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  • Roth Conversion?

    Hello Bogleheads. I have about $88k in a rollover IRA from a prior employer and am looking to either convert it to Roth or roll it into my existing employer’s 401k plan so that I can avoid issues with the pro rata rule. I’ve been given conflicting advice about converting to Roth and wanted to test that with this group in case anyone had any thoughts they could share with me. The facts are:

    -I’m in a high tax state and in the 35% tax bracket with space in my bracket to convert the whole IRA.
    -I really don’t expect to move to a low tax state in the future, but one never knows.
    -I expect my tax bracket to go up next year and to continue in the highest bracket for the foreseeable future.
    -the bulk of my retirement savings are pre-tax, including a defined benefit plan. I’m not sure if I have an “RMD problem” but it’s come up.
    -while I can roll into my existing 401k and have a balance in that plan, going forward my employment status with my employer will change and as a result I will not be permitted to contribute to the plan, including for mega backdoor Roth purposes.
    -We have $20k in Roth dollars and access to only $6k in additional annual Roth contributions if the IRA remains unconverted (and another $6k annually if converted).
    -I likely will be in the 28% tax bracket in retirement, if not higher.
    -I expect today’s 28% tax bracket rate to be higher in my retirement.
    -I am 38 y o and hope my $88k IRA will grow substantially over the next several decades.
    -my 401k investment options are meh and I use the IRA to invest in tax inefficient asset classes that are unavailable in my 401k. If I convert, those investments will need to be made in my taxable account.

    Given the above, you can tell I’m generally leaning towards converting to preserve tax sheltered space for my tax inefficient assets classes and because paying 35% (plus state tax) now on $88k sounds better than paying what I think will be more than 28% on $400k+ in retirement (assuming 6% growth to 65).

    I also know people don’t recommend Roth conversions for folks above the 28% bracket so that gives me pause.

    Thank you!

    P.S. This was cross-posted on the Bogleheads forum so apologies for duplication!

  • #2
    Roll over to the 401k

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    • #3
      roll over to the 401k, do not convert. also, there is no 28% tax bracket

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      • #4
        LOL, you are right, no 28% tax bracket. I meant 32%!

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        • #5
          Originally posted by Omiz View Post
          LOL, you are right, no 28% tax bracket. I meant 32%!
          and the higher the current marginal bracket, the less a roth conversion makes sense.

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          • #6
            I do think that for high income people with significant pre-tax dollars saved, that the calculation is a little more complicated than current vs. future tax bracket.

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            • #7
              James Lange told me to convert up to the top of the 24% bracket and someone else up to 20% EFFECTIVE tax rate
              Taxes have to go up after TCJA expires end 2025

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              • #8
                Originally posted by Kennyt7 View Post
                James Lange told me to convert up to the top of the 24% bracket and someone else up to 20% EFFECTIVE tax rate
                Taxes have to go up after TCJA expires end 2025
                There isn’t a hard rule on this. Depends on your specific situation.

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                • #9
                  I have never met anyone nearing retirement who regretted having more Roth and less pre-tax retirement account. Funny how that works but what matters when you get to that stage is what is at that time, not what you did 10-30 years ago. But we all like our ROTs.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Taxes will never be lower, especially in states like Fla with no income taxes
                    GO ROTH!!!!!!!!!

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                    • #11
                      Originally posted by Kennyt7 View Post
                      James Lange told me to convert up to the top of the 24% bracket and someone else up to 20% EFFECTIVE tax rate
                      Taxes have to go up after TCJA expires end 2025
                      I make no judgement about the suitability of conversions at 24%, but effective tax rates are irrelevant.

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                      • #12
                        I am more interested in the % of taxes I pay on my gross income
                        20% effective is great

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                        • #13
                          While you may like to know your effective tax rate and it is useful for some level of retirement income and tax planning. It is not relevant to incremental tax planning.

                          Incremental accumulation pre-tax deferrals/deductions and withdrawal taxable distributions all occur at marginal tax rates.

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                          • #14
                            any sense converting to the 32% bracket. eventually the widows tax is quite significant

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                            • #15
                              OP also said lives in high tax state so no I wouldn't convert into the 32% range because it's probably then at least 42%

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