Roth 401k

[a60dan]

Just my luck.

Planning to FIRE in December and I can finally have a Roth 401k starting October 1.

I think I’m going to pass.

The plan is to manage taxable income 2022-2026 until we both are eligible for Medicare. DW has an adjunct college professor salary with no “affordable” medical insurance.

I’m hindsight, we have too much in tax deferred accounts.

We will draw from our cash and Roth IRAs to carry us through.

I stopped contributing to the regular 401k earlier this year, paid the tax, and am adding it to the 2022 cash to live on.

The “5 year rule” tells me it’s not worth depositing my entire pay for October-December to max out the Roth 401k because I might incur a penalty for “early withdrawal”.

Roth conversions this year also have a 5 year rule, so I’ve ruled that out.

Wondering if I’m missing anything here as I over-analyze these last few months?

I’ll be glad after I just “take the plunge”.

 

[Out-to-Lunch]

Can you clarify: Did/do you have a Roth IRA that you started earlier?

Also, may I ask how old you are? That mkes a difference when thinking about whether a Roth makes sense for you.

 

[NgineER]

Why pull out of Roth taxable until Medicare? Is your wife continuing to work? If you have too much in tax deferred you might want to convert or withdraw to minimize taxes later on. At least to the top of your current bracket I’d you will be in a higher bracket at some later point.

 

[Sunset]

OP - if you have children, tell them to open a Roth and fund it with a small amount, so they can start the 5 yr rule.

 

[a60dan]

Can you clarify: Did/do you have a Roth IRA that you started earlier?

Also, may I ask how old you are? That mkes a difference when thinking about whether a Roth makes sense for you.

Roth IRAs for each of us both started more the 5 years ago. Fully funded through 2021.

Age is 61.

 

[a60dan]

Why pull out of Roth taxable until Medicare? Is your wife continuing to work? If you have too much in tax deferred you might want to convert or withdraw to minimize taxes later on. At least to the top of your current bracket I’d you will be in a higher bracket at some later point.

Insufficient post-tax savings. Too much in tax deferred.

Yes - adjunct college professor. Medical insurance is “more than I earn “ [emoji3]

I’m still mulling over Roth IRA conversion this last year of full taxable income, but don’t want to withdraw from it for the “bridge to Medicare”

 

[Leon Q]

Roth IRAs for each of us both started more the 5 years ago. Fully funded through 2021.

Age is 61.

I think the "5 Year Rule" for Roth only applies to those who are under 59.5 year old? Let's say you have Roth 401k even less than 5 years old, you can still withdraw without penalty since you are older than 59.5? you can also rollover your Roth 401k to Roth IRA, and withdraw without any restrictions since the Roth IRA is 5 years old and you are over 59.5.

 

[Out-to-Lunch]

Yes, I think you are misinterpreting the withdrawal rules. If you are over 59.5, and your oldest Roth is over 5 years old, there are ZERO restrictions on your withdrawals. ALL of your withdrawals (including contributions and earnings) are qualified:

https://www.bogleheads.org/wiki/Roth_IRA

 

[teetee]

If I have a rollover IRA account from my previous 401k created more than five years ago, can I roll over my current 401k to the same IRA account if today I decide to quit my current job?

 

[Leon Q]

If I have a rollover IRA account from my previous 401k created more than five years ago, can I roll over my current 401k to the same IRA account if today I decide to quit my current job?

For 401k to IRA rollover, I think there is no "5 year rule". You can rollover when you quit your current job, disregard when the IRA was opened.

 

[teetee]

For 401k to IRA rollover, I think there is no "5 year rule". You can rollover when you quit your current job, disregard when the IRA was opened.

Oh yeah that makes sense. It only applies when with Roth account creation.

 

[livingalmostlarge]

did you really have too much 401k? honestly if you were in the 35% bracket then probably not. You can probably easily convert or withdraw at a lower rate that it always makes sense. At least that's how i look at it. If i had paid 37% plus state income taxes on the bulk of it?

 

[gauss]

I would consider maxing out the contributions to the Roth 401k if your alternative is to receive after tax cash instead (assuming that you don't need the after tax cash).

You should be able to roll the Roth 401k to the Roth IRA and since you are over 59 1/2 and you have had your first Roth IRA at least 5 years, any withdrawals from the Roth IRA should be qualified meaning no tax/penalty.

-gauss