While the money not used to pay taxes on Roth conversion could be invested in a tax-advantaged way (not sure what that would be but PLMK if you have suggestions because I need them!), that $100K --$898K IRA will all be taxed at ordinary income rates.
The first RMD at 75 will be approx 4% of the balance. Absenting charitable contributions or large offsetting medical deductions, the RMD will all be taxed. I don’t know what a realistic IRA balance is: $3 million for $120K? $5 million for $200K?
If the IRA balance is only $2 million, the $80K RMD places MFJ in the 12% marginal but the single filer in 22%.
Truly impossible to guess on all of this since we haven’t a clue what the brackets or rates will be, so I should really stop speculating.
I was traveling today and was shocked to see how much activity there was on this thread while I was busy. If someone came up with a definitive answer to all of life’s questions, y’all let me know!
This has been a very good and useful sub-thread, btw.
Thank you to those who know these rules for jumping in.
PS: no mega backdoor Roth option in our plan. Plan admin said it would make the non-discrimination tests harder to pass (assume she’s referring to the ERISA rules that place limits on the % of qualified plan assets that can be allocated for the benefit of highly comp’d employees). But she said she’d bring it up with HR as they periodically review these things.
Very informative thread. Thanks everyone. For most of my career I was in high tax states, earning at high brackets, so everything went into traditional. I now live in a low tax state with a good probability that we will retire in a high tax state to be near the kids, so I am glad that we had started to allocate some money to a Roth 401k (my company allows blending).
What is clear is if you are just starting out and are in a low bracket, put what you can in a Roth and shelter all of the long term gain you will likely accrue over the next 40+ years. The trickier point is when you start allocating back to traditional. I am currently gifting my kids so that they can invest in Roth accounts without squeezing their cash flow.
I had the very same questions - kept hearing “Roth! Roth!” But since spouse and I are at our highest income levels now and only have about 3-5 years to retirement - couldn’t see how it would make sense to convert to Roth and pay tax at our current, high rate.
From what I’ve been able to glean from various retirement podcasts, seems that we could gain some flexibility on reducing future dependence on 401k withdrawals by having a few years of post-tax money in CDs, HYS accounts, etc…
Yes, I have mentioned those other income streams a couple of times upthread, commenting that while the total SS payment will decrease, other income streams will be fairly constant.
Do you mean that the tricky part is deciding when to start allocating back to traditional for the recent grads? If so, I agree. TBD when we see where the tax brackets & rates fall as of end of next year.
I would like DH to set up some cash flow $ into our checking account after he retires and before he takes his SS. He does a great job with investing and simply transfers $ if needed. We don’t want an annuity and I don’t hit RMD for 2 more years. The issue is that if heaven forbid something were to happen to him, I wouldn’t know what to touch for cash flow as I am not investment savvy and I don’t want to mess with anything that would have a significant tax implication. I suggested he start by just having dividends sent to our checking account instead of being reinvested. Any suggestions?
We didn’t do any Roth conversions while working, but we’ve been converting in retirement. Our income is a lot lower than it was while working, and we convert an amount that gets us just below the top of our current tax bracket. We won’t have a majority in Roth by the time we stop converting, but it will be a considerable amount. For us, it makes sense.
I think the end result of the Roth discussion is ‘it depends’. We are all in different stages of life and what makes most sense for one person or couple might not for a different person.
Keeping up with changes to the rules are important because a slight modification can change your ideal result.
Vanguard, and I assume most/all brokerages, allow you to establish automatic sell & transfer. For example, let’s say your average expense spend is $5k/month, then H could sign up to sell $5k/ mo on say, the 1st of every month, and transfer that amount to your checking account. Fidelity and Schwab have an excellent Cash Management Account .
Or if the dividends you are getting are enough, maybe they can just transfer that amount to you so you don’t have to sell anything? Regardless, you don’t want a large amount piling up in a checking account that you’re not ending up using, so if that’s a possibility, I’d make sure that checking account is a high interest rate one.
Better yet, get your husband to show you and write down an uncomplicated version of what your investments look like and how to access them.
Sure, it depends. However, for those who are making the decision to go Roth 401K or non-Roth, sounds like you have some extra money. So if you do the non-Roth 401K, invest the tax savings in a Roth IRA (if your income allows it), or do the backdoor Roth (if no other taxable IRAs). It doesn’t matter how old you are and how close to retirement. Once you stop working, you’ll never be able to do this again.
If you have the money, do it! You and your kids will thank me later. No excuses! Okay, I’ll stop lecturing now. Maybe.
Every year for either mothers day, my birthday or our anniversary I ask him to go over the accounts! He sometimes moves things around so my eyes glaze over. I tend not to touch the USAA checking or the cash or margin account so it falls out of my head!
Okay, I’ll stop lecturing now. Maybe.