Quote:
Originally Posted by redpoint5
So 401k is more tax advantaged than IRA?
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Same Same but different
401K:
- No taxes on contributions / regular income tax paid on withdrawals
- Max contribution is $19,500 per year per person
- Can withdraw without penalty @55 from your last employer
- Can withdraw without penalty @59 1/2 from earlier employers
- Sheltered from lawsuits
IRA (Roth):
- Pay taxes on contributions / withdraw tax free
- Max contribution is $6,000 per year per person
- Can withdraw contributions penalty free after 5 years
- Can withdraw any amount penalty free at 59 1/2
- Can penalty free at any time using a SEPP.
- Not sheltered from lawsuits.
SEPP is Substantially Equal Partial Payments. You agree to draw down the IRA with equal month payment for a period of 5 years or until you are 59 1/2. You pay regular income tax but no penalty. However you are screwed and pay a penalty on the whole thing if you stop taking the payments.
I prefer to max the 401K first because I would rather have a tax break today than the promise of a tax break in the future. If you remain the the same tax bracket there is no difference between taxed paid on a traditional account vs a Roth.
Our early retirement plans are as follows:
- Retire!
- Move out of country and live on savings outside of retirement accounts
- Convert $50K a year from our Traditional IRAs to Roth IRAs. At current rates we would pay 5% taxes on that transfer.
- Year 6 we can withdraw the year 1 Roth conversion tax free.
- Repeat until year 10.
- That gets us to 55 where we can start drawing down 401Ks penalty free
Moving back to the states depends on the USA doing something to fix our healthcare system. We refuse to pay $20K a year out-of-pocket just for insurance premiums when we can get the same level of care for a small fraction of the price in other countries. There are a lot of nice places to live in the world.