My wife and I are looking at ER in two years. I'll be 56 and she'll be 62. Assuming my wife takes SS at 62, my non-COLA pension at 56 (about $28K/yr), drawing down an inherited tIRA from my parent ($105K, main source of the inheritance), and $400K invested in a Vanguard muni bond fund, all of our initial ER expenses will be covered. The plan is to draw down the inherited tIRA until I reach age 62, then start SS to effectively replace the inherited tIRA. Based on the rest of the portfolio, I may delay SS.
This will leave us with about $900K (conservative) in a money market account to invest, use for emergencies, and put toward the increasing living costs not covered primarily because of the non-COLA pension.
In addition, we expect to have about $1.1M total in our 401(k) plans at ER, with the total split almost 50/50 between the two of us. I have been reading about Roth IRAs, and I have seen comments from many suggesting that the conversion of a traditional IRA (we would need to move the 401(k)s to tIRAs first, I suppose) to a Roth IRA be done after starting ER. I am guessing the main reason would be lower tax rates due to no income streams from working. But in our case, we'll have SS, a taxable pension, and an inherited tIRA generating taxable income.
I can't imagine trying to convert the tIRAs to Roth IRAs all at once as $1M+ would generate a huge tax bill. At the same time, the funds converted into a Roth IRA need to be there for at least 5 years before they can be used without tax consequences. And in my wife's case, she would be 8 years away from needing to take RMDs from her tIRA, so I would guess we wouldn't want the conversion to take that long unless the plan was to only partially convert the tIRAs to Roth IRAs.
I've run the numbers, and even if we left the funds in tIRAs, we would have more than enough to live through retirement (been estimating age 90 - don't expect it for either of us). The issue would be the inheritance of the remaining assets to our only child, who will be 23 at the time of our ER. In addition to having more money available late in life by converting to Roth IRAs, it would be a lot easier on our child if/when they become inherited assets.
Speaking as someone who is dealing with a non-spouse inherited tIRA, forced RMDs when you don't need the money are a pain, particularly when you are still working. It's one of the reasons why I want to draw it down as if I were starting SS at age 56. I also don't want my wife or child to have to deal with possibility of inheriting it from me.
Sorry, this is quite long winded. I probably could have streamlined this to ask what are our options for converting the tIRA assets to Roth IRAs. We have a large enough taxable account to deal with the taxes for the conversions. But for the amounts we are dealing with, I don't know whether we do this in 3 years, 5 years, or right up to the time we are 69 before RMDs kick in on the tIRAs.
This will leave us with about $900K (conservative) in a money market account to invest, use for emergencies, and put toward the increasing living costs not covered primarily because of the non-COLA pension.
In addition, we expect to have about $1.1M total in our 401(k) plans at ER, with the total split almost 50/50 between the two of us. I have been reading about Roth IRAs, and I have seen comments from many suggesting that the conversion of a traditional IRA (we would need to move the 401(k)s to tIRAs first, I suppose) to a Roth IRA be done after starting ER. I am guessing the main reason would be lower tax rates due to no income streams from working. But in our case, we'll have SS, a taxable pension, and an inherited tIRA generating taxable income.
I can't imagine trying to convert the tIRAs to Roth IRAs all at once as $1M+ would generate a huge tax bill. At the same time, the funds converted into a Roth IRA need to be there for at least 5 years before they can be used without tax consequences. And in my wife's case, she would be 8 years away from needing to take RMDs from her tIRA, so I would guess we wouldn't want the conversion to take that long unless the plan was to only partially convert the tIRAs to Roth IRAs.
I've run the numbers, and even if we left the funds in tIRAs, we would have more than enough to live through retirement (been estimating age 90 - don't expect it for either of us). The issue would be the inheritance of the remaining assets to our only child, who will be 23 at the time of our ER. In addition to having more money available late in life by converting to Roth IRAs, it would be a lot easier on our child if/when they become inherited assets.
Speaking as someone who is dealing with a non-spouse inherited tIRA, forced RMDs when you don't need the money are a pain, particularly when you are still working. It's one of the reasons why I want to draw it down as if I were starting SS at age 56. I also don't want my wife or child to have to deal with possibility of inheriting it from me.
Sorry, this is quite long winded. I probably could have streamlined this to ask what are our options for converting the tIRA assets to Roth IRAs. We have a large enough taxable account to deal with the taxes for the conversions. But for the amounts we are dealing with, I don't know whether we do this in 3 years, 5 years, or right up to the time we are 69 before RMDs kick in on the tIRAs.
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