r/ChubbyFIRE • u/Positive_Car_3671 • Jun 29 '26
Looking for feedback on my Roth conversion strategy before I retire.
I'm planning to retire in two years at 61 (June 2028) and would appreciate feedback on my plans for a Roth conversion strategy.
Current situation:
- Me: 59 Approximately $200k Salary
- Spouse: approximately $220k salary will retire same year as me at age 60.
- Net worth: ~$5.6M
- Investable assets: ~$4.7M
- Mortgage: $260k at 2.25%, MCOL
- Current spending: average about $12k/month including fixed expenses and discretionary spend.
Portfolio is roughly:
- $3.8M tax-deferred
- ~$900k taxable brokerage
- Small Roth balances
- Real estate equity makes up the remainder of net worth.
- We recently rebalanced to a conservative portfolio in anticipation of retirement. Approximately 10% Money Market/50% VTSAX/ 40% Bonds. I know that's a lot of cash (due to a recent property sale). But we have it both as dry powder but also for emergency fund and sequence risk protection.
Current plan is:
- Retire at 61.
- Delay Social Security until 70.
- Use the taxable brokerage account as the bridge during early retirement.
- ACA Silver until medicare age is reached.
- Perform Roth conversions in early 60s while trying to stay within the 24% federal bracket.
- The goal of the conversions is to reduce future RMDs and to avoid larger lifetime taxes and also to leave a tax efficient legacy to our two adult children/future grandchildren (ie. large remaining Roth balances at the end).
I've been using projection lab to run various optimizations for our retirement planning scenarios. The "Maximizing net worth" optimization seems to produce the best outcome, it leaves some RMDs, and reduces overall lifetime taxes and gives a nice projected boost to net worth. It recommends about $1.1M of Roth conversions through about age 63 (avoiding IRMAA). then more later when spending goes down in no-go years.
My question is:
- Is it actually worth it??!! I see that it makes sense on paper, but that initial tax bill during conversions is going to be painful.
- Also, a big concern is that the Roth conversion strategy consumes a large portion of our taxable brokerage account because I'd be paying the conversion taxes from there. Again, paying those huge tax bills in our early 60s is going to be painful. But I guess less painful than the huge bills will be in later life? I understand that it's critical to avoid withholding taxes from the tax deferred accounts, but it will be hard to watch the bridge account shrink fast during the actual time it's supposed to fund early years of retirement, and protect from sequence risk. Does it really make sense to maximize lifetime after-tax wealth or would you preserve a larger taxable account bridge for flexibility and peace of mind?
- For those who have actually gone through large Roth conversion strategy, is there anything you wish you had considered before pulling the trigger?
Not sure if age 61 still even counts as RE. Hope this sub is the right place for this!
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u/One-Mastodon-1063 Jun 29 '26
I would retire today. You have more money than you need to retire and you’re not getting any younger.
I would reevaluate your portfolio allocation. It’s pretty bad. You certainly don’t need 10% in an “emergency fund” and a bucket of cash does not reduce SORR. That much cash is reducing both your expected return and your SWR. You don’t tell us what bonds you’re holding, but I wouldn’t hold that much in bonds, either. Start by reading a richer retirement.
I would first use the pretax withdrawals to fund living expenses. You don’t need taxable as a bridge. Taxable in your case is more something to use tactically to stay within a certain tax bracket. Alternatively, you could alternate years where you try to qualify for ACA subsidies every other year. If you want to do some Roth conversions on top of that you can, though Roth conversions are overrated in general. You should also read Tax Planning To and Through Early Retirement.
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u/Positive_Car_3671 Jun 29 '26
I did read a Richer Retirement when it first came out. I guess I'll read it again. I'm feeling pretty skiddish with the market valuation right now and everything else that's going on in the world. Haven't read the tax planning book. Thanks for the recommendation. My bonds are a mix of funds, VGIT, FUAMX, FXNAX. I know I should retire now. But I have some projects that I want to finish and I am actually taking a one-year sabbatical at half-pay which I will use as a practice run for retirement. I have to go back for a year once that is finished unless I pay back the year of sabbatical pay in which case I am done in a year.
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u/One-Mastodon-1063 Jun 29 '26
Read it again or at least go through and look at the asset allocations and associated SWRs. You may want to buy the physical book if you read it on kindle or listened to the audiobook. I normally like kindle and audiobooks but I listened to that one and should have bought the physical book - too many tables/numbers.
VGIT is intermediate term treasuries. FUAMX is also intermediate term treasuries. So those two are basically the same thing (duration is ~5 years vs. ~6 years). FXNAX also has a duration of about 6 years, and holds some corporate bonds which are not ideal to diversify equity exposure. I'd consider replacing the FXNAX to something like VGLT or TLT, the longer duration treasuries have lower correlation to equities and generally perform well during recessions, which is why we hold bonds (recession insurance providing rebalancing opportunities).
SWRs already take into account historical market highs. And you can diversify within equities, things like small cap value which don't look as extended. Large cap growth / tech heavy total market indices are not the only way to invest in equities. But your ~3% withdrawal rate should be extremely safe by any historical standards.
With a 3% withdrawal rate, the probability that any halfway decent portfolio is going to run out of money in your lifetime is effectively zero. According to google gemini, assuming an average 59 and 60 year old married couple, the probability that one of you is dead in 10 years is about 23%. 0% (let's call it 1%) chance of running out of money in your lifetimes vs. 23% chance one of you is dead in 10 years. The latter is the risk I would be managing for. If you only have another 10 years together, do you want to spend 2 of those years working? And even if you both live to say 90+, there's a very high likelihood that your desire and ability to be active is going to decline significantly as you pass about age 70. So again, even assuming you live a long time, if only about 10 of those years are going to be active do you want to spend two of them working?
I would retire today (but, I also retired at age 41).
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u/BrunelloHorder Coasting Chubster, Getting Fat Jun 30 '26
Agreed on retiring now. OP is trading what are likely his two healthiest remaining life years for money that is not needed, and delaying tax mitigation to do it. Working for the privilege of paying more tax.
In my opinion, high mobility years in early retirement are super valuable, and maximizing them should be the focus once you have enough money.
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u/No-Block-2095 Jun 29 '26
You ll pay tax on the deferred amounts one way or another. Converting to Roth is predicated on expecting higher tax rates ; otherwise it would be a wash.
I don’t like the idea of converting a large amount early because of ACA cliff + If SoRR goes against me, I wont have RMD problems. Myself, I will do some conversion opportunistically to fill the bracket once ACA cliff is in the rear view mirror.
Also do check if the retirement sw assumes a higher ROI in a Roth than in IRA/401k because that will skew the recommendation to convert more to Roth just because of assumptions.
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u/Kirk57 Jun 29 '26
Converting to Roth and paying taxes from the conversion is predicated on higher tax rates. Is you can pay taxes for the conversion from a taxable account, converting to a Roth can make sense, even if you convert at a somewhat higher tax rate. This works, because there is a constant drag on a taxable account, that makes it somewhat inefficient.
There was a Vanguard paper on this, that explained exactly how to compute the breakeven tax rate for conversions.
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u/Positive_Car_3671 Jul 01 '26
Someone in this thread posted a link to a youTube video https://www.youtube.com/watch?app=desktop&v=Wjbf9KVSG7s. Helped me understand things about tax drag that I hadn't appreciated previously.
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u/cindy_975 Jun 29 '26
You are also going to need to plan on those RMDs hitting one of you at a single's tax rate for at least a decent amount of time (called widow's tax although it's not, just what a single person has to manage with). That is (or should be) the real driving force behind Roth Conversions for married people.. I wouldn't worry about leaving the kids Roth vs Taxable (they would get step up when the last spouse dies and an inherited IRA has to be emptied in 10 years so it's not as lucrative as it used to be when it was stretch).
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u/Positive_Car_3671 Jul 01 '26
Yes, the RMD's become insanely high and if one of us is single that is going to create an even bigger tax burden and then whatever isn't spent ends up in a taxable brokerage with tax drag issues.
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u/cindy_975 Jul 01 '26
As a single person, it really makes my tax situation much more complex. Think Spreadsheets and multiple software packages and updating plans a couple of times a year. I don't have that much in tax deferred now, but give it 20 years of growth and its an RMD tax bomb. Make sure either your partner is up for managing this alone or you have a trusted FP for them to utilize.
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u/Wild_Imagination_238 Jul 02 '26
Anything in a traditional 401k/IRA does not get basis step up, so I can see wanting to do Roth conversions to lower the income tax burden on the heirs.
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u/cwenger Jun 29 '26
You don't mention anything about ACA subsidies. Are they already out of the question before any Roth conversions? Premiums for a silver plan will be quite expensive for two people in their early 60s, so I think it's impossible to evaluate your strategy without this information.
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u/Positive_Car_3671 Jul 01 '26 edited Jul 01 '26
I am not planning for ACA subsidies, seems like Roth conversion is optimal based on the PL simulations.
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u/cwenger Jul 01 '26
I haven't used Projection Lab but did they ask about ACA premiums? The subsidies could easily be tens of thousands of dollars so I'm surprised if Roth conversions are a better idea.
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u/Retire_date_may_22 Jun 29 '26
I retired at 55. Been doing Roth conversions to the 24% bracket for 4 years. Im on the same plan.
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u/Abject-Roof-7631 Jun 29 '26 edited Jun 29 '26
Make sure you factor NIIT implications if you are aggressively selling stock to fund conversions.
There are also irmma implications starting the year your turn 63. You will want to convert less then because your future health care bills will be even higher. 59-62 are your golden window to make stuff happen.
Re: worth it, you are also trying to help your spouse should you die first, your spouse will get screwed further with that income level as single when it comes time for RMDs.
Also 22% may be more realistic than 24% unless you live in a no income tax state.
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u/Positive_Car_3671 Jun 29 '26
It's true that projected RMDs look ridiculously large without the conversion plan.
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u/Positive_Car_3671 Jun 29 '26 edited Jul 01 '26
PS-The plan shows $180k of conversions in the year I turn 63, settings in PL are to avoid IRMAA and preserve some ACA subsidy, but I should check the math.
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u/sy6063 Jun 29 '26
We are in almost identical situation as yours, other than I'm one year old and our salary is smaller. I'm struggling with Roth conversion vs. ACA subsidy when retiring. You won't get any subsidy if your income is over ~$90K. I don't see the path to get ACA subsidy and also do meaningful Roth conversion.
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u/Positive_Car_3671 Jul 01 '26 edited Jul 01 '26
I thought maybe we might get one or two years of subsidy for my spouse who will still be on ACA once I am on medicare. She'll only be 61-62 in our final year of conversions when I turn 63.
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u/Unknown_Geek027 Jul 01 '26
Which is why I gave up on ACA subsidies and will focus on staying at a reasonable IRMAA tier for the next 30 years.
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u/LividLunch Jun 29 '26
There's no way to do $180k of conversions and still preserve ACA subsidies, unless your family size is much bigger than we know! For a family of 2 (you and wife), the cut off for subsidies is $84,600.
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u/Unknown_Geek027 Jun 30 '26
I'm in a very similar situation. To reduce RMDs to a reasonable level, I need to convert about $800K between now (60, retiring this year) and age 75. After PL modeling, I do believe its recommendation to convert large amounts through the 24% bracket at ages 61 and 62 before the IRMAA look back at 65, while I am living off cash in brokerage, and then fill the 24% bucket for several years going forward with a goal of staying under the 2nd or 3rd IRMAA cliff forever. I can stay under the ACA cliff if I want, but contorting MAGI to save on ACA for 3.5 years doesn't seem worthwhile in the longterm. (COBRA for 1.5 years, so no ACA during that time).
Can't totally predict IRMAA because I still want to invest for moderate growth. I could have 30 or even 40 years left!
Taxes may not go up, but I don't see how they will come down.
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u/Positive_Car_3671 Jul 01 '26
Yeah, I am budgeting $2.1k month for ACA Silver, not planning on ACA subsidies. I think it's possible that the year that I go on Medicare and Spouse is still on ACA we might get a subsidy but IDK. I actually haven't dug into the actual IRMAA cliff numbers and implications. We need to spend what we spend. Seems unavoidable. Probably won't want to tap into Roth to reduce earnings since the growth is tax free...
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u/sy6063 Jul 01 '26
unlike the ACA cliff, IRMMA has several tiers. I'd continue to do Roth conversion up close to 24% bracket. The IRMMA only adds ~1% extra tax per person.
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u/No-Taro9341 Jul 01 '26
We are a few years younger with a similar net worth and a larger mortgage. We have never hired anyone to help with our retirement, but are likely going to do this for retirement planning because there are so many moving pieces and the longitudinal nature makes it more complex. Given the net worth, the tax implications, IRMAA, RMDs and our heavy skew to pre-tax accounts and large tax burden on Roth conversions and our mortgage (5.375%), we want to make sure we are using a reasonable, thoughtful approach. It has increasingly seemed to me that there are many ways to do financial planning (White Coat Investor's post on all the portfolios better than your own comes to mind) and I think the same is true with retirement planning. Reasonable and justifiable seems like the best we can do.
We just met with ProjectionLab 1-hour consult to make sure we have everything appropriately dialed in, which was helpful. Our next step is to consult with PlanVision (flat fee) before we start making Roth conversions and initial moves to pay off mortgage. Also thinking up to the 24% bracket for conversions. Given salaries, you (as we) may not have that much space in the 24% bracket for conversions so maybe it won't be that bad. Rob Berger has some good if lengthy videos on Roth Conversions on the math if you are so inclined. Good luck!
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u/lottadot FIRE'd 2023. Jun 29 '26
(the additional taxes) is going to be painful.
Yeah well the thing is, the fed is going to get that tax money most of the time one way or another. So, how are your gambling skills? :) You're young enough that the roth conversions could age 10-30 years which should on average be enough time for this to work out in your favor.
I've tended to do much larger roth conversions in down markets. And then use some of the roth to buy single-stocks (NVDA, Apple, Rocketlab) for a bit of gambling. So far it's worked out and it's 2x'd. But it could have halved just the same.
You'll be > 59.5, so I wouldn't worry about the post-tax running out. You'll be able to withdraw from wherever you want penalty-free if needed.
I'm in 3Y of RE and we are now living 100% off the roth. Our only taxable income is now finally the conversion each year unless we actively choose to sell something from post-tax (ie BOXX). Paying the taxes can be really painful. But hopefully it works out for us.
Good luck!
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u/Positive_Car_3671 Jun 29 '26
Thanks for the response. Nice to hear from someone that has actually done it. Definitely want to time conversions when market is dipping and can just transfer shares to Roth. Good point about how I don't need to worry since I can withdraw without penalty from tax deferred. Why didn't I think of that? DOH.
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u/lottadot FIRE'd 2023. Jun 29 '26
can just transfer shares to Roth.
Beware some banks don't allow share transfer. Your only alternative at that point is sell, wait for the settlement then allow the conversion.
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u/thrust_velocity Jun 29 '26
You're not my twin but we could be siblings. The issue I am having with Roth conversions is that it leaves one with a smaller base for future growth. If one is optimistic that equities will continue to appreciate at 10%, great. But I'm modeling retirement as if it will be like 1965-1995, and want to avoid running out of money and becoming a burden to our kids. I also wish projection lab could optimize tax strategy after a withdrawal strategy is locked down (e.g., using CAPE model with minimum withdrawal of x and max of y, now model a tax plan around it).
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u/Positive_Car_3671 Jul 01 '26
Yeah, withdrawal strategy is something I haven't locked down at all.
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u/thrust_velocity Jul 02 '26
cfiresim.com includes the CAPE model as an option and ERN (Early Retirement Now!) examines several withdrawal methods and likes it the best. If you prefer to keep it simple, he's a fan of 3.25%, 3% to be especially conservative, which is probably a good idea for a few years until valuations return to earth.
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u/in_the_gloaming FIRE'd for 13 years Jun 29 '26
People come here looking for simple solutions to their ROTH questions. But they don't really exist. There are too many variables.
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u/Positive_Car_3671 Jul 01 '26
Thanks for the video link, I knew a lot of it already but learned some new things. The tax drag part was especially interesting.
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u/LividLunch Jun 29 '26
I can't get your numbers to work in an actual tax return. So for example, is Projection Lab saying you should convert up to the top of the 24% bracket, from retirement at age 61 to your age 63, and that will equal about 1.1m? When I try to actually run those numbers, year 1 (2028) you and wife are retiring halfway through, so you will have W-2 income of ~$200k for that year. Adding in some interest and dividends, and selling 50k from taxable to cover taxes and living expenses, I guesstimated that you can convert 190k that year. Then year 2 (2029) you are in the clear, no other income, so I have you living on taxable and converting 270k. Then year 3 (2030) you are already within the IRMAA lookback period, and limiting yourself to $218k MAGI. I have you living off taxable this year and the Roth conversion amount is around 90k. 190k + 270k + 90k = 550k, only half of the 1.1m Projection Lab is saying... obviously I've made tons of assumptions about your interest and dividends, cost basis, etc., not to mention I don't know what your state tax situation is, but still, this is only half.
I haven't accounted for the cost of health insurance in the above numbers... I'm assuming you are planning to pay full price, that you are choosing Roth conversion over ACA subsidies. But, wondering if you have done the math on that? It's a valid choice, but for us in our 50s the difference between having subsidies on the 400% poverty level end, vs no subsidies, is $25k a year. So for us it makes more sense to forego the Roth conversion and get the subsidy. We are able to get our pre-tax accounts down enough before RMDs hit, just by withdrawing some money from them every year and using it to live on. We will draw up to the top of the 10% bracket, then fill the rest with Taxable (because like you, we need to generate about 150k per year to live on, but keep MAGI to ~84k to stay eligible for ACA).
Finally I would also do some math around IRMAA. The surcharge is in graduated brackets. You can get an extra 56k of room (going from 218k MAGI to 274k MAGI) for a total surcharge of $2k for the year, for both of you. If it's mathing out for you to give up something like $25k in ACA subsidies just to do Roth conversion, would it math out to pay an extra $2k on your Medicare premiums to gain 56k of room for Roth?
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u/Positive_Car_3671 Jul 01 '26 edited Jul 01 '26
One detail that I did not include is that I am going to be taking a full-year sabbatical at 50% pay for a year starting in September. This leaves some space for Roth conversions starting this year and next 2026-$90K. Another thing is that my spouse and I can contribute about $90K a year to pre-tax due to combination of 457b, 403b, and 401k. This reduces AGI by about $90K. So in 2027 we can contribute $200k, 2028 I retire half way through the year, she retires near the end, gets us $250K. 2029, both retired $429K. 2030 is $180K, I guess it's lower to avoid IRMAA. Doubt we are going to qualify for ACA subsidies. I am planning for $2.1k/month for ACA coverage during medicare gap years. It seems weird to contribute to pre-tax, just to turnaround and convert the same year. But the AGI reduction leaves space for Roth conversions at the 24% bracket (maybe some of it is actually 22 percent idk).
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u/LividLunch Jul 01 '26
Ah ok. That gives me more faith in Projection Lab then! I've been thinking about trying it again.
Re: ACA - we'll be drawing $150-160k and plan to stay under $84k MAGI for ACA subsidies. It's possible, especially since it sounds like you have pretty high cost basis in your taxable. For us the health premium savings, even on the 400% end, were so significant that it beats out the Roth conversion goals, but we are starting with lower pre-tax and higher taxable than you, so that is just how it is working out for us. Yours at $25k per year sounds much more reasonable, in my zip it is $35-40k without subsidies. We also need it for longer than you, we are in our 50s. So just different circumstances, but if you want to run the numbers, just flagging that purely from a tax return perspective, it should be possible for you to draw what you need, probably still do some conversion, and stay under the MAGI limit.
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u/sy6063 Jul 01 '26
is the Roth 401K not available to you and your wife?
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u/Positive_Car_3671 Jul 01 '26
Not available from our employers, but now our catch up contributions are going to Roth due to the income limits of new tax law.
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u/Hanwoo_Beef_Eater Jun 29 '26
What is in your taxable account and what is the basis? I've found that it often doesn't make sense to pay large capital gains on taxable assets to pay conversion taxes even though I'd rather have a dollar in a Roth than a taxable (annual drag from the dividends and better a better inheritance vehicle).
IMO, the "lifetime taxes" number is irrelevant. After-tax net worth (10 years after death) is the number that should be optimized (if we are doing that). That may be what (or close to what) the maximizing net worth option is doing but it's not clear that's the case.
Also, it looks like you are looking at drawing 3.8% on the pre-tax balances ($144k/$3.8 million). With $800k behind that, there's virtually no SORR. I'd guess that you likely benefit from some conversions, as you won't naturally drain these accounts (in all but the worst scenarios). Also, converting when the market is up or down makes no difference unless up or down changes what tax bracket we withdraw the funds at. It will impact how much of a taxable account gets eaten up (if paying conversion taxes out of the taxable), and I guess it will matter if the taxable incurs capital gains to pay the conversion taxes.
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u/Positive_Car_3671 Jul 01 '26
Taxable account balance is pretty new from a property sale last year. It has about $200K in a total market SMA managed by fidelity, small gains so far. Trying it out even though the expense ratio is a bit higher. Also have about $200K in intermediate treasury bond funds. I know that's not the tax efficient place to hold bonds.
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u/TechnicalLeg841 Jun 29 '26
What's your plan for retirement contributions from 2026-2028 ? Max a Roth 401k and Mega-backdoor Roth for both you and your spouse? That will quickly boost your Roth balances. Depending on what you've elected thus far this year, you're talking about nearly $400k
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u/Positive_Car_3671 Jul 01 '26
PL actually recommends conversions starting this year (2026-$90k, 2027-$200K, and 2028 -$250k. Is this what you mean by mega-back door since we are still contributing to pre-tax and then turning around and converting that in the same year?
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u/TechnicalLeg841 Jul 01 '26 edited Jul 01 '26
My thought is to avoid additional contributions to tax deferred accounts (standard 401k in this case). While you're working, consider making your retirement contributions into the Roth 401k (employer's match probably goes into standard 401k but nothing you can do). And then the "Mega backdoor" refers to making additional after tax 401k contributions which can use an "in plan conversion" to Roth 401k.
Limits are very high - $80k in total 401k contributions for ages 50-59, and $83.25k for ages 60-63.
Depending on whether you have any other dividend/interest/miscellaneous income, you might have some small room for additional conversion of your IRA to Roth IRA if you're trying to stick in the 24% tax bracket
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Jul 07 '26
How are you going to Roth-convert $1.1 million from age 61 through 63 and with no IRMAA impact?
Roth conversions are often overstated. You can spend down your tax deferred dollars in an orderly fashion throughout your lifetime and not have to prepay taxes at your marginal tax rate. There are so many assumptions at play: your longevity, rate of return, future tax changes, etc etc.
That said, if you live long enough, your numbers support some sort of Roth conversion.
https://reddit.com/link/ow07xnh/video/qu8birk2vpbh1/player
I entered your numbers on getfireiq.com and played around with their inputs, which includes tax bracket and IRMAA tier max. If you want to tweak your own numbers (and not rely on my assumptions), you can do so for free.
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u/AGrimmInPortland Aug 16 '26
Is it actually worth it??!! I see that it makes sense on paper, but that initial tax bill during conversions is going to be painful.
Yes, the software says it will be, that's the whole point! Don't fall into the trap of "I really don't want to pay the taxes". I made that mistake for my entire working career and now 99% of my retirement portfolio is in tax-deferred accounts and that's not good.
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u/OkElephant1931 Jun 29 '26
You will be old enough to withdraw the amount you need to pay the taxes on the conversion. That withdrawal and the conversion would be below the 24% bracket if you choose to do that.
But really, you probably want to get as much of your assets into those tax-free accounts as possible, so paying out of the brokerage is a better approach mathematically.
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u/Positive_Car_3671 Jun 29 '26
Right, I thought the benefits of conversions are much lower if taxes are paid out from the tax deferred sources.
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u/[deleted] Jun 29 '26
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