“our retirement accounts are likely overfunded.”

Congrats. You’re rich. You’ll get the tax bomb once RMDs hit. It’s a heck of a “problem” to have. We’re in same boat and it made sense for us to retire early and use brokerage to pay for some Roth Conversions to reduce our overall taxes.

This is the barbell effect: High income, high retirement savings, not enough liquid savings.

Anonymous wrote:

Not to mention that it's a 10 percent penalty on TOP of taxes. It's a big hit.

How much is being able to retire early worth to do you? Compare that to the 10% penalty.

Anonymous wrote:You could take out a home equity line for the few years between retirement and 59.

This might work if rates are low enough, but the interest you pay over the full period of pre-retirement (potentially 5 years or more) likely will wind up being more than the 10% penalty you would pay if you just took the money out of pre-tax accounts.

Anonymous wrote:“I plan to draw down my brokerage to cover the gap years and let my retirement accounts grow until I'm sixty.”

I assumed that I would do this, but I’m considering traditional IRA withdrawals under the 72(t) provision for part of what I need until I reach 60. That would allow more flexibility in terms of tax planning, since the brokerage has a lower tax rate.

This is exactly what I did. I happened to have more than one IRA and used 72(t) to access the smallest one.

“I plan to draw down my brokerage to cover the gap years and let my retirement accounts grow until I'm sixty.”

I assumed that I would do this, but I’m considering traditional IRA withdrawals under the 72(t) provision for part of what I need until I reach 60. That would allow more flexibility in terms of tax planning, since the brokerage has a lower tax rate.

Anonymous wrote:

Anonymous wrote:

This is a complete non-issue.

You can withdraw from your 401k for a 10% tax to compensate the government for your tax deferral. Since you're account is so huge it's obviously cheaper than if you had paid taxes and uses a non retirement vehicle.

You’re missing the point.

Not to mention that it's a 10 percent penalty on TOP of taxes. It's a big hit.

Anonymous wrote:

This is a complete non-issue.

You can withdraw from your 401k for a 10% tax to compensate the government for your tax deferral. Since you're account is so huge it's obviously cheaper than if you had paid taxes and uses a non retirement vehicle.

You’re missing the point.

This is a complete non-issue.

You can withdraw from your 401k for a 10% tax to compensate the government for your tax deferral. Since you're account is so huge it's obviously cheaper than if you had paid taxes and uses a non retirement vehicle.

Anonymous wrote:Why do you have to wait until RMDs?

She's not waiting until RMD's she's just annoyed that the balances are going to be excessive later and inaccessible now.

First of all, yes, use one of the loopholes to access your funds when you want them.

Secondly, look into Roth conversions in your early retirement years to avoid some taxation which seems to be a worry for you.

We are in a similar position- 2 million in retirement and only 200k in a brokerage. (We have another 700k that was an inheritance but we plan to pass that directly to our kids).

We’re now trying to get to a million in our brokerage before retirement. If we do that my husband can quit before 55, but otherwise, I think we take advantage of the 55 loophole. We’re 47, so 50/50 whether we’ll get there.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Hard to belive 401ks accounts can be overfunded in your 40s. Remember, catch ups are not till 50 so you cant even put a ton in pre 50.

When I run a calculation of my current combined retirement accounts, assuming zero additional contributions, growing at 4% real for 15 more years, then applying a 4% withdrawal rate starting in 15 years, I have more than enough retirement income.

Why 15 more years? If you’re late 40s and hope to retire ASAP (let’s say at 55), that’s at most 6-7 years before you start to draw down. That makes a big difference. Also, early retirement necessitates a lower safe withdrawal rate than 4%.

I plan to draw down my brokerage to cover the gap years and let my retirement accounts grow until I'm sixty. I'm in my mid-forties, and will keep working for 2 more years then reassess. I don't see any scenario where I work past 50. I'll draw down my brokerage at 10% from ~48 to 60 with the goal to spend it down to about $200k, then I'll draw down my retirement accounts from 60 on at 4%. We have a lot of home equity as a buffer if it turns out 4% was too aggressive. We can downsize.

This is what I did and it worked out well. Another useful tool for bridging gaps, so long as it's not abused, is to set up a pledged asset line of credit with your brokerage firm. Sometimes you're better off borrowing rather than selling things in your brokerage account or withdrawing from your IRAs.

We, for example, retired in our 50s. We have about $6 million in retirement accounts and $1.2 million in our brokerage account. All with Schwab. Based on the size and holdings in our brokerage account, we have a line of credit with Schwab of about $900k. Interest rates, of course, are higher now than they were a few years ago, but even at the current rates (6.43 at the moment) there are times when it makes more sense to tap the credit line for short term needs instead of cashing something out or withdrawing from an IRA and incurring either capital gains taxed or income taxes. Honestly, we've forgotten about our credit line at times and it's cost us.

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Hard to belive 401ks accounts can be overfunded in your 40s. Remember, catch ups are not till 50 so you cant even put a ton in pre 50.

When I run a calculation of my current combined retirement accounts, assuming zero additional contributions, growing at 4% real for 15 more years, then applying a 4% withdrawal rate starting in 15 years, I have more than enough retirement income.

Why 15 more years? If you’re late 40s and hope to retire ASAP (let’s say at 55), that’s at most 6-7 years before you start to draw down. That makes a big difference. Also, early retirement necessitates a lower safe withdrawal rate than 4%.

I plan to draw down my brokerage to cover the gap years and let my retirement accounts grow until I'm sixty. I'm in my mid-forties, and will keep working for 2 more years then reassess. I don't see any scenario where I work past 50. I'll draw down my brokerage at 10% from ~48 to 60 with the goal to spend it down to about $200k, then I'll draw down my retirement accounts from 60 on at 4%. We have a lot of home equity as a buffer if it turns out 4% was too aggressive. We can downsize.

Anonymous wrote:

Anonymous wrote:Hard to belive 401ks accounts can be overfunded in your 40s. Remember, catch ups are not till 50 so you cant even put a ton in pre 50.

When I run a calculation of my current combined retirement accounts, assuming zero additional contributions, growing at 4% real for 15 more years, then applying a 4% withdrawal rate starting in 15 years, I have more than enough retirement income.

Why 15 more years? If you’re late 40s and hope to retire ASAP (let’s say at 55), that’s at most 6-7 years before you start to draw down. That makes a big difference. Also, early retirement necessitates a lower safe withdrawal rate than 4%.

We’re in this bucket, unfortunately. We maxed our 401ks in our 20s and are projected to have $12m+ at 55 (15 years from now). 40 and 45 now. The kids will be out of college when we are 55 and 60. A few changes I recently made:

- Drop 401k to just get the match
- Switched our 401k contributions to Roth 401k contributions
- redirect what we were contributing to our 401ks to my brokerage account
- look into the Rule of 55 - it allows you to tap your 401k balance at 55 instead of 59 from the employer you retire from.
- I plan on drawing down 401k balances for college funds, or repayment of our kid’s loans, since we have undersaved there. In an effort to reduce RMD before 73.
- haven’t yet, but will do Roth conversions after 55
- generally started living a bit more of a rich life - more family vacations now while our four kids are young

Very interested in other strategies too!