2014 will be my first full year of ER and I'm looking at converting my 401K to a Vanguard ROTH IRA. I've run ORP calculator and it suggests converting it over the next 7 years in 60K chunks keeping me in the 15% tax bracket.
That all sounds good; however, I'm also evaluating the college FAFSA and trying to reduce our Expected Family Contribution (EFC). If I can keep our income below 50K and file a 1040A instead of the 1040, it reduces our annual EFC by 14K. We're facing 8 years of college for 3 children. So question is will it be worth it to convert over and lose the reduction in our expected college cost for the tax-free ROTH money down the road? I understand it's not so cut and dry as to whether one benefits from converting over to a ROTH.
We still have 3 children at home so even though I'd be taking the 401K distribution each year, our overall tax should still be fairly low given the 5 exemptions. Also, if I wanted to stay with the 1040A, I lose the ability to itemized deductions which would raise the taxes about $1000.
Not an easy choice from where I sit.
That all sounds good; however, I'm also evaluating the college FAFSA and trying to reduce our Expected Family Contribution (EFC). If I can keep our income below 50K and file a 1040A instead of the 1040, it reduces our annual EFC by 14K. We're facing 8 years of college for 3 children. So question is will it be worth it to convert over and lose the reduction in our expected college cost for the tax-free ROTH money down the road? I understand it's not so cut and dry as to whether one benefits from converting over to a ROTH.
We still have 3 children at home so even though I'd be taking the 401K distribution each year, our overall tax should still be fairly low given the 5 exemptions. Also, if I wanted to stay with the 1040A, I lose the ability to itemized deductions which would raise the taxes about $1000.
Not an easy choice from where I sit.