you should absolutely contribute up to the maximum match (it's free money after all), but not a penny more IMO. There are much, much better vehicles for parking your money than retirement funds.

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upvoteby jrflo14 minutes ago|
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I used to agree with you, but then I learned about 401k/roth conversion ladders. Basically, you can convert everything in a 401k to a roth (taxable event) and after 5 years you can withdraw all of that money penalty free and tax free (except the gains made in those 5 years). The key thing is that you want to strategically do the conversion when you have a very low income, for instance if you're already retired and living off of Roth contributions or taxable brokerage investments, so your only income for the year is the amount you convert. So basically, you just need enough funds to retire for 5 years before you can start withdrawing from the 401k->Roth.

I started doing this when I got a raise and realized pretty much half of my raise was going straight to taxes, whereas I could invest it all if I just upped my 401k contributions.

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upvoteby malfist1 hours ago|
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My friend, I'm not sure you've thought through this all the way.

Historically, tax rates have gone down over time, not up. Especially in recent history.

You do pay a reduced tax in retirement because you're able to blend your income. You defer taxes on the 401k until requirement, but you pre-pay taxes on a mega backdoor/roth, so if you need 100k of income in retirement you pull 50k from 401k and 50k on the roth and only pay taxes on half of it, putting you in a lower bracket.

Having the pretax money to grow before paying taxes on it is greater than having post tax money and having less to compound.

The alternative to tax advantaged places to park your money for retirement is strictly worse than non-tax advantaged. In a 401k you pay taxes only in retirement, for roth's you pay taxes only with your paycheck. In a brokerage, you pay taxes at your paycheck and then you pay taxes on withdraw for your cost basis.

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upvoteby jbonatakis8 minutes ago|
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I’m sorry but this is just bad financial advice
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upvoteby nfriedly2 hours ago|
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A SEPP plan let's you get the money early and penalty-free from a 401k and an IRA. And the saved medical receipts let you take some money out of a HSA at any point for reimbursement, also penalty-free.
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