As I've thought about this more....I have more questions....
So if you have in 500K at age 45 in your tIRA, is it better to allow it to grow to 1.8 million in your tIRA at age 65 and then start taking distributions (but pay at your marginal tax rate)
or
do several large conversions from tIRA to Roth at ages 45-50 and then allow it to grow tax free for the rest of your life?
The tax rates on capital gains are capped at 20%, but income tax brackets go up to roughly 35%. So are the capital gains on long term investments like a tIRA potentially going to be taxed at a higher rate because when withdrawn they could be taxed at "income" rates not capital gains??
paging @seattlecyclone and @secondcor521 ....
What is "better" for any individual depends on their prioritized goals and their current facts and circumstances.
As others have pointed out, capital gains inside any tax deferred account, including 401(k)s and IRAs, are pretty much irrelevant. All distributions generally are going to be treated as ordinary income when withdrawn or converted. You are right that capital gains tax brackets are currently better than ordinary income rates, but I generally agree with
@maizefolk's comments about why the trade offs might make tax-deferred plans at least as attractive as taxable accounts.
What I personally do is project my top marginal rate for each year between now and when I'm in my 80's. I then look at my maximum marginal rate that I am likely to have to pay. Let's say for example's sake that rate is 27%. I then sit down every December and use tax software to figure out how much I can convert such that my marginal rate this year doesn't exceed that 27% rate. I then convert that amount. Lather, rinse, repeat each year.
This approach has resulted in modest- to mid-five figure Roth conversions each year since I retired in 2016, and that I'll continue to do them each year for the rest of my life, although the spreadsheet tells me that the actual amount converted each year in the future varies quite a bit.
There are other nuances to what I do and things to consider. In particular, trying to estimate one's marginal tax rate 30 years from now is highly dependent upon the assumptions made and the inputs provided, so it's really more of a rough guess.
For the example options you gave, I'd be concerned that the first method might result in "too low" taxes paid early and "too high" taxes paid later and result in less after-tax spending. The second method might result in "too high" taxes paid during those high Roth conversion years and "too low" taxes paid before and after and result in less after-tax spending.
HTH.
