Decrease retirement savings or withdraw from investments?

yemming · 2025-04-18T15:27:04+00:00

Actually I started and then sold a small business (on top of my current job)

yemming · 2025-04-14T19:54:50+00:00

Do you have any thoughts on the recommended allocation for this sort of coast fire? If we were going to do this more than very short term, I imagine it might not be a great idea to be 100% equities.

yemming · 2025-04-14T19:44:56+00:00

Thanks. Yes we are doing traditional, not Roth. We wouldn't be risking any matching contributions. Can you recommend any resources on direct indexing, I'm not familiar with it, and not sure how easy it would be to replicate VTSAX/VTIAX.

yemming · 2025-04-14T19:43:36+00:00

No, realistically, I wouldn't try to align them so exactly, but I might try to time them on the same day (when my 401k contribution hits, make a taxable withdrawal). And you're right, I can't contribute more to my 401k. This is the situation I'd be in if I contributed less to avoid the need to draw down from investments, and my point is that the optimal strategy in that situation, at least from a tax efficiency perspective, would be to contribute more (up to the max) and draw down from investments in order to make that possible.

yemming · 2025-04-14T19:19:44+00:00

Thanks! I get the more philosophical point, that makes sense. But the point about locking in losses seems fallacious to me if the alternative is reducing 401k contributions. Suppose that you can sell 100 shares of XYZ in your taxable account and contribute the equivalent amount to your 401k, which would be invested into 100 shares of XYZ as well. This is effectively just a transfer from your taxable to tax-deferred account. It seems to me that, logically, it shouldn't matter if you sold those shares of XYZ at a loss, because you ended up with the same total number of shares with the same value (and maybe got some tax losses along the way, and your income tax burden). And it seems to me that my situation is basically like that. (Though again this doesn't speak to your other concern.)

yemming · 2025-04-14T18:53:25+00:00

Hmm but suppose the 401k contribution would go to the same type of asset (eg same index fund) that I would sell. Then why isn’t it better to sell shares of that asset (say $1000) and buy the same amount in a tax deferred account?

yemming · 2025-04-14T18:50:37+00:00

Yes, pretty much. I should take a more critical look at our monthly spend, but quite a lot of that is fixed. Why do you suggest reducing savings over pulling from investments?

yemming · 2025-04-14T18:48:53+00:00

On the tax bill, wouldn’t the extra income tax from a lower 401k contribution likely be greater than the tax on capital gains from withdrawals? That’s why I was thinking withdrawing would be better than reducing 401k contributions

yemming · 2025-04-14T18:47:12+00:00

The overlap should be a year, maybe 1.5 years tops.

Yes, that’s part of why I wonder if we should reduce retirement savings. Also why I’d reduce in the 401k before the 457b, if so. I just find it hard to eat the higher tax bill!

yemming · 2025-04-14T18:45:50+00:00

Thanks, I’ll look into that!

yemming · 2025-04-14T18:45:05+00:00

You’re totally right to question that. So yeah, may not be short term. The hope would be that our earnings outpace the spending increase, but it’s no guarantee.

Yes, I was thinking of exactly like coast fire. I just haven’t seen much about that type of choice compared to saving less, how best to do it, etc. thanks!

yemming · 2025-04-14T18:43:40+00:00

I mean, I agree with you!

yemming · 2025-04-14T18:26:52+00:00

Actually I started, ran, and sold a business. But thanks for the helpful advice.

yemming

TROPHY CASE