I would like to review the logic in deciding which accounts to draw from as we transition from a mode where we are accumulating to a mode where our income is low enough that it makes sense to do ROTH conversions. There are several things going on, lots of moving parts, and I want to have another set of eyes look at my logic.
Our income has dropped to a point where it makes sense to do ROTH conversions to use all of the 12% tax bracket. We will probably convert some at the higher 22% tax bracket. There are no ACA subsidy considerations, as we have a health care plan in retirement from MegaCorp. With SS and RMDs, we will be firmly in the 22% tax bracket for many years. If the market were to remain strong, we would be pushed into the 24% bracket.
I have an inherited IRA that gives off an annual RMD. I have an HSA with approximately $15K of receipts that could be reimbursed. We will continue to accumulate receipts that are paid out of pocket, with the large charges paid directly from the HSA. I have a substantial 401K, and a lesser 403b. DW has a traditional IRA. We each have ROTH accounts.
Starting with the HSA: We will continue to fund our HSA so long as we have a compatible health insurance plan. This creates a tax deduction, even when we take the standard deduction. I don’t see any reason to leave the money in the HSA or to draw the money out for qualified expenses. The account can remain as an investment with the money available at any time by pulling it out against the accumulated receipts. Is there any reason to pull it out asap, or to leave it to accumulate for as long as possible?
Regarding the inherited IRA: Obviously there are RMDs. Beyond that, it seems to me that the balance is the same as any of the other tax deferred accounts. This cannot be ROTH converted, so it will generate cash. It looks like this could be transferred to a donor advised fund (DAF) to allow us a path to make charitable contributions with tax advantaged money. (Assuming we continue to take the standard deduction).
The traditional IRAs, 401k, and 403b all look the same. They can sit until age 70 (or 72 if the bill passes), and will then be subject to RMDs. In the meantime, we will convert some of these to ROTH accounts. I think the logic here is to look at the overall tax picture. When we reach 70+, what is the expected amount of RMDs that will be generated from the tax advantaged accounts? What does the tax rate look like for us as MFJ. Also, if one of us should pass, what would the tax rate look like for a single filer? The goal then seems to be to do ROTH conversions in an attempt to flatten the tax burden.
Finally- once I no longer have a 403b match, is there any reason to contribute to an IRA? It seems to me that if you are doing ROTH conversions, then it does not make any sense to put money into an IRA. I think our income will be too high to get a Saver’s Tax Credit for a ROTH contribution, but I suppose that is still something to watch.
I apologize for putting up such a wall of text, but hopefully this makes sense. I appreciate any of your thoughts or suggestions.
Our income has dropped to a point where it makes sense to do ROTH conversions to use all of the 12% tax bracket. We will probably convert some at the higher 22% tax bracket. There are no ACA subsidy considerations, as we have a health care plan in retirement from MegaCorp. With SS and RMDs, we will be firmly in the 22% tax bracket for many years. If the market were to remain strong, we would be pushed into the 24% bracket.
I have an inherited IRA that gives off an annual RMD. I have an HSA with approximately $15K of receipts that could be reimbursed. We will continue to accumulate receipts that are paid out of pocket, with the large charges paid directly from the HSA. I have a substantial 401K, and a lesser 403b. DW has a traditional IRA. We each have ROTH accounts.
Starting with the HSA: We will continue to fund our HSA so long as we have a compatible health insurance plan. This creates a tax deduction, even when we take the standard deduction. I don’t see any reason to leave the money in the HSA or to draw the money out for qualified expenses. The account can remain as an investment with the money available at any time by pulling it out against the accumulated receipts. Is there any reason to pull it out asap, or to leave it to accumulate for as long as possible?
Regarding the inherited IRA: Obviously there are RMDs. Beyond that, it seems to me that the balance is the same as any of the other tax deferred accounts. This cannot be ROTH converted, so it will generate cash. It looks like this could be transferred to a donor advised fund (DAF) to allow us a path to make charitable contributions with tax advantaged money. (Assuming we continue to take the standard deduction).
The traditional IRAs, 401k, and 403b all look the same. They can sit until age 70 (or 72 if the bill passes), and will then be subject to RMDs. In the meantime, we will convert some of these to ROTH accounts. I think the logic here is to look at the overall tax picture. When we reach 70+, what is the expected amount of RMDs that will be generated from the tax advantaged accounts? What does the tax rate look like for us as MFJ. Also, if one of us should pass, what would the tax rate look like for a single filer? The goal then seems to be to do ROTH conversions in an attempt to flatten the tax burden.
Finally- once I no longer have a 403b match, is there any reason to contribute to an IRA? It seems to me that if you are doing ROTH conversions, then it does not make any sense to put money into an IRA. I think our income will be too high to get a Saver’s Tax Credit for a ROTH contribution, but I suppose that is still something to watch.
I apologize for putting up such a wall of text, but hopefully this makes sense. I appreciate any of your thoughts or suggestions.
