How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

I am 66 and retired with a monthly pension that supports me. So far, I do not need my retirement investments. My tax bracket in retirement is the same as when I worked. Therefore, there will be no occasion for it to drop lower for me to convert to a Roth. What should I do?
lakpr
Posts: 11712
Joined: Fri Mar 18, 2011 9:59 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by lakpr »

Jireh57 wrote: Mon Apr 01, 2024 2:03 am What should I do?
Convert to Roth up to the top of your current tax bracket
HomeStretch
Posts: 11557
Joined: Thu Dec 27, 2018 2:06 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by HomeStretch »

The BH wiki page on Roth conversions may be helpful:
https://www.bogleheads.org/wiki/Roth_conversion

How large is your tax deferred balance? Single or married?

The decision whether or not to do Roth conversions starts with a comparison of your marginal tax rate at conversion versus your marginal tax rate at distribution. There are other factors that may affect the decision (examples, below). In the absence of any reason to do a Roth conversion, there is no reason imo to do any Roth conversions except perhaps for 2024-2025 to the top of your current rate as rates are scheduled to revert in 2026.

Other factors to consider:
1) Will your marginal tax rate increase in the future due to SS benefits, RMDs, IRMAA, net investment tax, large inheritance, etc.?

2) Do you have any plans to move that will change your state tax rate, if any?

3) If married, will your spouse as a surviving spouse be in a higher tax bracket?

4) Do you plan to leave your estate to a qualified charitable or to a beneficiary in a higher tax bracket?

5) Do you have sufficient funds in a Taxable account to pay taxes on Roth conversions?
Johm221122
Posts: 6454
Joined: Fri May 13, 2011 6:27 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Johm221122 »

Jireh57 wrote: Mon Apr 01, 2024 2:03 am I am 66 and retired with a monthly pension that supports me. So far, I do not need my retirement investments. My tax bracket in retirement is the same as when I worked. Therefore, there will be no occasion for it to drop lower for me to convert to a Roth. What should I do?
What exactly is the money for and when will you need it?
User avatar
mhc
Posts: 5291
Joined: Mon Apr 04, 2011 10:18 pm
Location: NoCo

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by mhc »

Once you retire, your working tax rate does not come into play in determining Roth conversions. You need to consider what you would pay today vs. what you would pay in the future to take the money out of the IRA.

A simple way to look at it is to try to keep your taxes flat over your retirement. Keep an eye on IRMAA and NIIT. If you are in the 12% bracket, keep an eye on pushing investment income out of the 0% bracket and creating a 27% marginal bracket for your conversions.
52% TSM, 23% TISM, 24.5% TBM, 0.5% cash
User avatar
retiredjg
Posts: 54281
Joined: Thu Jan 10, 2008 11:56 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by retiredjg »

Jireh57 wrote: Mon Apr 01, 2024 2:03 am I am 66 and retired with a monthly pension that supports me. So far, I do not need my retirement investments. My tax bracket in retirement is the same as when I worked. Therefore, there will be no occasion for it to drop lower for me to convert to a Roth. What should I do?
What you should do depends on many things we don't know. You might want to go ahead and do Roth conversions in that tax bracket. Or not...if you decide that Roth conversions will not be beneficial to you.

Since you are 66, you want to avoid converting enough to trigger IRMAA if you can. Unless that is beneficial because your tax-deferred account is very large.

Apparently, you will not get a lot of benefit from having deferred your taxes. But you haven't lost anything either. It's all even...until tax rates change again.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

What should I do?

Convert to Roth up to the top of your current tax bracket

Ok, thanks!
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

HomeStretch wrote: Mon Apr 01, 2024 6:26 am The BH wiki page on Roth conversions may be helpful:
https://www.bogleheads.org/wiki/Roth_conversion

How large is your tax deferred balance? Single or married?
Approx. $305,000.00 Single

The decision whether or not to do Roth conversions starts with a comparison of your marginal tax rate at conversion versus your marginal tax rate at distribution. There are other factors that may affect the decision (examples, below). In the absence of any reason to do a Roth conversion, there is no reason imo to do any Roth conversions except perhaps for 2024-2025 to the top of your current rate as rates are scheduled to revert in 2026.

Other factors to consider:
1) Will your marginal tax rate increase in the future due to SS benefits, RMDs, IRMAA, net investment tax, large inheritance, etc.?
Minimal increase due to SS. WEP will c9nsume most of it. Unsure about any other increases.

2) Do you have any plans to move that will change your state tax rate, if any?
No.

3) If married, will your spouse as a surviving spouse be in a higher tax bracket?
Single.

4) Do you plan to leave your estate to a qualified charitable or to a beneficiary in a higher tax bracket?
No.

5) Do you have sufficient funds in a Taxable account to pay taxes on Roth conversions?
Not sure. I may have to use money from the IRA.
User avatar
retiredjg
Posts: 54281
Joined: Thu Jan 10, 2008 11:56 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by retiredjg »

Apparently you are single and your tax-deferred account is $305k. That is not an alarmingly large amount (thinking future RMDs) but you also appear to have a pension so you may not spend much from this nest egg.

Do you think your pension will cover some, most, or all of your usual living expenses (including federal and state tax)?

What is your current and expected federal and state tax bracket?
RyeBourbon
Posts: 1256
Joined: Tue Sep 01, 2020 12:20 pm
Location: Delaware/Philly

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by RyeBourbon »

Tax rates are scheduled to go up in 2026, so for 2024 and 2025 I would consider filling up your current tax bracket with Roth conversion (assuming you have no other issues such as IRMAA, ACA subsidy, taxable SS or 0% LTCG/dividends).
Retired June 2023. AA = 55/35/10
User avatar
JazzTime
Posts: 736
Joined: Mon Oct 25, 2021 8:43 am
Location: MA

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by JazzTime »

You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
The difficulty with jazz is there are too many notes. (Borrowed from Emperor's critique in Amadeus)
Johm221122
Posts: 6454
Joined: Fri May 13, 2011 6:27 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Johm221122 »

JazzTime wrote: Mon Apr 01, 2024 2:03 pm . No one has ever regretted funding a Roth account.
Except if they would have paid less taxes in retirement. Anyone delaying Social Security and spending IRA assets would definitely regret having Roth only

The overwhelming amount of people pay less taxes in retirement
User avatar
cosmos
Posts: 222
Joined: Thu Oct 16, 2008 4:11 pm
Location: Third rock from the Sun

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by cosmos »

JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I still expect to be in a far lower cost of living in retirement than now but I think you are right in the sense that if I had started in my early 20s as well as contributed max every year to 401k this would likely be the case. I didn't so now over 50 and still well under a million so doubtful I will be hitting 65 with the standard 10+million you hear about on bogleheads but hey who knows.

If there is somehow a massive bull run the next 12 years it may happen and then I will know if it is roth conversion time or not. I always feel way behind reading here but still keep trucking along. I am more worried about job loss, ageism etc hitting than anything else at this point.
It's 106 miles to Chicago, we've got a full tank of gas, half a pack of cigarettes, it's dark... and we're wearing sunglasses. Hit it.
User avatar
retiredjg
Posts: 54281
Joined: Thu Jan 10, 2008 11:56 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by retiredjg »

JazzTime wrote: Mon Apr 01, 2024 2:03 pm You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth.
? :!:

Original poster state s/he is 66 years old.
steadyosmosis
Posts: 1044
Joined: Mon Dec 26, 2022 11:45 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by steadyosmosis »

JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
Age<59.5. Early-retired. AA ~55/45. Taxable account, Roth IRA, HSA...all are 100% equities. 100% of fixed income is in tIRA. I spend from taxable and rebalance in tIRA.
User avatar
JazzTime
Posts: 736
Joined: Mon Oct 25, 2021 8:43 am
Location: MA

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by JazzTime »

retiredjg wrote: Mon Apr 01, 2024 2:21 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth.
? :!:

Original poster state s/he is 66 years old.
Got it a bit backwards. He has several years before RMD's kick in and increase his taxable income. So some Roth conversions now may be beneficial later since RMD's will be lower.
The difficulty with jazz is there are too many notes. (Borrowed from Emperor's critique in Amadeus)
User avatar
JazzTime
Posts: 736
Joined: Mon Oct 25, 2021 8:43 am
Location: MA

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by JazzTime »

steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
The difficulty with jazz is there are too many notes. (Borrowed from Emperor's critique in Amadeus)
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

lakpr wrote: Mon Apr 01, 2024 2:35 am
Jireh57 wrote: Mon Apr 01, 2024 2:03 am What should I do?
[/quote
Convert to Roth up to the top of your current tax bracket
I am trying to figure out how to respond. So, this is one of my attempts.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

Jireh57 wrote: Tue Apr 02, 2024 7:07 am
lakpr wrote: Mon Apr 01, 2024 2:35 am
Jireh57 wrote: Mon Apr 01, 2024 2:03 am What should I do?
[/quote
Convert to Roth up to the top of your current tax bracket
I am trying to figure out how to respond. So, this is one of my attempts.
Ok, thanks. I will convert the max to a Roth. It won't change my bracket.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

JazzTime wrote: Mon Apr 01, 2024 2:38 pm
steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
Since I knew nothing about any of this while working, I'll have to bear it while retired. Thank you for sharing.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

Jireh57 wrote: Tue Apr 02, 2024 7:12 am
JazzTime wrote: Mon Apr 01, 2024 2:38 pm
steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I will begin converting to a Roth. Thank you!
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
Yes, I'll do the same.

No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
Since I knew nothing about any of this while working, I'll have to bear it while retired. Thank you for sharing.
Jireh57 wrote: Tue Apr 02, 2024 7:12 am
JazzTime wrote: Mon Apr 01, 2024 2:38 pm
steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
It appears that I will follow suit. Thank you!

No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
Since I knew nothing about any of this while working, I'll have to bear it while retired. Thank you for sharing.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

Jireh57 wrote: Tue Apr 02, 2024 7:12 am
JazzTime wrote: Mon Apr 01, 2024 2:38 pm
steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
Will do!
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
Since I knew nothing about any of this while working, I'll have to bear it while retired. Thank you for sharing.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

JazzTime wrote: Mon Apr 01, 2024 2:30 pm
retiredjg wrote: Mon Apr 01, 2024 2:21 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth.
? :!: I will begin to convert to Roth.

Original poster state s/he is 66 years old.
Got it a bit backwards. He has several years before RMD's kick in and increase his taxable income. So some Roth conversions now may be beneficial later since RMD's will be lower.
Agreed. I'll begin now.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

JazzTime wrote: Mon Apr 01, 2024 2:38 pm
steadyosmosis wrote: Mon Apr 01, 2024 2:27 pm
JazzTime wrote: Mon Apr 01, 2024 2:03 pm You are an example of what I've posted many times. If you are a saver and investor, don't expect your income after retirement to be less than your working years. You have several years prior to IRMAA kicking in to convert some of your t-IRA to Roth. No one has ever regretted funding a Roth account.
I regret every dollar I contributed to my Roth 401k while working.
Thankfully I wised up after awhile, and went back to pre-tax contributions.
I now annually convert those same pre-tax dollars (plus earnings) into my Roth IRA, with a federal tax savings of at least 10%.
No doubt that if your post-retirement income is low, your tax rate will also be low. So having taxable RMD's is less of an issue. But if you saved and invested considerable dollars in a conventional 401K/t-IRA and retire with a $2MM t-IRA, you will feel the pain of high tax rates and IRMAA unless you convert some portion to Roth. Bear the tax pain while working or bear it while retired. Your choice.
I'll convert. Thanks.
Topic Author
Jireh57
Posts: 12
Joined: Thu Feb 01, 2024 5:52 pm

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by Jireh57 »

I'll convert. Thanks!
User avatar
retiredjg
Posts: 54281
Joined: Thu Jan 10, 2008 11:56 am

Re: How to manage a traditional IRA with tax bracket in retirement same as tax bracket while working

Post by retiredjg »

Remember, there is no need to convert it all if you don't want to. I would convert enough to keep the balance where it is or somewhat smaller.
Post Reply