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Old 10-31-2017, 10:34 AM   #311
db79
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Being married and having kids is a huge tax haven. Truth on who knows what the laws will be then. Interesting to see how he set himself up for retirement so early though.
Child tax credit isn't really that much and the income phase out threshold is not really that high in HCOL areas where salaries can be higher than average.

I've read that article before and just clicked on his link to retirement budget.

But, solely based on that article they are a "high income" household in either a low cost area and additionally a self proclaimed frugal considering their retirement budget and the amount they were able to save in various accounts in relatively short number of working years. The conversions he lays out is nothing new but his budget largely appears to assume the constant state of things. He states he has 3 kids. What about the increasing costs of kids as they grew older and participate in more activities, any plans of assisting in funding their higher education. Some big assumptions re healthcare. Didn't see a line item for life insurance.
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Old 11-02-2017, 02:48 PM   #312
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This just changed my outlook completely.

http://rootofgood.com/roth-ira-conve...ly-retirement/

Before I was all about maxing the roth contributions first. Now it seems like it would be better to do a heavier contribution on the traditional. The goal being to end up with 5 years of living expenses in the roth, until the ladder has time to kick in.
Attaboy!

Don't forget that the day you leave your employer you can roll your entire 401k into a "rollover IRA" which is also eligible to be converted to ROTH.

IMO the more you make the more it makes sense to leverage 401k and a deductible tIRA to defer that tax. Every $ you put into these vehicles is $ that would have been taxed at your highest bracket.

This guy has a blog about how he leveraged that to 'eject' early. He's an IT type in the Boston area. I binge read a lot of his stuff for a few weeks a while back. Really good read.

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What about the increasing costs of kids as they grew older and participate in more activities, any plans of assisting in funding their higher education. Some big assumptions re healthcare. Didn't see a line item for life insurance.
Sure. Lots of assumptions and so on.

If you have earned income from other sources (ie working spouse) then that complicates things, no doubt. But I find it pretty easy to envision that your overall earned income would be lower in draw-down than it is in accumulation for the simple reason that you are no longer accumulating. If I have enough in post-tax retirement savings + whatever I converted 5 years ago then I'm golden. I don't need my conversions to cover my entire budget because it isn't my only savings. Also I don't want to decimate my pre-tax savings before 59.5 as I hope to live beyond that and need some dough for those years too.

None of that detracts from the fact that the pre-tax vehicles (401k, deductible tIRA, etc) are fantastic for dodging taxes today. You basically get to invest what you would have paid in tax today and enjoy some-if not all-of the gains tomorrow.

Tax law could certainly change. But investing and saving in constant fear of what could maybe happen seems short-sighted. The gains from leveraging these things is just too great to ignore.

It's also worth noting that the livingafi blog I linked above is from a guy who lived/lives right here in the North East; easily a high CoL area. He leveraged this ROTH ladder quite successfully.
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Old 11-02-2017, 04:36 PM   #313
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Attaboy!

Don't forget that the day you leave your employer you can roll your entire 401k into a "rollover IRA" which is also eligible to be converted to ROTH.

IMO the more you make the more it makes sense to leverage 401k and a deductible tIRA to defer that tax. Every $ you put into these vehicles is $ that would have been taxed at your highest bracket.

This guy has a blog about how he leveraged that to 'eject' early. He's an IT type in the Boston area. I binge read a lot of his stuff for a few weeks a while back. Really good read.



Sure. Lots of assumptions and so on.

If you have earned income from other sources (ie working spouse) then that complicates things, no doubt. But I find it pretty easy to envision that your overall earned income would be lower in draw-down than it is in accumulation for the simple reason that you are no longer accumulating. If I have enough in post-tax retirement savings + whatever I converted 5 years ago then I'm golden. I don't need my conversions to cover my entire budget because it isn't my only savings. Also I don't want to decimate my pre-tax savings before 59.5 as I hope to live beyond that and need some dough for those years too.

None of that detracts from the fact that the pre-tax vehicles (401k, deductible tIRA, etc) are fantastic for dodging taxes today. You basically get to invest what you would have paid in tax today and enjoy some-if not all-of the gains tomorrow.

Tax law could certainly change. But investing and saving in constant fear of what could maybe happen seems short-sighted. The gains from leveraging these things is just too great to ignore.

It's also worth noting that the livingafi blog I linked above is from a guy who lived/lives right here in the North East; easily a high CoL area. He leveraged this ROTH ladder quite successfully.
Your post right here just helped me to understand it a little bit more.

Any income you put into a 401k or tIRA is taxed at the highest bracket. As long as it is in a lower bracket when converting via the ladder you're winning. That's pretty nifty.
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Old 11-03-2017, 05:49 AM   #314
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Any income you put into a 401k or tIRA would have been taxed at the highest bracket. As long as it is in a lower bracket when converting via the ladder you're winning. That's pretty nifty.
* With today's tax rules.

The knock against this technique is who knows what tomorrows rates and rules will look like. But then.. who knows what tomorrows rates and rules will look like.

The other thing to remember is you get to invest the tax savings in your 401k/tIRA today and leverage that $ for years until you convert.

I read recently someone put it this way:
With all savings there is a part you own and a part the gov't owns. With ROTH and post-tax savings the gov't has already taken its part and is doing whatever it wants to with it. With 401k/tIRA you get to hang onto the gov'ts part and invest it as you see fit. Then in x years when you go to use it (or convert) you have to settle up. In the meantime you're making profit off the whole pot.

For those with the discipline to save the tax savings instead of spend it, I think the 401k/deductible tIRA are hard to beat.
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Old 11-03-2017, 09:23 AM   #315
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* With today's tax rules.

The knock against this technique is who knows what tomorrows rates and rules will look like. But then.. who knows what tomorrows rates and rules will look like.

The other thing to remember is you get to invest the tax savings in your 401k/tIRA today and leverage that $ for years until you convert.

I read recently someone put it this way:
With all savings there is a part you own and a part the gov't owns. With ROTH and post-tax savings the gov't has already taken its part and is doing whatever it wants to with it. With 401k/tIRA you get to hang onto the gov'ts part and invest it as you see fit. Then in x years when you go to use it (or convert) you have to settle up. In the meantime you're making profit off the whole pot.

For those with the discipline to save the tax savings instead of spend it, I think the 401k/deductible tIRA are hard to beat.
Totally fair. Shit. I'm going to have to change everything now!
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Old 11-03-2017, 09:54 AM   #316
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Today's and tomorrow's tax efficiency is one piece of the puzzle for planning. Also, do not over look the types and sources of income that you will have in retirement. There are a lot of items that your income will either qualify or disqualify (phase-out) you for in retirement. Conversions and backdoor helps in addressing this which unfortunately many of today's retirees did not know about this or the option(s) were not available at the time.

While a lot of these articles popping up on sites and social media are inspiring the stories are a bit incomplete or misleading. In the end if the catchy headlines help promote financial education and decreased materialism than its a win for the greater good. Wish this ease of accessibility to information was around back when I started investing at 18. What kicked it off for me was while a senior in high school I attended a nighttime adult education course on retirement planning with my then girlfriend's father. That is when I learned about Roths and immediately opened one up.
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Old 11-04-2017, 08:29 AM   #317
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Wish this ease of accessibility to information was around back when I started investing...
Agreed. Except I wasn't investing poop at 18. Took me much longer to come around.

Also agreed about the blogs. What pisses me off about the blogs is they tend to be overly judgmental and dismissive of their own causes of success. MMM lives a cheapass lifestyle even I balk at, and made a shit-ton of money off the Denver housing bubble. Every other I've encountered seems to be just as bad or worse. .. But if you think that's bad, go read the forums and reddit and stuff!

But they are, as a whole, helpful.
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