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Early Retirement / FIRE planning with expected inheritance
« on: July 15, 2020, 02:35:27 PM »
I know that GCC doesn't talk much about inheritances because he is not going to receive one, but I am trying to make sure that wife and I are planning for early retirement properly knowing that I will likely receive one within the next 15-25ish years. I believe based on the types of accounts to be inherited and recent SECURE Act changes, it could change our retirement savings plans now.
I'm 39, wife is 36, no children (and no plans to). We are planning to retire early in 7yrs when I turn 46, but it's likely that we'll both have some light contract work for a few years after this since we both love what we do (just not 55+hrs a week!). We are half way to our retirement savings goal at this point but have recently ramped up our savings rate significantly to finish out in 7yrs.
Breakdown:
Thanks to a generous 1:1 401k match and the ability to do mega-backdoor contributions, I will obviously continue maxing out all 401k possibilities until retirement, but we have plans to significantly increase taxable accounts so that we can use that (plus some light contract work) to bridge the gap to me turning 59.5. I have almost always contributed to a Roth 401k to keep Traditional/Roth in somewhat of a 50/50 split due to 1:1 match, but we have been considering switching contributions to traditional due to 22% marginal rate (even though we've been at that or higher over the past 8yrs) and so that we can put more into taxable. If we do this, we'll still increase Roth funds with backdoor Roth IRA's and mega-backdoor Roth 401k though.
Obviously no bets on anything in the future, but from inheritance I'd expect to receive (in today's $ equivalent of our current balances):
Wife and I are currently planning our retirement savings as if there is no Social Security and no inheritance, but it seems like ignoring the likely inheritance means we could cause some potentially bad tax situations where we could not do free/low tax Roth conversions of traditional accounts as GCC constantly reminds we should do in early retirement.
A lot of this really seems to depend on timing of when my parents pass away. Unfortunately my mother has a rare aggressive cancer and likely has around 6mo, and my father is 75. At some point we have to face reality. If my father lives another 15 years to 90, that leaves 8 years from our retirement to inheriting investments that could heavily increase our taxable income (ex: Trad IRA RMDs, dividends/gains on taxable acct). I don't know that I would have enough time to do Roth conversion ladders of most of our traditional acct $ by the time any inheritance comes our way, so it makes me wonder about contributing much more to traditional accounts with a plan to convert to Roth for free.
Thoughts/Suggestions on how to approach this? Thank you!
I'm 39, wife is 36, no children (and no plans to). We are planning to retire early in 7yrs when I turn 46, but it's likely that we'll both have some light contract work for a few years after this since we both love what we do (just not 55+hrs a week!). We are half way to our retirement savings goal at this point but have recently ramped up our savings rate significantly to finish out in 7yrs.
Breakdown:
- Roth 401k/IRA - 47%
- Trad 401k/IRA - 48%
- Taxable - 5%
Thanks to a generous 1:1 401k match and the ability to do mega-backdoor contributions, I will obviously continue maxing out all 401k possibilities until retirement, but we have plans to significantly increase taxable accounts so that we can use that (plus some light contract work) to bridge the gap to me turning 59.5. I have almost always contributed to a Roth 401k to keep Traditional/Roth in somewhat of a 50/50 split due to 1:1 match, but we have been considering switching contributions to traditional due to 22% marginal rate (even though we've been at that or higher over the past 8yrs) and so that we can put more into taxable. If we do this, we'll still increase Roth funds with backdoor Roth IRA's and mega-backdoor Roth 401k though.
Obviously no bets on anything in the future, but from inheritance I'd expect to receive (in today's $ equivalent of our current balances):
- Roth IRA - ~100% of our current Roth balance. Inherited Roth IRA now has 10yr RMD thanks to SECURE Act, but no tax so will withdraw at end of year 10.
- Trad IRA - ~75% of our current Trad balance (though most variable since parents have RMDs from it now). Inherited Trad IRA also has 10yr overall RMD thanks to SECURE Act, and it seems most reasonable to withdraw evenly each year if that lowers marginal rate.
- Taxable - ~2000% of our current taxable balance.
Wife and I are currently planning our retirement savings as if there is no Social Security and no inheritance, but it seems like ignoring the likely inheritance means we could cause some potentially bad tax situations where we could not do free/low tax Roth conversions of traditional accounts as GCC constantly reminds we should do in early retirement.
A lot of this really seems to depend on timing of when my parents pass away. Unfortunately my mother has a rare aggressive cancer and likely has around 6mo, and my father is 75. At some point we have to face reality. If my father lives another 15 years to 90, that leaves 8 years from our retirement to inheriting investments that could heavily increase our taxable income (ex: Trad IRA RMDs, dividends/gains on taxable acct). I don't know that I would have enough time to do Roth conversion ladders of most of our traditional acct $ by the time any inheritance comes our way, so it makes me wonder about contributing much more to traditional accounts with a plan to convert to Roth for free.
Thoughts/Suggestions on how to approach this? Thank you!