Contributing to Roth 401k at 64

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
boglebogle2020
Posts: 12
Joined: Wed Jun 05, 2024 1:47 pm

Contributing to Roth 401k at 64

Post by boglebogle2020 »

I am 64 years old and have $1.8 M in Regular 401k. Is it time for me to switch to Roth 401k?

I am in my high income years and given my regular 401k balance amount, I am debating whether to take a tax break now vs in the future.

Request any suggestions / your perspective.
mhalley
Posts: 10496
Joined: Tue Nov 20, 2007 5:02 am

Re: Contributing to Roth 401k at 64

Post by mhalley »

Extremely complicated with not enough info. A lot of retirees retire before taking SS and use those years to do Roth conversions before rmds, But this depends on tax bracket, filing status, if you have money in taxable to pay the taxes on the conversions, whether you want/need ACA subsidies, whether you want to leave money to heirs plus their tax brackets, etc, etc.
You might have 20 plus years before you need to access the Roth funds.
Also, nothing has to be 100%. If you aren’t certain, you can always do 50% Roth so you can be sure you are half right..
tibbitts
Posts: 24384
Joined: Tue Feb 27, 2007 5:50 pm

Re: Contributing to Roth 401k at 64

Post by tibbitts »

boglebogle2020 wrote: Sun Jun 09, 2024 9:43 pm I am 64 years old and have $1.8 M in Regular 401k. Is it time for me to switch to Roth 401k?

I am in my high income years and given my regular 401k balance amount, I am debating whether to take a tax break now vs in the future.

Request any suggestions / your perspective.
You didn't provide anywhere near enough information for anyone to comment.

You might consider using at least two of the usually-recommended software tools often discussed here to get an idea of the implications of one type of contribution or another. Beware that you'd have to invest considerable effort into setting up the software and then experimenting with different assumptions, etc. Your results will always be highly dependent on assumptions, but you seem to not be familiar with all the variables involved, so the process might be helpful to you.
babystep
Posts: 909
Joined: Tue Apr 09, 2019 9:44 am

Re: Contributing to Roth 401k at 64

Post by babystep »

boglebogle2020 wrote: Sun Jun 09, 2024 9:43 pm I am 64 years old and have $1.8 M in Regular 401k. Is it time for me to switch to Roth 401k?

I am in my high income years and given my regular 401k balance amount, I am debating whether to take a tax break now vs in the future.

Request any suggestions / your perspective.
No. Overwhelming majority should continue with 401k instead of Roth 401k in high income years.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Contributing to Roth 401k at 64

Post by FiveK »

What marginal tax rate would you save by making traditional 401k contributions now, what do you expect for your marginal tax rate after retirement, and when do you expect to retire?
Topic Author
boglebogle2020
Posts: 12
Joined: Wed Jun 05, 2024 1:47 pm

Re: Contributing to Roth 401k at 64

Post by boglebogle2020 »

tibbitts wrote: Sun Jun 09, 2024 10:26 pm
boglebogle2020 wrote: Sun Jun 09, 2024 9:43 pm I am 64 years old and have $1.8 M in Regular 401k. Is it time for me to switch to Roth 401k?

I am in my high income years and given my regular 401k balance amount, I am debating whether to take a tax break now vs in the future.

Request any suggestions / your perspective.
You didn't provide anywhere near enough information for anyone to comment.

You might consider using at least two of the usually-recommended software tools often discussed here to get an idea of the implications of one type of contribution or another. Beware that you'd have to invest considerable effort into setting up the software and then experimenting with different assumptions, etc. Your results will always be highly dependent on assumptions, but you seem to not be familiar with all the variables involved, so the process might be helpful to you.
Which software tools would you recommend for me to use.
Topic Author
boglebogle2020
Posts: 12
Joined: Wed Jun 05, 2024 1:47 pm

Re: Contributing to Roth 401k at 64

Post by boglebogle2020 »

FiveK wrote: Sun Jun 09, 2024 11:32 pm What marginal tax rate would you save by making traditional 401k contributions now, what do you expect for your marginal tax rate after retirement, and when do you expect to retire?
Currently in 24% and expect in retirement to be in 22%.

I am planning to retire at 67 or 68
User avatar
ichee_marone
Posts: 217
Joined: Sun Dec 18, 2022 11:20 am
Location: NC

Re: Contributing to Roth 401k at 64

Post by ichee_marone »

You need software (Pralana Gold, ProjectionLab, New Retirement) where you can model some scenarios about when to take social security, how much your RMDs will be and if you it makes sense to use the (gap years) tax window (after retirement, before social security start) to do Roth conversions.

I wouldn't immediately jump to making the traditional 401k investment without the analysis; it may make more sense for you to do the Roth 401k or actually stop 401k altogether and dump into a brokerage account (this could be used to live during the gap years and make the Roth conversions).
User avatar
TomatoTomahto
Posts: 17549
Joined: Mon Apr 11, 2011 1:48 pm

Re: Contributing to Roth 401k at 64

Post by TomatoTomahto »

boglebogle2020 wrote: Mon Jun 10, 2024 9:04 am
FiveK wrote: Sun Jun 09, 2024 11:32 pm What marginal tax rate would you save by making traditional 401k contributions now, what do you expect for your marginal tax rate after retirement, and when do you expect to retire?
Currently in 24% and expect in retirement to be in 22%.

I am planning to retire at 67 or 68
Why would you want to pay 24% tax now, then? Just stay traditional.
I get the FI part but not the RE part of FIRE.
vtjon
Posts: 299
Joined: Fri Jul 20, 2012 12:53 pm

Re: Contributing to Roth 401k at 64

Post by vtjon »

There is also the 5-year rule on the Roth 401k and it's a different from the 5-year on a Roth IRA. Presumably, you could roll your Roth 401K to a Roth IRA that has already met the 5 year rule though.
tibbitts
Posts: 24384
Joined: Tue Feb 27, 2007 5:50 pm

Re: Contributing to Roth 401k at 64

Post by tibbitts »

boglebogle2020 wrote: Mon Jun 10, 2024 9:00 am Which software tools would you recommend for me to use.
That's somewhat of a complicated question because it depends on how much effort you want to put in, how comfortable you are with spreadsheets (and maybe what spreadsheet software you own), and how much you're willing to spend for a tools. I haven't used them all, but some of the tools discussed in other threads include RPM, Projection Lab, MaxiFi Planner, New Retirement, Pralana, VeriPlan, Right Capital... the list goes on. Except for RPM which is free, some of these have free and fee-based versions; generally you'll need the fee-based for the analysis you want, but a few of them allow for free trial periods.

The primary question you seem to be asking relates to your deferred balance, with or without future contributions. Tools can point you at what some different outcomes might be, but I always caution against relying too heavily on any one (or even two) tools because any tool will be extremely sensitive to assumptions (these tools mostly have some default assumptions, which might not agree with yours and which you might want to override), and sometimes you can make a minor error - maybe just misunderstanding what a tool is asking for with a particular input - and see a huge variation in the results. And keep in mind that the success of any plan will entirely depend on future unknowns (sequence of returns, government policies, etc.); you're guaranteed to never be able to develop what will turn out to be an optimal plan.
Topic Author
boglebogle2020
Posts: 12
Joined: Wed Jun 05, 2024 1:47 pm

Re: Contributing to Roth 401k at 64

Post by boglebogle2020 »

tibbitts wrote: Mon Jun 10, 2024 10:34 am
boglebogle2020 wrote: Mon Jun 10, 2024 9:00 am Which software tools would you recommend for me to use.
That's somewhat of a complicated question because it depends on how much effort you want to put in, how comfortable you are with spreadsheets (and maybe what spreadsheet software you own), and how much you're willing to spend for a tools. I haven't used them all, but some of the tools discussed in other threads include RPM, Projection Lab, MaxiFi Planner, New Retirement, Pralana, VeriPlan, Right Capital... the list goes on. Except for RPM which is free, some of these have free and fee-based versions; generally you'll need the fee-based for the analysis you want, but a few of them allow for free trial periods.

The primary question you seem to be asking relates to your deferred balance, with or without future contributions. Tools can point you at what some different outcomes might be, but I always caution against relying too heavily on any one (or even two) tools because any tool will be extremely sensitive to assumptions (these tools mostly have some default assumptions, which might not agree with yours and which you might want to override), and sometimes you can make a minor error - maybe just misunderstanding what a tool is asking for with a particular input - and see a huge variation in the results. And keep in mind that the success of any plan will entirely depend on future unknowns (sequence of returns, government policies, etc.); you're guaranteed to never be able to develop what will turn out to be an optimal plan.
Without going through simulations, with my current tax bracket does it make sense to continue with Traditional 401(k)?
User avatar
TomatoTomahto
Posts: 17549
Joined: Mon Apr 11, 2011 1:48 pm

Re: Contributing to Roth 401k at 64

Post by TomatoTomahto »

boglebogle2020 wrote: Mon Jun 10, 2024 2:08 pm
Without going through simulations, with my current tax bracket does it make sense to continue with Traditional 401(k)?
Imo, based on what you’ve said, YES.
I get the FI part but not the RE part of FIRE.
User avatar
FiveK
Posts: 16174
Joined: Sun Mar 16, 2014 2:43 pm

Re: Contributing to Roth 401k at 64

Post by FiveK »

boglebogle2020 wrote: Mon Jun 10, 2024 2:08 pm Without going through simulations, with my current tax bracket does it make sense to continue with Traditional 401(k)?
Two answers, both reasonable based on reasonable assumptions:
1) Yes
2) No.

Whichever you choose is unlikely to make a significant difference in your retirement quality of life.

Because you do have a large traditional balance, and either
a) the way "Traditional plus taxable" vs. Roth math works, or
b) if you think your personal tax rate will increase due to tax law changes,
that might tip the scales toward using Roth now.

But if, for example, you plan to do significant charitable contributions while alive and/or in your will, that would tip the scales toward using traditional now.
tibbitts
Posts: 24384
Joined: Tue Feb 27, 2007 5:50 pm

Re: Contributing to Roth 401k at 64

Post by tibbitts »

boglebogle2020 wrote: Mon Jun 10, 2024 2:08 pm
tibbitts wrote: Mon Jun 10, 2024 10:34 am
boglebogle2020 wrote: Mon Jun 10, 2024 9:00 am Which software tools would you recommend for me to use.
That's somewhat of a complicated question because it depends on how much effort you want to put in, how comfortable you are with spreadsheets (and maybe what spreadsheet software you own), and how much you're willing to spend for a tools. I haven't used them all, but some of the tools discussed in other threads include RPM, Projection Lab, MaxiFi Planner, New Retirement, Pralana, VeriPlan, Right Capital... the list goes on. Except for RPM which is free, some of these have free and fee-based versions; generally you'll need the fee-based for the analysis you want, but a few of them allow for free trial periods.

The primary question you seem to be asking relates to your deferred balance, with or without future contributions. Tools can point you at what some different outcomes might be, but I always caution against relying too heavily on any one (or even two) tools because any tool will be extremely sensitive to assumptions (these tools mostly have some default assumptions, which might not agree with yours and which you might want to override), and sometimes you can make a minor error - maybe just misunderstanding what a tool is asking for with a particular input - and see a huge variation in the results. And keep in mind that the success of any plan will entirely depend on future unknowns (sequence of returns, government policies, etc.); you're guaranteed to never be able to develop what will turn out to be an optimal plan.
Without going through simulations, with my current tax bracket does it make sense to continue with Traditional 401(k)?
If it was possible to know that, it wouldn't be necessary to use software or do any further analysis. For example the answer might be different if you're going to do considerable QCDs. There are lots of moving parts. The value of the software is mostly to make it clear how different decisions interact with each other, not to provide an optimal solution. If you don't want to use any of that software, at least use an RMD calculator and make sure you understand roughly what your tax liability would likely be, including IRMAA etc.
Post Reply