Coming of age

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JSCIVALLY
Posts: 9
Joined: Thu Feb 21, 2019 9:31 am
Location: Sparks, Nv

Coming of age

Post by JSCIVALLY » Sat May 04, 2019 8:41 am

Hello, I am 59 1/2 in one year from now, I work for the railroad and have about 700K in 401k/Roth 401k accounts. I have about 10K in a Roth IRA. My question is should I rollover a little bit a year from the 401k accounts into the Roth IRA to take advantage of the lower tax rates until they expire at the end of 2025. And also should look into ETF's in the IRA accounts as maybe they are a lower cost to have than a regular fund. :sharebeer
58 yrs old,Train engineer, wife real estate agent, $200k+ year | 401k 6%-$635k UPRR Stock,VIGIX,VSCPX,VTIFX,VTSNX,DODGX, | Roth 401k 12%-$55k | Roth IRA 7%-$10k VFIAX,VGSTX,VWUSX | Bills $215k

EdLaFave
Posts: 394
Joined: Fri Dec 26, 2014 2:31 am

Re: Coming of age

Post by EdLaFave » Sat May 04, 2019 8:57 am

Check out this page about what information you should include in your posts. You’ll get more informed responses.

Nobody can predict future tax rates; I’m not going to try.

Do you understand how the progressive tax system works?

Anything you convert from a Traditional account to a Roth account is taxed as ordinary income. That means whatever your highest current tax bracket is will determine the rate you pay on each dollar you convert.

The other thing to know about our tax system is that the first X dollars of ordinary income isn’t taxed at all, the next Y dollars at a certain rate, the next Z dollars at a higher rate, and so on. The standard deduction for a single person is 12k (double if you’re married). There are a slew of other possible deductions. So let’s say your deductions are 24k for the year. That means you can have 24k of income from a Traditional source and pay $0 in tax. Another aspect to be concerned with is tax credits. Let’s say you have more than 24k and generate a tax bill of $500. Well if you have $500 tax credit then you don’t owe anything and can get even more than your deductions tax free from a Traditional source.

So you’re going to want to make sure you have enough ordinary income to take advantage of the tax free space given to ordinary income. However, if you’re going to have too much ordinary income such that your highest future tax bracket is higher than your current highest tax bracket then you’ll want to convert to Roth.

You’ll also want to take into account that RMDs will kick in around 70.5 years old, which means you lose control over the minimum amount you have to take from Traditional retirement accounts. You should consider that some percentage of your SS will be ordinary income. If you have a pension, that’ll also be ordinary income.

This is the general idea. Sorry if I got any details wrong or explained them in a less then clear way, but that’s how you’ll generally think about the problem.

...you’ll also want to read this for a more detailed explanation of Roth vs Traditional, which is directly relevant to the conversion question.
Last edited by EdLaFave on Sat May 04, 2019 9:53 am, edited 2 times in total.

cresive
Posts: 297
Joined: Sat Nov 26, 2016 12:12 pm
Location: Virginia, USA
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Re: Coming of age

Post by cresive » Sat May 04, 2019 9:23 am

JSCIVALLY wrote:
Sat May 04, 2019 8:41 am
Hello, I am 59 1/2 in one year from now, I work for the railroad and have about 700K in 401k/Roth 401k accounts. I have about 10K in a Roth IRA. My question is should I rollover a little bit a year from the 401k accounts into the Roth IRA to take advantage of the lower tax rates until they expire at the end of 2025. And also should look into ETF's in the IRA accounts as maybe they are a lower cost to have than a regular fund. :sharebeer
If you truly want the groups opinion's, you need to provide a bit more information. How much of your trad/Roth 401K is actually Roth? That can be moved in its entirety once you leave your job. This assumes you are unable to move anything out of your 401K until you terminate employment. What is in your tax-advantaged (traditional) 401K can be moved into a traditional IRA, but here is where your question comes to the forefront. If you want to eventually convert all of your traditional to Roth there are several steps you must take. The order and rate depend upon several factors. Will you have income after you retire? Do you have any savings in taxable accounts? etc. etc. You may also want to look at your fees and fund choices, you may not gain any advantage by moving your money to a tIRA, but let's delve into your original question first.

Let's assume you will NOT work after you retire. Since you are a railroad employee, you may not receive SSA benefits, but you will receive an income from a pension. If you are making $75,000 but only $30,000 in pension, you have some tax space to do a Roth conversion. You would determine how much you could convert by knowing your tax brackets, move the difference into a traditional IRA, and before it earns any income, convert it into a Roth. You would be responsible for the difference in tax from your base income to base plus what you converted in you IRA.

There are some nuances to the plan, and you can work other methods, but above is a basic approach. You may not want to convert any as you will probably be taking withdrawals from your 401 to supplement your income and not need to convert any. Again, you didn't provide enough information to assess the situation.

Good luck and congratulations.

Ben

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Sandtrap
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Joined: Sat Nov 26, 2016 6:32 pm

Re: Coming of age

Post by Sandtrap » Sat May 04, 2019 9:25 am

Please edit your original post to include this information and format for best responses.
(you will get limited feedback without it)
Use the "pencil icon" upper right to edit.
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https://www.bogleheads.org/forum/viewt ... =1&t=6212

thanks.
j :happy
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