401(k) Rollover

[Kerim]

One nice thing about leaving my job is that I can now roll my 401(k) over. All of that money has been confined to mutual funds, but now I’ll be able to put it wherever I want.
 
First I have to decide whether to roll it into a Roth or Traditional IRA. I plan to sit down with my accountant to see if one or the other makes more sense, but it seems to involve so many guesses – about how long until I might withdraw, about what direction tax rates might go, what my level of income and tax rates might be 15 years from now, etc. etc.
 
I’d appreciate any advice about how to make the decision, or simplify it, or get comfortable that it really is just a guess.
 
Thanks!

[fenders53]

If possible I would take some of it to a ROTH while your income is down this year. As retirement approaches I regret not having a larger percentage in ROTH. It offers more future options for you and heirs I won't try to discuss. Your accountant can do that. Chad may have some advice.

[ken-do-nim]

If I'm not mistaken, if you move pre-tax 401k funds into a ROTH IRA, you have to immediately pay taxes on them. As Fenders said, might be worth doing if you are in a low tax bracket this year.

[fenders53]

(08-26-2021, 10:29 AM)ken-do-nim Wrote: If I'm not mistaken, if you move pre-tax 401k funds into a ROTH IRA, you have to immediately pay taxes on them.  As Fenders said, might be worth doing if you are in a low tax bracket this year.

You aren't mistaken.  The taxes will be paid at some point.  If you think tax rates will be at least a little higher in the future a ROTH makes sense to me for some of your port.  My attraction is it's a tax free withdrawal at some point in the future and you get to pick when, and build the tax free balance in the meantime.  After retirement a Roth is just another tool.  If you end up willing it to heirs they have tax free income, though it's my understanding they will have to withdraw it much like a tax free annuity.  They won't let you  sit on it for another 40 years untouched.  GOV wants your ROTH to go away at some point. IMO it does require professional advice so you can sort through the what if assumptions.

[vbin]

Dep being on your 401k is Roth vs traditional, and you moving into traditional vs Roth IRA, it could be a taxable event.

Having a Roth is a good idea if you don't have one. If you are faced with a situation of withdrawing a lot of money in retirement. Roth gives u that flexibility to withdraw without paying high taxes.

Depending on ur age and situation and cost of living, if you see yourself withdrawing a lot( may be u like to travel a lot or still have krtgage, buying a new car etc) Roth again gives u the flexibility to withdraw without taxes.

One aspect I have researched( was mentioned by a friend). You can withdraw from Roth tax free and contributing to it from ur 401k( tax free ).

[ChadR]

I would keep it to what it's current type is. I'm a big proponent of delaying taxes for as long as possible. If you really want to move some to a ROTH, keep the ROTH conversion to an amount that won't put you into the 22% tax bracket or higher. On your next job, put some into the ROTH 401(k) instead of it all into the traditional 401(k) if you want to have more in a ROTH. Or if you can, open up a ROTH IRA along with what you're contributing into your 401(k).

[fenders53]

Listen to Chad over me on this matter for sure, but this was my experience....

By the time I could fund a Roth in addition to maxing out my 401K, my income tax rate was fairly high so I didn't want to do it like Chad suggests. Now here I am about to retire and my life would be better if I could spend some money the first year. Excess money will come from the IRA and it will all be taxable. If I had it to do over I would have dropped a few K into a ROTH annually the past 20 yrs and invested it aggressively since it was long-term money. At this point I am fairly convinced having a ROTH is very good, even if it's only 10% of your assets. You have full control over when you access the money and you can manipulate that particular tax year. That is what I will do to make the best of it but my ROTH game is too weak.

[ken-do-nim]

(08-26-2021, 12:49 PM)ChadR Wrote: I would keep it to what it's current type is.  I'm a big proponent of delaying taxes for as long as possible.  If you really want to move some to a ROTH, keep the ROTH conversion to an amount that won't put you into the 22% tax bracket or higher.  On your next job, put some into the ROTH 401(k) instead of it all into the traditional 401(k) if you want to have more in a ROTH.  Or if you can, open up a ROTH IRA along with what you're contributing into your 401(k).

Hmmm...

At work the matching is 3% if I invest 6%, so I put 6% into the ROTH 401k.  I'm currently planning to draw down the entire ROTH portion of my 401k at age 60 and immediately add it to the dividend payout machine.  The deferred portion of my 401k I'm assuming has to be withdrawn in small amounts over time to minimize the taxes.  I'd ideally like to have it all drawn down by the time I'm 70, so that my dividend payout machine is going at full throttle.  Should I reconsider?

[fenders53]

(08-26-2021, 08:46 PM)ken-do-nim Wrote:

(08-26-2021, 12:49 PM)ChadR Wrote: I would keep it to what it's current type is.  I'm a big proponent of delaying taxes for as long as possible.  If you really want to move some to a ROTH, keep the ROTH conversion to an amount that won't put you into the 22% tax bracket or higher.  On your next job, put some into the ROTH 401(k) instead of it all into the traditional 401(k) if you want to have more in a ROTH.  Or if you can, open up a ROTH IRA along with what you're contributing into your 401(k).

Hmmm...

At work the matching is 3% if I invest 6%, so I put 6% into the ROTH 401k.  I'm currently planning to draw down the entire ROTH portion of my 401k at age 60 and immediately add it to the dividend payout machine.  The deferred portion of my 401k I'm assuming has to be withdrawn in small amounts over time to minimize the taxes.  I'd ideally like to have it all drawn down by the time I'm 70, so that my dividend payout machine is going at full throttle.  Should I reconsider?

Ken,

You are aware you can convert your ROTH 401K to a ROTH IRA at that time right?  You can buy dividend stocks or most anything equity or bond related.  Leveraged ETFs is about the only thing I can't do since I rolled mine. (or before).  

I am definitely not trying to give tax advice, but I've heard a number of planners and accountants say they often advise using your ROTH last.  A plan is good but things change in 30 years.  Tax rates and life situations.  Late in my career I was contributing 17% and a 5% match.  Amassing a decent sized tax advantaged account is the one thing that surely gives you more options later.

[Kerim]

Thanks for all of the thoughtful comments. Yes, if I go for Roth, it would definitely be a taxable event, and I fear not a small one. But I don't know for sure (that'll be one of the first questions for my accountant), and even if it is, it may still be a clearly better choice for the additional flexibility you describe. (And depending on the comparison with going the traditional route and paying the taxes later -- under very hard to predict circumstances.)

I do have an existing Roth IRA, but I've never been able to accumulate a lot of assets in it because I wasn't able to contribute to it for a lot of years. I do like the idea of having a good balance of the different vehicles so as to maximize options and flexibility when it comes time for withdrawals.

It will be a few weeks, at least, before I can get this addressed with the accountant, but I'll let you know what advice I get!

[ken-do-nim]

(08-26-2021, 09:52 PM)fenders53 Wrote:

(08-26-2021, 08:46 PM)ken-do-nim Wrote:

(08-26-2021, 12:49 PM)ChadR Wrote: I would keep it to what it's current type is.  I'm a big proponent of delaying taxes for as long as possible.  If you really want to move some to a ROTH, keep the ROTH conversion to an amount that won't put you into the 22% tax bracket or higher.  On your next job, put some into the ROTH 401(k) instead of it all into the traditional 401(k) if you want to have more in a ROTH.  Or if you can, open up a ROTH IRA along with what you're contributing into your 401(k).

Hmmm...

At work the matching is 3% if I invest 6%, so I put 6% into the ROTH 401k.  I'm currently planning to draw down the entire ROTH portion of my 401k at age 60 and immediately add it to the dividend payout machine.  The deferred portion of my 401k I'm assuming has to be withdrawn in small amounts over time to minimize the taxes.  I'd ideally like to have it all drawn down by the time I'm 70, so that my dividend payout machine is going at full throttle.  Should I reconsider?

Ken,

You are aware you can convert your ROTH 401K to a ROTH IRA at that time right?  You can buy dividend stocks or most anything equity or bond related.  Leveraged ETFs is about the only thing I can't do since I rolled mine. (or before).  

I am definitely not trying to give tax advice, but I've heard a number of planners and accountants say they often advise using your ROTH last.  A plan is good but things change in 30 years.  Tax rates and life situations.  Late in my career I was contributing 17% and a 5% match.  Amassing a decent sized tax advantaged account is the one thing that surely gives you more options later.

Actually, I had no idea!  That's awesome!!!  So basically, when I'm retired, my ROTH account(s) equities can generate dividends tax-free, and then I pull those dividends out to live on?  Or is there some catch, like you have to wait 5 years to pull new dividends out?

[fenders53]

(08-27-2021, 07:24 AM)ken-do-nim Wrote:

(08-26-2021, 09:52 PM)fenders53 Wrote:

(08-26-2021, 08:46 PM)ken-do-nim Wrote:

(08-26-2021, 12:49 PM)ChadR Wrote: I would keep it to what it's current type is.  I'm a big proponent of delaying taxes for as long as possible.  If you really want to move some to a ROTH, keep the ROTH conversion to an amount that won't put you into the 22% tax bracket or higher.  On your next job, put some into the ROTH 401(k) instead of it all into the traditional 401(k) if you want to have more in a ROTH.  Or if you can, open up a ROTH IRA along with what you're contributing into your 401(k).

Hmmm...

At work the matching is 3% if I invest 6%, so I put 6% into the ROTH 401k.  I'm currently planning to draw down the entire ROTH portion of my 401k at age 60 and immediately add it to the dividend payout machine.  The deferred portion of my 401k I'm assuming has to be withdrawn in small amounts over time to minimize the taxes.  I'd ideally like to have it all drawn down by the time I'm 70, so that my dividend payout machine is going at full throttle.  Should I reconsider?

Ken,

You are aware you can convert your ROTH 401K to a ROTH IRA at that time right?  You can buy dividend stocks or most anything equity or bond related.  Leveraged ETFs is about the only thing I can't do since I rolled mine. (or before).  

I am definitely not trying to give tax advice, but I've heard a number of planners and accountants say they often advise using your ROTH last.  A plan is good but things change in 30 years.  Tax rates and life situations.  Late in my career I was contributing 17% and a 5% match.  Amassing a decent sized tax advantaged account is the one thing that surely gives you more options later.

Actually, I had no idea!  That's awesome!!!  So basically, when I'm retired, my ROTH account(s) equities can generate dividends tax-free, and then I pull those dividends out to live on?  Or is there some catch, like you have to wait 5 years to pull new dividends out?

I think there may be a brief wait time.  I bet the clock starts on the account's born date?  That's an easy fix.  Just start a ROTH IRA and drop a couple K into it a couple years before retirement and roll yuor employer account into it later. As the divs are pulled you pay the tax of course. Your CAP gains can compound awhile longer tax free.  

It will work for you.  You just can't gamble too much with this account.  I am allowed to do options but it's more conservative in nature.  They won't let me naked short MRNA lol.

As always, I am not your financial nor your tax advisor. Neither is Chad but he knows the rules.