Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Converting 457 to Roth?
Old 02-11-2015, 05:32 PM   #1
Recycles dryer sheets
 
Join Date: Feb 2015
Posts: 89
Converting 457 to Roth?

Hi all, first post here. Just discovered this forum a few months ago, though DH and I have been retired a few years. DH and I were both state employees making good money and therefore have excellent pensions. The pensions are good enough that we don't have to touch our 457 accounts. Between us the balance is about 750K, we are 58 and 53 years old.

I saw the FA from the 457 plan yesterday. His advice was to change my AA to include more Vanguard index funds. Every fund he recommended had an expense ratio < .10 (ok, the international one was .12). Seems like sound advice - pretty good for a free session!

Then he started talking about Roth conversions. I had always thought that we were not eligible for Roths because of income limitations. He explained that conversions of our 457 funds weren't limited by income but that one must pay income tax on the amount converted. I get that much.

Here's my question. We are now (and are likely to be for the foreseeable future) in the 33% federal income tax bracket. We won't have to take any RMD's from the 1st 457 for 12 years. Does it make sense to start annual conversions now as long as it doesn't bump us into an even higher tax bracket? Is there an optimal split, meaning at some point should we stop conversions?

Are there any general guidelines for this? Insights are appreciated!
Persn is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 02-11-2015, 05:59 PM   #2
Thinks s/he gets paid by the post
 
Join Date: Jan 2006
Posts: 4,172
The generally accepted rule is to convert if the rate today (sounds like 33%) is
less than the rate you will pay later if you don't convert when the RMDs start.
If they are the same, then generally conversion is more favorable esp. if you can pay the conversion tax w/ outside funds .

Some exceptions to consider: if you think someone may else may inherit in that timeframe who is not a spouse , then consider using their tax rate (or perhaps a blend). If you expect to leave to charity, then consider not converting since charity tax rate is 0.
kaneohe is offline   Reply With Quote
Old 02-11-2015, 06:11 PM   #3
Thinks s/he gets paid by the post
 
Join Date: Jul 2005
Posts: 4,366
No income limits for Roth conversions.


The other key component that makes Roth conversions beneficial is having extra money in a taxable account, or sufficient pension income, to cover your expenses plus the Roth conversion taxes. If you have extra money left at the end of the year, a Roth conversion might be worthwhile. You have to look at your tax situation, especially after age 70 with RMD's, to know for sure.
Animorph is offline   Reply With Quote
Old 02-12-2015, 09:20 AM   #4
Recycles dryer sheets
 
Join Date: Feb 2015
Posts: 89
Thanks for the input. You both raise points I either wasn't aware of or hadn't considered. It helps!
Persn is offline   Reply With Quote
Converting 457 to Roth?
Old 02-12-2015, 09:54 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
steelyman's Avatar
 
Join Date: Feb 2011
Location: NC Triangle
Posts: 5,807
Converting 457 to Roth?

I, too, worked in state/academia and have a 457 plan through that. I've just left it alone and kept with the money I'd deferred into it (I viewed deferred compensation as a substitute for no employer match).

The choices available in my 457 don't include Roth options so I'd have to roll out. They have "institutional-class" funds available with very low expense ratios and they are my only avenue to a stable value fund, which I'd like to keep open.

Any conversions to Roth I do in the future would be from 403(b) accounts, not 457.

The only Roth conversion I've ever done was the first year the Roth was created. I opened a Roth IRA and a traditional IRA for the prior year that I immediately converted into the new Roth (the idea was to double the initial allowed annual limit, which I think was $2K).
__________________

steelyman is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Taxable Brokerage or 457 Roth? PhrugalPhan FIRE and Money 3 12-18-2014 12:40 PM
converting IRA to Roth IRA based on new Roth Rules vs. 72t mbmmccoy FIRE and Money 27 09-28-2009 06:27 AM
403(b), 457, SEP IRA, Roth IRA bank5 FIRE and Money 28 09-10-2009 08:15 AM
Roth vs. 457 (401k, etc.) Skylark FIRE and Money 7 08-20-2004 11:12 AM

» Quick Links

 
All times are GMT -6. The time now is 06:02 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.