A. G. Pennypacker said:MemphisAg1 said:
I thought for many years I would probably start at 62, but as that approaches within four months I've had a shift in thinking. This question shouldn't be answered in isolation. It should be considered in the context of your broader portfolio. When I retire in less than a year, I need about five years to convert my pre-tax 401k to a Roth 401k and stay within the 24% tax bracket on those conversions. I was in higher tax brackets when that money was set aside, so this move will legally avoid substantial taxes and position those funds for tax free growth in the future.
To temporarily avoid additional income and stay in the 24% tax bracket, I need to delay taking social security until 67 and complete those Roth conversions from 62 to 67. Especially while tax rates are relatively low by historical standards. The nice thing with SS is that my benefit at 67 will be much higher than at 62.
Delaying SS and converting to Roths now also has the advantage of keeping my MAGI in future years much lower because Roth distributions aren't included in MAGI -- and by extension -- keeping my future Medicare premiums low and not subject to an IRMA (income-related monthly adjustment) premium hike.
I've modeled a variety of scenarios, and it's much better for my total portfolio to delay SS to 67. I realize it's different depending on your personal situation, but delaying makes more sense for me, which is counter-intuitive to what I thought for many years prior.
Has anyone found good on-line tool for evaluating / comparing doing Roth conversions after retirement vs not doing it? There are a lot of variables to consider as you mention, but I haven't found a good tool for telling me if it's really the right thing to do or not - depending on individual circumstances.
Maybe I look at it a little too simply, but you're going to pay taxes on that money when you take it out of a pre-tax 401k/IRA, or they will make you take it out at age 73 thru RMDs and pay taxes on it. There's no way to avoid the tax. The key is to withdraw/convert it at as low a tax rate as possible. The beauty of a conversion -- especially if you have the funds to pay taxes in a non-retirement account without reducing the size of your 401k/IRA -- is it grows tax free forever after conversion. And when you eventually withdraw from that Roth it isn't included in your Modified Adjusted Gross Income (MAGI), which helps keep your Medicare premiums low.
