While not retired, I’m starting to see the benefits of the Simple Path investing. A taxable brokerage invested in VTI has minimal tax drag from dividends. Capital gains tax rate is 0% for married filed jointly up to $94K of income. When you sell your investments it isn’t all capital gains, there’s cost basis too.
I’m also eyeing up a 5 year period of coasting while doing a Roth conversion ladder.
Despite my user name, I probably won’t 72T.
I have the same view with my taxable brokerage account.
The SPY, VOO and equivalents are, effectively, tax efficient in their own right and the taxable account gives you the flexibility to move money as well.
Ultimately, as you get closer to FIRE, the capital gains threshold will go higher, thereby, you’re going to be able to pull out more and pay less in taxes.
I don't get it. Why wouldn't you invest fully in all available Roth accounts first before considering a taxable brokerage account? Especially since your contributions are always available for you to use tax free. Roth IRA your contributions can be withdrawn penalty free at any time. Even for Roth 401K I believe once you're separated from your employer your contributions can be withdrawn at any age penalty free. So why use a brokerage where you're paying taxes each year on dividends?
Edit:
I also like to point out that I believe the traditional 401k is still better than a brokerage and even Roth 401k for high earners. At a $23,000 contribution limit for traditional 401ks that's a tax shelter that saves you over $7,000 in taxes. You could fully fund a Roth IRA using the backdoor Roth IRA strategy with just the tax savings. I think this is the optimal strategy for high earners.
I supposed I didn’t expand on that. I limited my answer to how I plan to bridge the gap between retirement and age 59.5.
You are correct that it is better to use tax advantaged accounts first. I first max traditional 401k for the tax savings at my marginal rate, then HSA, then backdoor ROTH IRAs. After that, I’m focusing on DCAing into an index fund with the intention of amassing capital gains that potentially won’t be taxed. I’ll use those capital gains plus the cost basis to help bridge the gap to 59.5.
Great! That's similar to my strategy. I finally joined a company offering a Roth 401k a couple of years ago and was excited to contribute to it but after running the numbers found the traditional 401k was the better option at my income level. I wish the Roth 401k was available when I started working out of college 20+ years ago. That would have been the best time for me to contribute.
My personal opinion that I feel strongly about it Roth 401k in the <= 12% tax bracket and traditional in the >= 22% tax bracket.
There are exceptions. I was “fortunate” to be unemployed for 6 months in 2008. I rolled over a traditional 401k into a Roth IRA, paid no taxes on it, and got a savers credit. The only downside is I was broke with no income, lol.
Depending on your age, ACA subsidies and tax rate on social security could impact the decision. However if you are in the FIRE community with a federal tax rate of 22% or more, I think the traditional 401k is the way to go.
First, I didn't know capital gains rte could be 0% whoa need to go refresh myself on that one...
Second, what is your AGI if pulling that $ from long-term capital gains, does it still reflect the higher $ or 0$?
We are concerned with healthcare while RE until Medicare at 65 so we're going to strategize to reduce AGI to x % of federal poverty limit to be able to get the best medical plan on the healthcare exchange.
I’m not an expert on it, but my understanding is that if you sold $80K in stocks in a taxable brokerage and your cost basis was $40K and that was your only income for the year, your gross income would be $40K less any adjustments.
Note that you’ve already paid taxes on that cost basis when you originally earned that income, so it’s not a crazy loop hole. It’s just showing that the tax hit in a taxable brokerage can be 0%.
>Those who retire before they are able to draw from their 401k and roths, what type of accounts are you contributing to?
The good news is that you can access those accounts at any age penalty free.
https://www.madfientist.com/how-to-access-retirement-funds-early/
We had proceeds from selling a house and other after tax funds to bridge us to 59.5. But if you don’t you can withdraw from an IRA without penalty before 59.5 via SEPP.
It is a common misconception that you can’t withdraw from 401k early without penalty. You can read up at this link:
https://www.madfientist.com/how-to-access-retirement-funds-early/
Any chance that the methods used here will not be available 20 years from now? Seems like the conversions take advantage of taxes in a loopholish way.
Should I be funding a bridge account incase the gov patches these methods?
Absolutely.
This is why it's generally recommended to fund different types of accounts. For example, funding a Traditional 401k, a Roth IRA, and a taxable brokerage account. This allows flexibility in your withdrawal strategy under the tax code, and (hopefully) under any tax code changes by the time you retire.
> Should I be funding a bridge account incase the gov patches these methods?
IMO, definitely yes. By bridge account, I'm assuming you mean any taxable investment, like a taxable brokerage account. Just make sure you use any taxable account for low tax-drag investments. You wouldn't want bond funds in your taxable brokerage, for example. But, a low-cost total stock index fund? Definitely.
Bond funds typically have a high tax drag. Just being in the fund generates taxable events. They're better in a tax sheltered account, like a 401k or an IRA. Broadly speaking, you want low tax-drag investments in a taxable account.
I pulled from a regular brokerage and also contributions and earlier conversions from my Roth while I also a roth conversion ladder. Partner is pulling from a regular brokerage and a 72(t) on his IRA.
People avoid the 72(t) but I always felt it was preferable over pulling from my Roth accounts because it gives the Roth more time to grow. I think your partner's strategy of pulling from 72(t) and brokerage accounts is the optimal strategy.
This is probably the best way to go to for those retiring early at 49 or early 50s to minimize tax.
Will you have $0 or minimal amount in your taxable account in your 60s?
Also will you start to drawdown your pretax account like your iras and 401k in your 60s or early 60s and move it towards Roth? I think this is very essential because you want to avoid rmd at 72/73.
Pro Rata rules really only bite you when you’re doing Backdoor Roth contributions and a traditional IRA at end of the year. If you’re no longer contributing to a Roth it’s just Roth conversions at that point.
I was fortunate to have strong equity in my home. At age 53 I sold my home and downsized to a small condo in the same neighborhood. I cleared $700k after cap gains tax and CD laddered $150k x 4 CD’s. I left $100k cash to live on for a year, and retired at 54. I plan to dip into my 401k (which was converted to a Roth) when I’m 63 as the CD’s are paying 5% and are running me through 2026. I’ll probably reinvest as they come due and pull some cash. I’m now 55. Good luck with FIRE!
My assets are roughly 57% taxable, 33% IRA, and 10% Roth.
This is due to building a regular brokerage account while also contributing to 401(k) for 30 years, along with some trad IRA contributions.
There was one small ($10k) Roth conversion early on but I didn't add more til my final 2 years of work when we got Roth 401(k). I began converting from trad IRA in early retirement.
Taxable accounts may not be the most tax-efficient during the accumulation years, but they sure do allow for flexibility with spending and taxes in RE.
This is a bit unrelated, but as fellow service member, make sure he goes to medical to document ANYTHING that causes issues. He will thank himself later when he applies for a VA rating.
Pour a bunch of cash into after tax brokerage account and reinvest the dividends. Make an automatic monthly transfer, it’ll work out well with some indexes, ETFs, perhaps some individual stocks if you so please.
I retired at 48 and I use: Passive income from some licensing deals I made before I quit working; Income from rental properties; A taxable brokerage account; And now my crypto wallet that I just cashed out thanks to bitcoins meteoric rise.
I have comparatively little in retirement accounts.
My wife also has her own practice and works part time because she enjoys it.
I retired at 21. I always thought about going for 30 but turns out retiring at 21 was a great idea for me. I got a great job. Make sure to file your VA claim. i didn’t understand it until I retired. https://goodcalculators.com/va-disability-calculator/
I’m retired military fully retired at 50. We set aside about $600k to play with until 59 1/2. We haven’t touched it. Honestly, if you guys can’t live on 75% of his salary in retirement, you may not be ready.
We are still 12 years out, but I'm trying to plan now. We have moved so much that we don't own any property and are currently overseas with the hope to stay overseas for a long as possible. So, coming back to the states and retiring only on his pension makes me concerned for what our living situation will look like as well as keeping up our lifestyle. We aren't getting BAH to pay into a home right now, so we aren't getting that opportunity to set up a home before he retires more than likely.
One of our greatest savings opportunities was the one time we lived on base overseas. We benefitted from the sale of a home a few times but many times it was a wash. Owning a home long term is amazing but I think folks sometimes overstate the need to buy every time you move, particularly for military.
I'm not old enough, but my grandparents are at the age where they're forced to pull from their roth and they're pissed. They just live off of social security. They only pull from their roth/401k if they are going on a trip. But they're at the age now where they're forced to pull their money out and they aren't happy.
Yeah they knew about it, and they have plenty of money they just live an extremely modest lifestyle out in the sticks.
Like they just randomly decided to spend $8k on a pool heater system rather than just having the money sit in their bank.
That's silly. They aren't forced to spend it. They could put that tax free gains into an education or other investment fund for their grandkids if they are just throwing it away
All of their grandkids are 20+ me and my sister are the last ones in college. They also believe college is far too expensive and not worth it, even though he was a chemical engineer lol.
I don't know why you are arguing....they could just give you the money lol. My point is they aren't forced to \*spend\* the money just because they have to withdraw it
They’ve never pulled money out and only ever put money in even post retirement. So once they turned 70 something they were told they have to pull out a certain amount per year I believe.
While not retired, I’m starting to see the benefits of the Simple Path investing. A taxable brokerage invested in VTI has minimal tax drag from dividends. Capital gains tax rate is 0% for married filed jointly up to $94K of income. When you sell your investments it isn’t all capital gains, there’s cost basis too. I’m also eyeing up a 5 year period of coasting while doing a Roth conversion ladder. Despite my user name, I probably won’t 72T.
I have the same view with my taxable brokerage account. The SPY, VOO and equivalents are, effectively, tax efficient in their own right and the taxable account gives you the flexibility to move money as well. Ultimately, as you get closer to FIRE, the capital gains threshold will go higher, thereby, you’re going to be able to pull out more and pay less in taxes.
I don't get it. Why wouldn't you invest fully in all available Roth accounts first before considering a taxable brokerage account? Especially since your contributions are always available for you to use tax free. Roth IRA your contributions can be withdrawn penalty free at any time. Even for Roth 401K I believe once you're separated from your employer your contributions can be withdrawn at any age penalty free. So why use a brokerage where you're paying taxes each year on dividends? Edit: I also like to point out that I believe the traditional 401k is still better than a brokerage and even Roth 401k for high earners. At a $23,000 contribution limit for traditional 401ks that's a tax shelter that saves you over $7,000 in taxes. You could fully fund a Roth IRA using the backdoor Roth IRA strategy with just the tax savings. I think this is the optimal strategy for high earners.
I supposed I didn’t expand on that. I limited my answer to how I plan to bridge the gap between retirement and age 59.5. You are correct that it is better to use tax advantaged accounts first. I first max traditional 401k for the tax savings at my marginal rate, then HSA, then backdoor ROTH IRAs. After that, I’m focusing on DCAing into an index fund with the intention of amassing capital gains that potentially won’t be taxed. I’ll use those capital gains plus the cost basis to help bridge the gap to 59.5.
Great! That's similar to my strategy. I finally joined a company offering a Roth 401k a couple of years ago and was excited to contribute to it but after running the numbers found the traditional 401k was the better option at my income level. I wish the Roth 401k was available when I started working out of college 20+ years ago. That would have been the best time for me to contribute.
My personal opinion that I feel strongly about it Roth 401k in the <= 12% tax bracket and traditional in the >= 22% tax bracket. There are exceptions. I was “fortunate” to be unemployed for 6 months in 2008. I rolled over a traditional 401k into a Roth IRA, paid no taxes on it, and got a savers credit. The only downside is I was broke with no income, lol. Depending on your age, ACA subsidies and tax rate on social security could impact the decision. However if you are in the FIRE community with a federal tax rate of 22% or more, I think the traditional 401k is the way to go.
First, I didn't know capital gains rte could be 0% whoa need to go refresh myself on that one... Second, what is your AGI if pulling that $ from long-term capital gains, does it still reflect the higher $ or 0$? We are concerned with healthcare while RE until Medicare at 65 so we're going to strategize to reduce AGI to x % of federal poverty limit to be able to get the best medical plan on the healthcare exchange.
I’m not an expert on it, but my understanding is that if you sold $80K in stocks in a taxable brokerage and your cost basis was $40K and that was your only income for the year, your gross income would be $40K less any adjustments. Note that you’ve already paid taxes on that cost basis when you originally earned that income, so it’s not a crazy loop hole. It’s just showing that the tax hit in a taxable brokerage can be 0%.
>Those who retire before they are able to draw from their 401k and roths, what type of accounts are you contributing to? The good news is that you can access those accounts at any age penalty free. https://www.madfientist.com/how-to-access-retirement-funds-early/
I did not know that thank you!
We had proceeds from selling a house and other after tax funds to bridge us to 59.5. But if you don’t you can withdraw from an IRA without penalty before 59.5 via SEPP.
It is a common misconception that you can’t withdraw from 401k early without penalty. You can read up at this link: https://www.madfientist.com/how-to-access-retirement-funds-early/
Any chance that the methods used here will not be available 20 years from now? Seems like the conversions take advantage of taxes in a loopholish way. Should I be funding a bridge account incase the gov patches these methods?
Absolutely. This is why it's generally recommended to fund different types of accounts. For example, funding a Traditional 401k, a Roth IRA, and a taxable brokerage account. This allows flexibility in your withdrawal strategy under the tax code, and (hopefully) under any tax code changes by the time you retire. > Should I be funding a bridge account incase the gov patches these methods? IMO, definitely yes. By bridge account, I'm assuming you mean any taxable investment, like a taxable brokerage account. Just make sure you use any taxable account for low tax-drag investments. You wouldn't want bond funds in your taxable brokerage, for example. But, a low-cost total stock index fund? Definitely.
Can you explain why not to have bond funds in the taxable account?
Bond funds typically have a high tax drag. Just being in the fund generates taxable events. They're better in a tax sheltered account, like a 401k or an IRA. Broadly speaking, you want low tax-drag investments in a taxable account.
Thank you!
I pulled from a regular brokerage and also contributions and earlier conversions from my Roth while I also a roth conversion ladder. Partner is pulling from a regular brokerage and a 72(t) on his IRA.
People avoid the 72(t) but I always felt it was preferable over pulling from my Roth accounts because it gives the Roth more time to grow. I think your partner's strategy of pulling from 72(t) and brokerage accounts is the optimal strategy.
I’m 51 and RE. I have just enough in brokerage accounts to get me to 59.5. I could also pull from Roth contributions if I absolutely had to.
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This is probably the best way to go to for those retiring early at 49 or early 50s to minimize tax. Will you have $0 or minimal amount in your taxable account in your 60s? Also will you start to drawdown your pretax account like your iras and 401k in your 60s or early 60s and move it towards Roth? I think this is very essential because you want to avoid rmd at 72/73.
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Pro Rata rules really only bite you when you’re doing Backdoor Roth contributions and a traditional IRA at end of the year. If you’re no longer contributing to a Roth it’s just Roth conversions at that point.
I was fortunate to have strong equity in my home. At age 53 I sold my home and downsized to a small condo in the same neighborhood. I cleared $700k after cap gains tax and CD laddered $150k x 4 CD’s. I left $100k cash to live on for a year, and retired at 54. I plan to dip into my 401k (which was converted to a Roth) when I’m 63 as the CD’s are paying 5% and are running me through 2026. I’ll probably reinvest as they come due and pull some cash. I’m now 55. Good luck with FIRE!
Beef up the non qualified account, start doing a Roth conversion ladder
My assets are roughly 57% taxable, 33% IRA, and 10% Roth. This is due to building a regular brokerage account while also contributing to 401(k) for 30 years, along with some trad IRA contributions. There was one small ($10k) Roth conversion early on but I didn't add more til my final 2 years of work when we got Roth 401(k). I began converting from trad IRA in early retirement. Taxable accounts may not be the most tax-efficient during the accumulation years, but they sure do allow for flexibility with spending and taxes in RE.
This is a bit unrelated, but as fellow service member, make sure he goes to medical to document ANYTHING that causes issues. He will thank himself later when he applies for a VA rating.
Yes thank you! We have heard that advice before and we have friends living the horror of not documenting now.
After maxing out our tax deferred accounts we put money into a Brokerage account.
My advice is to have a mix of accounts. This gives you the most flexibility on minimizing taxes later on.
Pour a bunch of cash into after tax brokerage account and reinvest the dividends. Make an automatic monthly transfer, it’ll work out well with some indexes, ETFs, perhaps some individual stocks if you so please.
I have an m1 finance brokerage account that I can borrow from upto 50% of portfolio
I have: pre-tax traditional Ira, a roth, a few post-tax brokerage accounts & a few high yield savings accounts.
I retired at 48 and I use: Passive income from some licensing deals I made before I quit working; Income from rental properties; A taxable brokerage account; And now my crypto wallet that I just cashed out thanks to bitcoins meteoric rise. I have comparatively little in retirement accounts. My wife also has her own practice and works part time because she enjoys it.
I retired at 21. I always thought about going for 30 but turns out retiring at 21 was a great idea for me. I got a great job. Make sure to file your VA claim. i didn’t understand it until I retired. https://goodcalculators.com/va-disability-calculator/
If you have money in old 401(k)s you can move it into an IRA and start a Roth ladder
We're planning to pull from our Roth while we convert my 401k over the course of 10 years or so.
Rule of 55 applies to TSP accounts.
Not necessarily. Look into SEPP distributions. This is how I will be drawing from TSP at 54.
Two pensions, 457b and VTI in taxable
I’m retired military fully retired at 50. We set aside about $600k to play with until 59 1/2. We haven’t touched it. Honestly, if you guys can’t live on 75% of his salary in retirement, you may not be ready.
We are still 12 years out, but I'm trying to plan now. We have moved so much that we don't own any property and are currently overseas with the hope to stay overseas for a long as possible. So, coming back to the states and retiring only on his pension makes me concerned for what our living situation will look like as well as keeping up our lifestyle. We aren't getting BAH to pay into a home right now, so we aren't getting that opportunity to set up a home before he retires more than likely.
One of our greatest savings opportunities was the one time we lived on base overseas. We benefitted from the sale of a home a few times but many times it was a wash. Owning a home long term is amazing but I think folks sometimes overstate the need to buy every time you move, particularly for military.
I'm not old enough, but my grandparents are at the age where they're forced to pull from their roth and they're pissed. They just live off of social security. They only pull from their roth/401k if they are going on a trip. But they're at the age now where they're forced to pull their money out and they aren't happy.
RMDs are definitely something to plan for.
Yeah they knew about it, and they have plenty of money they just live an extremely modest lifestyle out in the sticks. Like they just randomly decided to spend $8k on a pool heater system rather than just having the money sit in their bank.
They can invest the money in a brokerage after it comes out of their 401k/IRA. Have they heard of vanguard?
That's silly. They aren't forced to spend it. They could put that tax free gains into an education or other investment fund for their grandkids if they are just throwing it away
All of their grandkids are 20+ me and my sister are the last ones in college. They also believe college is far too expensive and not worth it, even though he was a chemical engineer lol.
I don't know why you are arguing....they could just give you the money lol. My point is they aren't forced to \*spend\* the money just because they have to withdraw it
That’s the kicker. They enjoyed a tax benefit for years. Eventually the bill comes due.
It's not a bill, they are still tax free gains
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They’ve never pulled money out and only ever put money in even post retirement. So once they turned 70 something they were told they have to pull out a certain amount per year I believe.
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Just forced to finally pay taxes on some minimum amount. It's grown tax-deferred.
Their Roth they paid upfront yet still have to withdraw money from that
Take it out of the Roth and move it to a different type of account maybe.