Tax/Investment strategy question

[Anonymous]

We are 59/53. Our HHI is about $250K. Tax sheltered accounts (401K) is about $2.5 with the working spouse's (53) 401k balance being $1.3. Assuming we won't need to touch this $1.3M until RMD time (21 years from now for working spouse), it should be at about $5.2M (assuming money grows at 7% per year).

Our marginal tax rate is 27.75% (22(federal) +5.75 (VA)). Does it make sense to route all 401K contributions to Roth (about 40K including catch-up and company match)? Does anyone forsee a situation where tax rates would be lower than that? Plan is for DW to work for another 5 years or so..

What are we not thinking about?

[Anonymous]

I would look at tax brackets— probably pretty likely you could be in a lower tax bracket (also check how much it will cost to do Roths— you might be surprised since it will all be taxed at your highest marginal rate).

Especially consider if you will be in lower brackets in the 15 years between retirement and RMDs— you can use that time to selectively convert based on your tax brackets then.

I would try to have backdoor Roths and I would try to save the extra money you would spend prepaying your taxes— maybe in ibonds for example if you want some inflation adjusted fixed income.

[Anonymous]

Anonymous wrote:I would look at tax brackets— probably pretty likely you could be in a lower tax bracket (also check how much it will cost to do Roths— you might be surprised since it will all be taxed at your highest marginal rate).

Especially consider if you will be in lower brackets in the 15 years between retirement and RMDs— you can use that time to selectively convert based on your tax brackets then.

I would try to have backdoor Roths and I would try to save the extra money you would spend prepaying your taxes— maybe in ibonds for example if you want some inflation adjusted fixed income.

Thanks. Our thinking is that we will need at least $120-150K to live on, 5 years from now. About 30-50K will be dividends/interest and the rest from DH's 401K which will be taxed at 25.75% (2% less than current rates, assuming we don't move to a no-tax state). If we keep additional withdrawals to stay within the tax bracket, that's about 50K converted each year. Is it worth waiting for the 2% savings? Also, what if tax rates rise to negate that?

[Anonymous]

If you have no Roth funds and want some for flexibility/insurance I could see doing it but I would be willing to take the bet that tax rates will not rise more than the brackets decrease