Converting to Roth

[NitroZ7]

Most of my money is not in a 401k so maybe it is not a huge issue but I was watching some retirement planning videos over the weekend and was sort of surprised about the unfavorable views they had on traditional 401ks an IRAS. It does make sense given that you pay taxes on the withdraws but realistically it is tough to get enough money in a Roth given the contribution limits and income limits without doing a conversion. They did say to contribute enough to get a match but that was about it.

So for those that did a conversion, did you wait until retirement when your tax bracket dropped to convert? Does it make sense to wait for a market correction to convert? I'm not sure it is worth it in my situation but I may talk to a CFP to go through some scenarios. Was just curious what other people's experiences have been.

[XingEyeballs]

[Hydrasport80]

Curious as well to hear replies.

[GJA]

I think the premise is to avoid the social security tax torpedo and medicare eligibility requirements based on income levels. If you withdraw from a pre-tax 401k/IRA vs an after-tax IRA, you can pay more taxes and be in a higher income level for medicare. I'm considering living on cash while deferring social security (years), move the 401k in chunks to an after-tax IRA during this period (pay some/little tax on this each year) and when completed, file for social security. I believe social security is tax free if that's only your source of income and when you withdraw from the after-tax IRA, that doesn't have to be reported as income, so no tax.

There may be more strategies to convert pre-tax to after-tax and would like to hear those too!

Good luck!

[bassnpro1]

Many places offer a Roth 401k now. That is all I have ever put my money into.

[NitroZ7]

Many places offer a Roth 401k now. That is all I have ever put my money into.

I wish we offered that. I checked with Our provider and our company doesn’t offer this as part of our plan. I would definitly prefer that option.

[boneil]

The wife contributes to her 403B up to the amount to get the max employer contribution. Everything after that goes into a standard brokerage account. When the time comes that we need money, we will borrow against the holdings. With no intentions of selling, so we don't have to pay taxes on the gains. Rates on a margin loan can be negotiated to almost nothing. And the best thing is that you don't have to wait for retirement age. Thats how the wealthy do it, they live on margin.

[Charles Prestridge]

I think it will be a lot of calculations with a great tax specialist.

Some of the key factors will be:
-RMD’s
-Inheritance withdrawal requirements (children and spouse)
-%Annual return in retirement years.

Paying taxes and converting to Roth, needs years of growth to make-up for reduction in principle.

[TexomaDan]

Definitely worth pushing money to a Roth if possible. If you can keep AGI below $81,000 (for a couple), then you will be in the lowest 12% tax bracket. Next bracket jumps to 22%. So, it can work to convert to a Roth prior to taking social security which could push you the 22% bracket. Note that the Roth account must be at least 5 years old to do this--so create the account now even if you do not add much to it.

My current plan is to convert from 401k to Roth over the next 5-10 years. Semi-retired at 60, but will not take social security until 70. If I am able to take cash from accounts, versus taxable gains, I should be able to convert a fairly big chunk by then. It takes some planning.....

[Charles Prestridge]

Not having to make RMD’s with Roth, may be the key factor.

In your case, start small and move $500,000 per year. In 15 years, you will have half converted to a Roth.

[Bassin08]

Not having to make RMD’s with Roth, may be the key factor.

In your case, start small and move $500,000 per year. In 15 years, you will have half converted to a Roth.

WOW! Now that is a large account.

[NitroZ7]

Not having to make RMD’s with Roth, may be the key factor.

In your case, start small and move $500,000 per year. In 15 years, you will have half converted to a Roth.

I have smaller accounts in my tax deferred accounts so I can probably convert them right away once I retire and bump my tax rate down. My larger accounts are taxable so not really a way to put too much from there into Roth given the smaller contribution limits.

[Hydrasport80]

Age 66, how much can I move to a Roth each year from 401's? I have had a Roth for several years but haven't put very much in it. The 12% rate sounds attractive.

[Walleyesok]

Call me an idiot, The new company offered financial advisor did. I had 5 years of 401k contributions I converted to Roth at age 30. I had been living in a camper for 5 years saving to pay cash for a house. So I could afford the tax hit.

My argument was I know what the tax bill is today. I can pay it and still buy a house(helped houses were at low prices). I don’t know what taxes in the future will be. If they stayed the same, the tax free advantage @ 8% growth was going to be 450k in tax savings at age 60. I thought even with inflation I would still like 450k in 2042.

We did a couple smaller Roth conversions for my wife as well. We are 38 and 70% of our investments are in our Roth IRAs (self managed through fidelity)

I would do it all again. I sometimes think it would be nice to have all the tax money back. But I think and hope my future self says thank you.

The thing about Roth’s I don’t like is they are hitting the news as loopholes for the wealthy. They were intended for middle class. I unfortunately believe the narrative.

although great for middle class. The average person doesn’t seem to know about them. It should be a part of high school curriculum. To graduate you should have to have one opened. If you’re reading this anyone you know that has earned income please do your part and inform them.

[NitroZ7]

Call me an idiot, The new company offered financial advisor did. I had 5 years of 401k contributions I converted to Roth at age 30. I had been living in a camper for 5 years saving to pay cash for a house. So I could afford the tax hit.

My argument was I know what the tax bill is today. I can pay it and still buy a house(helped houses were at low prices). I don’t know what taxes in the future will be. If they stayed the same, the tax free advantage @ 8% growth was going to be 450k in tax savings at age 60. I thought even with inflation I would still like 450k in 2042.

We did a couple smaller Roth conversions for my wife as well. We are 38 and 70% of our investments are in our Roth IRAs (self managed through fidelity)

I would do it all again. I sometimes think it would be nice to have all the tax money back. But I think and hope my future self says thank you.

The thing about Roth’s I don’t like is they are hitting the news as loopholes for the wealthy. They were intended for middle class. I unfortunately believe the narrative.

although great for middle class. The average person doesn’t seem to know about them. It should be a part of high school curriculum. To graduate you should have to have one opened. If you’re reading this anyone you know that has earned income please do your part and inform them.

Biggest hurdle is the income limits. I did a Roth when I was younger but once I breached the income limit I was not able to continue contributions. I could have done a backdoor but I maxed out my 401k because of the match. I really wish we would have had a Roth 401 k option. Luckily most of my money is in taxable accounts so while these do not grow tax free I won't have to pay tax on the withdrawals. I will probably sit down with a CFP in the next month to go through it. I have two 401k's so I may just convert one. Life sure gets more complicated the older you get.

[apenland01]

Converting to a Roth is smart, but it has to be done in increments or with the special rules that limit taxes. Chuck Oliver talks about converting to a Roth later in life and not paying any taxes using the right strategy. I have converted my 401k to a Roth 401k through work.

[Charles Prestridge]

Converting to a Roth is smart, but it has to be done in increments or with the special rules that limit taxes. Chuck Oliver talks about converting to a Roth later in life and not paying any taxes using the right strategy. I have converted my 401k to a Roth 401k through work.

Did you pay taxes when you converted you work 401K?

[Charles Prestridge]

I can’t imagine being able to convert 401K or Traditional to a Roth without taxes, except for very small incremental conversions.

Maybe, If someone converts $10,000 per year while only drawing Social Security or something like that.

I don’t think converting a 7-figure 401K to a roth is going to happen, without paying taxes.

If anyone knows about different strategies, I would live more information.

[apenland01]

Chuck Oliver strategy. I don't have enough money to convert a traditional IRA to Roth without taxes, but I switched my 401K to a Roth 401K, which gives me a much higher cap for contributions and protects me from taxes in the future....

[NitroZ7]

Ignoring This Conventional Advice Could Save You on Taxes in Retirement
https://www.barrons.com/articles/ret...j14ag4c5rxrznf

Barrons had a pretty good article about when to convert.