Anyone doing Roth conversions this December?

[ENT Doc]

Not really. The basis for considering this is future passive income leading up to retirement including:

457b drawdown starting next year

potential bequests from relatives (accelerated withdrawals due to SECURE act)

distributions from RE equity funds - sheltered somewhat by depreciation

All of this potentially limits my tax planning flexibility over time.

and then there’s the risk of future tax hikes.

Roth/after tax retirement contributions have the additional benefit of increasing Sec199A deduction, which may not be available after TCJA expires.

I thought you were fairly young, no?

[Lithium]

technically you don’t have until April but rather 12/31, for employee contributions

though your employee and employer contributions as a sole prop can be made up to tax filing deadline, per IRS regs you need to have an employee deferral election completed before year end

Interesting. I am not sure of the process for designating an election in a self administered plan. I usually just make the contribution and file my taxes.

Does that also apply to after tax contributions?

Do you fill out a separate form?

[Kennyt7]

TAXES will never be lower. Wish I started earlier to convert but will convert 100k Jan 1. Retired age 70
James Lange writes a lot about this and suggests too convert up to the 24% bracket
As I am in Fla my effective tax rate on 300k is only 18%
These tax cuts end at the end of 2025
Using the Roth as LTC I,f needed but will do 100k/yr
We have 4.3M in IRAS-a good PROBLEM that got worse with the SECURE ACT!!!

[Lithium]

I thought you were fairly young, no?

Chronologically, yes. But financially I don’t really have any short term goals at this point and am mostly coasting in my career.

Trying to come up with the best long term plan, and it’s possible I’m trying too hard to optimize.

[jacoavlu]

Interesting. I am not sure of the process for designating an election in a self administered plan. I usually just make the contribution and file my taxes.

Does that also apply to after tax contributions?

Do you fill out a separate form?

there are forms available on the internet, from your brokerage, from your solo plan document provided or administrator

or look at available forms and create your own

im not aware of any rule that mandates the form include specific dollar amounts.

perhaps in your case something along the lines of “maximize employee Roth deferral election and then maximize employee voluntary after tax contributions, to the maximum allowed limit based upon regulations and as limited by compensation”

if you’re going all Roth

[ENT Doc]

Chronologically, yes. But financially I don’t really have any short term goals at this point and am mostly coasting in my career.

Trying to come up with the best long term plan, and it’s possible I’m trying too hard to optimize.

Chronologically is all that matters. Things like Medicare qualifying age, ages at which to take SS, and RMD ages have no bearing on your financial pathway to FIRE. Tax optimization, as you know, takes these chronological considerations into account. All I'm saying is be cautious about converting now when it may not be wise to do so. You have to think about when you would be actually extracting the pre-tax money for use in retirement. If you are starting off at the 24% bracket because of a pension or passive income at the time you plan on withdrawing the pre-tax money then it might make sense.

[dennis]

Heard from the CPA today. We'll do a $100K conversion and it will cost $22K in taxes. Figure it's worth it to avoid the RMDs in a few years and allow it to grow further tax free.

[pitt1166]

conversion at 24% plus state isn’t a slam dunk.

where are these funds? In an old 401k? Rollover into a new 401k?

just wanted to follow up on this and see what you would do in my situation.

they are in a 401a (university of california target retirement fund, good fund, low ER) and a 401k (S&P 500 index fund, low ER) from training (finished my training in june of 2020, so i'm about 5 months into being an attending). my total income for the 2021 year will probably be in the range of 450k, compared to 180k for the 2020 year.

also our state income tax is currently 4.5% now (so any roth conversion for this year would be taxed at 24% federal +4.5% state ~= 30%). our state income tax is increasing to 8% next year and overall i believe taxes will be higher long term.

is there something i am missing that would make converting my 30k (currently in 401k/401a from training) to roth IRA the wrong move?

[JBME]

When you get to 30% it’s a wash. Looks like you live in Arizona. Do you hope to retire there? What you’re missing is the unknown on whether you’ll retire to a state with a lower income tax.

if I were you I’d do the rollover this year. It could end up being a wash. In other words it might not be right but it wouldn’t be wrong

[wa2106]

just wanted to follow up on this and see what you would do in my situation.

they are in a 401a (university of california target retirement fund, good fund, low ER) and a 401k (S&P 500 index fund, low ER) from training (finished my training in june of 2020, so i'm about 5 months into being an attending). my total income for the 2021 year will probably be in the range of 450k, compared to 180k for the 2020 year.

also our state income tax is currently 4.5% now (so any roth conversion for this year would be taxed at 24% federal +4.5% state ~= 30%). our state income tax is increasing to 8% next year and overall i believe taxes will be higher long term.

is there something i am missing that would make converting my 30k (currently in 401k/401a from training) to roth IRA the wrong move?

Any PSLF plans? That would add 10% to the calculation and make it a no.

[jacoavlu]

at 30% I’d probably leave it pretax but agree a Roth conversion isn’t crazy. It’s not enough money that you’re going to regret it either way

[pitt1166]

thank you all for the responses. yes we live in AZ, no idea where we will retire (hopefully thats 30ish years from now).

no plans for PSLF, i've refinanced my loans with Sofi so hoping to pay them off in the next 3 years.

i am fairly certain i am missing something significant here. i understand that if i keep the money in the 401k/401a, and then withdraw money from those accounts in retirement, i'll be taxed at some unknown rate (depending on my tax bracket and future tax rates) at that time. OTOH, if i convert the ~30k i have in the 401k/401 to a roth ira now, i'll pay ~30% in taxes next year, but then that money will be able to grow tax free and be withdrawn tax free in retirement.

fair to assume the money i have in the 401k/401 will grow a fair bit over the next ~30 years, so why isn't it a slam dunk to convert to roth ira now? i.e. i can pay 30% of 30k now, around 9k in taxes by converting now versus paying some unknown tax rate in retirement (let's pretend it's also 30% in retirement) on 100k (just an example of what 30k could grow to in 30 years... what am i missing here?

i really appreciate you all holding my hand through this pretty basic stuff.

[jacoavlu]

thank you all for the responses. yes we live in AZ, no idea where we will retire (hopefully thats 30ish years from now).

no plans for PSLF, i've refinanced my loans with Sofi so hoping to pay them off in the next 3 years.

i am fairly certain i am missing something significant here. i understand that if i keep the money in the 401k/401a, and then withdraw money from those accounts in retirement, i'll be taxed at some unknown rate (depending on my tax bracket and future tax rates) at that time. OTOH, if i convert the ~30k i have in the 401k/401 to a roth ira now, i'll pay ~30% in taxes next year, but then that money will be able to grow tax free and be withdrawn tax free in retirement.

fair to assume the money i have in the 401k/401 will grow a fair bit over the next ~30 years, so why isn't it a slam dunk to convert to roth ira now? i.e. i can pay 30% of 30k now, around 9k in taxes by converting now versus paying some unknown tax rate in retirement (let's pretend it's also 30% in retirement) on 100k (just an example of what 30k could grow to in 30 years... what am i missing here?

i really appreciate you all holding my hand through this pretty basic stuff.

whether you convert to Roth or not, the money grows tax free

the comparison is, $30k growing tax free in Roth and never taxed again

vs $30k growing tax free and then taxed at future income tax rate, plus $9k invested in your taxable brokerage account (because you’re not paying $9k tax if you don’t convert, you have this money available to invest)

[Kennyt7]

An advisor suggested to me to convert up to a 20% effective tax rate(no state tax for me)
will put me in higher medicare part b premium, but contemplating
on 375k income I would pay 74k federal tax