Author Topic: Need some guidance ...  (Read 1007 times)

LiseE

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Need some guidance ...
« on: January 12, 2017, 01:39:01 PM »
I feel like we should be doing something with our 401K's (creating a conversion ladder,etc) ... I've been reading and searching but need some specific guidance .. I'll keep it simple.

401k (me with current employer) - 454K
401K (hubby's last employer) - 250K
401K (me - past employer) - 25K
Inherited IRA (from my brother) - 100K
Emergency Fund - 40K

Hubby and are are both 50 and both working in IT ... we are in 33% tax bracket and do not qualify to contribute to Roth IRA directly.   We are debt free except for our 250K mortgage at 3.25%. 

While I would love to pay-down the mortgage,  that low interest rate and the mortgage interest write off I think we would be better off starting to contribute some funds to a taxable account .. money to live off of from years 54-59. 

I'm wondering about my hubby's old 401K and the Inherited IRA  ... can we convert those to IRA and then to Roth and if so what is the tax consequence?

What should we be doing at this point as we are hoping .. and trying to plan to pull the plug in a few years??
« Last Edit: January 12, 2017, 01:42:02 PM by LiseE »

SeattleCPA

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Re: Need some guidance ...
« Reply #1 on: January 13, 2017, 05:00:14 PM »
I doubt you should worry about putting more in your Roth accounts. You have great balances in your 401(k)s... but if you're planning on retiring soon ("in a few years...") you're not going to pay a very high tax rate in retirement. Probably the pre-SS years, you'll pay no tax?

The logic is, if you'll pay a lower marginal tax rate in retirement than you'll pay on the conversion, you don't save money by paying lots of taxes now so you can avoid a little bit of taxes later on.

PS. One thing I'd be looking at with your balances are your expense ratios... it'll make a big difference if can cut your expenses .5% a year... That might save you $5K a year at point you retire.

MDM

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Re: Need some guidance ...
« Reply #2 on: January 13, 2017, 11:40:21 PM »
While I would love to pay-down the mortgage,  that low interest rate and the mortgage interest write off I think we would be better off starting to contribute some funds to a taxable account .. money to live off of from years 54-59.
That thinking is likely correct.

Quote
I'm wondering about my hubby's old 401K and the Inherited IRA  ... can we convert those to IRA and then to Roth and if so what is the tax consequence?
In short, the tax consequence is a 33% loss (given your current tax bracket) of the converted funds.

See How to withdraw funds from your IRA and 401k without penalty before age 59.5 and Investment Order for some things that seem applicable to your situation.