To Roth now or Roth later (in retirement)

[Anina]

Hello Everyone and Happy Thanksgiving to you,

I'd like to pick your brains if I may. 2025 is coming up and I am that much closer to retirement. I anticipate that I'll retire in 2026 at 65. I have every intention to max out my tax deferred spaces until the day I stop working.

My question is about Roths and when should I convert. For 2023, I was in the 35% tax bracket with an effective tax rate of 26.6%. In 2022, I was in the 37% with a 29% tax rate.

For 2025, I anticipate that my pension and taxable account (interest, dividends) will be 166,000. My work will take me solidly into the 35% tax bracket. I have been filling my tax deferred in my 403b, 457, and my IRA accounts and have been doing well with that. So well that my 403b and IRA accounts are at 1.2 million. My non governmental 457 is at 185K currently. If I take 10 years worth of distributions from my 457 in 2027 that will add anywhere from 20 to 24k per year for 10 years.

My question is this: Should I do a Roth 403b while in the 35% tax bracket? I anticipate that I'll be in the 32% tax bracket in 2026 and probably going forward from there. If I take my social security at 67, my MAGI will definitely be over 200k. I'll be in the 3rd tier of IRMAA and probably be in the 4th once I start doing RMDs. (I am single)

My Roth IRA right now is at 139,000. What is worse-- tax now or tax and IRMAA later? Or should I be happy with the Roth as it is and deal with the RMDs as they come up?

[toddthebod]

Should I do a Roth 403b while in the 35% tax bracket?

Absolutely not. I find it hard to imagine a situation short of a taxable estate where that would make sense.

[billfromct]

Why would you want to start SS at age 67?

If you wait until age 70 to start SS your SS benefit will be about 24% higher than taking SS at age 67.

Holding off taking SS will give you more Roth conversion options between retirement and age 70.

Also, 85% of the SS benefit is Federal taxable. Many states do not tax SS.

bill

[Anina]

Thank you for your replies!

I do plan on taking my Social Security at 70.

I was just thinking about the tax brackets and IRMAA as I get older.

Either way, I will always pay a lot of taxes.

[FiveK]

Should I do a Roth 403b while in the 35% tax bracket? I anticipate that I'll be in the 32% tax bracket in 2026 and probably going forward from there.

If this is your expected scenario, using Roth would make sense, due to the way "Traditional plus taxable" vs. Roth math works.

[Anina]

If this is your expected scenario, using Roth would make sense, due to the way "Traditional plus taxable" vs. Roth math works.

Thank you FiveK. This is what I've been looking for.

I split my 403b into 1/2 regular and 1/2 ROTH last year and wasn't sure if that was the way to go. The 457 plan helps to take the sting out of using ROTH.

[Navillus1968]

Hello Everyone and Happy Thanksgiving to you,

I'd like to pick your brains if I may. 2025 is coming up and I am that much closer to retirement. I anticipate that I'll retire in 2026 at 65. I have every intention to max out my tax deferred spaces until the day I stop working.

My question is about Roths and when should I convert. For 2023, I was in the 35% tax bracket with an effective tax rate of 26.6%. In 2022, I was in the 37% with a 29% tax rate.

For 2025, I anticipate that my pension and taxable account (interest, dividends) will be 166,000. My work will take me solidly into the 35% tax bracket. I have been filling my tax deferred in my 403b, 457, and my IRA accounts and have been doing well with that. So well that my 403b and IRA accounts are at 1.2 million. My non governmental 457 is at 185K currently. If I take 10 years worth of distributions from my 457 in 2027 that will add anywhere from 20 to 24k per year for 10 years.

My question is this: Should I do a Roth 403b while in the 35% tax bracket? I anticipate that I'll be in the 32% tax bracket in 2026 and probably going forward from there. If I take my social security at 67, my MAGI will definitely be over 200k. I'll be in the 3rd tier of IRMAA and probably be in the 4th once I start doing RMDs. (I am single)

My Roth IRA right now is at 139,000. What is worse-- tax now or tax and IRMAA later? Or should I be happy with the Roth as it is and deal with the RMDs as they come up?

If you will be 65 in 2026, then you are 63 in 2024, yes? IRMAA for 2026 is based on your MAGI 2 years prior, so this year's MAGI will determine your 2026 IRMAA tier.
IOW, "tax now or tax and IRMAA later" may be a moot point, since SSA will base your age 65 IRMAA on 2024 MAGI.

One other twist is the expiration of the TCJA brackets in DEC 2025. Unless the law is changed, the 2017 tax brackets (adjusted for inflation) will revert. IOW, there won't be a 32% bracket, it will be replaced by the 33% bracket. The breakpoints between brackets will shift significantly as well if the old brackets revert.

To determine your actual ordinary income tax bracket, you need to break out pension & interest from qualified dividends. QDI is taxed under the long term cap gains brackets, for Singles- 15% between $47k of OI up to $200k MAGI, when the 3.8% NIIT kicks in (I think).

Depending on how much of your $166k income is QDI, in retirement you could easily drop into the future 28% OI bracket (or 24% if TCJA doesn't sunset). You might also have headroom in that bracket to do Roth conversions between 65 and 70, when SSA income begins.

Bottom line- working full-time in the 35% bracket is not ideal for Roth contributions, to say the least. Better to Roth convert in retirement once income drops.

Here's great Kitces article about TCJA expiration & who should accelerate/delay income as a result.
https://www.kitces.com/blog/tax-cut-and ... deduction/

PS- If you retire at 65 & your income in 2026 drops compared to 2024, you can file an IRMAA appeal using SSA-44. Might drop you a tier or 2.

[heyyou]

If you wait until age 70 to start SS your SS benefit will be about 24% higher than taking SS at age 67.

Holding off taking SS will give you more Roth conversion options between retirement and age 70.

In my retirement, those were the two high points of my investing actions during those years. With only stock index funds stored in the boosted RIRA, the untaxed growth there is very welcome in my RMD years. I also like the COLA increases on my larger, delayed SS.