Friday Roundup 028R

028R | The Friday Roundup

In today's Friday Roundup we discuss tax-deferred accounts, the Roth IRA conversion ladder, frugal wins of the week, an ‘expert answer' from the Millionaire Educator as well as the Hot Seat with community member Chad!

In Today’s Podcast we cover:

  • The Friday Roundup after Episode 28 where we discussed the order of operations for savings as well as the available ‘buckets’
  • Brad’s discussion of his new health targets: CrossFit and Gracie Jiu-Jitsu and how he saves money through a Gracie Garage
  • Our preference is to fill your tax-deferred buckets as much as possible
  • Message from Amy on the Facebook group on maxing out Roth IRAs
  • How the FI community thinks differently in regard to Roth IRAs and investing in general
  • Explaining the Roth IRA conversion ladder
  • Voicemail from Stephen about the Roth IRA conversion ladder and how the calculation changes when you are making income in FI
  • The essence is living a frugal lifestyle and everything else takes care of itself
  • Brad’s explanation of how to mentally approach having income in FI and even having a higher income than you anticipated
  • Frugal wins of the week: Call from Eric from our Facebook group about how he saved big on his Chicago apartment
  • The love for the InstantPot from the ChooseFI community
  • Anne Marie raised the deductible on her insurance and saved money on her premiums; Brad saved on car insurance with Geico
  • Congrats to Eli on his new baby and the newest 529 account!
  • Question from Scott about 457s and pensions to help with early retirement and the expert answer from the Millionaire Educator
  • Voicemail from SaraEllen about how to save as a solo entrepreneur in the legal profession and by extension to other professionals as well
  • How you can save on office space by using a coworking space
  • The Hot Seat with ChooseFI community member Chad
  • How people in the FI community can consider giving back
  • Favorite life hack: Using Swagbucks
  • The danger of cosigning on someone else’s loan
  • If Jonathan loans someone money he mentally writes it off as never being paid back and that’s how he approaches the decision to loan money
  • Voicemail from Eron from San Diego on financial advisors and the potential benefits
  • A fee only financial advisor would be the best option for most people (especially in the FI community)
  • Itunes reviews of the week from Conor and Mrs. FI with a Twist

Links from the show:

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2 thoughts on “028R | The Friday Roundup”

  1. Gents,

    I would like to gently push back on the laser-like focus you place on contributing to tax deferred accounts (i.e. 401K, Traditional IRA) vice your Roth options (i.e. Roth IRA, Roth 401K, Roth TSP). Or even the emphasis you place on contributing to your taxable investment accounts before the Roth option. I get that the majority of the FI community is (probably) going to earn less in retirement than their working years; and for them it certainly makes the most sense to max out their tax deferred options first, and convert to a Roth after retirement. However, the “max the tax deferred option” it is not the one size fits all solution that I believe you both made it out to be on episodes 28 and 28R of the pod cast.

    There is small subset within the FI community like myself that will earn a pension because we are working (often crummy) government jobs (local, state and federal); one of the ever decreasing number of blue collar union jobs; some of the last corporate jobs that offer a pension; or within large bureaucratic international organizations like the UN. Some of us will have a “floor” of retirement income the day we stop working. That floor in conjunction with a lack of tax deductions (assuming that mortgage is paid off and the kids are already out of the house) may put us in a position in early retirement where Roth makes more sense.

    Take my case for instance. I am planning to retire from the military in the next three to four years. Other than some possible side gigs, I am not planning to work anything like a real job. I will get approximately $55 – $60K a year (in today’s dollars) from my military pension. I will need to withdraw approximately $20K more a year from our taxable investments (or Roth) to meet our planned living expenses. That will not leave me a lot of room to convert from the traditional IRA accounts to the Roth, will it? In my non-accountant mind, that is getting toward the top end of the 15% bracket. Now early on in my early retirement we could probably swing some amount of Traditional to Roth IRA conversion, and not break the 15% bracket. However, later in life once we can’t deduct the kids, Social Security and Required Minimum distributions kick in, conversions would be a no-go. Thus if a pensioner were to blindly max out their 401K and traditional IRA, it would lock up a lot of money in an account with a required withdrawal schedule that is a taxable event, right?

    Some other thoughts that make me lean towards the Roth is the availability of your principal for withdrawal 5 years after depositing it, without the 10% penalty, and of course no tax liability. If you have access to a Roth 401K or something like the Roth TSP, it seems to me like a far more flexible option for us FI minded early retirees with pensions. You could certainly manage to amass enough in an account like a Roth 401K or Roth TSP to bridge the gap between your pension “floor” and your living expenses. Essentially you would be drawing down the Roth over the years until Social Security kicks in. Finally, and I believe you mentioned it in one of the two pod casts, Roth IRA is far more friendly for estate planning purposes.

    Finally, it is worth noting that if you are in the military, there is one sure fire life hack that the Roth TSP affords. Should one happen to deploy to a combat zone, which are tax free by definition, then any money you contribute to a Roth account is tax free going in and coming out. For base pay salary, you can only contribute up to the $18K limit. However, any special pay you receive such as Hazardous Duty Pay, Jump Pay, Dive Pay, etc. can continue to go into your Roth TSP, even if it exceeds the $18K limit. Unfortunately, I did not embark upon my financial educational journey prior to any of my previous deployments to the Middle East, so I never made use of this life hack. However you can damn well bet if I deploy again, I am going to max out that benefit.

    Ok, I think that is enough said in defense of the Roth option for those of us with pensions coming our way in retirement. Please lend your scrutinizing eye to my ideas regarding the Roth, and let me know. They seem logical to me but they may not be correct. It’s important I get these ideas correct in my head because they not only affect my retirement plan, but will affect how I broach this subject on my blog.

    That’s right, since we last interacted via email I started an FI blog dedicated to those of us working jobs with pensions. I would love to say it was you two who gave me the inspiration that got me off my butt; but it had more to do with a friend who needed my financial advice. I did give your show a shout out in my post about my five favorite pod casts though. It was a well deserved shout out. Where can you find it? Why of course. I am feverishly working to get more content on the site as fast as possible, but I got my basics on there already. I would love to know what you think.

    In any case, continue the great work. I love the variety of opinion on your show, and your openness to exploring ideas and considering the pros and cons.


    Grumpus Maximus

    P.S. — How did those retirement calculators work out?

  2. Grumpus Maximus,

    Really appreciate your feedback on this episode, despite my seeing it now nearly seven months later. I too am in the military and have recently discovered the FI/RE movement via this podcast and am aware of several other blogs and podcasts that are mentioned here and in other places. I also just listened to episode 57 of this podcast and heard your thoughts and story on the Golden Albatross – I can totally relate. Thank you! I will definitely check out your blog.

    For Brad and Jonathan, I’d be curious to learn of your opinions/perspectives on what Grumpus has presented here. I imagine many of your military listeners may be interested as well.

    Keep up the great work guys!


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