Tradittional vs Roth?

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ebabin
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Joined: Mon Jan 20, 2014 10:21 am

Tradittional vs Roth?

Post by ebabin » Sat Oct 07, 2017 7:54 am

I need some advice. I feel like I have a pretty substantial nest egg. It hit me that I will need to start paying taxes on withdrawal of 401/IRAs when the time comes. I am 60 and currently in the 28% bracket and still working but looking forward to semi-retirement soon. My tax bracket would probably not change much for the next 3 or 4 years. I think I could easily wait until 70 for SS with the amount in my retirement funds. Should I be putting everything after my employer match into a Roth? I can easily absorb the tax hit now. I don't understand the IRA to Roth conversion rules.

CppCoder
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Joined: Sat Jan 23, 2016 9:16 pm

Re: Tradittional vs Roth?

Post by CppCoder » Sat Oct 07, 2017 8:05 am

You really haven't provided enough information to give good advice, but my guess is that you are better off sticking to pretax contributions in the 28% bracket. What do you expect your tax bracket to be after you stop working (when you start withdrawing from the 401k and tIRA)? Also, Roth conversion rules are not very complex. I suggest reading some articles/threads here to learn how those work.

rkhusky
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Re: Tradittional vs Roth?

Post by rkhusky » Sat Oct 07, 2017 8:17 am

You should estimate what your taxes will be at age 70. If you divide your expected Traditional account balance by 27.4, that will tell you how much you are required to withdraw at age 70.5. You should obtain an estimate of what your Social Security benefit will be at age 70. Put those numbers, plus any other sources of income, into your tax software to see what your tax rate might be. You should also estimate what your taxes might be between your retirement and age 70, adding in enough Roth conversions to at least reach the top of the 15% bracket. It may also pay to convert to the top of the 25% bracket, but you need to do some estimating to see if that would be beneficial.

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ruralavalon
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Location: Illinois

Re: Tradittional vs Roth?

Post by ruralavalon » Sat Oct 07, 2017 9:58 am

ebabin wrote:
Sat Oct 07, 2017 7:54 am
I need some advice. I feel like I have a pretty substantial nest egg. It hit me that I will need to start paying taxes on withdrawal of 401/IRAs when the time comes. I am 60 and currently in the 28% bracket and still working but looking forward to semi-retirement soon. My tax bracket would probably not change much for the next 3 or 4 years. I think I could easily wait until 70 for SS with the amount in my retirement funds. Should I be putting everything after my employer match into a Roth? I can easily absorb the tax hit now. I don't understand the IRA to Roth conversion rules.
That's not enough information for an answer. My guess would be that traditional contributions are likely better. For most people traditional 401k contributions are probably best.

Are you eligible for a significant pension? If so Roth contributions to your accounts may be better for you.

Also consider doing Roth IRA conversions in the years before age 70.5, while income is down and before Required Minimum Distributions start from your traditional accounts.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

JW-Retired
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Re: Tradittional vs Roth?

Post by JW-Retired » Sat Oct 07, 2017 10:39 am

ebabin wrote:
Sat Oct 07, 2017 7:54 am
I feel like I have a pretty substantial nest egg. It hit me that I will need to start paying taxes on withdrawal of 401/IRAs when the time comes. I am 60 and currently in the 28% bracket and still working but looking forward to semi-retirement soon.
..........................
Should I be putting everything after my employer match into a Roth? I can easily absorb the tax hit now. I don't understand the IRA to Roth conversion rules.
It all depends on what "pretty substantial" means to you. Will your nest egg be so large and/or your other retirement income be so great that you will be in the 33% bracket when fully retired? If 33% then yes go Roth. If 25% or less probably no. If 28% then you probably need to use a free tax calculator to model your exact situation because of extra taxes and deduction phaseouts upping the real marginal tax.
JW
ps: an easy one to use is https://www.hrblock.com/get-answers/tax ... e/aboutYou
Retired at Last

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FiveK
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Re: Tradittional vs Roth?

Post by FiveK » Sat Oct 07, 2017 11:30 pm

ebabin wrote:
Sat Oct 07, 2017 7:54 am
I don't understand the IRA to Roth conversion rules.
If you take your best guess at these and post what you think applies to you, folks can either confirm your understanding or inform you where misunderstanding occurs.

DSInvestor
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Re: Tradittional vs Roth?

Post by DSInvestor » Sat Oct 07, 2017 11:48 pm

If you currently reside in a state with high state income tax and may move to a state with no state income tax, Roth 401k contributions may mean pre-paying taxes to your current state to avoid a 0% state income tax rate upon withdrawal in retirement. Tax treatment of Traditional 401k contributions and withdrawals vary by state.

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