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Bite the bullet at 22%-24% tax brackets?

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  • Bite the bullet at 22%-24% tax brackets?

    Hi everyone, my first post here!

    First of all I would like to thank WCI for this huge work, and the tremendous help & guidance. It had greatly impacted our lives & the way we should be thinking about money. I stumbled upon WCI last year! Before then, I didn't even know what 401K/403b mean! (Even though I found out that I already had them)

    Here is my situation:

    Finished fellowship this year, starting practice beginning of next year & doing locums now untill I start. My wife finished residency too this year, and looking for a job now, we are tide to certain geographic area in a state with no income tax.
    I have 2 old 403b (6K & 100K) & IRA (3K that was rolled over from a previous 401K because it was less than 5k), total about 110K. Otherwise no Roth. Mid 40s, no debt whatsoever, late to investment, renting (will be buying home as I settle in my new job). Married filing jointly. This year tax bracket would be 22-24%. (will be 35% + starting next year). Will be opening individual 401k for this year which will be able to contribute up to about 37K (between employee & 25% of gross as employer). I am also going to limit my locum so I don't hit the Medicare surtax of 3.8% filing jointly. Puzzled between:

    1- Rollover old retirement accounts into Roth IRA and pay taxes at 22-24%. (would not affect my 6 months emergency fund)
    2- Just convert the IRA to Roth, leave money in old 401K and see if I can roll them over to my individual 401k (I don't know which broker will let me do that either), and save the money for house down payment, even though I know can get 0 down mortgage without PMI.

    I have emailed the WCI about it & he, kindly & promptly, replied to convert to Roth if I can do the tax bill, which is my inclination. Just wanted to see what others feel about it, since I was given different advices in Boglehead forum before I was able to join this great forum. Should I worry about anything before doing that.

    Once again, thank you WCI and WCI community!


    Appreciate the help and suggestions.

  • #2
    given you are both doctors, next year and all years going forward you'll want to do 100% pre-tax since you'll be in the 35% bracket. That is why this year you should roll as much over as you are comfortable. I would roll enough over that it may get your AGI into the 24% bracket but as long as it doesn't cross into the next, that's what I'd do

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    • #3
      Thank you JBME!

      Comment


      • #4
        I believe it's bite the bullet? Referring to pre-anesthestic times.

        I'd pay the taxes now.

        Bogleheads forum is good, but has a wider ranges of salaries, so some of the personal finance stuff can have more varied responses.

        Welcome to the forum.

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        • #5
          I agree I would convert now. Especially with discussions in the federal government about eliminating the backdoor Roth or Roth conversions going forward for “the rich”

          Also, r/boneappletea
          MaxPower
          Bone Doc
          Last edited by MaxPower; 10-05-2021, 10:12 AM.

          Comment


          • #6
            Originally posted by Brains428 View Post
            I believe it's bite the bullet? Referring to pre-anesthestic times.

            I'd pay the taxes now.

            Bogleheads forum is good, but has a wider ranges of salaries, so some of the personal finance stuff can have more varied responses.

            Welcome to the forum.
            Thank you! I thought its buy the bullet all this time! thank you for the correction! and thank you for your response, much appreciated!

            Comment


            • #7
              Originally posted by MaxPower View Post
              I agree I would convert now. Especially with discussions in the federal government about eliminating the backdoor Roth or Roth conversions going forward for “the rich”
              This is exactly what I am fearing! Thank you for your response! Appreciated.

              Comment


              • #8
                Originally posted by Brains428 View Post
                I believe it's bite the bullet? Referring to pre-anesthestic times.

                I'd pay the taxes now.

                Bogleheads forum is good, but has a wider ranges of salaries, so some of the personal finance stuff can have more varied responses.

                Welcome to the forum.
                Thank you! I thought its buy the bullet all this time, it actually makes more sense now 😅 (I hope admin can fix the title to "Bite the bullet, so it make sense for readers! thank you for the correction! and thank you for your response, much appreciated!

                Comment


                • #9
                  Originally posted by Nah2Has View Post

                  Thank you! I thought its buy the bullet all this time, it actually makes more sense now 😅 (I hope admin can fix the title to "Bite the bullet, so it make sense for readers! thank you for the correction! and thank you for your response, much appreciated!
                  Don't feel bad, I thought it was "for all intensive purposes" instead of "for all intents and purposes" until my early 30's.

                  Comment


                  • #10
                    Bit it today! Thank you everyone!

                    Comment


                    • #11

                      Now a consequence question. I know I can do Backdoor Roth for my spouse, what about me after I bit the bullet?
                      1- Can I still do it for myself after my conversion? if yes:
                      2- Shall contribute to the Rollover IRA that I made the some of the conversion from (it has $0 now) or shall open a new traditional IRA to do that, if yes:
                      3- Will filling my form 8606 be different from what WCI has greatly and wonderfully described on the WCI website

                      Thank you

                      Comment


                      • #12
                        Its really a toss up to convert or not but many do say to convert to the top of the 24% bracket. At your stage I would be at least 80% in Total Stock
                        ROLLOVER your 401 to your own IRA-its less costly than a 401
                        MAXIMIZE as much ret money as you can; even non deductible IRAS(forced savings in my mind)

                        Comment


                        • #13
                          I think in general you have to be careful with doing Roth conversions in last year of residency and first year of attendinghood. I have a good friend in that situation who was making Roth contributions all year. The problem is she has a $25k signing bonus and $14k in reimbursed moving expenses. Between things like that and moonlighting, it's not that hard to go over the 24% bracket and into the 32% territory.

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