Looking to retire within 2-4 years but need your help

[Carpediem]

Hello everyone...

I'm looking to retire within 4 years (possibly 2) but I have many questions I'm hoping the forum can help me with. I've researched and researched as much as possible but I'm still confused about certain things. I will provide some background info and list my questions afterwards.

Background Info:

Married: 58 / DW 57
Kids: One in college and on the payroll til fall 2018
Current salary: ~$105,000
Total taxable income: ~$69,000
Current 401k contribution: 10% into non-Roth 401k

Retirement savings:

• Megacorp 401k - $245k (60% stocks, 30% bonds, 10% emerging mkts)
• Vanguard tIRA #1 - $781k (80% Wellington, 20% Wellesley)
• Vanguard tIRA #2 - $95k (100% Wellington)
• Vanguard Roth #1 - $4k (100% Wellington)
• Vanguard Roth #2 - $3k (100% 2040 Target Retirement Fund)
• Taxable Mutual Fund - $10k (bond fund)

Other income:

• Rentals - $10k per year
• Pension - $3k per *year* at retirement

Other info:
- No retiree HC benefits available

Questions:

• If I'm looking to retire in 2-4 years, should I change my 401k contributions to go into megacorp's Roth 401k instead of the traditional 401k that I'm currently contributing to?
• Given the small amount of Roth funds in our current Vanguard accounts, should I start doing Roth conversions leading up to retirement? (Note: I anticipate our income at the start of retirement to be a bit higher than it is right now pre-retirement so the tax hit from the Roth conversions would probably be less prior to retirement.)
• Other than doing Roth conversions, are there other things I should be doing now that would help reduce the tax burden in retirement?
• If I redirect my 401k contributions to a Roth now and it's decided that I need to do Roth conversions in my Vanguard accounts before retirement, is it okay to do both of those things at the same time? Are there contribution limits I need to watch? Are the contribution limits a *total* for ALL Roth accounts?

I'm sure I will think of many other questions as soon as I click 'Submit' but if I could get some feedback on the above, it would be greatly appreciated.

 

[NgineER]

Good questions... I'm sure you''ll get some very good answers from others, but I have a few questions first.
Why do you anticipate a higher income in retirement?
Do you have a large amount in your 401k that is not listed above?
Is your pension $3k per year? Not per month?
What do you anticipate SS to be?

If your income in retirement will truly be higher, then it might be wise to do Roth 401k contributions and Roth conversions now, but I'm not sure it would.

If you start contributing 10% to a Roth 401k now and not the standard 401k, you'll get taxed on 10% of $105k, which will combined with your $69k taxable income put you into the 25% tax bracket.
The contribution limits to the Roth 401k is $24,000 per person in 2017 if you are over 50.
There is no rollover limit for t-IRA to Roth-you'll just pay taxes on the conversion. You can do both at the same time.
You can also contribute $$6,500 to your Roth IRA for each of you this year.

 

[Carpediem]

Answers to NgineER's questions:

Q: Why do you anticipate a higher income in retirement?
A: I anticipate higher income due to higher expenses due to (a) healthcare costs, and (b) travel and entertainment expenses.

Q: Do you have a large amount in your 401k that is not listed above?
A: Oops, I forgot to list my 401k balance, which is ~$245k. I will correct my original post.

Q: Is your pension $3k per year? Not per month?
A: Yes, $3k per year.

Q: What do you anticipate SS to be?
A: Mine at FRA is ~$2800 and DW is $1200 at FRA. We'll probably file for hers at 62 and I'll wait until either 67 or 70.

Thank you for the other feedback.

 

[exnavynuke]

Following up on NgineER's question about income-
It seems you plan on having a higher income because you plan on spending more money. This, I'm assuming, means you plan on drawing down your retirement accounts for some number of years after you retire at a rate higher than you spend money currently.

Have you run FireCalc etc to determine how your nest egg will hold up under your planned higher spending levels yet? Not knowing current or planned spending, I can't make any guesses as to how sustainable that might be.

 

[Carpediem]

exnavynuke,

I intentionally didn't provide any spending details because I'm not really asking for thoughts on if a retirement in 2-4 years is possible. I've run many, many calculations using Firecalc and other tools so I feel comfortable with the results.

 

[kgtest]

You can convert as much to Roth as you want...you cannot contribute as much as you want...only the min plus the catchup amount are allowed for "contributions" and the reason people do a backdoor roth. They do this up to their taxable income limit...basically topping off the income reported...up to their tax bracket so not to push them in a higher tax bracket. Roth conversions are a taxable event.