You can start to feel Old Man Winter’s breathe in our neck of the woods. Today I busted out my favorite goose-down coat as I headed out the door this morning. I reached into one of its pockets and discovered an unclaimed $20 bill. Gosh, I love it when that happens.
I had that same feeling earlier this last weekend when I was catching up on my favorite blogs. I learned of a new resolution to our issue of having too much money tied up in retirement accounts that, in theory, couldn’t be touched without penalty until age 59.5.
Quick History & Timeline
1998 to 2012 – Mrs. Buck and I work our careers maxing out all kinds of tax-advantaged retirement accounts including employer 401k’s, Traditional IRAs, Roth IRAs, and SEP (self-employed) IRAs.
2010 – 2013 – Every year around tax time, Mrs. Buck insists we’ve saved too much in retirement accounts that we can’t touch until age 59.5 and that we should pare back on certain contributions. I only half-hear her suggestions because I feel we need multiple millions before we can retire and take no action.
April 2013 – I start this blog for accountability reasons after being convinced that by being more careful in our spending that we could conceivably move our retirement date up by years from age 50 to our early 40’s.
August 30, 2013 – Brad from RichmondSavers.com challenges my Wealth Manifesto in the comments of that post that gets me thinking. To spare you from clicking over, the conversation went something like this:
Brad: I struggle with popular advice to always max out retirement accounts. Early retirees like us will need the money to invest in other ways before age 59.5.
Me: You are right. I regret having over 85% of our savings for retirement tied-up in accounts that cannot be touched for 20+ years.
Brad: I just learned about a neat little trick related to Roth IRA conversions that may solve our issue of over-saving in retirement accounts but it almost sounds too good to be true. I still need to do more research. What is your strategy?
Me: Umm, I really don’t have a strategy. We’ve quit contributing to those retirement accounts entirely and look to build up our regular taxable accounts from this point forward. Once we have enough saved in taxable accounts to ‘float’ us from our current age to 60, we’ll retire.
October 10, 2013 – I listen to the Mad Fientist podcast that formally introduces me to Roth IRA Conversion Ladder discussion and I’m pumped. The light-bulb goes on. “This is what Brad was referring to!”. At this point I’m thinking that overstocking all that money in retirement accounts may not have been such a bad idea after all but I need more details.
October 26, 2013 – I see on Twitter that one of my favorite travel blogs has published a new post. Jeremy over at Go Curry Cracker usually tells intriguing stories of their travels through Central America but this latest post is about taxes and how to never pay them again. Along with a mention of Roth IRA Conversion Ladders, he has other tips to lessen (or eliminate) the bite of taxes.
More to Think About
While I’m still far from an expert on these Roth IRA Conversion Ladders, I’m convinced this is an approach we’ll use once we’re in a lower tax bracket. I also think this reduces our need to save for 20 years of ‘float’ time and may be able to whittle that down to 5 years of float by operating within the rules of Roth IRA Conversions.
Frankly, there is rarely new information out in the personal finance blogosphere (this site included). But I get jazzed when really smart people share their knowledge with the rest of us on what I consider ground-breaking strategies in the early retirement realm. For that, I say thank you to Brad, Brandon, and Jeremy.
Maybe this is all common knowledge and I’ve missed out on it all this time. Either way, it feels like I just found another extra $20 bill in my pocket.