Tax strategy when not enough brokerage acct funds

[M]

Hi Again! I went back and read even more and reworked my plan. Three questions: 1) Are you saying that you think it would be less favorable to stay in the 12% bracket (for us that would be from our 72T, Roth conv ladder and TSP Roth contribution withdrawals in early retirement to cover our expenses, then pension, SS and Roth IRA withdrawals later in retirement) in all the years of early and regular retirement and instead you’d consider it more favorable to have some years, even if just 5 years, at the 10% bracket (before our SS kicks in added to our pensions) recognizing this may put some years at a higher level in the 12% bracket? Unfortunately we don’t have many brokerage funds to draw dividends from. Our strategy was putting our savings into retirement accounts- maxing out TSP and Roth IRAs (including backdoor), paying off debt (mortgages), and we made the mistake of investing $90k post tax money into private REITs which we’ll be lucky to get all our principal back eventually. 2) If I could go back 10 years, would you have said we should max the TSP but not the Roth IRA and instead done a brokerage? We still have 2 years to adjust this I think. We are 46 and 48 and are pretty sure we’re FI and could ER now. But if we work 2 more years I’ll get to draw a $43k pension vs a $38k pension 2 yrs earlier (60 vs 62). To make now work we’d have to draw down all of our Roth’s and TSP until our pensions and SS kicks in. This seems risky to us since we’d be taking a deferred retirement 14 years after job separation and who knows what Congress will do to us federal workers. We wouldn’t have enough funds without the pensions. We likely would if we worked 2 more years because the bulk of our good paying earnings now will go into a brokerage account after funding the retirement accounts because we now have no debt (but if pensions stay viable we’ll die with too much). 3) Any thoughts on our situation?

[gocurrycracker]

Hi. Sorry, I feel like I'm missing some context. Did you post a comment previously (it shows this is your first/only post.)

[M]

Oops sorry about that. I posted under the Never PayTaxes again in January of this year. The only correction from that is I was able to hone in more closely on the pension amounts listed here. Originally my question was more about whether to contribute to Roth TSP OR Trad TSP but I think I’m almost convinced to make the switch back to Trad

[M]

Here’s the details:
Gross income = $240k
One Mortgage = $50k (home worth $275k, will sell at retirement and invest in brokerage index funds)
Second home owned and will become our primary home in retirement
TSP = $760k (about 20% of that in the Roth TSP and the rest in Trad TSP)
Roth IRAs = $182k
Muni bonds = $20k
Cash = $60k
HSAs = $50k

[gocurrycracker]

Ahh, that clears things up a bit. Linking to that comment for future reference:
https://www.gocurrycracker.com/never-pay-taxes-again/#comment-82248

Q3: Sounds like working 2 more years is a good choice. Are you also able to get health insurance with the pension? I'd work 2 years for a health insurance guarantee.

Q2: There is no reason to choose brokerage over Traditional or Roth when you are retiring at age 50.

Q1: For Roth vs Traditional, the only number that matters is the marginal tax rate. With income of $240k now you are well in the 24% tax bracket.

 That is more than 10% or 12% that you are debating paying later. Were it me, I would always choose Traditional with these numbers. Even with pension, SS,
 early RMDs, you are unlikely to ever be in the 24% bracket.

 Similarly, if you do a Roth conversion in year 1 of retirement or year 12 of retirement, both at 12% tax rate, those are mathematically the same.
 When deciding to do a Roth conversion, being $1 in the 12% tax bracket or $70,000 in the 12% tax bracket is also the same. 12% is 12%.

[M]

Thanks very much for the reply- extremely helpful and I continue to make decisions and adapt our plan! Unfortunately deferred retirement doesn’t allow federal health insurance to continue so that’s not a motivating factor to stay longer. So like others, I’m figuring in how to balance ACA subsidies, tax burden, and income levels in my plan.

We actually don’t think we’ll spend $60k, it’ll probably be closer to $50k-55k with ACA, but it’s another way we’re building in buffer to our plan. It’s hard to balance being prudent yet being reasonable!

Maybe this is the recession and we’ll be retiring as the economy recovers?!! So here’s the challenge now- we have this years allocation of Roth IRA ready to invest. Is this the test for don’t try to time the market and just go ahead and put it into VTSAX?!!

Again thank you!

[gocurrycracker]

To spend $60k/year, you want a minimum of $1.5 million.

$6,000 (an IRA contribution) is 0.4% of that.

Market timing / gambling on 0.4% probably won't have much ROI.