To Roth or not to Roth

[Helen]

My plan is to retire in six years at age 56. I will defer my pension until age 60 to avoid a 30% reduction. I will live off my I Bonds for the first four years of retirement. This means my tax rate will be close to 0% during those four years.

My plan is to convert 401k money to a Roth IRA each of the four years up to the 10 - 15% tax bracket.

I am currently funding my Roth (including the catchup), purchasing a chunk of I Bonds and funding $15,500 into my 401k. I can't really afford to put the extra $5,000 in catch up contributions into my 401k, but I would love to for the tax deduction.

Maybe I shouldn't be funding my Roth, but instead max out the 401k to $20,500. Then when I retire convert the 401k to the Roth. I could get the tax deduction now, then move the money when I'm in a really low tax bracket. I am currently in the 28% bracket on the Federal level and 9% State.

Can anyone see a reason why I shouldn't do this ?

Also, if I understand this correctly, I don't need an earned income to do a conversion to a Roth - is this correct ?

Thanks for any help,

-helen

 

[LOL!]

I agree that you should save 37% on taxes now and pay 0% on taxes in the future. You do not need earned income to do conversions.

 

[cute fuzzy bunny]

It'd be bad if the tax code is changed before you start withdrawing from the current system to a flat tax or national sales tax.

We stopped contributing to the regular IRA and started on the Roths a few years ago. By the time we "get there" we'll have roughly half and half.

Seems like a good idea unless you're sure the current tiered income tax system is in it for the long haul.

 

[Texas Proud]

They have been talking about a flat tax or national sales tax since I started doing taxes back in 1981.... and they are not any closer now than then...

The current tax system allows the gvmt to dole out tax breaks to their friends... and BOTH parties want to be able to do that to get more votes... going to the flat or sales, bye bye favortism...

I don't plan for that to happen... and don't think it will in my lifetime.... and I am still 'young'...