401K to RothIRA conversion- how much to keep in 401K

[ca-rn]

I've read alot about (early) retirees pros/cons in planning to convert 401K/TradIRA into RothIRA to reduce the RMD bomb, avoid IRMAA cliff, juggle ACA credits (if early retirees) etc.

Usually they have very large 401K/TradIRA accounts. 

But is there a rule of thumb/advice for how much to keep in a 401k/IRA relative to the rest of invested monies? 

Example- I am a single filer, no dependents, 22% fed, 9(?)% state currently and remain in retirement, 401K is mostly bonds and accounts for about 40% of total invested funds, 60% in taxable/small RothIRA, will have modest pension no COLA (or lump sum) and rental income. 

I am slowly converting/purchasing all bonds in 401K to keep desired AA and reduce amount of future RMDs. 

I've read its good to keep some funds in 401k for possible LTC costs but how much is a reasonable amount?   

Is there an article that you can point me to?  I keep feeling like I'm using the wrong search terms here... 

Thanks!

[seattlecyclone]

I think this can be a very individualized thing. The main reason to do Roth conversions now is to lock in today's tax rate on the assumption that it will be less than tomorrow's tax rate. Those rates vary quite a lot from person to person. Estimating your future tax rate can be a difficult exercise, but I think you've identified many of the factors that might go into it. Go through that estimation, see if your tax rate is likely to be higher later than it is now, and convert accordingly.

With regard to RMDs specifically, remember that the "problem" with these only crops up if the RMD is significantly more than you were planning to spend anyway. You'll be forced to recognize a bunch of income that you don't have any intention of spending, and that can bump you up into the next tax bracket. What's your plan for this excess money? You say you're single and have no dependents, so how are you going to dispose of the wealth when you die? If charity plays a big part in that, you should be aware of  qualified charitable distributions. After you turn 70, you have the option of giving up to $100k per year directly from your IRA to charities, completely tax-free, and these distributions count toward your RMD. That would make the tax rate on the unwanted part of your RMD be effectively zero, making a Roth conversion this year less of a good idea than if you were planning to keep that money for yourself or a family member.

[Ron Scott]

I think this can be a very individualized thing. The main reason to do Roth conversions now is to lock in today's tax rate on the assumption that it will be less than tomorrow's tax rate. Those rates vary quite a lot from person to person. Estimating your future tax rate can be a difficult exercise, but I think you've identified many of the factors that might go into it. Go through that estimation, see if your tax rate is likely to be higher later than it is now, and convert accordingly.

With regard to RMDs specifically, remember that the "problem" with these only crops up if the RMD is significantly more than you were planning to spend anyway. You'll be forced to recognize a bunch of income that you don't have any intention of spending, and that can bump you up into the next tax bracket. What's your plan for this excess money? You say you're single and have no dependents, so how are you going to dispose of the wealth when you die? If charity plays a big part in that, you should be aware of  qualified charitable distributions. After you turn 70, you have the option of giving up to $100k per year directly from your IRA to charities, completely tax-free, and these distributions count toward your RMD. That would make the tax rate on the unwanted part of your RMD be effectively zero, making a Roth conversion this year less of a good idea than if you were planning to keep that money for yourself or a family member.

This is a great response.

RMDs start at 72, and if that’s a long way out for you the unknowns can muck up an otherwise decent plan.

You’re not googling this wrong and there’s no magic answer. There are many moving parts to tax minimization. Talking with a trusted tax accountant about your specific situation can help.

You’re asset location strategy sounds good. Although I suppose if you’re into rebalancing you might want to keep some equities in the IRA so you can do so without manufacturing gains in your taxable accounts.

The charitable approach can be very compelling if you’re so inclined. If not, think about spending more of your forced income (dividends and interest in taxable, pensions, SS, RMD, etc.).

I doubt its possible to completely nail a tax minimization plan with Roth conversions. A friend and accountant told me 2 things that I’ve kept in mind:
“LOL, please don’t bullshit me that you’re doing conversions for yourself.” and
“Don’t overthink it—convert some, leave some, sleep well.”