Another Roth vs Pre-Tax Question, plus converting in retirement

[GoneAstray]

Hi everyone- thank you in advance for trying to help me brainstorm this!
I'll try for a succinct background- my husband and I are 45, plan to retire in 5 years, and have no kids. At 50, we both have pensions that will kick in and they should be enough to support our lifestyle without touching the savings unless we choose to. We are currently in the 24% marginal bracket and expect to have a gross pension income (with a COLA) that will place us near the top of the current 22% bracket. Of course, brackets will likely change and the income ranges will adjust with inflation, so this may not be the case in 5-10 years. We live in California (marginal state tax 9.3% currently) and plan to retire to Washington state (income tax 0%). At the time of retirement, we will likely have around $900k in pretax 457b (about half that amount in Roth IRAs).

We recently changed our 457b contributions to 100% Roth in the 457 accounts and planned to keep it that way for the next 5 years, as we realized that with 25 years of post-retirement growth the money in pretax could have hefty RMD tax consequences, plus we anticipate getting inherited IRAs from our parents prior to our RMD age. When we made the change to 100% Roth, we were thinking that even though we are potentially paying 9.3% more b/c we are in CA now, it is less impactful or noticeable to have the money come out of many paychecks versus having to accrue a lump sum to pay the conversion taxes.

Knowing that we are retiring from a high-income tax state to a 0% income tax state, we are now second guessing that we should maybe do Pre-tax now and try to do Roth conversions later, since we have a lot of years to do so prior to RMDs and it would effectively save us 9.3% in taxes. I am still concerned about paying lump sum taxes though as coming up with that money just seems like a headache, not to mention a lot of cash as the fund size and thus taxes grow. I have tried to run the numbers, but I just seem to keep getting lost in the multiple factors I need to account for- plus the lack of a crystal ball for tax prediction. In the end, we are just trying to optimize taxes- though I also don’t want to over emphasize tax consequences to the detriment of everything else. Any advice for us?

[Exchme]

I agree with your new thinking that the extra 9.3% CA tax burden on doing Roth contributions is too much to ignore. I would go back to tax deferred. Once you are retired and resettled in WA, then you can do Roth Conversions with the CA taxes.

[retired@50]

Any advice for us?

I would not be using Roth accounts while you're working and paying a 33.3% marginal income tax rate. It seems very likely that you'll be in a lower bracket in the future (after 50 when work ceases, and after leaving CA). Given your current age, you won't face RMDs until you're 75 years old. That's a lot of years to do partial Trad - to - Roth conversions.

You might use the personal finance toolbox if you have Excel.

There's lots more detail on this decision in the wiki.
https://www.bogleheads.org/wiki/Roth_conversion
https://www.bogleheads.org/wiki/Traditional_versus_Roth
https://www.bogleheads.org/wiki/Tools_and_calculators

Regards,

[GoneAstray]

Thank you both- I will keep reading and learning