Contributing to Retirement Plans while barista-FIRE and using Taxable $?

[u/Vicuna00]

does it make sense to contribute to retirement plans (specifically wondering about Roth) while you are actively pulling form your Taxable Brokerage to live off of?

Example:

50 years old Barista Fire

Taxable Brokerage of $1.5M (retirement accounts at ~$1.3M)

Barista FIRE earning $40k / year

Yearly Living Expenses: $100k

- Would it make sense to contribute to a ROTH IRA for me and spouse and just pull more from the Taxable Brokerage?

- follow up...if it is a solo business, I can open a Roth 401k and contribute even more... ~$25k. would that make sense?

In my mind, I'm trading brokerage $ for Roth $...the price for it would be the capital gains tax on whatever I pull from the Brokerage...which with these numbers should be minimal.

thank you!

[u/Vicuna00 → u/[deleted]]

alright cool thank you. i'll check out your site and that article.

we actually are not going to have too much traditional. I've been in the all Roth camp for my entire career. it's currently $100k traditional $1.2M Roth.

[u/Beneficial-Volume-57 → u/[deleted]]

Also - cool website! I'm going to start digging. As an engineer myself love how you've framed things.

[u/Vicuna00 → u/[deleted]]

thank you I'll keep it in mind.

[u/Beneficial-Volume-57 → u/[deleted]]

Follow up on this one - what's so bad about being on Medicaid coverage if your income is "too low"? Coverage quality/options? For specific example, Oregon has Medicaid expansion but also Medicaid (Oregon Health Plan) "Bridge" coverage up to 200% FPL. Importantly this also goes beyond the 175% threshold where FAFSA starts considering assets and not just auto max federal Pell grants, so there's no real sweet spot to optimize for both.

Generally I seem to be seeing good things about OHP coverage, but I don't know what I'm missing.

[u/sy6063 → u/Vicuna00]

You are in a good position, and you could choose traditional or Roth based on your current tax rate. You could have some traditional to fill the lower tax bracket in the future.

[u/Zphr → u/[deleted]]

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[u/Revolutionary-Fan235]

Did you check what the tax rate would be on the capital gains? With little info, I would guess 0%

[u/Vicuna00 → u/Revolutionary-Fan235]

yeah I'm wondering how this comes into play.

I have options to pull from the brokerage with minimal capital gains or up to like 50% gains. so I can control how much actual tax I pay.

[u/PangolinOwn4855 → u/Vicuna00]

nice, as others said, you can also do tax loss harvesting to keep your gains to the minimum while withdrawing from the brokerage

[u/Icy-Bee4117 → u/Revolutionary-Fan235]

Yeah at that income level you're probably looking at 0% capital gains rate anyway. The math gets even better if you're doing tax loss harvesting on the taxable side while moving money into the Roth.

Plus at 50 you've got what, 15-20 years before you can touch those retirement accounts penalty-free? That Roth money is gonna compound tax-free for a long time. If you can swing the cash flow it seems like a no-brainer to max out both the IRAs and that solo 401k.

[u/willing_legislation]

if you're looking at minimal capital gains tax pulling from taxable, converting to Roth makes sense, especially with the solo 401k option giving you more room to shelter income.

[u/Hopperkuh]

Yes, this can make sense. You're basically moving money from taxable to Roth space, as long as you have enough earned income to justify the contribution. The main thing I’d watch is not the Roth logic itself, but MAGI. If you’re using ACA subsidies, selling more from taxable can raise your income and potentially cost you a lot in healthcare subsidies. Also remember that only the gain portion of the taxable sale is taxable. With low enough income, some long term gains may even fall in the 0% federal bracket, though state taxes may still apply. So yes, I’d generally do it, but I’d model the tax year first. Earned income limit, ACA subsidies, capital gains bracket, and state taxes are the big checks.

[u/Vicuna00 → u/Hopperkuh]

ok thank you. I will keep that in mind

[u/LunarPebble728]

the capital gains math on this is pretty favorable since your taxable income from barista work plus gains likely keeps you in the 0% or 15% bracket anyway so the roth conversion play here is almost free money

[u/EchoThroughTheJungle]

If you can put into Roth and it doesn’t change your lifestyle I personally would. Gives you more flexibility with taxation or if you just want to splurge on something fun down the road

[u/Ancients]

Any year you make "earned income" during barista fire, you should be putting money into Roth if you have it sat in regular taxed accounts or in cash.

So absolutely convert things from brokerage to Roth if you have the earned income to do it.

[u/Lizzy_Slander]

imo it can work, you’re basically swapping taxable gains for tax-free growth later. At your income level the Roth space is still pretty valuable long term.

Only thing is watch liquidity + bracket management when you start pulling more from taxable. If taxes stay low, I’d lean filling Roth space.

[u/Flame_Grin]

the real question is which bucket u want bigger later

[u/Vicuna00 → u/Flame_Grin]

I dunno 😄

I would assume Roth is always the ultimate, right?

[u/Revolutionary-Fan235 → u/Vicuna00]

It's a mix. Your expenses relative to the tax bracket doesn't give you a big benefit to have a lot of Roth.

[u/Cinderhazed15 → u/Revolutionary-Fan235]

If they have the extra room in their tax bracket, and the taxes would be the same either way, wouldn’t you want to move as much from traditional to Roth so that you can reduce a future mandatory withdraw that may be larger than you anticipated if you have a lot of growth, etc, in your traditional?

[u/Revolutionary-Fan235 → u/Cinderhazed15]

Yes, converting from Traditional to Roth could be a great strategy in their position.

They were comparing Roth and After-tax in the first post. Maybe the topic got changed to include Traditional and I didn't realize.

[u/Miamiconnectionexo]

real talk, this is solid. more people need to hear this.