Can I convert 401k to Roth

[aboatguy]

BLUF 401K to Roth using government retirement money to pay the taxes?

Background:
My wife and I are both working.
I have a government retirement that currently pays $58k (it is supposed to go up with inflation)

Current employment $$
I'm making about 75K
Wife about 30K

We are in OMY (IE we live on my retirement while maxing out our 401Ks fully funding our roths and "staching" the rest) We plan on pulling the plug in 24 months on my 55th birthday. We now live comfortably on my retirement however, it ends when I die so trying to stache for my wife and life's other unexpected things!


Now to my question can we slowly convert our pretax 401ks to roths IRAs (trying to remain in 15% bracket) and pay the taxes with my retirement pay (1099r)?

 

[travelover]

..........

Now to my question can we slowly convert our pretax 401ks to roths IRAs (trying to remain in 15% bracket) and pay the taxes with my retirement pay (1099r)?

Yes, this is a common strategy here.

 

[BrianB]

Some thoughts:

1. Are you allowed to take distributions from your 401K while still employed? My former company only allowed withdrawal after separation, and then only in the full amount. I converted my 401K to a traditional IRA after retiring (no tax consequences), then started conversions to a Roth.

2. Be aware that while you can do Roth conversions and stay in a low tax bracket, the conversion amounts may reduce your ACA premium tax credit if you buy your own health insurance while early retired. For us, we could only convert about half of what we wanted to last year while maintaining our ACA tax credit.

3. When you do start conversions the deadline is December 31 of the tax year, but you can recharacterize ("un-convert") until April 15 of the following year. We convert more than we expect we need in December then recharacterize some or all of it as we tweak our taxes in February / March.

 

[aboatguy]

It looks like I was unclear, the conversion would start in about 24 months and neither of us would be working. As long as I am working we are solidly in the 25% bracket so converting now would not be advantageous.

Checking to see if we can convert 401K into a ROTH IRA after fire and pay the taxes with my retirement (since we will have no earned income)
There should be about 17K headroom left in the 15% bracket after FIRE and 15 years before I plan on drawing social security.Meaning there's time to stache some 15% money.....if I can pay the taxes with my federal retirement money....I know I can't fund an IRA with it!

 

[BrianB]

Yes you can. Unlike contributing to an IRA which requires earned income, conversions do not have an earned income requirement.

 

[Newventurer]

You may want to also consider that a 401k can give you protection against creditors that an IRA may not, consider the value of this in your overall risk management. Good luck!


https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira

 

[aboatguy]

You may want to also consider that a 401k can give you protection against creditors that an IRA may not, consider the value of this in your overall risk management. Good luck!


https://www.irahelp.com/slottreport/how-safe-creditors-your-401k-money-if-you-roll-it-ira

Looks like Louisiana is one of the states that provides IRA/Roth IRA protection....
Louisiana State Asset Protection Laws — Asset Protection Society

IRA
ERISA qualified benefits, including IRAs and Roth IRAs, are exempt. To see this statute, click here.

 

[Newventurer]

Looks like Louisiana is one of the states that provides IRA/Roth IRA protection....
Louisiana State Asset Protection Laws — Asset Protection Society

IRA
ERISA qualified benefits, including IRAs and Roth IRAs, are exempt. To see this statute, click here.

That was a great read...you get to keep one cow and the chickens for your family as well

 

[evilanne]

Checking to see if we can convert 401K into a ROTH IRA after fire and pay the taxes with my retirement (since we will have no earned income)
There should be about 17K headroom left in the 15% bracket after FIRE and 15 years before I plan on drawing social security.Meaning there's time to stache some 15% money.....if I can pay the taxes with my federal retirement money....

Assuming ~$60K earnings, $21K Standard Deductions/Exemptions, you should have about $39K headroom in 15% bracket for married filing jointly if you have no other income; taxes would be about $6K for the conversion.

 

[retire2020]

Now to my question can we slowly convert our pretax 401ks to roths IRAs (trying to remain in 15% bracket) and pay the taxes with my retirement pay (1099r)?

Yes. You can. Thats what I'll be doing end of this year and pay tax, if any, from my personal account. We're family of five with only income from CG/DIV so I may end up paying nothing on converting 50K this year.