Author Topic: ROTH conversion ladder spreadsheet???  (Read 1487 times)

mooshie

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ROTH conversion ladder spreadsheet???
« on: March 10, 2017, 02:38:37 PM »
Does anyone know how I could make a spreadsheet for a ROTH conversion ladder, or where I could download one?

I'm just not all that savvy with Excel. I've made a few spreadsheets with some help, but I don't know what formulas I would use.

I'm thinking I'd need something that would keep track of the growth happening in our 401k/traditional IRA accounts while we draw them down.

I'm trying to figure out how much we really need in our taxable account v.s. how much we can have in 401k/IRA rollover accounts b-4 we pull the plug. Right now we have the vast majority in DH's 401K/IRA rollover accounts with a bit in a taxable account and then our contributions in our ROTHs that we can withdraw without penalty. But I have a feeling our ratio isn't where we need it to be and we could end up paying a lot in penalties, or having to work years longer just because we won't have enough to make it through the first 5 years of the ROTH conversion ladder even though we'd have enough to be FI if we could get to it.

We're still 8-10 years away from FI right now, but if we need to adjust where the money is going it's better to make some adjustments now than to have to work longer just because we guessed wrong on how much we needed in our taxable account.

I get confused and shut down sometimes because the #s are simple in some ways, but can be complicated in others. I mean, figuring out 25 X our expenses is simple. But figuring out how much goes where makes my head spin.

Anyway, I'd love some help in this area.
Thanks!

secondcor521

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Re: ROTH conversion ladder spreadsheet???
« Reply #1 on: March 10, 2017, 04:04:48 PM »
It's really not that complicated.

You're going to want 5 years of expenses in your taxable account plus your Roth contributions when you retire.

You already have X years expenses in your taxable account plus your Roth contributions now.

Pick a date to aim for, maybe on the aggressive side:  8 years from now.

So this year, you need to contribute (5 - X) / 8 years worth of expenses to your taxable and your Roth.

Repeat the same math next year.

Yes, it won't be exact...but it will be close enough.

So say you spend $20K per year and have $30K in taxable and $30K in Roth contributions.  That means you already have 3 years of spending in your Roth pipeline.  Wanting to retire in 8 years, you would need to put away (5 - 3) / 8 * $20K = $5K in taxable or Roth this year.  Doing that for the next 7 years will get you a total of ($5K * 8) = $40K.  $40K plus the $60K you already had gets you to $100K, or 5x annual spending.  Presto.

Over the next 8 years, your taxable account may grow or shrink due to market gains or dividends.  You may change your timeline to be more aggressive or more relaxed.  But as you get closer you'll be able to see more clearly what you need, and you can adjust from year to year.

(Also, because of the way the timing of Roth contributions and conversions and withdrawals happens, note that you might not really need 5 years of expenses in the Roth; it could be as little as 4 years.  But how much you'll need exactly will depend on when in the year you retire, which is something you won't need to think about until you're a year or two away from FIRE.)

Good luck!

secondcor521

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Re: ROTH conversion ladder spreadsheet???
« Reply #2 on: March 10, 2017, 04:10:26 PM »
Oh, and one other thing, since you mentioned penalties.  If your Roth pipeline funds are a little short, you can always work a side gig, wait a little longer to retire, or go ahead and pay the 10% penalty by withdrawing the extra you need directly from your traditional IRA.  Yes, it's a bummer to pay a penalty, but say you need an additional $15K; that 10% penalty is only $1500 per year, which in the grand scheme of things for people FIREing isn't that much.  Heck, you could look at it as you have to work a minimum-wage job until you cover that $1500 in penalties.  At $7.50 an hour, one of you would have to work about a month.

mooshie

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Re: ROTH conversion ladder spreadsheet???
« Reply #3 on: March 10, 2017, 04:31:46 PM »
Thank you! That math is certainly more simple than what I was thinking. :)

And the good news is that, as it turns out we shouldn't have much trouble building our taxable accounts up to the amount we'll need over 8 years. :) I was thinking we might need to cut back our 401k contributions a bit to put more into a taxable account, but it looks like we don't need to change that which makes me really happy! :)

Thank goodness for people who can simplify math for me!!

Clean Shaven

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Re: ROTH conversion ladder spreadsheet???
« Reply #4 on: March 10, 2017, 04:34:43 PM »
I've been thinking about this pipeline lately.  Thanks secondcor521 -- this helps.