RMDs are what they are. Agree that numbers have more meaning as taxes are paid on amounts not percentages. I don’t know anyone that would rather have no pension so that RMDs would be less of a tax load. Worthwhile Roth conversions are difficult when you have a substantial (percentage of income or dollar amount), as often the worthwhile brackets are filled. In our case, we will actually pay somewhat less taxes on RMDs than we would have on had we not deferred via 401ks, so Roth conversions are carefully planned.
What I don’t understand is the OPs 4% Roth withdrawal rate that is unneeded and is 19% of income? Often the point of doing Roth conversions before RMDs is to allow that to grow untaxed for a time period to build up. Why not leave it in to grow until needed?
Everyones income and tax situations are different, but why do conversions that were 25% of your income to the top of the 12%, so that you can take it out immediately afterwards, while still in the 12%, where, if unneeded it would grow taxed?
There is no point (MFJ) in us doing anymore Roth conversions for now. I am 68 & DW is 73. I did maybe 150k worth over the years before I hit 66 and wasn’t collecting SS, but not much was done (just to top of 12%) after retirement as we have about $62k in fully taxed pensions. Once I filed my SS at FRA, with our inherited RMDs and now, plus DWs RMDs, there is no more room in 12%, and going higher income means losing a substantial state age/income deduction that negates the Roth gains. Once my RMDs start in 5 years, we will lose that deduction permanently on forced income.
I opened my Roth when I was 53, but never contributed much to it as I was already in a higher tax bracket, and made sure I capitalized on maximum company matches, HSA, and deferred taxes. There was maybe $150k in it when I retired and now it is well past $500k.
Currently we withdraw from after tax savings for all our extras, travel, cars, etc, any lumpy expenses that might exceed our forced income. Without them, our forced income exceeds our living expenses including taxes. We are not really BTD types, but we spend whenever we want, for what we want or need.
The majority of the pensions are non-COLA (maybe a couple hundred a year increase tied to inflation), and currently SS about equals our pensions. The plan when my relatively large RMDs of over $40k start in 5 years, is the same as
@TheWizard, to convert it entirely to Roth, since it will be unneeded, assuming no major life change. It makes no sense to not do that, and increase the taxable income from the after tax savings accounts.
Primarily because we are MFJ, and know that in all likelihood one of us will be left filing Single, the more tax free account there is the better, especially if it is me that’s left, as DWs much smaller income goes away and my taxes would increase greatly. If DW is left, then she gets my large SS, but not my larger pension, so she will be in a lower tax bracket, possibly tax free depending on what the RMDs are. At that point she would do much larger Roth conversions to the top of her bracket to reduce the future RMDs just in case she needs more income for Senior care living.
