I ran some numbers through Taxcaster yesterday and concluded that the trick to keeping my US taxes low will be to stay in the 15% tax bracket. That means being very careful with the Roth conversions and using recharacterization to make sure that I extract the maximum tax benefit. While it would be nice to be able to convert all of my traditional IRA funds into Roth before I have to take RMDs, that's probably not realistic. But hopefully I can reduce them enough so that I can stay at 15% after I start taking distributions. I think I need to sit down with the Fidelity financial advisor and see how helpful they will be in that process - most of my money is at Fidelity so the conversions will need to be done by them.
ZiziPB, You are 100% on the right track here. clap clap clap. most people do not consider your tax situation (or mine)
Most people here are used to roth conversion with a family of 4. When the topic comes up of taxes to convert your 401K/IRA to Roth, I hear a simple response that the taxes are 0 or close to 0. This is not always the case, tax can be significant and a low tax rate is not in the cards for everyone
In situations where you a have a large 401K and are trying to get in front of RMDs (required minimum distributions) or if you simply do not have a large family with many exemptions, tax can be significant.
As you saw, with taxcaster, for you to pull 50K out of your IRA, your 25% tax rate begins just around 49000 per year. For obvious reasons as you noticed you want to keep your conversions at a point less than this. (although even if you are withdrawing a large amount and are well into the 25% tax bracket, the 401K still worked in your tax favour. ex if you would have been taxed 25% on funds that you put into your 401K and afterwards pull out 100K per year, your tax bill is 18K on that money vs your original 25K)
The one thing that I would suggest that you do is get on top of your 401K and get this reduced as quickly as possible. For instance, if you have a 401K of 600K and assume 7% yearly growth, you need to pull out 42K per year just to keep the 401K from increasing. If you wait 10 years, your 401K/IRA could be north of $1250000 and you now need to pull out more than 80K per year to keep it from running away.
So with that being said. I would get on top of the 401K and maximize withdraws before RMDs force you to take a higher tax rate. Assume 5K per year in income tax.