Planning the Next Phase

[drumstache]

Life Situation: 51, Single, 0 dependents (Was covering my college student, this year will be the first without that deduction).  Live in MCOL / LOCL area.

Gross Salary/Wages: 86K

Investments:  Max out the 401K and the Roth IRA (taking advantage of the catch-up contributions for being an old fart.)  24K-36K into Taxable.  Just started contributing to an HSA.

Current Yearly expenses: 28k-30K.  I'm not great at budgeting, but my spending is pretty consistent.  Biggest face-punch would be the amount I spend at restaurants/bars.  Other than that, pretty frugal.

Liabilities: House and Truck paid off, no debt.

Assets:
Allocation:70/30
Taxable: 233K (VG VTSMX)
401k: 256K
Roth1: 22K
Roth2: 72K
Rollover Acct 1: 107K
Rollover Acct 2: 65K
Rollover Acct 3: 30K
Cash: 80K
 
Total Cash & Investments:  865K
Value of House: 225K
NW: 1,090K


Not sure when (or what) my plan is for jumping ship, but would like the invested amount to be closer to 1M.   My job seems pretty secure, and I enjoy the work.  But the thought has occurred, if I were laid off...  Would I just bail on the idea of working FT again and tighten the belt to ride it out (take up basket-weaving?).

Since I am losing the Head of Household Deduction & Child Deduction for this year. Going forward, should I start putting that into a Traditional IRA instead of a Roth?  It would have to be for next calendar year, since I've maxed the Roth for this year.

[MDM]

Since I am losing the Head of Household Deduction & Child Deduction for this year. Going forward, should I start putting that into a Traditional IRA instead of a Roth?  It would have to be for next calendar year, since I've maxed the Roth for this year.

The t vs. R decision depends on the marginal tax rate you would save by using traditional now, vs. the marginal rate you expect to pay when withdrawing those contributions and gains later.  See Traditional versus Roth - Bogleheads for more.

If you decide traditional would have been better for 2020 or 2021, you could do an IRA recharacterization.  That would make it as if the original contribution had been traditional from the time it was made.

For general advice, see Investment Order.

[jeroly]

If you decide traditional would have been better for 2020 or 2021, you could do an IRA recharacterization.  That would make it as if the original contribution had been traditional from the time it was made.

For general advice, see Investment Order.

Are you sure about this?  I thought that the 2017 tax law changes stopped recharacterizations.

[MDM]

If you decide traditional would have been better for 2020 or 2021, you could do an IRA recharacterization.  That would make it as if the original contribution had been traditional from the time it was made.

For general advice, see Investment Order.

Are you sure about this?  I thought that the 2017 tax law changes stopped recharacterizations.

Yes, I'm sure. :)

See the linked wiki page - you can't recharacterize a conversion, but you can recharacterize a contribution.

[drumstache]

For general advice, see Investment Order.

Yes, from that link I got:
"4. Rule of thumb: traditional if current federal marginal rate is 22% or higher; Roth if 10% or lower, or if MAGI is too high to deduct a traditional IRA; flip a coin otherwise. "

Looks like I'm at 22%, which is why I was thinking I should go Traditional.  Haven't sat down to figure out exactly how much it will save me in taxes.  In the end, they'll get you whether you're coming or going anyway! :-D

[MDM]

For general advice, see Investment Order.

Yes, from that link I got:
"4. Rule of thumb: traditional if current federal marginal rate is 22% or higher; Roth if 10% or lower, or if MAGI is too high to deduct a traditional IRA; flip a coin otherwise. "

Looks like I'm at 22%, which is why I was thinking I should go Traditional.  Haven't sat down to figure out exactly how much it will save me in taxes.  In the end, they'll get you whether you're coming or going anyway! :-D

From glancing at your situation, unless there is a large pension coming your way, traditional is almost certainly a good choice for you now.  To see why, go through the exercise of estimating your marginal tax rate in retirement and compare that to 22%.

[drumstache]

From glancing at your situation, unless there is a large pension coming your way, traditional is almost certainly a good choice for you now.  To see why, go through the exercise of estimating your marginal tax rate in retirement and compare that to 22%.

Thanks for the tip on recharacterization!  Looking into it now, looks like a simple process with Vanguard.

I ran my numbers through TurboTax, and I can deduct $4900 of my $7000 contribution.  I will recharacterize that amount from Roth to Traditional. 

If I understand correctly, there would be no benefit to recharacterize the whole 7K?  Just the 4900 to get the deduction?

Thanks again for the insight!

[MDM]

If I understand correctly, there would be no benefit to recharacterize the whole 7K?  Just the 4900 to get the deduction?

Yes.  If you can't deduct it, just leave it as Roth.  And yes, it is (by all accounts I've seen) a simple process - good luck!

[drumstache]

If I understand correctly, there would be no benefit to recharacterize the whole 7K?  Just the 4900 to get the deduction?

Yes.  If you can't deduct it, just leave it as Roth.  And yes, it is (by all accounts I've seen) a simple process - good luck!

Done!  Thanks again for the head's up, the information has been very helpful!