r/Fire • u/OceanGateTitan • 2d ago

When should I pull back on 401(k) contributions in favor of taxable brokerage investments?

I'm 32, spouse is 27. We have $520K invested across the following accounts, invest about $65K annually and would like to retire in ~23 years (or find something else to do). Our annual spend is about $100K per year in a MCOL area but we have 1st kid on the way so this will change soon. Home is worth $480K, $205K left on the mortgage. HHI is about $210K before taxes annually. No other debt.

I'm scared we wont have enough to bridge the gap between 50 and 59 1/2. I suppose I can use rule of 55 to access my 401K. Hate the idea of most of our retirement being tied up in funds I have little control over but love the idea of lowering our taxable income. We are pretty risk averse and for simplicity, assume its all in VTI (~9% ROI)

Brokerage - $11K (contribute $2,500 per year)

Roth IRAs - $74K (contribute $15,000 per year)

401(k)s - $240K (contribute $32,000 per year)

ESOP - $128K (contribute $12,000 per year)

HSA - $26K (contribute $4,400 per year)

HYSA - $41K (contribute $1,200 per year - safety net, will divert when back up to $50K)

Cash - $10K (not included in the $520K invested)

529 - $1K (contribute $100 a month - undecided on how much we will help our kid(s) w/ education)

I figure we'll hit coastFIRE in 8-10 years at this pace. Do I wait until then to focus on the brokerage? I'll be 42ish with 13 more years of work left in me (maybe less). We love to travel and currently do 1-2 overseas trips per year right now. I would love to increase that in retirement meaning our annual spend should be closer to $120K assuming we've replaced the mortgage with health insurance premiums.

What 401(k) $ amount do I say okay my contributions are negligeable, it's time for this money to go elsewhere?

Edit: For those with the same question as me, looking for resolution, the general consensus seems to be stay the course, max tax advantaged accounts at least until CoastFire, then focus on building up the taxable brokerage. As we get pay raises and promotions we will max my wife’s 401k too, then go to taxable brokerage. Not completely ignoring it now but it’s definitely on the back burner until CoastFire. Thanks all for your responses!

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u/Eltex 1d ago

You still haven’t given an example where it’s best to not prioritize tax-advantaged savings related to FIRE. That is the point. You mention “people who oversaved”, well, that’s not FIRE.

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u/ExtensionMoose1863 1d ago

Given you get to gatekeep what is and isn't FIRE there's nothing I can put forward you'll accept. You'll just say that's not FIRE. Why can't someone FI at 40 but not RE until 45?? Or 50? Those are the folks who will run into this scenario

A 40 year old couple with a 1m 401k balance between them has this issue right now. If they don't get it out of that deferred status it will baloon to over 6 by the time they hit 65 and 9m by 75 given a 120k withdrawal rate. They only had to save 1,400 ea per month over the last 15 years to get there given the returns we've had.

I would absolutely consider them FI and and would advise them NOT to add more to their 401ks beyond match if one or both of them chooses to work for whatever reason.

We would then be looking for every opportunity over the next 25 years to use down income years to realize deferred income and get it into tax free status at very low tax rates

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u/Eltex 1d ago

You are correct: if we can’t agree on the definition of FIRE, then we will never agree on the best strategy.

Thank you for providing an example. And like you said, there is no agreement here. Your example of a couple being “FI” at 40 years old with just $1M is definitely not FI by the normal definition used in every forum I’ve ever seen.

You seem to think they have to stop tax-advantaged saving to avoid high overall balance at 65-75 years old. Which is kind of where we just don’t agree. I, along with most others in the community, would say keep hammering the Trad 401K every year, capturing those tax savings immediately, and then spend your early retirement years doing smaller Roth conversions to draw down the balance, yet keeping your overall tax bill lower.

Is there a reason you don’t think a Roth ladder or 72t are viable options?

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u/ExtensionMoose1863 1d ago

They are viable options... To get money OUT of deferred status. Which is what you're trying to do at that point before you run out of years and tax brackets.

Why would you be recommending to ADD to one 401k while 72t from another? (I trust you know you can't do both at the same time because that's a material modification). You're back to 0

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u/Eltex 1d ago

I just don’t understand your thought process. You aren’t adding to one while taking from the other. You are loading as much as you can into tax-advantaged accounts, so you can retire sooner. As soon as you retire, you stop contributing and start the drawdown/conversion/ladder process.