When viewed as a lost opportunity and also considering the time value of money I don't believe it to be true that people get paid far more than they put in. Maybe some do but I don't think it's the norm. Maybe true on a cash on cash basis but to me that's not a good way to view it when your'e talking about 30-50 yr "contribution" time ranges.

MemphisAg1 said:

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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.

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This all implies your marginal tax bracket after age 67 is 32%. Correct? Why else pay 24% tax for a roth conversion now?

JohnClark929 said:

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MemphisAg1 said:

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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.

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This all implies your marginal tax bracket after age 67 is 32%. Correct? Why else pay 24% tax for a roth conversion now?

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That's right.

And an update to my last post... I've looked at it closer, and it makes sense for me to delay SS and a pension until age 70 and do those Roth conversions from 62 to 70 when my taxable income will be near zero to take advantage of the lowest 10% and 12% brackets. All in, that will allow me to convert the pre-tax 401k at an overall tax rate of 18% compared to the 40% tax bracket I was in when that money was put aside. SS and my pension increase every year that I don't take it, so when I finally do it's significantly higher. When you look at everything all-in, that maximizes portfolio value at age 85.

Z3phyr said:

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Less and less people will be prepared for retirement as social security gets weaker and weaker. I wouldn't be shocked if the majority votes to raise taxes wherever possible on the minority that took care of themselves

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The more likely option is they increase taxes on the workers (young and less likely to vote). I wouldn't be surprised if they lift the social security fica tax cap and make all wage income subject to it same as Medicare tax.

permabull said:

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Z3phyr said:

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Less and less people will be prepared for retirement as social security gets weaker and weaker. I wouldn't be shocked if the majority votes to raise taxes wherever possible on the minority that took care of themselves

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The more likely option is they increase taxes on the workers (young and less likely to vote). I wouldn't be surprised if they lift the social security fica tax cap and make all wage income subject to it same as Medicare tax.

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Before they did that, they would do a "donut hole" or similar approach, where they leave the cap as-is up to a number, say $800,000 of wage income, and then make it applicable again at that income or higher. Don't index the $800k for inflation (just like they did with the $250k threshold for additional Medicare tax), and eventually the donut hole disappears.

Or maybe an expansion of the net income tax (NIT) that's currently at 3.8% for Obamacare. I could see the politicians wanting to be sure to target the wealthy who manage to keep their wage compensation low and make most of their money on investments.

Or maybe a combination of both. I agree the political center mass will lean more toward increasing taxes than cutting benefits. They might means test it however, but again probably for wages or MAGI greater than some number like $500k or more.

MemphisAg1 said:

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JohnClark929 said:

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MemphisAg1 said:

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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.

---

This all implies your marginal tax bracket after age 67 is 32%. Correct? Why else pay 24% tax for a roth conversion now?

---

That's right.

And an update to my last post... I've looked at it closer, and it makes sense for me to delay SS and a pension until age 70 and do those Roth conversions from 62 to 70 when my taxable income will be near zero to take advantage of the lowest 10% and 12% brackets. All in, that will allow me to convert the pre-tax 401k at an overall tax rate of 18% compared to the 40% tax bracket I was in when that money was put aside. SS and my pension increase every year that I don't take it, so when I finally do it's significantly higher. When you look at everything all-in, that maximizes portfolio value at age 85.

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That's some impressive annual taxable income in your golden years (in 2025 dollars: above $400K married or above $200K single). Adding that to your non-taxable income means you are doing better than almost everyone. Well done!

Thanks for the positive vibe, but I'm not searching for compliments. I'm just sharing what I've learned in case it's helpful for others who are thinking about similar things. It's the conversion of pre-tax money that has grown over the years that would push me into a higher tax bracket, and that money keeps growing in that pre-tax account, which means the longer you delay taking it out, the higher the tax bill will be when you do.

So the obvious question is how do I keep more of my own money instead of giving it to the government? The sweet spot is to delay income that you have the option of pushing out in time so that you can convert that pre-tax money into a Roth at as low a tax rate as possible.

I've learned I have to jump on the conversions and fill up the 24% bracket after 62 (and delay SS) for about three years to get the pre-tax balance down substantially and let the converted amounts grow tax-free in a Roth. Then gradually "feather in" conversions in the 10% and 12% brackets until I eventually convert all the pre-tax right before I'm ready to start taking SS at 70.

This wasn't completely obvious to me in my 40's and 50's when I was more focused on working and accumulating savings. But with that chapter winding down, it becomes more about how do I minimize the tax bill?

Everything you are doing for your situation makes complete sense to me and thanks for sharing. It also sheds a light that everyone's scenario is different so a customized analysis is required. Basically folks should be careful listening to financial influencers who insist on a one size fits all for SS withdrawals (and roth conversions for that matter).

JohnClark929 said:

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I ran the math for my case assuming I invested my SS income. Waiting to take at 65 vs 62 has a breakeven age of 86; meaning if I live to 86 or older, I would be better off waiting to take at age 65. Note the amount better isn't that much even if I lived to 95; it's really a nothing burger.

Waiting to take a age 70 has a breakeven age of 88.

I plan on taking at age 62.

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same, no one knows when the bell tolls

JohnClark929 said:

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Everything you are doing for your situation makes complete sense to me and thanks for sharing. It also sheds a light that everyone's scenario is different so a customized analysis is required. Basically folks should be careful listening to financial influencers who insist on a one size fits all for SS withdrawals (and roth conversions for that matter).

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Agree 100%. What makes sense for one person doesn't necessarily for another.

MemphisAg1 said:

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Thanks for the positive vibe, but I'm not searching for compliments. I'm just sharing what I've learned in case it's helpful for others who are thinking about similar things. It's the conversion of pre-tax money that has grown over the years that would push me into a higher tax bracket, and that money keeps growing in that pre-tax account, which means the longer you delay taking it out, the higher the tax bill will be when you do.

So the obvious question is how do I keep more of my own money instead of giving it to the government? The sweet spot is to delay income that you have the option of pushing out in time so that you can convert that pre-tax money into a Roth at as low a tax rate as possible.

I've learned I have to jump on the conversions and fill up the 24% bracket after 62 (and delay SS) for about three years to get the pre-tax balance down substantially and let the converted amounts grow tax-free in a Roth. Then gradually "feather in" conversions in the 10% and 12% brackets until I eventually convert all the pre-tax right before I'm ready to start taking SS at 70.

This wasn't completely obvious to me in my 40's and 50's when I was more focused on working and accumulating savings. But with that chapter winding down, it becomes more about how do I minimize the tax bill?

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All good points. One thing I plan to do in my 70s+ is to take more from my rollovers annually than my RMDs or what I need to live on. Reason: my marginal bracket will be less than my children's marginal bracket when they receive the inheritance. Again just working to minimize the overall tax bill.

I plan to delay SS to 70 and do as much conversion of traditional IRA's to Roth's between now and 73 without bumping myself to the 32% fica rate. I can't convert it all but I can reduce the magnitude of the traditional IRA RMD bomb significantly . Having a big lump of tax paid $ in the Roth's also provides flexibility vs the Traditional IRA. I should have started with the Roth's years ago but I simply wasn't up to speed on the big picture from a tax perspective. Paying taxes later vs now seemed intuitively obvious but now here I sit at later.

If you are in your fifties or early sixties this (Roth contributions vs traditional Ira's as well as conversions) is something to think about seriously . I wish I had.

RMD age increases to 75 in 2033, I learned from our financial advisor when talking about conversion timelines.

Plus, you never really know how much you're going to walk away with. A friend still working in his late fifties took a peek at his RSU account that has been building for the last 16 years at AMD and it's 8 figures today. Massive capital gains tax in his near future.

I knew RMD age increased to 75 for those just a yr or 2 younger than me. Didn't know about anything beyond that but that's good info.

Not sure I understand your comment about massive capital gains to be paid tho. No capital gains will be due on Roth IRA accounts as I understand it. Regular tax paid investment accounts are a different beast.

Never mind , just realized you said RSU (restricted stock units ) . Your friend is definitely going to pay cap gains on
That if and when he sells them unless he's inclined to give to charity . Sounds like a pretty good problem to have in his case tho.

Amazing he stacked up that much just on the RSU portion of bonuses. Lisa Su has made a lot of multi millionaires taking the stock from $6 to $500 in that time frame.

HECUBUS said:

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Plus, you never really know how much you're going to walk away with. A friend still working in his late fifties took a peek at his RSU account that has been building for the last 16 years at AMD and it's 8 figures today. Massive capital gains tax in his near future.

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I worked for an energy company for a long time that had share grow and will have the same issue. Not 8 figures, but a substantial amount that gives me worry how to handle.

I am taking it as early as I can.

Yesterday said:

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Just listening to a guy talk about how taking it at 62 rather 70 is the way to go considering your break even point is roughly 79 years old and there are few 80 year olds who would enjoy that benefit of extra cash.

I'm 41 so I have quite a ways to go and who knows if it'll be there but I'm curious to hear from those who are there or on the cusp.

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I didn't really worry about it until I was ready for Medicare and that gets deducted directly if you're taking SS. So I ran the numbers to see if it made sense. Like you noted, the break-even was way off in the future.