Congrats @OzzieandHarriet, that must come as a great relief!
With that settled, I hope you don’t mind me taking this thread in a similar but somewhat different direction:
This is sort of outcome is one of the reasons I really dislike the near-religious fervor too many people feel about Roths. They usually are not that great an option. Most people don't save tax. Especially FIRE folk. Most people won't have RMD issues. Especially FIRE folk.
@SeattleCPA could you elaborate on these assertions?
My SO and I have significant Traditional IRA/TSP funds, were born after 1959, and stand to collect Federal pensions. By the time we start taking RMDs at age 75, our Traditional balances could be 4x their current size, leading to large RMDs on top of our pensions and SS, potentially vaulting us into a much higher bracket (under current law with the TCJA expiring on 12/31/2025 for individual taxpayers).
I think tax rates will go up a little bit. But not that much. At least for most of us.
Based on this, we did ~$60k of Roth conversions in 2023 up to the top of the 22% bracket, and have switched our TSP contributions to Roth (we max and catch up).
So it makes sense to pay the 22% tax rate now if you'll pay the 24% or 25% or 28% rate (or an even higher rate) in retirement.
My rough calculations say that you'd need in 2024 dollars around $200K of income to broach the next higher tax bracket. If you get $30K of SS that's sheltered by $30K of deductions (to keep this simple) and you get $80K of pensions, that means you'd need $3M generating another $120K to broach that next higher bracket. I'm applying the 4% SWR rule.
Are we the exceptions in your thinking (we’re already FI, will retire in 2026, but not especially early)?
Maybe.
When you say 4x your current balances, are you working in real dollars or nominal dollars (which have been reduced in size due to inflation)?
E.g., if you'd need $3,000,000 today to generate $120K in distributions so you broach that 22% tax bracket, with 3% inflation, in 24 years you'll need roughly $6,000,000 to generate distributions that broach the 22% tax bracket. Because the tax brackets creep up for inflation too.
Another way to say the same thing. Today the 24% bracket starts at roughly $200K. In 24 years if inflation is 3% annually, the 24% tax bracket would start at roughly $400K.
Why do you say most people won’t have RMD issues?
That Survey of Consumer Finances that comes out every three years says maybe 60% of people don't have retirement savings. So they don't need to worry obviously about RMDs.
Same Survey says that next 20% of people end up with somewhere between 0 and $500K. They also don't need to worry probably. If you have $500K and draw 4%, that's $20K a year. Couple that with SS or pension and I doubt someone gets past the 12% tax bracket.
Who are the sorts of people who face RMD issues?
I'd look at your current income and apply the 4% rule. E.g., if you make $100K a year in a job, you need to have $2.5M in an IRA and draw 4% or $100K in order to have same income. It's unlikely statistically that someone making $100K reaches this. (Less than 10% of people end up with more than $1,000,000.) Even more unlikely someone making $100K a year ends up with way more than $2.5M (again working current day dollars.)
Another example: Say you guys make $500K. In that case you need roughly $12,500,000 in your IRAs to generate $500K. It is impossible in most realistic cases to end up with that much in an IRA.
BTW there are a couple of issues that high upper middle class people encounter and which can push the RMD risk up a bit. First if you're making an amount that pushes you into the range where you get an IRMAA hit. Also if you're married but either you or your spouse would as a widow widower pay a higher rate--this happens for some taxpayers--that can push your rate or your surviving spouse's rate us.
Sorry for ramble.
But the TLDR summary which I should have put at the beginning: Most people can't save enough to even have large enough IRA to worry about RMDs. And lots of people who think they might? They might not be doing the inflation adjustments correctly?