FundRobot » Pension Funds » 401s, IRA, to a Roth IRA When and How Much?

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Old   #1 (permalink)
 
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Default 401s, ira, to a roth ira and

I am retired, not collecting SS yet or pension. Living off wifes salary.

My wife and I will be completely retired in a year. Both collect SS and Pension that will total about $75K.yr. Our expenses right now with no debt is about $50K.


We have a nest egg in 401k,403B IRA and annuities totaling about $1.2M.

We have very little in Roth IRA's. My dilemma is this. I would like to roll over into Roth IRA to avoid future hits on Withdrawals.



How do we start the process without moving ourselves into a high tax bracket when we initially withdraw from the 401's etc. to put them into Roths?

Do we start that process in a year with yearly rollovers to avoid those high taxes or take the big hit all at once.

We don't wont' need our savings for quite some time as our yearly income will keep us going for a long time plus our annuities will be kicking in at any time we need them. Of the $1.2M we have $400K in annuites that will supply us another $25-35K/Yr when we decide to start using them.

In summary how would we roll over about $700K into a Roth IRA without a substantial hit from the IRS? Over a 5 yr period? etc.?
Gamer125 is offline   Reply With Quote
Old   #2 (permalink)
 
Posts: 2,578
Default 401s, ira, to a roth ira and

The basic answer is simple...

When you convert your retirement accounts to a Roth IRA, you will have to pay taxes on the amount you convert. It will be treated as ordinary income, and you will be taxed as such.

Even if you break it down over 5 years, that's still doing to be about $140,000 per year...at that amount, you'l likely be paying the highest tax rate.
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Old   #3 (permalink)
 
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Default 401s, ira, to a roth ira and

The Vanguard website explains your options quite well . . .

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"IRA options for your 401(k) rollover -- Both Roth and traditional IRAs offer advantages. Which one you choose depends on the type of account you have now (pre-tax or after-tax) and other factors, such as when you want to pay taxes.

What you can do

> Move a traditional 401(k) into a traditional IRA, tax-free.
> Move a Roth 401(k) into a Roth IRA, tax-free.
> Move a traditional 401(k) into a Roth IRA—this would be considered a "Roth conversion," so you'd owe taxes."

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So the bottom line is that if you have a traditional 401k, you're going to owe taxes on it for the tax year in which you either convert it to a Roth IRA or withdraw it from a traditional Rollover IRA. Given that pay me now or pay me later IRS scenario, I would ordinarily recommend that you delay the tax hit by withdrawing from the traditional Rollover IRA only the amount you need for living expenses that is not covered by Social Security, dividends and interest from taxable accounts, pensions, annuity payments, and other sources of income.

A few additional comments are warranted. First, in the year in which each of you turns 70.5, you must take required minimum distributions from traditional and rollover IRAs but not from Roth IRAs. Second, you may or may not have the option to keep your 401k after you retire but it is often more prudent to roll it into an IRA because you will likely have more investment options.
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Old   #4 (permalink)
 
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Default 401s, ira, to a roth ira and

At your age and based on your income you won't be needing much of your Retirement money at any given time except for a major luxury or crisis. You are best to consolidate your 401's and into a few IRA. Same goes for your wife's. By doing this you could reduce a lot of fund expenses. Also if your were to rollover to Roth IRA, they would put you in the top tax brackets. You can avoid the high tax brackets by Rolling over to Roth IRA on yearly basis but not in substantial amounts.
Let a majority of it ride in IRA. I would also consult with both a financial advisor and an Estate planner to protect your heirs inheritance as you will have quite a nestegg when you pass away.

If you were in your early 50's I would advise to move larger amounts to Roth IRA you're needs to withdraw are required based on your plan. Good luck and great job on your savings for retirement.
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