Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The only way I can see that you can "drain" your 401k is to take distributions, which are taxed at your current rate. If you're below the certain age you'll pay an early distribution penalty too. So what is this scheme you've got?
Idea here is to drain the 401K some before RMD begins. For some there is a window to do Roth conversions.
Bottom line is to pay some tax now & cut some of the tax bomb if/when Trump tax cuts expire. Pay now, or pay later.
Do need to be careful when you also consider income tax on Social Security (not going away). Also the big tax bite comes with IRMAA.
Capital gains vrs income rates is one dimension. You also need to be careful to keep income within certain brackets. You also need to watch certain high tax states.
Did I make a bad assumption that I had to convert my entire 401k to a Roth IRA? It sounds like you are saying I can convert just a portion of it, such as only $50,000?
Quote:
Originally Posted by Igor Blevin
Thank you. That is certainly more useful to convert a part of a 401k to a Roth. My aplogies to those who knew their stuff and were patient with my financial ignorance.
No worries.
I was wondering why you only talked about converting the whole thing.
I'm going to miss the lower Trump brackets also. But it is what it is.
You are in higher brackets than I am.
My plan right now (and of course this is only projected) is to retire at 65 1/2, rollover my employer's 401k into my tIRA, then from 66 to 74 do Rothr conversions to the top of the 25% bracket (24% if the current brackets get renewed).
I'll have pension income. The plan is also to live off savings for at least a few of those conversion years to give me as much room in the income bracket as I can. (If I pull tIRA savings out, that would count as income and give me less room for conversions.) Some where in there I'll start Soc. Sec...... so there's that income issue also.
Only topping out the 25% bracket won't get anywhere near like all the tIRA moved over. But I'll move what I can, and it will be what it will be. I'm not willing to go to 28% or 33% just so eventual RMDs are lower.
If I still gt hit by the tax torpedo then so be it.
I don't think they will let the tax rates revert on Taxable Income under $400k-ish. Plus the economy could be in the toilet and it might not happen that way.
At 63, I'm just becoming more aware of various implications regarding taxes in retirement. It's about time to familiarize myself with the planning options. It's too late for some decisions. Not too late for other moves.
For me, I know I'm only willing to top out a conversation at 25%. For others who are already above that bracket, they'll have to make the same decision -- just at a higher bracket level.
My modus operandi is do the due diligence, do the research, learn the options, have.a flexible plan...and after that be ready to cross those bridges when you get to them with the knowledge to make the best decision you can with the information you have at the time.
Idea here is to drain the 401K some before RMD begins. For some there is a window to do Roth conversions.
Bottom line is to pay some tax now & cut some of the tax bomb if/when Trump tax cuts expire. Pay now, or pay later.
Do need to be careful when you also consider income tax on Social Security (not going away). Also the big tax bite comes with IRMAA.
Capital gains vrs income rates is one dimension. You also need to be careful to keep income within certain brackets. You also need to watch certain high tax states.
So basically expecting that taxable income rate will not drop, even after retirement, with consequent lower income. I'm not going to pay full rate income taxes on a distribution now, when I expect my income and marginal rate to be much lower when I retire. For someone who expects income to be about the same in retirement I can kind of see how one might sort of make a case for this scheme but it seems like spending a whole lot of tax money now for a possible small gain some time in the future.
Location: We_tside PNW (Columbia Gorge) / CO / SA TX / Thailand
34,694 posts, read 58,004,579 times
Reputation: 46171
10 yrs of fairly aggressive conversions cut my tIRA and 401k in half and never exceeded 20% effective tax (usually 12%).
Recent gains (since 2000) have bolstered my Roth, which has well surpassed my taxable qualified funds.
Chip away as you are able, don't create a crisis by over-reacting to taxes we don't know will materialize. Income under $200k is consider 'poor/ sheltered class'. That's a ceiling I'll never see, or need, even in my next 30 yrs of retirement.
We had to retire this year earlier than planned and because of interest rate increases, we have to take our pension. We are going to get socked with a big tax on that lump sum and some deferred comp. I am meeting with an attorney to discuss options. But I realized the tax implications are much more complicated. For example, we have a 401k with 20% company stock with a big gain. Should we roll that entire 401k over into an IRA, we will pay ordinary income tax on the gain so I need to just talk to him about minimizing our taxes and not making a dumb mistake. I was reading some personal finance articles on WSJ recently and I realized I was way out of my league on the RMD and Medicare aspects of all of this. I will tell you if I learn anything of note.
You can roll your 401k (tax deferred dollars) over to an IRA and there is no tax impact. Just make a trustee to trustee transfer, and let the entity that will hold your IRA do all the work. You can also roll over a lump sum payout of vested pension benefits in the same way with no current tax. You can read about this on any reputable financial web site, such as Fidelity or Schwab.
RMDs currently begin at age 73, with start age going to 75 in 4-5 years. Your income level with determine whether or not you will have IRMAA surcharges when you. As one who is subject to it, this is a good description:
You can roll your 401k (tax deferred dollars) over to an IRA and there is no tax impact. Just make a trustee to trustee transfer, and let the entity that will hold your IRA do all the work. You can also roll over a lump sum payout of vested pension benefits in the same way with no current tax. You can read about this on any reputable financial web site, such as Fidelity or Schwab.
RMDs currently begin at age 73, with start age going to 75 in 4-5 years. Your income level with determine whether or not you will have IRMAA surcharges when you. As one who is subject to it, this is a good description:
Yeah, I put it all together last night to get an idea of what we are looking at and realized yes, I can roll over the pension but I cannot rollover the non qualified pension or the deferred comp. When we first signed up for deferred comp, we were only given two options for when to get the money a) at separation or b) retirement so most of the money went into at separation which ended up being the same as retirement anyway. Later, they gave more options like a 5 year payout or 5 payouts in 5 years. I guess people complained or maybe the IRS changed the rules. So I have no option there or for the nonqualified lump sum pension. But I am calculating the implications and it makes more sense based on the payout timing to do something THIS year as opposed to next when we are no longer getting salary and we will get a small bonus proration from Jan-May of this year.
10 yrs of fairly aggressive conversions cut my tIRA and 401k in half and never exceeded 20% effective tax (usually 12%).
Recent gains (since 2000) have bolstered my Roth, which has well surpassed my taxable qualified funds.
Chip away as you are able, don't create a crisis by over-reacting to taxes we don't know will materialize. Income under $200k is consider 'poor/ sheltered class'. That's a ceiling I'll never see, or need, even in my next 30 yrs of retirement.
Just to be clear your effective tax rate isn’t relevant to evaluating Roth conversions. It’s the marginal buckets you were filling for that time period as the additional “income” was forced and was getting the highest rate of the year
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
