As of late, I have been striving to get all of our invested assets into non-taxable Roth, 529s and HSA. We've done a fairly decent job and have less than 20% of our invested assets in taxable accounts.
I am curious, for those that have largely non-taxable accounts, what did that journey look like?
DW inherited a Roth, but used the money to buy a couple cars throughout her life. We started contributing SOME to our Roth IRA in our late 20's, but I had only contributed to taxable IRA's until then. And we heavily contributed to 401k and 403b accounts, and occasionally traditional IRAs as well.
in 2017 (so 7 years back when 75% of our invested assets were taxable) we finally decided to see what Roth conversions were about. Roth contributions were great, but I always felt like I wanted to reduce the size of the tax torpedo in future earning years.
Businesses took off during COVID. Which meant I was BTD on the businesses, and generating some hefty losses.
So we decided to indulge in mega backdoor Roth conversions at favorable tax rates.
Now we are down to just the last taxable account that we actively contribute to (for now.) The plan would be to just go ahead and do an in-service conversion/rollover from IRA to Roth.
I believe, we can achieve AS close to 100% non-taxable then we ever will get to, December of 2026 If we split the in-service conversions between 2024 and 2025.
It was a frenzy of conversions, mainly because I would convert what I believed would amount to half of the total conversion right away on January 1st. Then, as our tax situations became more clear throughout Q2, I would convert 1/4 of the remainder. And as Q4 came to a head and our tax implications became more clear, I converted the rest of it.
This seemed to work out pretty well for us. I didn't have to worry too much about market timing. We had very low tax rates during the mega years, but we still did smaller conversions up to the higher brackets limits during our less favorable tax years.
Did I pay less tax overall? Time will tell, but to me...it doesn't matter. We've been getting 22% avg market returns on those conversions since 2017 now. The eaening potential outside the taxable brackets FAR exceeds any potential wash of future higher tax rates. We will not have high future tax rates, and the dirty deed of "conversions" is essentially done.
From 2025 to our ER dates in 2031 we just need to contribute everything to Roth instead of taxable's. AND IF we need to do a little taxable later in the game near retirement, I know those first few years we will have little to no tax liabilities so IF we needed to do more conversions on the new moneys, it wouldn't be a huge hit.
I feel like this was a mid-career balancing act on the high-wire when we run all the numbers and dial in our tax situation, but well worth the troubles.
Anyone else follow a similar plan or strategy? How did you get to 100% taxable.
The first time I realized that could actually be a thing is when I legit asked my Dr. FIL about RMD's and he said "we won't have RMDs." I thought, how the he!!?? How can a person not face RMDs. It resonated in another conversation when he made the point that "not all businesses are profitable. kgtest!"
I put 2 and 2 together, realized during the unprofitable years of his working career as a partner at his Dr practice, he was doing mega backdoor roth conversions.
Nobody flat out told me this is what you should be doing as a business owner when you suffer grand losses in a year. But I knew it was an opportunity.
My .02c maybe this post helps someone, maybe not.
I am curious, for those that have largely non-taxable accounts, what did that journey look like?
DW inherited a Roth, but used the money to buy a couple cars throughout her life. We started contributing SOME to our Roth IRA in our late 20's, but I had only contributed to taxable IRA's until then. And we heavily contributed to 401k and 403b accounts, and occasionally traditional IRAs as well.
in 2017 (so 7 years back when 75% of our invested assets were taxable) we finally decided to see what Roth conversions were about. Roth contributions were great, but I always felt like I wanted to reduce the size of the tax torpedo in future earning years.
Businesses took off during COVID. Which meant I was BTD on the businesses, and generating some hefty losses.
So we decided to indulge in mega backdoor Roth conversions at favorable tax rates.
Now we are down to just the last taxable account that we actively contribute to (for now.) The plan would be to just go ahead and do an in-service conversion/rollover from IRA to Roth.
I believe, we can achieve AS close to 100% non-taxable then we ever will get to, December of 2026 If we split the in-service conversions between 2024 and 2025.
It was a frenzy of conversions, mainly because I would convert what I believed would amount to half of the total conversion right away on January 1st. Then, as our tax situations became more clear throughout Q2, I would convert 1/4 of the remainder. And as Q4 came to a head and our tax implications became more clear, I converted the rest of it.
This seemed to work out pretty well for us. I didn't have to worry too much about market timing. We had very low tax rates during the mega years, but we still did smaller conversions up to the higher brackets limits during our less favorable tax years.
Did I pay less tax overall? Time will tell, but to me...it doesn't matter. We've been getting 22% avg market returns on those conversions since 2017 now. The eaening potential outside the taxable brackets FAR exceeds any potential wash of future higher tax rates. We will not have high future tax rates, and the dirty deed of "conversions" is essentially done.
From 2025 to our ER dates in 2031 we just need to contribute everything to Roth instead of taxable's. AND IF we need to do a little taxable later in the game near retirement, I know those first few years we will have little to no tax liabilities so IF we needed to do more conversions on the new moneys, it wouldn't be a huge hit.
I feel like this was a mid-career balancing act on the high-wire when we run all the numbers and dial in our tax situation, but well worth the troubles.
Anyone else follow a similar plan or strategy? How did you get to 100% taxable.
The first time I realized that could actually be a thing is when I legit asked my Dr. FIL about RMD's and he said "we won't have RMDs." I thought, how the he!!?? How can a person not face RMDs. It resonated in another conversation when he made the point that "not all businesses are profitable. kgtest!"
I put 2 and 2 together, realized during the unprofitable years of his working career as a partner at his Dr practice, he was doing mega backdoor roth conversions.
Nobody flat out told me this is what you should be doing as a business owner when you suffer grand losses in a year. But I knew it was an opportunity.
My .02c maybe this post helps someone, maybe not.
