Author Topic: Another traditional vs Roth IRA question w/ Roth ladder conversion  (Read 620 times)


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Hey Guys,

I have another traditional vs Roth IRA as I'm concerned the Roth ladder conversion may or may not benefit me

Before I knew about FI or finances or anything I had opened a Roth IRA when I turned 26, I'm now 34, the Roth IRA is worth ~$47,600. I have a 401K from work that is worth ~$42,000 my company does not match, I started maxing this out this year. I am vested with my companies pension and if I left this week it would be $1800 a month when I collect at 64 years old. I was listening to a podcast of Mad Fientist about having a traditional ira then doing the Roth conversion ladder and convert the traditional to Roth. I opened a traditional Roth this year with vanguard so I have $5,811 in there and $28,525 in my vanguard brokerage account invested in VTSAX

I'm hoping to be able to retire in the next 5-8 years. I'm in the process of closing on a cabin property that will hopefully generate income from services like airbnb and if that's an enjoyable experience to have a side hustle/passion project of a few properties to have a some side income coming in which I think would most likely still be lower than my income now. I was thinking in the next few years to contribute to the traditional and as I figure things out and am able to see how much income the airbnb cabin can generate and if I even enjoy it in case I don't and when I retire I don't have a high income or if I should just play it safe and contribute to the Roth, however, I'm concerned that for the Roth between my pension and whatever side hustles I do could potentially be combined to a higher income I have now.

I hope that makes sense to people, it's so hared to know what the best strategy is especially when I don't even know where my life is going. I'm currently a dental hygienist and with COVID and everything it's making me really amped to get out of hygiene as quick as possible.

Thank you,
« Last Edit: June 03, 2020, 07:39:22 PM by mars2886 »


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Re: Another traditional vs Roth IRA question w/ Roth ladder conversion
« Reply #1 on: June 03, 2020, 07:16:26 PM »
First, don't call it a traditional Roth.  That'll confuse people.  You probably mean a traditional IRA.

Second, that monthly pension amount probably assumes you'll stay there and work for the next 30 years or so.  If you plan to retire in 5-8 years, it would be wise to ask them what the pension amount would be based on leaving in 10 years.  Also, pensions are usually back loaded, so you can't simply take the $1800 and divide it by 10 years / 30 years and get $600 a month.  It usually doesn't work that way.

To your main question, yes, it's impossible to make good decisions without a plan.  What I have done and advised my kids to do is make a plan and work the plan, but be willing to change the plan if it's not working out for whatever reason.

So maybe your plan A is to be a dental hygienist for five years and do AirBnB as a side gig for the next five years, then stop working altogether.  Once you have the plan, you can put some numbers to it and decide if a Roth conversion ladder will make sense.  Then you could look at a plan B and evaluate that.  I'd suggest going all in on plan A, but many others would suggest hedging bets between plan A and plan B, especially if they're radically different plans and/or you're entirely uncertain which plan you'll end up doing.

Generally, a Roth conversion ladder works very well when you've got a higher income while working, then have a lower income when early-retired, and are trying to reduce tax-deferred accounts to avoid high RMDs when you're 72.  Which may or may not describe your situation once you figure out your plans.

Good luck!


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Re: Another traditional vs Roth IRA question w/ Roth ladder conversion
« Reply #2 on: June 04, 2020, 02:14:42 AM »
Whether to contribute to Roth or traditional now should be based on your comparison of your current marginal tax saving rate for traditional contributions, vs. your expected marginal tax rate for traditional withdrawals in the future.

See Traditional versus Roth - Bogleheads for details. 

After reading that and taking a stab at your future rate, come back with any questions about what you did and/or should do based on that. 

Best would be for you to state "I plan to ________ because ________" with those blanks filled with your understanding at that point.  You'll likely get either enthusiastic support or some suggestions for different perspectives.