Move Roth Contributions to Taxable?

[Johanson]

Hi all! I want to thank everyone on this forum for all of their insight. I've found a wealth of knowledge here. I have another question for the group.

I'm 4-7 years from retirement and I have a company 401K as well as a Roth IRA but no taxable account. I understand the importance of having a taxable account for its tax advantages wrt capital gains and qualified dividends. Would it be prudent of me to pull some or all of my Roth IRA contributions shortly before retirement and move them to a taxable account to use as income (dividends and interest from munis mostly) in retirement?

 

[euro]

Are you over 59 1/2? Otherwise you'll likely be paying a withdrawal penalty.

 

[Johanson]

Are you over 59 1/2? Otherwise you'll likely be paying a withdrawal penalty.

No I won't be but I'm only talking about my contributions, not the gains.

 

[GrayHare]

You want to move money out of Roth and put it in a non-retirement investment account? That will make the subsequent growth taxable. Just leave the money in the Roth and withdraw it when needed for expenses. No fuss, no muss, and no tax on qualified withdrawals.

 

[LOL!]

I wouldn't do that myself. It makes no sense to me.

 

[Johanson]

You want to move money out of Roth and put it in a non-retirement investment account? That will make the subsequent growth taxable. Just leave the money in the Roth and withdraw it when needed for expenses. No fuss, no muss, and no tax on qualified withdrawals.

I wouldn't do that myself. It makes no sense to me.

Ok, fair enough. Would it make sense to pull extra money I don't need out of the 401K to put in a taxable after retirement? This is assuming I don't have a taxable account at retirement.

 

[pb4uski]

Hi all! I want to thank everyone on this forum for all of their insight. I've found a wealth of knowledge here. I have another question for the group.

I'm 4-7 years from retirement and I have a company 401K as well as a Roth IRA but no taxable account. I understand the importance of having a taxable account for its tax advantages wrt capital gains and qualified dividends. Would it be prudent of me to pull some or all of my Roth IRA contributions shortly before retirement and move them to a taxable account to use as income (dividends and interest from munis mostly) in retirement?

To me it is six or one or a half dozen of another. Your Roth is tax-free but you can only withdraw contributions without penalty. Taxable you can access both contributions and growth but the income is tax free only if it qualifies (qualified dividends and long-term capital gains).

However, if your AA includes international equities then I would put those in taxable as that is the only way to use the foreign tax credit... it is wasted in a Roth or tIRA. In 2016, my foreign tax credit was 156% of the tax on my non-qualified dividends for my international holdings and the excess just further reduced my tax bill so I came out ahead of where I would have been if I held that position in my tIRA or ROTH.

 

[GrayHare]

Ok, fair enough. Would it make sense to pull extra money I don't need out of the 401K to put in a taxable after retirement? This is assuming I don't have a taxable account at retirement.

That is usually not advantageous either since you need to pay tax on t401k withdrawals, and a large bulk withdrawal will push you into a higher tax bracket that year. Now, if some year you have a large amount of deductions to offset those taxes, a big withdrawal might make sense taxwise.

 

[Animorph]

And here I've been trying to Roth convert my taxable investments into my Roth account!

Other than the foreign tax credit mentioned by pb4uski, I don't know of any financial benefit to making currently non-taxed investments taxable. It'll pretty much just cost you money.

You have not responded to the age question. If you are retiring before age 59.5 it would be good to have taxable investments to draw on. However, you can do that by diverting current savings to a taxable account.

If I'm lucky, I'll have nearly all of my investments in Roth accounts, and no taxable accounts, in less than 10 years or so.

 

[respond2u]

Moving the Roth money makes no sense.

Whether to move the 401k money depends on your taxes, age, etc.

For instance, if the 401k is for the company you're retiring from, you may be eligible for the "age 55" exemption...

 

[sengsational]

If you have some time to spend on understanding the inputs to the program, i-orp will offer a suggestion of how to move around your money in a way that minimizes taxes. The tax modeling makes some simplifying assumptions, but you can see what it wants you to do, and use that as one (at least) "pretty good" option. I don't think it has tax logic that causes the optimization to generate an after tax balance so that you're able to utilize the zero percent capital gains thing, and the foreign tax credit thing. In other words, it'll probably have you spend all of your after tax money and then replenish after tax every year to fund your spending.

 

[unclemick]

If you have some time to spend on understanding the inputs to the program, i-orp will offer a suggestion of how to move around your money in a way that minimizes taxes. The tax modeling makes some simplifying assumptions, but you can see what it wants you to do, and use that as one (at least) "pretty good" option. I don't think it has tax logic that causes the optimization to generate an after tax balance so that you're able to utilize the zero percent capital gains thing, and the foreign tax credit thing. In other words, it'll probably have you spend all of your after tax money and then replenish after tax every year to fund your spending.

Second this. I've used ORP a lot in the past and hindsight has shown over time their suggestions were more right than my assumptions.

heh heh heh - Now at age 73 wish I'd ROTHed more. Note I had Roth, IRA, 401k rollover, a non-spouse inherited IRA and my beloved 'few good stocks' read taxable mad money account.

 

[Sunset]

OP - do not take money out of Roth to simply put in a taxable account, that is bad.
Since you have 4->7 years until retirement, focus on building some savings in a taxable account, so you have all 3 (401K, Roth, taxable) . This gives you a lot of flexibility.

The Roth is a highly valued thing, something I wish I had more of.

 

[Johanson]

Moving the Roth money makes no sense.

Whether to move the 401k money depends on your taxes, age, etc.

For instance, if the 401k is for the company you're retiring from, you may be eligible for the "age 55" exemption...

OP - do not take money out of Roth to simply put in a taxable account, that is bad.
Since you have 4->7 years until retirement, focus on building some savings in a taxable account, so you have all 3 (401K, Roth, taxable) . This gives you a lot of flexibility.

The Roth is a highly valued thing, something I wish I had more of.

This is what I'll do. Thanks all!

 

[pjigar]

I Would not move Roth to taxable. But fund taxable separately while I am working.

 

[haha]

Hi all! I want to thank everyone on this forum for all of their insight. I've found a wealth of knowledge here. I have another question for the group.

I'm 4-7 years from retirement and I have a company 401K as well as a Roth IRA but no taxable account. I understand the importance of having a taxable account for its tax advantages wrt capital gains and qualified dividends. Would it be prudent of me to pull some or all of my Roth IRA contributions shortly before retirement and move them to a taxable account to use as income (dividends and interest from munis mostly) in retirement?

No, this is a really horrible idea. Spend a a few minutes and you will understand why.

Ha