I just opened a Roth IRA, and am ready to invest in the stock market

spaggyroe

Man Flu Survivor
Location
Lehi
Me too. In fact, I wish I could just opt out of Social Security all together. I'm pretty sure I could do much better investing that money myself that letting the government blow it.

George W Bush had a proposal on the table to allow people to opt out of SS, but it (obviously) didn't get any traction, which is unfortunate.


I'd like to see if I can roll my company 401k into an IRA and have more options for investing. I'm still working on that one.

I believe this is called an "in service distribution". Some companies allow it, but most don't. In most cases you can't roll a 401K while still employed at that company. It's worth checking into though.
 

BlackSheep

baaaaaaaaaad to the bone
Supporting Member
When I started (1997) with the Corporate America job I have now they asked me IF I want to contribute to my 401k. I thought that was a rather ridiculous way to ask the question. I would have asked HOW MUCH do you want to contribute. Totally agree with the sentiments of making sure you contribute enough to get the company match. However, since I was 32 at the time and late getting into the retirement savings game, I opted to MAX out my contribution. I did that for 21 years and only last year did I drop to the minimum to get the match. Those 'additional' funds that are no longer being sent to my 401k are now going into an after-tax retirement account. That after-tax account is being managed by a financial guy that I trust.

The one thing I wished I would have recognized earlier is the balance of pre-tax and post-tax retirement accounts. I'm mostly invested in the 401k which will be taxed when I pull money. Advantages of having this mix is highlighted in previous posts.

I've just turned 54 a couple of weeks ago. In about 11.5 months I'll be 55 and retired from Corporate America. I have a small pension that will probably pay my expenses until 62 so I should be able to put off any big withdrawals from my 401k until then. If the pension doesn't cover my costs, I can draw from my 401k to supplement. I won't be rich by any means, but I'm working on downsizing everything to minimize my expenses. I will be rich in time, far more valuable to me than material possessions.

There is a clause in the tax code (72t) that allows me to pull from my 401k at 55 without penalty. The caveat is I must retire from the company that sponsors my 401k. Think about that if you're considering 'early' retirement.
 

gijohn40

too poor to wheel... :(
Location
Layton, Utah
my company 401k allows me to contribute both pre and post tax. I split it up so that my tax burden will be smaller. I also have an army retirement coming in 4 yrs when I turn 60. I will probably have to work until I die! seeing I just bought my first house 2 years ago and I am 55 yrs old now.
 

RockChucker

Well-Known Member
Location
Highland
Get a railroad job! We don't pay into social security at all. ;)
That is super awesome. Jealous.

I believe this is called an "in service distribution". Some companies allow it, but most don't. In most cases you can't roll a 401K while still employed at that company. It's worth checking into though.
Yep. I'm still trying to figure out if it is an option for my 401k, since this won't be due to "hardship." My 401k is kind of in limbo for the next few months until January when it transitions from IMFlash to Micron. Pain in the butt.
 

Cody

Random Quote Generator
Supporting Member
Location
East Stabbington
I'm calling my retirement 4beer01k. I'm approaching 7 figures in my account...


... Owed to others. Ha ha. That's how this is supposed to work, right?
 

spaggyroe

Man Flu Survivor
Location
Lehi
One thing that I think is often overlooked is the maximum amount that can be contributed to a 401k. Often times, people say that it's 19k (for 2019). This isn't totally accurate. You can currently contribute 56k total into a 401K.
* 19k maximum in tax deferred contributions
* + employer match
* + after tax contributions, up to the max of 56k total dollars.

You can contribute even more than this if you're 50 yrs old or older, due to the "catch up" provision.



For those pursuing early retirement, the 72t clause (also called an S.E.P.P.) mentioned by @BlackSheep is a good way to access your 401k before age 59-1/2, but make sure that you work with someone well versed in this because if not done properly, it'll trigger early withdrawal penalties. Also, once you flip the switch on a 72t, you can't turn it off until 59-1/2.

There's another option for early retirees, called a Roth conversion, where you can take money from your 401k and convert it to a Roth IRA. This is particularly good if you find yourself in a position where you don't have taxable income (yet) in early retirement, . A roth conversion is a taxable event (the IRS considers it as income), but if you have no taxable income for the year, and roll $24,400 (the 2019 standard deduction for married couples) then you won't pay any taxes on that money. (This would drop to $12,200 if youi're single) You have to wait 5 years to use that money, but this is one way to have completely tax free money in retirement. Some people repeat this process every year, staging the money for use in year 5, 6, 7, 8, etc. This technique is called a "roth conversion ladder" for those who want to look up more info.

TLDR...
Tax deferred contribution (to a 401K), rolled to a Roth (without paying taxes), for later withdrawal from the Roth (tax free).
 

TurboMinivan

Still plays with cars
Location
Lehi, UT
I realize you're not too interested in talking about a company 401k, but I like talking about this stuff, so....

I suppose I could elaborate a bit about this topic, too. ;)

after I first started it I was loosing money with the investments they automatically selected for me.

When I started my 401(k) 20 years ago, I made three mistakes (even though I didn't realize it at the time):

1) I only contributed 4% of my paycheck <which was the minimum required to max out the employer match>
2) I took a profile quiz, answered extremely conservatively, and thus let them select conservative investments for me
3) I put no thought into it after that, other than grumbling each year when I got my annual printout showing flat (or negative) growth

After five years, I got another lousy year-end report showing no growth. A co-worker seemed much happier about his results, and he let me see his report. He had double digit growth for the year! I asked him how on earth he pulled that off, and he explained that he would occasionally check on his account, and make periodic changes to his contributions and/or balances in an attempt to keep his money in more favorable accounts. That's when I decided to start doing the same. Since then, I've been doing much better; even through the big market crash of 2008 I managed to not lose as much as the market average. I've also increased my contributions (as mentioned earlier).

I did quite a bit of reading & research, (Anthony Robbins book Money, Master the Game) and sat down and studied all my options and what was best for my needs. Over a year later and I'm seeing a 14% ROI on my 401k

Way to improve your performance! Here's hoping you can continue making solid gains.

I was told early on in my career that in order to retire wealthy or doing fairly well you need one of two things. Time & Money. If you have a lot of money, you don't need as much time. If you don't have a lot of money, you need time to let your money work.

That is an awesome summary, Mike.


After all my reading and researching, I've decided to try a Dow Dividend strategy with the last bit of this year's Roth contribution.
 

BlackSheep

baaaaaaaaaad to the bone
Supporting Member
For those pursuing early retirement, the 72t clause (also called an S.E.P.P.) mentioned by @BlackSheep is a good way to access your 401k before age 59-1/2, but make sure that you work with someone well versed in this because if not done properly, it'll trigger early withdrawal penalties. Also, once you flip the switch on a 72t, you can't turn it off until 59-1/2.

Actually there are two elements to the 72t that specifically address penalty free withdrawals before age 59-1/2 (technically there are about a dozen bullet points under 72t). One of them is the SEPP (I think that means ?substantially? equal periodic payments) which is the one you're talking about. Once you start those distributions from your 401k you have to go for 5 years or 59-1/2 whichever is LATER. This is open to anyone regardless of at what age they decide to begin drawing, as long as they don't currently work for the company that sponsored the 401k from which they draw.

The other element is the one I mentioned - If you retire from the company that sponsors the 401k at 55 (by the company's definition of 'retire'), you can then access the 401k without restriction.

I will take your advice however and make sure I have a good tax person to make sure I don't get stuck with a penalty.
 

spaggyroe

Man Flu Survivor
Location
Lehi
The other element is the one I mentioned - If you retire from the company that sponsors the 401k at 55 (by the company's definition of 'retire'), you can then access the 401k without restriction.

Good info, I didn't know that!


EDIT:
I was curious about this and did some reading. I like to understand how the system works.
It looks like what you're referring to is called "the rule of 55" and allows people age 55 to 59-1/2 access to their 401k's, as you mentioned. The catch is, that it's limited to the 401K money that is at the company you're "retiring" from. Older 401k's from previous employers (if any) are not accessible via the "rule of 55". Again, good info and thanks for bringing it up. I had no knowledge of it.
 
Last edited:

ID Bronco

Registered User
Location
Idaho Falls, ID
A little off topic, but relevant to early retirement. I hope to pull this off someday.

An acquaintance of mine retired at 55 from a pretty "regular" job and I asked him how he did it. He said he used the "one rule" - One house, one wife.

Both of those can get expensive, so he stayed in a modest home he paid off at a relatively early age and never had the expenses of a divorce. Pretty solid plan.
 

N-Smooth

Smooth Gang Founding Member
Location
UT
He said he used the "one rule" - One house, one wife.

I was thinking about this the other day. I could realistically refinance to a 10 year loan and pay my home off when I'm 46 but I really don't want to live there forever. It's a trade-off I guess.
 

Jinx

when in doubt, upgrade!
Location
So Jordan, Utah
I was thinking about this the other day. I could realistically refinance to a 10 year loan and pay my home off when I'm 46 but I really don't want to live there forever. It's a trade-off I guess.

In that situation, two things you might consider.
1- Start saving for a down payment (5%-20%) on your "next" house and turn the current one into a rental. :) The down payment for a new house is usually the hard part without selling your current house. Generally having a rental becomes a situation we you gain some positive monthly cash flows and real estate tends to appreciate in value. (But being a land lord isn't always all that fun)

2- If you can refincance and pay off your current house in 10 years, consider doing the math and start making the 10 year mortgage payment each month without doing the refinance, Granted the interest rate will be slightly different but you will save the fees associated with the refinance and have the ability to make the regular lower payment if you run into a situation where you need emergency cash...
 
Last edited:

zmotorsports

Hardcore Gearhead
Vendor
Location
West Haven, UT
I was thinking about this the other day. I could realistically refinance to a 10 year loan and pay my home off when I'm 46 but I really don't want to live there forever. It's a trade-off I guess.

Like already mentioned above, you can start now with either refinancing or just changing your payment.

My wife and I turned our original 30 year mortgage into a 15-year mortgage by paying extra each month and had our first home paid off by the time we were 37-years old. It was a great feeling as we had planned staying there for the rest of our lives. Unfortunately we were forced out of our old neighborhood by the white trash moving in but I was still thankful to have our home free and clear when we were looking to upgrade. Not having a mortgage on our home made our choices on buying a new home much more plentiful and we were in no rush to sell the previous home so even though it was stressful, it was nowhere near as stressful as if it would have been with having to time the selling of one to buy another. The other caveat is to be sure to save for a down payment on the next home.

Our current home we took out a 15-year mortgage and are paying extra with intentions of having it paid off in about 8 or 9 years so we can retire.

I think my biggest downfall was thinking we would be in our first home forever because I had no intentions of moving until about three years prior as the neighborhood went south in a hurry.

Mike
 

N-Smooth

Smooth Gang Founding Member
Location
UT
In that situation, two things you might consider.
1- Start saving for a down payment (5%-20%) on your "next" house and turn the current one into a rental. :) The down payment for a new house is usually the hard part without selling your current house. Generally having a rental becomes a situation we you gain some positive monthly cash flows and real estate tends to appreciate in value. (But being a land lord isn't always all that fun)

2- If you can refincance and pay off your current house in 10 years, consider doing the math and start making the 10 year mortgage payment each month without doing the refinance, Granted the interest will be slightly different but you will save the fees associated with the refinance and have the ability to make the regular lower payment if you run into a situation where you need emergency cash...

we have some money put aside already and have a bunch of equity in our home (~$150k+) so that helps. The main concerns I have are the direction our neighborhood appears to be heading- like Mike mentioned, the size of the house not being conducive to our kids hanging out there when they’re teens (7 years or so) and obviously the size of the garage. I think I’d rather move and get into a house we can spend the next couple decades in.
 
Last edited:

ID Bronco

Registered User
Location
Idaho Falls, ID
In that situation, two things you might consider.
1- Start saving for a down payment (5%-20%) on your "next" house and turn the current one into a rental. :) The down payment for a new house is usually the hard part without selling your current house. Generally having a rental becomes a situation we you gain some positive monthly cash flows and real estate tends to appreciate in value. (But being a land lord isn't always all that fun)

2- If you can refincance and pay off your current house in 10 years, consider doing the math and start making the 10 year mortgage payment each month without doing the refinance, Granted the interest will be slightly different but you will save the fees associated with the refinance and have the ability to make the regular lower payment if you run into a situation where you need emergency cash...

I was thinking about this the other day. I could realistically refinance to a 10 year loan and pay my home off when I'm 46 but I really don't want to live there forever. It's a trade-off I guess.

(I cannot do multiple quotes I guess)

I'm in a similar boat, I'd like to stay where I am forever, but changes around me and my wife won't let that happen, but having a house paid off brings emotional benefits and then you can start saving like never before. It also let's me see a way to upgrade vehicles, look at a cabin or the like and other things a mortgage prevents me from doing. Oh, and helping my kids through college if they go that route. I will likely do what zmotorsports did at some point, but having all the equity of the whole house and having saved up more money because there isn't a mortgage payment will allow us to have the place we will want then. I also think we will want to go a little smaller once the kids are gone. More land/shop, less house. Now I only have to convince my wife of that.

Thanks for the conversation on investing/saving. It may get me to make some tweaks but it helps me know I'm on the right track.
 

Greg

Make RME Rockcrawling Again!
Admin
I have been watching my returns in my Vanguard 401k and over the last 3 months, each month I lowered the amounts I've had in the slower performing investments and moved those percentages into the higher performing ones. Out of the 13 investments I have, (80% stocks, 20% bonds) 60% of my money is in 3 different, high performing investments. My return at the end of the year ended up at 22.5%! :eek: I'm excited to see where it goes from here.
 

Greg

Make RME Rockcrawling Again!
Admin
Besides retirement investing, I did open up a Robin Hood account in order to try out some short term investing and play around with the stock market. Robin Hood is pretty neat, it seems to be a simple way to invest without too much experience. I started with $100 and have put it into 2 different companies, both in the Energy/Drilling sector. We will see how this goes!
 
Top