Roth Conversion

[g127454]

Thanks for blog, very informative.  My wife (59 years) just retired this year and is pulling a pension of approximately $28,000/year.  I'm still working (59 years) and will continue to do so another several years.  My compensation is approximately $140,000/annual.  How would we go about a Roth Conversion of my wife's 403b with her pension and my annual income?  Most advice I've seen is for folks who have $0.00 income. Thanks, Jose.

[gocurrycracker]

Anybody can do a Roth conversion at any time of any size with no restrictions.

Since a Roth conversion is a taxable event, it will be taxed at your highest marginal rate, probably 22-24% at your current income levels plus whatever State taxes might apply.

This is probably why you see Roth conversions as a good tool for folks with no income.

[g127454]

Uugghh.  Thanks for reply.  Luckily no state income tax.  Any suggestions/strategies for individuals who are still working? 

Was thinking of converting wife?s 403b over 5 years + contributing $7,000 annually.  When I retire in 5 years (my income drops significantly); and convert my 401k to Roth over 10-15 years.

Your thoughts, thanks again.

[gocurrycracker]

It's all a question of tax rate.

If future marginal tax rates for you with SS and pension(s) is 24%+, then it makes sense to pay <=22% now on Roth conversions. If future tax rates are <=12% then it doesn't.

There is an example of evaluating this tradeoff in this post: https://www.gocurrycracker.com/reader-financial-review-scared-death-early-retirement/

[g127454]

GCC, thanks for the information.  Very informative.  Applaud what you and your wife have/are doing.  Wish I had come across FI information years ago, don't know that I would have taken advantage of; again thanks for what you are doing. 

Great case study example of high earners/high savers retiring and converting; do you another case study but with about 1/2 the money saved?  1st heard of you on Choose FI by the way. 

[gocurrycracker]

No worries, that is what I am here for

The principles are universal, whether you have half as much or twice as much. If you can do Roth conversions at tax rates lower than you would be forced to make later in life, then you come out ahead.

The more general principle is outlined in this series of posts:
https://www.gocurrycracker.com/is-your-401k-too-big/