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Old 12-17-2020, 07:24 PM   #61
Recycles dryer sheets
 
Join Date: Feb 2017
Location: San Diego
Posts: 60
Wife and I both work and are in the 24% Fed tax bracket and 9.3% CA bracket (33.3% combined). We are in our mid-40s.
She changed jobs 2 years ago and had about $300k in 45/55 trad/roth 401k split that we rolled into t/roth IRAs because were getting hit with annoying percentage maintenance fees once she changed companies that was causing a drag (modest loss) on dividends. The combined tax bracket currently is historically low, and the earlier we convert the less amount we would need to convert in the future where I wonder if the brackets will be pushed up. I've done some back of the envelope calculations assuming a 5% average rate of return over time - if we allow to grow to age 59.5 without converting the traditional one may have double what what it has now. Currently the combined CA rate up to about $80,000 of income in is 21%. I don't foresee us moving, but who knows.

We expect both to have modest pensions by around 57. No children.

I'm wondering if its a good idea to pay the heftier tax rate early on (currently +13% difference) to increase the tax free holdings later. My tsp (401k) has a larger 80% portion in tax deferred that we cannot convert (yet), so I'm worried about having too much tax deferred income later. The unknown is tax rates at the lower end would get pushed up to current levels. We would pay more now, but try to nip the taxes owed later. Has anyone done these conversions earlier on before? I see most people are dealing with conversions upon retirement. Our situation is different than some (luckily in general) in which we expect pension money to fill up the lower tax brackets.
later. Thanks
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