Author Topic: Roth Conversion Ladder question  (Read 325 times)

JSMustachian

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Roth Conversion Ladder question
« on: July 31, 2019, 02:08:53 PM »
I've been trying to figure out the best way for me to get the funds to cover my expenses during the 5 year waiting period for Roth conversions. I thought about converting some of our tradition IRA's to Roth early during years when our taxes will be low.

Once we have our second child my tax liability would be negative so I figured I could convert up to $20,000 a year tax free and then withdraw it 8-10 years later when we FIRE. Does this sound like a good plan? Any downsides I am not seeing?

Thank you

seattlecyclone

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Re: Roth Conversion Ladder question
« Reply #1 on: July 31, 2019, 02:26:55 PM »
I've been trying to figure out the best way for me to get the funds to cover my expenses during the 5 year waiting period for Roth conversions. I thought about converting some of our tradition IRA's to Roth early during years when our taxes will be low.

Once we have our second child my tax liability would be negative so I figured I could convert up to $20,000 a year tax free and then withdraw it 8-10 years later when we FIRE. Does this sound like a good plan? Any downsides I am not seeing?

Your tax liability being negative is a red herring. The tax rate is what matters here. If a Roth conversion would reduce the amount the IRS gives you, you have a positive tax rate. This rate may well be higher than your rate in retirement (including a 10% early withdrawal penalty). If it isn't, converting some now might be a fine idea.

Also consider whether at some point between now and retirement you'll be able to afford to save more than the contribution limits on your retirement accounts. If this is the case you'll be saving some in taxable accounts at some point, and these funds may provide enough to get you through those first five years.