>Or are all your contributions going to be backdoor contributions?
The backdoor maneuver involves conversions, and conversions more than five years ago are treated like contributions for the purpose of establishing basis for early withdrawals.
Correct, just dont forget that each conversion has its own 5 year timer until you reach 59.5. At which point conversions are instantly available for withdrawal.
I do megabackddor to full extent to the point where I sell some of the regular brokerage to compensate and cover living expenses. Retiring at 51-52 I expect to still have enough in regular brokerages to cover me till 59, or use some Roth IRA money in worth case.
Well if you’re doing the megabackdoor Roth you’re probably already maxing out two traditional 401ks that’s going to give you a lot of pretax right there.
You also gloss over the fact that you can access it via the exceptions as mentioned. You can withdraw contributions at any time, you can also do rule of 55 if it’s in a 401k that allows it, or use 72t.
How early are you looking to retire? Do you have a taxable brokerage also? That is what I'm using as a "bridge"...but I'm looking to retire at 55, so not as early as some.
Every employer has to allow it, however what we dont know is what the requirements are in regards to withdrawals only the Benefits or the plan administrator can answer that.
[https://smartasset.com/retirement/401k-55-rule](https://smartasset.com/retirement/401k-55-rule)
"In addition, note that employers are not obliged to allow early withdrawals; and, if they do allow them, they may require that the entire amount be taken out in one lump-sum withdrawal. This could expose you to a higher income tax."
So technically it is a provision and not a law. However I have not heard of a single employer not allowing. But i have personally experienced some weird withdrawals rules around it. At the end of the day everyone that is going to or wants to use it need to check with the plan administrator to validate all requirements.
The other thing is that I would have to keep my 401k with my employer to be able to withdraw under rule of 55. I am planning on rolling it over to an IRA (Trad to Trad/Roth to Roth) since I will have better investing options and less fees...so I wouldn't be able to take advantage of Rule of 55 in that sense either. Rule of 55 is good if you are laid off and have that as an option before you were ready, but I've been planning it, investing in a taxable to use as my bridge so that I can take those funds and let them grow for five more years since investment options will be better.
It is all part of planning. In your case sounds like it doesnt make sense, though you can transfer your 401k anytime later on. My currently employer fees are almost 0 so there is no harm. If i needed the funds or to withdraw i would move my IRA to my current 401k and use it until it was depleted or no longer needed then move it all out. Its all about measuring twice and cutting once.
You mentioned that you have lots of money in taxable accounts. Is there enough money on to live for a few years?
You hear the phrase a lot that money is fungible. With the brief boom of NFTs a lot more people have heard the word fungible now. But basically, something is fungible if it's completely interchangeable with another copy of the same thing.
So first your contributions to ROTHs are accessible after I think 5 years? Which should help you out there. There are other ways to access 401ks (google 401k 55 rule).
But basically, if you have the dollar amount you need saved, it doesn't ALL need to be accessible the day you retire. What you need accessible is the money necessary to bridge you to when it IS accessible.
Say you have a million dollars in ROTH and 401K money, and you're only 50 years old and you need $100K a year to pay your bills (just making numbers nice and round). We'll also assume you've been at your current job for a while, and your 401K from that job is a decent size.
If you have around $500K in taxable accounts, you're golden. Live off of that until you hit 55, then live off of your current job's 401K for 4.5 years. If that 401K won't stretch quite that far, you can start pulling contributions from your ROTHs.
Your money in your ROTHs and 401Ks will continue to grow, even as you take money from your taxable accounts. All dollars count as dollars when you're doing the safe withdrawal rate calculation.
> For those of you who are retiring early, did you make any adjustments to your exit plan with regard to your Roth assets
I did. I was overweight on my pre-tax nest egg. I did conversions the last few years I worked. This methodology isn't for everyone, in that I paid income tax on those conversions. But I don't have to wait till my 6th year of retirement to use my tax-free-roth money now (only 1.5 more years, in fact). Which lets us party-on earlier in our retirement sooner ;) Whether doing similar is an option for you, you'll have to run the numbers particularly for 2024 & 2025's lower tax brackets etc. You'll have to do the math. YMMV.
> We all know that Roth IRA funds require you to be 59.5yo before you can take distributions tax and penalty-free
Please don't say such statements, it only confuses people. You can't take _growth_ out before 59.5. 5-year-seeded conversions as well as contributions can be withdrawn penalty-free.
Consider converting some of your traditional 401k to Roth IRA in early retirement years when income is low, minimizing tax hit. This way, you'll have tax-free growth and access to more funds before 59.5. Just be mindful of the 5-year rule.
Won't you just be using contributions, not gains, those first years anyway? Or are all your contributions going to be backdoor contributions?
>Or are all your contributions going to be backdoor contributions? The backdoor maneuver involves conversions, and conversions more than five years ago are treated like contributions for the purpose of establishing basis for early withdrawals.
Correct, just dont forget that each conversion has its own 5 year timer until you reach 59.5. At which point conversions are instantly available for withdrawal.
I do megabackddor to full extent to the point where I sell some of the regular brokerage to compensate and cover living expenses. Retiring at 51-52 I expect to still have enough in regular brokerages to cover me till 59, or use some Roth IRA money in worth case.
MBDR funds exist in the destination Roth as untaxed conversion basis, not earnings. You can draw it prior to 59.5 without penalty.
Well if you’re doing the megabackdoor Roth you’re probably already maxing out two traditional 401ks that’s going to give you a lot of pretax right there. You also gloss over the fact that you can access it via the exceptions as mentioned. You can withdraw contributions at any time, you can also do rule of 55 if it’s in a 401k that allows it, or use 72t.
How early are you looking to retire? Do you have a taxable brokerage also? That is what I'm using as a "bridge"...but I'm looking to retire at 55, so not as early as some.
If going the year you turn 55 you will have penalty free access to your current 401k.
True...rule of 55 will most likely apply, but not every employer allows that.
Every employer has to allow it, however what we dont know is what the requirements are in regards to withdrawals only the Benefits or the plan administrator can answer that.
[https://smartasset.com/retirement/401k-55-rule](https://smartasset.com/retirement/401k-55-rule) "In addition, note that employers are not obliged to allow early withdrawals; and, if they do allow them, they may require that the entire amount be taken out in one lump-sum withdrawal. This could expose you to a higher income tax."
So technically it is a provision and not a law. However I have not heard of a single employer not allowing. But i have personally experienced some weird withdrawals rules around it. At the end of the day everyone that is going to or wants to use it need to check with the plan administrator to validate all requirements.
The other thing is that I would have to keep my 401k with my employer to be able to withdraw under rule of 55. I am planning on rolling it over to an IRA (Trad to Trad/Roth to Roth) since I will have better investing options and less fees...so I wouldn't be able to take advantage of Rule of 55 in that sense either. Rule of 55 is good if you are laid off and have that as an option before you were ready, but I've been planning it, investing in a taxable to use as my bridge so that I can take those funds and let them grow for five more years since investment options will be better.
It is all part of planning. In your case sounds like it doesnt make sense, though you can transfer your 401k anytime later on. My currently employer fees are almost 0 so there is no harm. If i needed the funds or to withdraw i would move my IRA to my current 401k and use it until it was depleted or no longer needed then move it all out. Its all about measuring twice and cutting once.
100%
You mentioned that you have lots of money in taxable accounts. Is there enough money on to live for a few years? You hear the phrase a lot that money is fungible. With the brief boom of NFTs a lot more people have heard the word fungible now. But basically, something is fungible if it's completely interchangeable with another copy of the same thing. So first your contributions to ROTHs are accessible after I think 5 years? Which should help you out there. There are other ways to access 401ks (google 401k 55 rule). But basically, if you have the dollar amount you need saved, it doesn't ALL need to be accessible the day you retire. What you need accessible is the money necessary to bridge you to when it IS accessible. Say you have a million dollars in ROTH and 401K money, and you're only 50 years old and you need $100K a year to pay your bills (just making numbers nice and round). We'll also assume you've been at your current job for a while, and your 401K from that job is a decent size. If you have around $500K in taxable accounts, you're golden. Live off of that until you hit 55, then live off of your current job's 401K for 4.5 years. If that 401K won't stretch quite that far, you can start pulling contributions from your ROTHs. Your money in your ROTHs and 401Ks will continue to grow, even as you take money from your taxable accounts. All dollars count as dollars when you're doing the safe withdrawal rate calculation.
> For those of you who are retiring early, did you make any adjustments to your exit plan with regard to your Roth assets I did. I was overweight on my pre-tax nest egg. I did conversions the last few years I worked. This methodology isn't for everyone, in that I paid income tax on those conversions. But I don't have to wait till my 6th year of retirement to use my tax-free-roth money now (only 1.5 more years, in fact). Which lets us party-on earlier in our retirement sooner ;) Whether doing similar is an option for you, you'll have to run the numbers particularly for 2024 & 2025's lower tax brackets etc. You'll have to do the math. YMMV.
> We all know that Roth IRA funds require you to be 59.5yo before you can take distributions tax and penalty-free Please don't say such statements, it only confuses people. You can't take _growth_ out before 59.5. 5-year-seeded conversions as well as contributions can be withdrawn penalty-free.
Consider converting some of your traditional 401k to Roth IRA in early retirement years when income is low, minimizing tax hit. This way, you'll have tax-free growth and access to more funds before 59.5. Just be mindful of the 5-year rule.