Tax diversification - In plan roth conversion |
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holtrp
New Poster
Cash: $ 0.45
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Tax diversification - In plan roth conversion |
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New member here with some questions about what others might think.
My wife and I have similar retirement savings amounts and plans. We each have both a generous defined contribution and a defined benefits (pension) from our employers.
My employer recently started offering a Roth 401k option and now in plan roth 401k conversions. Neither of us has any money in traditional IRA or Roth plans outside of our employers. A few years ago I started exclusively contributing to my Roth 401k instead of my regular tax deferred 401k. We really don't have any tax advantage in doing so outside of tax diversification as we are already in the upper income tax brackets are are projected to stay there throughout retirement. My reasoning is that having at least some money in a Roth 401k at retirement would offer some flexibility, if we wanted to make a large withdrawal or may help keep out tax burden down allowing us to draw minimally from our tax differed savings.
My question is this. I currently have approx 70% before tax and 30% after tax mix in my 401k, but have the option to roll over in-plan as much of my before tax money as I want to convert to roth. Curious what other people think. Should I just keep contributing to roth 401k and not worry about converting, convert ~5% per year from after tax to Roth over time and try to get my 401k completely converted to a ROTH because my wife should always have a fully tax deferred retirement? Try to hit some kind of 50-50% split in my own 401k of tax deferred / ROTH contributions and then balance out my contributions?
I sort of think I am going to wait and see what happens with tax reform this year in congress and see what happens there before I decide what to do. I have seen a few articles that discuss retirement account tax diversification but curious what other people think.
Thanks!
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Mon May 08, 2017 6:25 pm |
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oldguy
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You are high earners, because of that I would use only the tax-deferred 401k and pay the taxes as late as possible. With the Roth you are now prepaying your taxes at the maximum rate. But if you wait until age 70.5 and take out only 3% or 4% each year, you may have an opportunity to sell a portion at less than the top bracket? Plus, the top bracket may be lowered in the future?
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Mon May 08, 2017 6:52 pm |
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holtrp
New Poster
Cash: $ 0.45
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Joined: 08 May 2017
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Thanks for the response.
I see exactly what you are saying and I was thinking along the exact same lines a few years ago until I started thinking about diversification. You are right, I am confident that putting money into a ROTH 401k at this point is not the most efficient way to minimize taxes either now or in retirement.
However, I feel like it makes sense to have at least some of our retirement assets in a tax free account rather than staying completely in tax deferred accounts just in case we need to make a large withdrawal once or twice or if they jack up rates on deferred tax plans / income or whatever.
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Mon May 08, 2017 11:50 pm |
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