Dayspring Financial Ministry
CPA , Financial Counselor, CRPC, AWMA
Born and raised in Virginia, John passed the CPA exam before graduating from Virginia Commonwealth University and beginning his career at a “Big-8” accounting firm in 1987.
After two years in public accounting, he accepted employment with a client and rose through the ranks in private industry. Desiring to work in a more diversified environment, John started his own accounting practice in 2000 and added personal financial coaching services in 2012.
John resides in Hanover County, Virginia with his wife and children. He is active in his church, enjoys finishing a good run or workout at the gym, and leads personal finance classes in the community.
BS, Accounting, Virginia Commonwealth University
The recommendations provided are educational in nature and not intended to be specific recommendations for any particular individual. The goal is to educate and inform readers of available options, with the ultimate decision being theirs. Please consult the appropriate tax, investment, insurance or financial planning expert before making any final decisions.
Congratulations on building such a nice net worth before turning 50 years old!
You don't mention your current asset allocation (how much in stocks vs. bonds), nor do we know when you'd like to retire. If we assume a traditional mid-60's retirement date, you're in great shape. You'd need about $3M in investments to generate $120,000 in retirement cash flow (the 4% rule). Assuming a typical asset allocation in equities, 15+ years should allow for your $2M to grow to $3M, although the large cash allocation will act as a drag on your overall returns.
Again, without more details, it's hard to recommend a specific asset allocation for your situation. A few investing fundamentals: Understand your risk tolerance, stay diversified, re-balance periodically, keep costs low and keep taxes low by properly locating your asset classes in the appropriate account (401k vs. your taxable account). You may want to contribute to a Roth IRA (if eligible) to further diversify your account types to create future tax planning opportunities.
Please feel free to contact me if you'd like to discuss your situation further. Thanks for your question.
Congratulations on being such a strong saver!
As a proponent of a debt-free life, I would focus on the elimination of the debt, as long as you were committed to limiting your spending to more quickly pay off the debt. Eliminating debt payments from your monthly budget will increase your cash flow that can be invested for long-term wealth building. I'm not sure of your income, but $15,000 in total debt should be eliminated rather quickly if you focus on it!
Should you decide to continue to invest while paying off the debt, how should you prioritize your options? If your employers profit sharing contribution is contingent on your participation in the 401k, I would make this my first saving option to maximize the "free" money added to your account. Next, the HSA has triple-tax-savings and you may not be eligible for it every year, so this would be my second choice (if you are, in fact, eligible to contribute to one). Lastly, I would fund the Roth IRA. But again, I'd recommend focusing on the debt elimination and then you could more easily do all three!
Thanks for your question!
Here's a comment from the SSA web site:
"Unexpected changes may occur after you make your decision about when to start your Social Security Retirement benefits.
If you are receiving Social Security Retirement benefits and you change your mind about when they should start, you may be able to withdraw your Social Security claim and re-apply at a future date.
However, if you change your mind 12 months or more after you became entitled to retirement benefits, you cannot withdraw your application."
Hope this helps!
Congratulations on your great financial shape!
To create your own 401k plan, you'd need to have self-employment income. It looks like you are an employee, so you wouldn't be able to create your own 401k.
I'd recommend that you consider investing in a taxable brokerage account. The preferencial tax rates given to long-term capital gains and qualified dividends make this a viable option. Also, you'd have access to your funds before the typical retirement age (although you may have capital gains if you sold an appreciated security). Make sure you keep asset LOCATION in mind (as well as asset ALLOCATION) if you open a taxable brokerage account. Position tax efficient assets (such as low-cost index funds) in your brokerage account. Your IRA's should hold investments such as REIT's, bonds, BDC's, etc. that generate ordinary income (if held in a brokerage account).
Keep up the good work!
Generally speaking, you will owe a 10% penalty on the withdrawal plus Federal income taxes (at your marginal tax rate) and perhaps state income taxes (it depends on your state of residence). You can avoid the 10% penalty if you are over 59.5 years old (or, for some plans, 55 or older when you separated from employment with the previous employer).
There are a few IRS-approved withdrawal reasons that avoid the penalty (but not the tax!): 1. Paying unpaid medical bills; 2. Disability; 3. Health insurance premiums if you're unemployed; 4. Death (probably doesn't apply to you!); 5. IRS collections; 6. First-time homebuyer (if the withdrawal is after the funds are in an IRA instead of the 401k); 7. Higher education expenses (if the withdrawal is after the funds are in an IRA instead of the 401k; and 8. "72t payments" every year (not just the one-time $4,000 withdrawal you mentioned). Here is some more info you may find helpful.
Some plans do assess a small fee for processing the distribution. Please check with your plan administrator to verify the amount, if any apply.
I hope this helps! Please follow up with me if you have any other questions.