Tax brackets increase with inflation.Yes, I am concerned about the 401k balance increasing "too much". It will be 100% bonds soon, with an average 4% compound return (per Vanguard) will be about 1 million in 10 years, if I am calculating it correctly.For your projected expenses, and portfolio size, you can retire whenever your choose.I am planning to retire early sometime in early 2026 when I turn 56, possibly earlier at 55.
Emergency funds: 12 months (indicate if you have this, but it is generally not part of your asset allocation)
Debt: No debt, Mortgage is 3% but will be paid off before retirement.
Tax Filing Status: Single, no children/heirs
Tax Rate: 24% Federal, 9.3% State
State of Residence: CA
Age: 53
Desired Asset allocation: 70% stocks / 30% bonds, Currently 75% stocks/24% bonds/1% short term reserves
Desired International allocation: 15% of stocks
Please provide an approximate size of your total portfolio- 2 million.
Show us your current portfolio including all investment and retirement accounts (yourself and spouse or civil partner, if applicable) as it's important to look at the portfolio as a unified whole rather than look at accounts in isolation. Also include the available funds in your employer provided retirement plans.
Show each fund or holding as a percentage of the entire portfolio, not as a percentage of the account that holding is in. If this instruction is not clear, see the example under the Key Points section below. For example:
Current retirement assets
Taxable
1% cash (for investing – do not include emergency funds)
14% Vanguard 500 Index VFIAX ER .04%
24% Vanguard Large Cap Index VLCAX ER .05%
8.5% Vanguard Total Stock Index VTSAX ER .04%
13% Vanguard FTSE All World EX US VFWAX ER .06%
.5% Vanguard Total International Index VTIAX ER .11%
401k
24% Vanguard Institutional Total Index Bond fund ER .019%
9% Vanguard Institutional Total Index Stock fund ER .0104%
Company match? Yes, a measly 1.1%
Roth IRA at Vanguard
2% Vanguard Extended Market VEXAX ER .06%
3.5% Vanguard Midcap VIMAX ER .05%
.5% Vanguard Total World Stock Index VTWAX ER .1%
_______________________________________________________________
Note: Total percentage of all the above accounts together (not each account individually) should equal 100%.
Contributions
New annual Contributions
$38k 401k (also specify any employer matching contributions)
$8.5k Roth IRA
Unknown taxable (for retirement, not short term goals)
Rental Income 40k year. Plan to pay $500 additional principal/month and $500 to new Vanguard Cash Plus account. After 18 months, plan to use money saved in Cash Plus account to pay off remainder.
I currently work part time for health benefits.
In retirement, one rental unit should cover property tax, insurance, maintenance for property. I have enough credits for SS, with some low earning years as a young adult.
There will be a time in the future when I'll stop being a landlord and rental income will stop.
Personal spending is fairly low but plan to travel more in retirement- 24k not including travel, health insurance or taxes. I expect travel, health insurance and taxes to double base spending to 48-60k?
Questions:
1. Accessing 401K via Rule of 55 to rothIRA. Current balance is about 725k and holds all my bonds. How do I determine how much to keep (for the future) and how much to rothIRA? Is there some sort of guideline or formula? I understand Federal tax brackets may increase in 2026 from 24% to 28%.
2. Since I'll be reducing the total amount in 401k, I'll need to include muni funds or other to maintain desired Bond AA. California tax free Munis or other? I do have some Ibonds that I didn't include (about 100k)
3. Managing ACA costs with accessing 401k to rothIRA. I'll be buying healthcare insurance- totally new territory for me. Trying to figure out if its better to convert a larger amount one year and none/little the other to take advantage of any ACA credits.
All your questions seem to be around accessing your 401k dollars in early retirement.
Why do you want to do this?
You have around 60% of your portfolio in taxable account. You can easily live on that during early retirement.
At your expense level, and drawing from taxable account, you will likely qualify for ACA tax credits to pay for health insurance.
Doing Roth conversions will only interfere with doing that in a tax-efficient manner.
Once you turn 65, and are on Medicare, it might make sense to consider doing Roth conversions.
Good luck to you.
I thought early retirement is a good time to consider rothIRA conversions. Before 65 to avoid Medicare IRMAA brackets? I believe SS, pension, rental income and distributions from 401k will push me into IRMAA territory.
I will have a pension or lump sum after 65. There are various options if taking monthly pension but looks like about 2.5k/month average (some more, some less).
So, that 4% return from bonds is only about 1.5% relative to brackets increasing.
What tax bracket do you expect to be in when you start drawing from your IRAs?
If you are in the 22% bracket now, Roth converting, depending on how much you convert, will put your marginal tax rate close to 40%.
You would need to run numbers with your specific situation, but it rarely makes sense to do much Roth conversions while trying to get ACA tax credits.
Statistics: Posted by marcopolo — Tue Dec 12, 2023 11:02 pm — Replies 5 — Views 774