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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: Nickel on April 27, 2018, 03:49:03 PM

Title: How Best to Get $ Out of 401(k)?
Post by: Nickel on April 27, 2018, 03:49:03 PM
When 90% of your savings (1.5M) are in a 401(k) at age 55 (no 10% penalty), what is the best way to get it out?

Slow -- qualify for ACA subsidies until Medicare but face RMDs at age 70 1/2 and have limited financial flexibility

Medium -- lose ACA subsidies and other benefits of lower income but stay in 12% tax bracket (about $100K/year for married couple with $24K standard deduction) -- probably the best option -- get travel insurance and spend at least 6 months per year outside US.

Fast -- pay higher income tax rates now to push all the $ into a Roth ASAP and create a source for lifetime tax free growth and income.  This shrinks the stash but creates more flexibility, including the ability to return to Oregon sooner (where state income tax is 9%) after relocating to Washington (to avoid state income tax while draining the 401k).  Note: Oregon does not tax social security payments.

These are the new tax brackets for 2018:

Rate   Individuals            Married Filing Jointly
12%   $9,526 to $38,700    $19,051 to $77,400
22%   38,701 to $82,500    $77,401 to $165,000
24%   $82,501 to $157,500    $165,001 to $315,000
32%   $157,501 to $200,000 $315,001 to $400,000
Title: Re: How Best to Get $ Out of 401(k)?
Post by: lhamo on April 27, 2018, 07:49:07 PM
Will you have other taxable investment income (or other income) to take into account?  If not, then the medium strategy seems to be the way to go -- though you might want to avoid converting all the way to the top of the 12% bracket so that you don't completely fall off the ACA subsidy cliff.

Say you convert 80k/year for the next 15 years -- that takes a big hunk out of the traditional accounts (though obviously there will be some continued growth there).

We've still got 2 minor kids at home, so we're probably going to convert about 50-60k/year for now, as that will still net us a nice ACA subsidy.  We'll focus on converting out of DH's accounts first, as he has a larger tax-deferred balance than I have in mine (my last workplace had a Roth 403b option, which I took advantage of), and is also closer to RMD age (age 60, I'm turning 50 this year).