Here's a devil's advocate point of view-For 2025 we have decided to contribute ONLY to Roth accounts.
You currently have about 1.5 million in tax-deferred accounts. That is more than plenty, in my opinion, considering that you have pensions and SS.
You can do two things. First, stop contributing to tax-deferred accounts if you have Roth available instead. Second, convert up to the top of the 22% bracket each year. And I suggest even converting into the 24% bracket since the 22% bracket is scheduled to revert to the 25% bracket in 2026.
You will need to have money outside the conversion to pay the taxes.
If you move to a zero income tax state such as TN/FL in early retirement, your current marginal rate of ~31% (22 Fed, 5.5 NYS, 3.5 NYC), will drop to just 22%, a 9 point difference. IOW, you'd save $9,000 in taxes for each $100k you convert to Roth. For the next 3 years or so until you retire, just keep using tax-deferred retirement accounts to save bigly on New York taxes.
If you both retire at 59, you would have about three years before IRMAA at 63 to make really large ($200k-$300k) Roth conversions using the 22% & 24% brackets, paying an average rate of about 22%-23% vs 31% today. At 63, you could continue conversions & stay inside IRMAA tier 0 by keeping MAGI below about $218k.
Just a thought.
PS- It's a small difference, but there's a typo in HomeStretch's post upthread- if taxes revert in 2026, the 22% bracket will become the 25% bracket, not 24%.
Note- With the GOP winning the 'trifecta' this year, the current TCJA tax scheme could be extended into 2026 & beyond. Speculation about future laws is verboten by BH mods, so that's all I'll say.
2. Doing Roth conversions in 2024-2025 up to the top of the 22% bracket (pay taxes from a Taxable account). The 22% bracket is scheduled to revert to 24% in 2026 so even if your tax bracket remains “the same” in retirement, 22% increases to 24%
Statistics: Posted by Navillus1968 — Sun Dec 15, 2024 9:01 am — Replies 163 — Views 13744