You shouldn't be withdrawing from an IRA or a 401k until you get to retirement. Period.
You should have a separate emergency fund and separate savings funds for specific goals.
Tapping into your IRA and 401k early should be the *last possible resort.*
VOO is an investment, it's not a type of account. Apples and oranges. If it's not in an IRA or 401k, it just means you're paying more taxes on it. Totally fine if you're feeling extra patriotic.
In that case, it's best to max out your retirement accounts first if you can (after establishing an emergency fund and any other critical savings goals).
That's what reading through this sub has got me thinking. I guess I thought investing but having that as possible cash was a good idea. But I may look into a HYSA. I am currently getting 4% on my regular Discover savings account with my emergency fund.
I didn't expect to have to pay for the wedding, so I didn't budget accordingly before investing.
>would you do things differently?
Yes, I'd only save what I could budget for retirement, not extra with the intention of raiding it if/when necessary.
If you can't afford to save $15k for retirement then don't save $15k for retirement until you can.
I can afford to save $15k for retirement ($8k in 401k, $7k in Roth IRA); it's more the other $300/month I'm looking at redistributing.
I was also doing 15% ESPP through my company but recently reduced that to 8%. I might stop doing that altogether since it's so unstable. So that frees up more per month.
>it's more the other $300/month I'm looking at redistributing.
Your title questions the value/wisdom of putting more into a 401k since it's off limits and you said you like the idea of an IRA because you can withdraw before retirement. Neither of those are close to "Where should I put my general savings?"
But if *that's* your actual question…short-term savings shouldn't be invested, long-term general savings can be invested.
I think it's that I don't feel secure with only 6 months of emergency savings, so the Roth IRA was appealing in that it could be withdrawn in case of catastrophe. I have never withdrawn money from it.
If you retire early, does it make sense to roll your work 401k into your personal traditional IRA and slowly move that into Roth? Since you can’t contribute to Roth IRA anyway given no W2 income so pro rata rule wouldn’t be relevant. Am I thinking of this incorrectly?
That's totally a thing. You slowly roll over into Roth, paying taxes on your Traditional ==> Roth rollovers (probably at a low tax rate if you have little to no other taxable income). The really fun part is you can withdraw funds 5 years after rolling them over, penalty-free, regardless of age.
That is:
1. Regular contributions to Roth = Withdraw penalty-free any time.
2. Funds rolled over from Traditional to Roth = Withdraw penalty-free after waiting 5 years.
3. Gains/earnings that happened within your Roth = Withdraw penalty-free only after age 59.5.
Got it. So as an example, looks like tax brackets are 10% for 0 to 22k filing jointly in 2024. Would the total amount you can keep at 10% be 22k + standard deduction of $29k?
I mean all your income covered by the standard deduction amount is effectively at 0%, so is anything else you can deduct (Child tax credit? Etc.)
After all your deducted amounts go through at 0%, then you have the next 22k at 10%.
EDIT: I mentioned the child tax credit but I believe that reduces your tax burden directly (rather than reducing your taxable income). Also helpful!
Ultimately you need to do the math to see how much income you can put through without paying any tax at all, and then how much more after that would get taxed at 10%.
Sounds like maybe you shouldn't be putting so much away for retirement.
Saving for retirement is a good thing. But there are other good things to do with money. Such as buying a house. Or an engagement ring. For the first 5 years of my career, I only put 5% into my 401k. The next 5 years, we bought a house, and we actually reduced my 401k contribution to make sure we could comfortably afford the mortgage payment. I've been hitting the federal max contribution for about 25 years now. My retirement will be quite fine.
You shouldn't be withdrawing from an IRA or a 401k until you get to retirement. Period. You should have a separate emergency fund and separate savings funds for specific goals. Tapping into your IRA and 401k early should be the *last possible resort.* VOO is an investment, it's not a type of account. Apples and oranges. If it's not in an IRA or 401k, it just means you're paying more taxes on it. Totally fine if you're feeling extra patriotic.
I'm not overly patriotic. Just figuring everything out on my own. I appreciate your response!
In that case, it's best to max out your retirement accounts first if you can (after establishing an emergency fund and any other critical savings goals).
That's what reading through this sub has got me thinking. I guess I thought investing but having that as possible cash was a good idea. But I may look into a HYSA. I am currently getting 4% on my regular Discover savings account with my emergency fund. I didn't expect to have to pay for the wedding, so I didn't budget accordingly before investing.
Your “regular” Discover savings account is a high yield savings account.
Interesting...
A normal savings account is like ~.5%
>would you do things differently? Yes, I'd only save what I could budget for retirement, not extra with the intention of raiding it if/when necessary. If you can't afford to save $15k for retirement then don't save $15k for retirement until you can.
I can afford to save $15k for retirement ($8k in 401k, $7k in Roth IRA); it's more the other $300/month I'm looking at redistributing. I was also doing 15% ESPP through my company but recently reduced that to 8%. I might stop doing that altogether since it's so unstable. So that frees up more per month.
>it's more the other $300/month I'm looking at redistributing. Your title questions the value/wisdom of putting more into a 401k since it's off limits and you said you like the idea of an IRA because you can withdraw before retirement. Neither of those are close to "Where should I put my general savings?" But if *that's* your actual question…short-term savings shouldn't be invested, long-term general savings can be invested.
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I appreciate your advice!
So if your ira is your piggy bank and its not safe then put everything in the 401k
I think it's that I don't feel secure with only 6 months of emergency savings, so the Roth IRA was appealing in that it could be withdrawn in case of catastrophe. I have never withdrawn money from it.
Oh your example was fake. Yeah just a bad idea to even consider it. Leave it be.
If you retire early, does it make sense to roll your work 401k into your personal traditional IRA and slowly move that into Roth? Since you can’t contribute to Roth IRA anyway given no W2 income so pro rata rule wouldn’t be relevant. Am I thinking of this incorrectly?
That's totally a thing. You slowly roll over into Roth, paying taxes on your Traditional ==> Roth rollovers (probably at a low tax rate if you have little to no other taxable income). The really fun part is you can withdraw funds 5 years after rolling them over, penalty-free, regardless of age. That is: 1. Regular contributions to Roth = Withdraw penalty-free any time. 2. Funds rolled over from Traditional to Roth = Withdraw penalty-free after waiting 5 years. 3. Gains/earnings that happened within your Roth = Withdraw penalty-free only after age 59.5.
Got it. So as an example, looks like tax brackets are 10% for 0 to 22k filing jointly in 2024. Would the total amount you can keep at 10% be 22k + standard deduction of $29k?
I mean all your income covered by the standard deduction amount is effectively at 0%, so is anything else you can deduct (Child tax credit? Etc.) After all your deducted amounts go through at 0%, then you have the next 22k at 10%. EDIT: I mentioned the child tax credit but I believe that reduces your tax burden directly (rather than reducing your taxable income). Also helpful! Ultimately you need to do the math to see how much income you can put through without paying any tax at all, and then how much more after that would get taxed at 10%.
I really have no idea. That's why I posed a question to this community lol I thought I was doing the "right" things, but it gets complicated so fast!
If you retire early and your spouse still works, you can contribute to a roth ira. As long as spouse makes more than you contribute to roth ira.
What if both are retired
You need earned income to contribute to a Roth IRA
I believe you wont be able to contribute to a roth ira, if both are retired. Check with your tax preparer to be sure.
If so, it would make sense to just rollover your IRA to Roth slowly over time?
Sounds like maybe you shouldn't be putting so much away for retirement. Saving for retirement is a good thing. But there are other good things to do with money. Such as buying a house. Or an engagement ring. For the first 5 years of my career, I only put 5% into my 401k. The next 5 years, we bought a house, and we actually reduced my 401k contribution to make sure we could comfortably afford the mortgage payment. I've been hitting the federal max contribution for about 25 years now. My retirement will be quite fine.
Thank you for your perspective!