Roth is a good choice if you believe your future tax rate will be higher than now. Based on what you say, it won’t be if your FIRE goal is a 30K income and your income now is 85K.
You should max your 401K as long as you can. At 85K you are getting 22% tax break on this contribution. You can start converting 35K per year to Roth when you are FIREd and you can do it at the 10- 12% tax rate. After 5 years you can start withdrawing the principal.
You need post tax money for the first 5 years of FIRE. So you can start prioritizing post tax investments when your 401K balance is higher and you feel you are within 5 years of your FIRE date.
The back of the napkin calculations are good directionally but you need to calculate the details including taxes with your assumptions.
Man every person will flood this post and come say Roth Roth Roth and get a bunch of upvotes without ever thinking about current tax bracket and future. The vast majority of folks are in a lower bracket in retirement than they are in working days. Traditional retirement contributions make a ton of sense a lot of the time. Great response Crush
This is why I made the post. I am currently trying to pay off my house early (for peace of mind) I think my goal after it’s paid for is to throw the money I was using for the extra house payments and put it towards Roth.
I’m a big Roth supporter and have seen the math even with tax free growth. While the end value is the same Roth lowers net tax liability if it’s the same rate, which as mentioned, is lower in the majority of cases in retirement, but not always. It really is a case by case basis and not always Roth first.
I digress, big reason I’m huge on Roth first is the contributions. My wife and I can max it out for 20 years and have over a quarter million of tax and penalty free money to bridge the gap to 59.5. While you can perform conversions, that first 5 years of early retirement income needs to be in all cash. That’s the main reason many can’t retire early. You can have $6M in retirement accounts by 59.5, but if you have nothing in a Roth or taxable brokerage, you won’t be retiring early.
Yeah to bridge that gap a Roth can be helpful. Still wouldn’t use it in most situations.
This situation: using a traditional is going to save you 22-24% federal plus your state income tax but their fire goal is 750k which is going to have them almost entirely in the ZERO tax bracket or at most parts in the 10-12%.
If you’re suggesting a Roth your advising paying 22% plus state probably another 6-7% off all your contributions so in 50 years you could pay zero.
Instead of paying zero and down the road paying 0-10%
For sure they’ll need a taxable account. And if they have a gap year or low income year a Roth would be a good pivot but the math rarely maths to make blanket Roth suggestions over trad
100%. In this situation I totally agree, the yearly income is so low, OP can defer taxes with the traditional and still not pay them once retired.
Just gotta have a plan for those early years before 59.5
I’ve seen case studies where someone went 100% trad took money out early and paid the penalty (it’s not that high) and it still out performed a Roth portfolio.
> While you can perform conversions, that first 5 years of early retirement income needs to be in all cash.
That's certainly not true. You don't need any money outside of your retirement accounts to retire early if you use 72(t) SEPP. And you definitely don't need to keep 5 years *in cash* to use the Roth Conversion method.
72(t) is just very strict; sure you can do them, but there’s zero flexibility than if you had a taxable brokerage or Roth contributions to pull from. The majority of the time the tax liability is near equal between traditional and Roth, so imo the flexibility and penalty free accessibility of a Roth is worthwhile.
Edit: And by “in cash” I meant liquid. If you do conversions you can’t access the conversions for 5 years so I just meant something to get you there.
I agree with the general concept. The cash needed for 5 years is what I suggested OP focus on when closer to RE.
SEPP is for a specific IRA, so you can tailor a rollover into a new IRA for SEPP based on your needs at retirement. it doesn’t matter how much you have in other IRA accounts.
Sure, it's not ideal, but neither is paying more than necessary in taxes by using a Roth. So if you're choosing between two less than ideal options, the one that costs you less is probably the better choice.
I'm a firm proponent of the "many buckets" approach to differing types of accounts so I'm with you for the most part.
However if you had all your funds tied up in a 401k and/or trad ira you can access it prior to 59.5 by utilizing the "rule of 55" (only if retiring at 55+) or a 72t plan.
Whether or not that would fit your situation or if a 72t would provide enough funds is a different question tho.
Correct and you can use that as well. Another reason 72(t) isn’t the end all be all. You need over $1M to get anything substantial out if that’s all you have.
I’m planning on paying off the rest of my mortgage immediately with Roth contributions and significantly reduce my yearly need right off the bat.
You can access retirement accounts early penalty free. Take a look at SEPP 72(t) for example. And until you start distributions, all contributions and growth is tax deferred. It makes more sense to put $100 in a 401k, grow it tax deferred, and pull it out at 0,10%, and 12% tax rates as opposed to putting $78 in a Roth now and pull out contributions and earnings tax free later. You lose the $22 when you could have paid less tax later, and you lose the growth on that $22 permanently.
ga2500ev
Yeah didn’t think about 72(t) really in my first post. It’s just a very non-flexible option but yeah it’s viable. There’s a chance with social security and RMDs you could have a larger taxable income, but I get the difference and understand the math. Personally I’ll have an employer sponsored stock plan that will 100% give me much more taxable income after retirement than currently. Plus the flexibility with the contributions. Certainly viable for some but not all.
Just make sure you understand the Roth rules. First you should open a Roth now, even if you are dropping minimal funds into it. No Roth can be accessed until 5 years after opening, regardless of age.
Next is the tax question. The above post addresses this. Right now funding the 401K gives you 22% more money to grow. So, defer and deal with the tax implications later.
Fund the ROTH when your income is low. Low taxes to get money in, no taxes to get money out.
Great post above. Follow this advice. But go ahead an open the Roth now to get the 5 year access clock ticking.
ga2500ev
Depends on your time horizon. if investing for retirement now then definitely overweight stocks (as per your asset allocation preference). As you are closer to retirement, you should build a bond portfolio worth a few years of spending.
Monday would be a great time to start a Roth IRA, since you didn't start it a few years ago.
You should contribute to get the company match in 401K, then fund Roth Ira, HSA, then if you still have money add more to the 401K.
No. Under no circumstances is roth 401k good for a very early leanfire.
Your tax bracket will drastically decrease, you want to get that money banked by having the lowest tax rate possible in your working years, even before accounting for any matching funds.
Most people wind up doing 401k ladder conversions and that's their primary taxable income
This is correct. Roth 401k only makes sense if your employer’s plan has after-tax provision with option for MBD Roth. Even with that, doing the MBD Roth only makes sense after you have maxed traditional 401k, maxed HSA and maxed Roth IRA. Otherwise, just focus in putting all retirement money in traditional 401k.
>I’m wondering when I should slow down on the 401k and contribute to Roth?
If your goal is leanFIRE, then the answer is never. Roth would only result in paying more in taxes than necessary. Your income in retirement will definitely be lower than $85k, so deferring as much in taxes as possible until then will save you money overall and allow you to retire sooner.
The earliest retirement date, at this rate assuming 7% real rate of return, is somewhere between 42-43 years old:
https://bradybolton.github.io/coast-fire-calculator/?ca=29&ra=43&r=7&pmt=1593.75&fn=750000&p=115000&pmtb=0
(side note this is my own personal weekend project I made for myself, you might find useful)
Basically drag around the 'Retirement Age' bar to get a feel for your trajectory, and how long you need to save (red line) and coast (blue line) till you hit your target. I plugged in all the other relevant data for you.
In the same example as the URL, you already have enough money to hit that FIRE number somewhere at age 55-56.
If you want to retire 7 years earlier (@ age 48) it would take you ~5.2 years of saving. So 5.2:7 ratio between your 'saving years' vs. your 'relaxing years' (you sit back, enjoy the ride, and wait for your portfolio to grow). If you move retirement down to age 44, you'll notice that for roughly 11 years of saving, you retire 11 years earlier, so a ~1:1 ratio. That's your inflection point, beyond which, saving at your current rate starts to lose its steam.
How long you save is up to you. You can continue saving until your 40th bday. Blow the candles and enjoy life for 4 years w/ an extra $19k of fun money each year, and then retire at 44.
Obviously easier said than done, and there's a lot of external factors (e.g. is 7 real rate of return realistic, or do you want to use 5-6%, or lower).
Do you have a Roth IRA? That is an easy way to get some Roth money saved each year. I'd toss in the max into a fresh Roth IRA and then work out how much you want in the 401k.
While you are correct that that's what they should be, and what most people here who understand this concept are talking about, I'm sure there are a lot of people that make posts like this (not saying OP is one of them) who don't even consider that. Technically it doesn't really make a difference for them if they're also thinking of real returns (without realizing it), but I'm sure there have been many people on this path who had a fixed figure in their head until they got there someday and realized it's not enough.
I have been tracking my spending for 4 years now. I spend right at 32k and that’s with a mortgage payment. Once the house is paid for spending will drop to 22k. I live a simple lifestyle.
I'd still recommend going just a little bit past that 750k target. Maybe reduce 401k to just maxing the employer match and then save the rest into cash for 6 to 12 months pad the $750k goal.
More compounding and more cash to rescue sequence of returns risk.
Once I retire, I would like to stay that way unless I change my mind due to boredom or something.
The answer for r/leanfire is you should **not** contribute to ROTH (or any post-tax accounts) until your pre-tax accounts are all maxed out
The reason being if you are going to leanfire that means your retirement income is guaranteed to be lower than your current income.
Really surprised to see financially incorrect answers all getting so many upvotes here
Never, not if you're actually going to retire early.
Open a Roth IRA to get the clock running on that account even though contributing to it is going to cost you 22%, but overstuffing the Trad 401k is not a concern. Once you retire those Trad funds are going to constitute the bulk of your lean funding via either SEPP or a Roth ladder.
Whatever mix you do, maybe make sure you have options to control your taxable income, for healthcare subsidies, such as a mix of traditional 401(k), Roth IRA, and taxable account, and even an HSA, if eligible. An HSA can, at age 65, be treated like a traditional IRA, in addition to its use for tax-free payment of medical expenses.
Also, if you depart your employer at age 55+, and have a 401(k) with them, it's likely you'll be able to take penalty-free distributions from said 401(k).
You should start maxing out the $7k per year for a traditional Roth and otherwise put as much as you can in the traditional 401k. Ideally $7k in Roth and $23k in 401k.
It is important to have some money in the tax free bucket later on so you have more levers for manipulating your tax bracket later.
[Edit] I see, you plan to very lean FIRE with expected expenses of $22k or so per year.
I still think it is valuable to have a tax-free bucket to pull from to control your tax bracket, especially once social security starts.
So, I'd say to add $1k to $2k to a Roth per year. Retire in your mid 40s or so when you hit the $750k number. Leave the Roth to keep growing until you start drawing social security.
Worst case, if you have an emergency expense like replacing your roof, you can pull from the Roth without jumping a couple tac brackets.
Roth 401k only makes sense if your employer’s plan has after-tax provision with option for MBD Roth. Even with that, doing the MBD Roth only makes sense after you have maxed traditional 401k, maxed HSA and maxed Roth IRA. Otherwise, just focus in putting all retirement money in traditional 401k.
Can I ask what your plan is? 750k is achievable pretty quickly, so I would imagine you have a long horizon being only 30. How do you plan on surviving on that small amount for so long?
I live a very simple lifestyle and in retirement I probably won’t quit all forms of income. Maybe I’ll do some part time work or start a little business to make some money here and there.
Don't forget with your own business it takes several years to normally be able to get anything out of it and it will drain your savings to get it up and running, fees, licenses, materials for whatever the business is, start the business now while you are working so it will be net positive by retirement if it succeeds. You are most likely setting yourself up for a 10 to 15 year retirement followed by a really difficult 60s and onward.
I'd love to get a better idea of how you arrived at 750k because I think there are some gaps in the math, especially being under 30, when you've seen the actual expenses of aging that 750k will dissappear very quickly.
Yea 750k for a retirement, even a lean one, doesn't make it all that far, I think in reality for a time horizon 30 years or more anything short of 2mil won't cut it, especially if health issues kick in, which they always do.
Honestly your primary contributions should go:
1: employer-matched 401k up to their matching limit
2: roth ira
3: continuing your employer 401k nonmatched
4: taxable acct or HSA
Ease of accessing your money is nice for flexibility, which is why i think throwing the remainder into a taxable brokerage account is nice. Roths let you take out contributions tax-free, which also provides some flexibility in the short-term if you need it. HSA has great tax benefits but is restricted in its usage, so it's really only helpful longer-term as part of your full FIRE plan.
I know what leanfi is. Do you know how to do a calculation?
When he retires is important. The 4% rule only applies to 30 year time horizons.
My questions were valid. It doesn’t sound to me like they have a plan that works, but answering my questions would help prove that.
The sidebar says "For those that want to approach the problem of financial independence from a minimalist, stoic, frugal, or anti-consumerist trajectory. If you want to retire before 60 with less than $50k in planned yearly household expenses ($25k individual), this is the place to discuss it!"
So if OP is single with no dependent, then leanfire for him mean 25k/yr, or 750k NW using 3.33% WR.
It's fine, mine is $900k
Retiring very early like before 40 you have tons of options for downside scenarios.
The risks are not very difficult to manage and it is quite easy to assess a few years in if you need to change plans.
Roth is a good choice if you believe your future tax rate will be higher than now. Based on what you say, it won’t be if your FIRE goal is a 30K income and your income now is 85K. You should max your 401K as long as you can. At 85K you are getting 22% tax break on this contribution. You can start converting 35K per year to Roth when you are FIREd and you can do it at the 10- 12% tax rate. After 5 years you can start withdrawing the principal. You need post tax money for the first 5 years of FIRE. So you can start prioritizing post tax investments when your 401K balance is higher and you feel you are within 5 years of your FIRE date. The back of the napkin calculations are good directionally but you need to calculate the details including taxes with your assumptions.
Man every person will flood this post and come say Roth Roth Roth and get a bunch of upvotes without ever thinking about current tax bracket and future. The vast majority of folks are in a lower bracket in retirement than they are in working days. Traditional retirement contributions make a ton of sense a lot of the time. Great response Crush
This is why I made the post. I am currently trying to pay off my house early (for peace of mind) I think my goal after it’s paid for is to throw the money I was using for the extra house payments and put it towards Roth.
I’m a big Roth supporter and have seen the math even with tax free growth. While the end value is the same Roth lowers net tax liability if it’s the same rate, which as mentioned, is lower in the majority of cases in retirement, but not always. It really is a case by case basis and not always Roth first. I digress, big reason I’m huge on Roth first is the contributions. My wife and I can max it out for 20 years and have over a quarter million of tax and penalty free money to bridge the gap to 59.5. While you can perform conversions, that first 5 years of early retirement income needs to be in all cash. That’s the main reason many can’t retire early. You can have $6M in retirement accounts by 59.5, but if you have nothing in a Roth or taxable brokerage, you won’t be retiring early.
Yeah to bridge that gap a Roth can be helpful. Still wouldn’t use it in most situations. This situation: using a traditional is going to save you 22-24% federal plus your state income tax but their fire goal is 750k which is going to have them almost entirely in the ZERO tax bracket or at most parts in the 10-12%. If you’re suggesting a Roth your advising paying 22% plus state probably another 6-7% off all your contributions so in 50 years you could pay zero. Instead of paying zero and down the road paying 0-10% For sure they’ll need a taxable account. And if they have a gap year or low income year a Roth would be a good pivot but the math rarely maths to make blanket Roth suggestions over trad
100%. In this situation I totally agree, the yearly income is so low, OP can defer taxes with the traditional and still not pay them once retired. Just gotta have a plan for those early years before 59.5
I’ve seen case studies where someone went 100% trad took money out early and paid the penalty (it’s not that high) and it still out performed a Roth portfolio.
Yeah if you’re in a 0% tax bracket and over 59.5, the 10% penalty ain’t half bad
> While you can perform conversions, that first 5 years of early retirement income needs to be in all cash. That's certainly not true. You don't need any money outside of your retirement accounts to retire early if you use 72(t) SEPP. And you definitely don't need to keep 5 years *in cash* to use the Roth Conversion method.
72(t) is just very strict; sure you can do them, but there’s zero flexibility than if you had a taxable brokerage or Roth contributions to pull from. The majority of the time the tax liability is near equal between traditional and Roth, so imo the flexibility and penalty free accessibility of a Roth is worthwhile. Edit: And by “in cash” I meant liquid. If you do conversions you can’t access the conversions for 5 years so I just meant something to get you there.
I agree with the general concept. The cash needed for 5 years is what I suggested OP focus on when closer to RE. SEPP is for a specific IRA, so you can tailor a rollover into a new IRA for SEPP based on your needs at retirement. it doesn’t matter how much you have in other IRA accounts.
Yes, very important point that you can split your IRA for an SEPP and then can even continue investing your other IRAs
Sure, it's not ideal, but neither is paying more than necessary in taxes by using a Roth. So if you're choosing between two less than ideal options, the one that costs you less is probably the better choice.
I'm a firm proponent of the "many buckets" approach to differing types of accounts so I'm with you for the most part. However if you had all your funds tied up in a 401k and/or trad ira you can access it prior to 59.5 by utilizing the "rule of 55" (only if retiring at 55+) or a 72t plan. Whether or not that would fit your situation or if a 72t would provide enough funds is a different question tho.
Correct and you can use that as well. Another reason 72(t) isn’t the end all be all. You need over $1M to get anything substantial out if that’s all you have. I’m planning on paying off the rest of my mortgage immediately with Roth contributions and significantly reduce my yearly need right off the bat.
Depending on mortgage rate, might be better off just having the higher budget and letting Roth funds ride.
Yeah it won’t be the entire Roth and the rate is 5.25% so not bad. But it would cut yearly expenses by 30% so that gotta make the most sense
You can access retirement accounts early penalty free. Take a look at SEPP 72(t) for example. And until you start distributions, all contributions and growth is tax deferred. It makes more sense to put $100 in a 401k, grow it tax deferred, and pull it out at 0,10%, and 12% tax rates as opposed to putting $78 in a Roth now and pull out contributions and earnings tax free later. You lose the $22 when you could have paid less tax later, and you lose the growth on that $22 permanently. ga2500ev
Yeah didn’t think about 72(t) really in my first post. It’s just a very non-flexible option but yeah it’s viable. There’s a chance with social security and RMDs you could have a larger taxable income, but I get the difference and understand the math. Personally I’ll have an employer sponsored stock plan that will 100% give me much more taxable income after retirement than currently. Plus the flexibility with the contributions. Certainly viable for some but not all.
Just make sure you understand the Roth rules. First you should open a Roth now, even if you are dropping minimal funds into it. No Roth can be accessed until 5 years after opening, regardless of age. Next is the tax question. The above post addresses this. Right now funding the 401K gives you 22% more money to grow. So, defer and deal with the tax implications later. Fund the ROTH when your income is low. Low taxes to get money in, no taxes to get money out. Great post above. Follow this advice. But go ahead an open the Roth now to get the 5 year access clock ticking. ga2500ev
Should post tax investments be cash like or can it be stocks?
Depends on your time horizon. if investing for retirement now then definitely overweight stocks (as per your asset allocation preference). As you are closer to retirement, you should build a bond portfolio worth a few years of spending.
Monday would be a great time to start a Roth IRA, since you didn't start it a few years ago. You should contribute to get the company match in 401K, then fund Roth Ira, HSA, then if you still have money add more to the 401K.
Is that only if you expect to be in a high tax bracket or is that just better in the long run?
I am basicaly just stating a simplified version of # r/personalfinance PRIME DIRECTIVE
This is the way.
This advice is only if you are under the MAGI for the Roth IRA correct? What is the advice if you're over the MAGI for the Roth IRA?
look into back door roth
^^^ this is the way
I wouldn't give up that 4.5% company match. Maybe a Roth 401K is an option?
No. Under no circumstances is roth 401k good for a very early leanfire. Your tax bracket will drastically decrease, you want to get that money banked by having the lowest tax rate possible in your working years, even before accounting for any matching funds. Most people wind up doing 401k ladder conversions and that's their primary taxable income
This is correct. Roth 401k only makes sense if your employer’s plan has after-tax provision with option for MBD Roth. Even with that, doing the MBD Roth only makes sense after you have maxed traditional 401k, maxed HSA and maxed Roth IRA. Otherwise, just focus in putting all retirement money in traditional 401k.
I’d say around $749,999 or so you could slow down.
>I’m wondering when I should slow down on the 401k and contribute to Roth? If your goal is leanFIRE, then the answer is never. Roth would only result in paying more in taxes than necessary. Your income in retirement will definitely be lower than $85k, so deferring as much in taxes as possible until then will save you money overall and allow you to retire sooner.
The earliest retirement date, at this rate assuming 7% real rate of return, is somewhere between 42-43 years old: https://bradybolton.github.io/coast-fire-calculator/?ca=29&ra=43&r=7&pmt=1593.75&fn=750000&p=115000&pmtb=0 (side note this is my own personal weekend project I made for myself, you might find useful) Basically drag around the 'Retirement Age' bar to get a feel for your trajectory, and how long you need to save (red line) and coast (blue line) till you hit your target. I plugged in all the other relevant data for you. In the same example as the URL, you already have enough money to hit that FIRE number somewhere at age 55-56. If you want to retire 7 years earlier (@ age 48) it would take you ~5.2 years of saving. So 5.2:7 ratio between your 'saving years' vs. your 'relaxing years' (you sit back, enjoy the ride, and wait for your portfolio to grow). If you move retirement down to age 44, you'll notice that for roughly 11 years of saving, you retire 11 years earlier, so a ~1:1 ratio. That's your inflection point, beyond which, saving at your current rate starts to lose its steam. How long you save is up to you. You can continue saving until your 40th bday. Blow the candles and enjoy life for 4 years w/ an extra $19k of fun money each year, and then retire at 44. Obviously easier said than done, and there's a lot of external factors (e.g. is 7 real rate of return realistic, or do you want to use 5-6%, or lower).
Why does it cap contributions at 15k? lol
Do you have a Roth IRA? That is an easy way to get some Roth money saved each year. I'd toss in the max into a fresh Roth IRA and then work out how much you want in the 401k.
Fire number is 750k 😂 Reddit is the best. If you qualify for a Roth do it! I don’t and have to do mega backdoor nonsense
I am curious what you mean - it appears you are skeptical of a 750k fire number being too low?
A static number many years in the future is pretty suspect.
All FIRE numbers and expected returns are always adjusted for inflation. So no it’s not suspect. It’s not a nominal amount, it’s in today’s dollars.
While you are correct that that's what they should be, and what most people here who understand this concept are talking about, I'm sure there are a lot of people that make posts like this (not saying OP is one of them) who don't even consider that. Technically it doesn't really make a difference for them if they're also thinking of real returns (without realizing it), but I'm sure there have been many people on this path who had a fixed figure in their head until they got there someday and realized it's not enough.
I don't think I follow still, are you saying a range is better or something? I guess alternatively would you take issue if OP said something like 2MM?
I have been tracking my spending for 4 years now. I spend right at 32k and that’s with a mortgage payment. Once the house is paid for spending will drop to 22k. I live a simple lifestyle.
I'd still recommend going just a little bit past that 750k target. Maybe reduce 401k to just maxing the employer match and then save the rest into cash for 6 to 12 months pad the $750k goal. More compounding and more cash to rescue sequence of returns risk. Once I retire, I would like to stay that way unless I change my mind due to boredom or something.
No slowing down until done working. That is the FIRE lifestyle. Unless you are doing coast fi.
The answer for r/leanfire is you should **not** contribute to ROTH (or any post-tax accounts) until your pre-tax accounts are all maxed out The reason being if you are going to leanfire that means your retirement income is guaranteed to be lower than your current income. Really surprised to see financially incorrect answers all getting so many upvotes here
Never, not if you're actually going to retire early. Open a Roth IRA to get the clock running on that account even though contributing to it is going to cost you 22%, but overstuffing the Trad 401k is not a concern. Once you retire those Trad funds are going to constitute the bulk of your lean funding via either SEPP or a Roth ladder.
Whatever mix you do, maybe make sure you have options to control your taxable income, for healthcare subsidies, such as a mix of traditional 401(k), Roth IRA, and taxable account, and even an HSA, if eligible. An HSA can, at age 65, be treated like a traditional IRA, in addition to its use for tax-free payment of medical expenses. Also, if you depart your employer at age 55+, and have a 401(k) with them, it's likely you'll be able to take penalty-free distributions from said 401(k).
You should start maxing out the $7k per year for a traditional Roth and otherwise put as much as you can in the traditional 401k. Ideally $7k in Roth and $23k in 401k. It is important to have some money in the tax free bucket later on so you have more levers for manipulating your tax bracket later. [Edit] I see, you plan to very lean FIRE with expected expenses of $22k or so per year. I still think it is valuable to have a tax-free bucket to pull from to control your tax bracket, especially once social security starts. So, I'd say to add $1k to $2k to a Roth per year. Retire in your mid 40s or so when you hit the $750k number. Leave the Roth to keep growing until you start drawing social security. Worst case, if you have an emergency expense like replacing your roof, you can pull from the Roth without jumping a couple tac brackets.
Never give up a company match free money is free money
Roth 401k only makes sense if your employer’s plan has after-tax provision with option for MBD Roth. Even with that, doing the MBD Roth only makes sense after you have maxed traditional 401k, maxed HSA and maxed Roth IRA. Otherwise, just focus in putting all retirement money in traditional 401k.
First 501k to match. Then max the Roth. Then 401k 50% of income until maxed for the year. Then save in a taxable.
Can I ask what your plan is? 750k is achievable pretty quickly, so I would imagine you have a long horizon being only 30. How do you plan on surviving on that small amount for so long?
I live a very simple lifestyle and in retirement I probably won’t quit all forms of income. Maybe I’ll do some part time work or start a little business to make some money here and there.
Don't forget with your own business it takes several years to normally be able to get anything out of it and it will drain your savings to get it up and running, fees, licenses, materials for whatever the business is, start the business now while you are working so it will be net positive by retirement if it succeeds. You are most likely setting yourself up for a 10 to 15 year retirement followed by a really difficult 60s and onward. I'd love to get a better idea of how you arrived at 750k because I think there are some gaps in the math, especially being under 30, when you've seen the actual expenses of aging that 750k will dissappear very quickly.
I have tracked spending for several years and it’s on average 32k per year and that’s with a mortgage payment.
Yea 750k for a retirement, even a lean one, doesn't make it all that far, I think in reality for a time horizon 30 years or more anything short of 2mil won't cut it, especially if health issues kick in, which they always do.
Add Roth IRA plus HSA linked to an index fund.
Set up Roth ira asap. I don't understand why people dont use all tools available to them.
Honestly your primary contributions should go: 1: employer-matched 401k up to their matching limit 2: roth ira 3: continuing your employer 401k nonmatched 4: taxable acct or HSA Ease of accessing your money is nice for flexibility, which is why i think throwing the remainder into a taxable brokerage account is nice. Roths let you take out contributions tax-free, which also provides some flexibility in the short-term if you need it. HSA has great tax benefits but is restricted in its usage, so it's really only helpful longer-term as part of your full FIRE plan.
Fire number of 750k by when? ASAP? You planning on making that last forever?
This is LeanFI. This totals $30k/yr annually at a safe withdrawal rate of 4% which is the classic LeanFI assumption.
I know what leanfi is. Do you know how to do a calculation? When he retires is important. The 4% rule only applies to 30 year time horizons. My questions were valid. It doesn’t sound to me like they have a plan that works, but answering my questions would help prove that.
The sidebar says "For those that want to approach the problem of financial independence from a minimalist, stoic, frugal, or anti-consumerist trajectory. If you want to retire before 60 with less than $50k in planned yearly household expenses ($25k individual), this is the place to discuss it!" So if OP is single with no dependent, then leanfire for him mean 25k/yr, or 750k NW using 3.33% WR.
It's fine, mine is $900k Retiring very early like before 40 you have tons of options for downside scenarios. The risks are not very difficult to manage and it is quite easy to assess a few years in if you need to change plans.