I’m assuming your wife is working for a large company
If you ever expect to be excluded from direct Roth contributions due to income, rolling into a Trad IRA prevents one from taking advantage of the very nice backdoor Roth option
+1 to this. I obsessively spent my late 30s/early 40s paying off the house and I don’t regret it.
A key factor in my early retirement was low expenses and having no rent or mortgage is the foundation of that.
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This sounds reasonable. Paying down a mortgage at 6%+ seems fine too.
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Yes, why?
I didn’t know that… But you could roll from a 401k to a Roth right?
I’m pretty sure it’s possible to roll a 401k to a Roth IRA but you would take a tax hit since you’re converting pre-tax contributions to post-tax.
Part of the point of the Roth is that it’s already been taxed so you don’t pay taxes on withdrawals.
There’s probably a bunch of factors in deciding which is the better approach, like your tax bracket now vs what you expect it to be in retirement. I never really understood all this so I just kept everything simple by rolling into a traditional IRA.
Right, I don’t know the timeline where it flips but I’m pretty sure on a long horizon the Roth is usually better since all the growth is tax-free.
But the traditional grows a higher principal since it’s pre-tax. Both growth and taxes are multiplicative so it doesn’t matter the order if the tax rates are equal. Roth has other advantages like no RMDs, penalty free withdrawal of contributions (not that you should except in an emergency). If you plan to die rich the lack of RMDs can be great for your heirs.
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Doesn’t this also make a lot of sense if you retire early?
I think it makes sense about what you project your income to be in retirement vs “now” with the kicker of guessing what tax rates are going to do.
Probably not much. Let’s say the avg contribution limit is $6k/year and you max it for 40 years, that’s $240k you can pull out before 60 without penalty. If that’s significant you shouldn’t be retiring before 60.
Edit: there are probably some loopholes to bump that up. I haven’t thought about it much. People are generally much more concerned with finding ways to keep their money tax sheltered than finding ways to pull it out.
Because the quality of one’s 401k is directly related to the size of the company.
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Well, let’s say you can live comfortably but not luxuriously off $60K post tax, which I think is possible most places if your house is paid off. So if you have $1.5-2M it’s pretty safe to retire a few years early and withdraw at a rate of 3-4% per year, and $240K gets you four years early without doing the equal withdrawal size method.
That makes sense now that I think about it. Never had to navigate this stuff before, so never put much thought in.
My startup changed 401k providers 3 times in 5 years. From shitty terms to somewhat less shitty.
Worked for one of the largest private companies and got vanguard with access to funds that were closed to the general public with tiny fees.
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