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Well, here's the thing. Unlike many other questions, you can actually do a controlled experiment: invest some of your money in 401k, some in Roth, some in traditional IRA, some in dividend stocks and bonds held to maturity, some in growth stocks. Track how they do.
Now of course you won't know the answer till you reach the end, and that answer will only be relevant for your particular income and tax bracket pattern over the course of your life, and only for the time period you're living in which won't be exactly repeated, but you can do this. Personally it's what I'm doing and it's what I'd recommend. I've got money invested in all four of the kinds of vehicles I listed above, as well as a few other things.
The whole business of investing is making bets on what the future will look like, and it seems to me the best approach is to try to cover as many of the possible future scenarios as possible. At many points you'll have to make decisions to do this or to do that, and you've just got to research as much as you can and choose based on the information in hand at the time, and not constantly look back and regret the decisions that would have worked out differently had you made a different choice.
As to the specific question, no one seems to want to address the fact of paying full-current-marginal-rate income tax on 401k distributions that are made for the purpose of converting to a Roth. There was one poster who briefly alluded to a certain amount of money that might be excluded from this tax on distributions - if you read this, what was that?
it’s whatever the standard deductions come too for most
Are you saying that if I have taxable income well above the standard deduction, and then I take a 401k distribution for the purpose of a Roth conversion, I get to reduce the taxable amount of that distribution by the amount of my standard deduction?
Are you saying that if I have taxable income well above the standard deduction, and then I take a 401k distribution for the purpose of a Roth conversion, I get to reduce the taxable amount of that distribution by the amount of my standard deduction?
What I had said earlier is if you don’t have any other taxable income a married couple filing jointly could get f over 59.5 withdraw pretax ira monies without paying federal income tax. Conversely if you didn’t have any other taxable income you could convert 27k to Roth without paying federal income tax
Every source I can find (like, Fidelity Investments - who MIGHT know what they're talking about) says distributions from a 401k are taxed as ordinary income. (if after age 59.5) So, you throw your 401k distributions into your gross income bucket, which also includes wages, Social Security benefits, etc., etc., then reduce by standard deduction, standard exemption, and any other available deductions to which you may be entitled. What's left over is taxable income, taxed at the appropriate rates.
No need to make it more complicated, unless there's something I'm missing; and I'll bet that if there is, it's some oddball edge case.
some who plan very well , delay social security, they can live off some roth money and from 62 to 70 pull all living expenses from their traditional ira .
as long as it is below the standard deduction they will pay no tax
^ Or live of savings for 2-3 years, so you can convert even more at lower taxes. So your only "income" is the conversion amount.
Obviously don't deplete to too low a level just to delay.
Also I'm talking about living off of savings (which earn less), not using from investments.
Last edited by selhars; 09-01-2023 at 06:09 PM..
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