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Ready to retire - Need some advice
Old 02-11-2016, 08:25 AM   #1
Confused about dryer sheets
Join Date: Feb 2016
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Ready to retire - Need some advice


I'm 55, my wife is 57, and we are both currently employed but hope to retire in the next few years. We have a basic plan in place, but there are a number of items that we still need to work out.

When we retire, our plan is to do it at a year-end. Both of us can use our vacation balances to continue receiving normal paychecks until that runs out, so we will have some earned income during our first year of retirement.

During that first year, we plan to sell our non-retirement mutual funds. In order to avoid capital gains on those sales, we want to make sure we are in the 10-15% tax bracket.

In order to accomplish that, we plan to put most of our final paychecks into our 401ks to minimize our taxable income. This brings up some of my questions.

1) We both contribute to Roth IRAs, and would like to make contributions the year after we retire. In order to contribute the full amount ($6,500 each), we would need at least $13,000 of earned income. I assume that means "taxable" income, so any pre-tax portion (401k contributions, insurance premiums, etc.) would not count toward the $13,000? If that's the case, would pay that was placed into a Roth 401k (we both have this option) count toward the $13,000?

2) We contribute to Roth IRAs because our income is too high to receive any tax benefit from a traditional IRA. Would there be any benefit to opening and contributing to a traditional IRA the year after we retire, when our lower income might provide some tax benefit? I assume we could then convert those IRAs into Roths at a later time. (I'm also wondering if all that would be more trouble than it's worth.)

3) I have only had a Roth 401k option for a little over a year, and I've just started contributing a small amount to it to start the 5-year clock. After I retire, I'm considering converting portions of my traditional 401k to the Roth option each year (I've confirmed my company allows this). My plan would be to convert amounts that would still keep us in either the 10 or 15 percent tax bracket, paying the lower tax rates on the conversion to let the money grow tax-free from that point on. Has anyone done something similar and does anyone have any advice on that plan?

These are a few items that come to mind for now. Is there anything I'm overlooking, or does anyone have any other advice on how to get the maximum benefit out of our final paychecks?

By the way, my wife loves gardening and hopes to get a part-time job at one of the local nurseries after she retires. At this point I haven't decided if I'll seek a part-time job or not. Regardless, we'll have to factor this in as well when the time comes.

Thank you very much for your help!

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Old 02-11-2016, 10:51 AM   #2
MBAustin's Avatar
Join Date: Jul 2010
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Welcome, J2W2! Congratulations on your preparations for retirement, both financial and otherwise.

I don't have specific answers for your questions but suggest that between FIREcalc and TurboTax you could model different scenarios - TT would be best for modeling the tax impacts of various choices. Many here find iORP a good calculator for modeling Roth conversions also.

If you haven't seen them yet, we have two good compilations of resources:

Some Important Questions to Answer Before Asking - Can I Retire?


Early Retirement FAQs - Early Retirement & Financial Independence Community

We'll do our best to answer your questions also so keep posting!
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