I plan to wait until my tax bracket drops then fill my tax bracket up with conversions. Pay taxes w after tax funds.
if market drops it’s a bonus but timing that is difficult.
Be careful of Medicare look back of two years (of AGI) to minimize Medicare premiums.
goal is to reduce tax exposure when SS, RMD’s and pension all pay out at same time. Also helps to minimize tax burden when transfer to heirs.
I retired at 58, and am working part time. The wife and I are pushing the max on the 22% rate with our pensions and occasional withdrawal from my 457. I have converted into a Roth from my standard 401 for several years. Will continue putting as much as I can into Roth by converting and staying in the 22% bracket. Don't do it when you are collecting SS. Wish I would have put mine in a Roth as soon as I found out about them, but the company did not offer them or a match.
dvl2700
A little government and a little luck are necessary in life, but only a fool trusts either of them !
Why wouldn't you do it when collecting SS if you stayed under the amount you are allowed to earn without having to pay tax on it?Originally Posted by dvl2700
Converting a 401K to a Roth IRA results in earned income which in some cases creates a windfall tax on your SS income. Need to be careful to keep everything you have worked for and paid taxes on.
Just hired a CFP to go through everything. She said she will do a Roth conversion analysis to see if it is worth it.
The friggin 10 year rule ruined my plans as far as estate planning goes. I’m going to have to do some major conversions or my kids will get banged big time.
Depending on how long you live, your RMD’s will reduce the amount in your IRA’s.
So taxes will already be paid on your RMD’s. Your children will inherit these investments as normal inheritance. They will pay taxes on gains above the value at the time of your death.
I got an inherited IRA (non Roth) and I have to take RMDs on it and pay taxes on each withdraw. I think the Roth doesn't require the heirs to pay taxes on withdraw. I have a call tomorrow with the CFP to go over all this but will report back any information I learn. Way too confusing and God only knows what the future holds.
NitroZ7 - I agree there is a lot to it.
I think your Father passed away prior to the changes in rules that went into effect January 1, 2020.
If so, your RMD’s can be stretched over longer years and would not fall under the newer 10-year RMD for a non-spouse inherited IRA.
If a person has $1 million in a traditional IRA, at 72 they will have to begin RMD’s and paying tax on the withdrawal. Withdrawals will continue to increase each year, due to life-expectancy table. If a person lives to 85-90 years of age, they will have less concern about taxes on inherited IRA’s. Distributions would have taken and Taxes already paid on a large part of their IRA. Post-IRA-Distributed Funds are like any other inherited asset.
Inherited RMD’s are a greater tax-liability, when parent(s) pass away at a younger age (like your Father).
My head spins when studying RMD requirements for Inherited Roth IRA’s. I think you will fall under the pre-2020 rules.
I know you have a specialist helping you, but this is a good summary.
https://www.schwab.com/resource/youv...rement-account
He did pass away before the change in rules. I still have to take RMDs and pay tax but I don't have to use it up within 10 years. It wasn't a big IRA as he had most of his assets in taxable accounts, but I have invested it so it does cover the RMDs.
Caution on planning advice on the internet…I see a few things that are not correct . The 5 yr rule applies to first contribution date for Roth contributions. If you roll over a Roth 401k to a Roth IRA, 5 yr rule based on date of first dollar into the Roth IRA, not the Roth 401k. ( if you never had a Roth IRA and rolled Roth 401 to Roth IRA, then Your 5 year period would start over)
5 yr rule applies to each separate Roth conversion date, not first contribution date.
you still have to take RMD on a Roth 401K just not taxable
under new inheritance rules, non spousal heirs more than 10 years younger than decedent has to withdraw Roth within 10 years just like Traditional IRA
LOL! first world complications.
I still have about 20 yrs to go til retirement so the takeaway from this thread is if the company offers Roth 401K, which I believe my company does, I should convert my 401K now?
I would consider Roth 401k as later in life, you can retire and not show the money invested and the investment gains as income on your 1040 and ACA application, thus showing you'll be living in a poverty level with a million bucks in this account. Maybe you can get Medicaid! Your ACA will be free or very cheap and when you turn 65, your Medicare premiums will be minimal. Plus, there will be other tax advantages when you take Social Security in that the SS income may not be subject to tax.
Good luck!
It's not what you can take with you,
It's what you leave behind.
You don't necessarily need to convert, but you should prioritize the Roth 401k in your contributions going forward. Fill up the Roth contribution bucket first every time, possibly unless you're in a top income bracket.
Other plans are available I think that do not limit your contribution amounts like a ROTH will. RITE, HSA, etc...
Last edited by Dixie-Raven; 09-20-2021 at 08:16 PM.
An HSA is a great method to save and invest for medical expenses.
Must qualify by having a high-deductible health plan.
Contributions each year are capped.
IRA funds can be rolled one time to an HSA, but still limited to standard contribution limit.
I fully fund our HSA each year, but I do not see it as an avenue to limit tax liability of 401K’s or traditional IRA’s.
Not sure how a Reit applies to the ROTH tax saving discussion. REITs would be part of portfolio investment options that would hopefully create taxable growth/dividends.
I have a pension which falls under the "windfall" provision for Social Security. Even though I have my quarters in and have been working the last 6 years after my career which did not pay SS, I get penalized. Right now am waiting until I am 72 so I can collect either mine, or the spousal share of the wife's social security.
Her pension and my pension put us at the very bottom of the 22% tax bracket. No way we will ever get lower unless the tax brackets adjust for inflation and our pensions do not. So I have been paying some taxes on my withdrawals from my IRA, then taking that money and putting it into my Roth while staying in the 22% tax bracket.
You may already know but if you paid into SS for 30 years, the WEP doesn't apply.
Good luck!
It's not what you can take with you,
It's what you leave behind.
yep, I don't want to work that long (15 more years) to get the windfall provision clear. Read an article today (9-25) that the Biden Admin wants to stop all transfers from a 401 or IRA to a Roth, ie conversions. Evidently us "rich people" are taking advantage of a "loophole". Not sure what loophole I am taking advantage of, or how I am a "rich person". I don't have insider information and a self directed Roth IRA account to make millions of dollars. I also pay taxes on the transfer, but I figure taxes are only going to go up, and along with no RMD requirements. I am trying to diversify by having half my money in a Roth and half in an IRA. Hope I am getting my WAG (wild ass guess) right on this whole financial situation.
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