Ideal Ratio of Taxable & Tax-Deffered Savings when using Roth Conversion

[frugalshrink]

Howdy Mustachians!

Does anyone know of a comprehensive calculator that will help us determine the ideal amounts to have in traditional IRA accounts v. taxable accounts at the time of FI? Especially if we are working towards FI and planning on doing a Roth conversion ladder? I'm hoping it will account for...

- The 5 year "vesting" rule of waiting to withdraw Roth IRA principle without penalty
- Any potential tax-related implications of selling investments from a taxable account (incl. taking dividends in cash) while in FI
- Standard deductions to offset taxable income (to determine how much of the Roth conversion will be tax-free)
- Inputs for current savings rate, expenses, rate of return, and rate of withdrawal during FI (e.g., 4% rule).

Ideally, I'm even trying to figure out a ideal ratio... meaning at the time we reach FI, 60% of our savings should be in taxable accounts while 40% should be in Traditional IRAs - or some rough rule like that. FWIW - This is about the ratio I've calculated thus far.

In case anyone wants to try and help me figure this out, here are all the relevant inputs about our situation I can think of.

Total Net Worth: $295k
   - Traditional IRA: $150k
   - Roth IRA: $45k
   - Taxable: $100k
Annual Expenses: $31k
Current Savings Rate: 73%
Job Status: Spouse and I are in well-paying professional jobs
Tax Status: Married Filing Jointly, No Children
Ages: We are both 31

Although our current spending would only require us to accumulate about $775k to reach FI, we are also shooting for a large margin of error by trying to accumulate about 1 million in net worth... enough to provide for a $40k/year lifestyle if we choose to do more traveling in our FI days.

Thanks in advance for any links, guidance, or direction you might be able to provide.

[MDM]

Does anyone know of a comprehensive calculator that will help us determine the ideal amounts to have in traditional IRA accounts v. taxable accounts at the time of FI?

Don't know about an ideal ratio, but withdrawing $40K/yr only from taxable accounts will likely cost you $0 in federal tax.  You'll have to look at your state tax situation.  If state tax is also $0, then you need ~$200K in taxable accounts, which could be depleted in 5 years.  The rest can be in traditional accounts, filling your Roth pipeline as needed.

[frugalshrink]

MDM - Thanks for the reply! One question I had was how dividends taken in cash are taxed... I know the long-term cap gains tax is zero up to about 75k for a married couple fling jointly, but are dividends considered ordinary income or long-term gains? Lets assume these dividends are coming from index funds that were held longer than a year. Just trying to determine if I should plan for a tax burden when I consider our post-fi life.

[SimpleCycle]

MDM - Thanks for the reply! One question I had was how dividends taken in cash are taxed... I know the long-term cap gains tax is zero up to about 75k for a married couple fling jointly, but are dividends considered ordinary income or long-term gains? Lets assume these dividends are coming from index funds that were held longer than a year. Just trying to determine if I should plan for a tax burden when I consider our post-fi life.

Dividends are taxed as ordinary income.

[boarder42]

Not all dividends are not taxed as ordinary income qualifying dividends are taxed as LTCGs.  which many(all??) are in VTSAX. 

Also the equation for figuring out if you can stay in the 15% bracket is not just 75k. for married joint no kids its 75k + Standard(12,700 or itemized if larger) + personal exemption(4050x2) So you're really looking at 96.8k give or take.  And remember this includes your roll over b/c 100% of that is taxed so if you need 40k per year you'll need to roll over 46.5k so now you have around 50k worth of taxable GAINS you can withdraw. Another thing commonly overlooked is that your principal in your taxable isnt re taxed its just the gains.  Plus you can withdraw from your roth principal as well to try to optimize all of this and lower your tax burden since those withdrawals arent taxed.

Add to that an HSA where you havent been taking money out for medical and you have another tax haven to withdraw from. (really hoping trump doubles this or more like he says he plans to)

[boarder42]

also the I-orp calculator is fun to play with different scenarios to optimize withdraw strategy in FIRE

https://www.i-orp.com/