Hi all,
We posted about this issue several years ago but wanted a fresh look given growth in our portfolio and new Roth options. We’re trying to determine whether to switch some or all of our tax deferred contributions to Roth contributions in light of our growing tax deferred portfolio and anticipated pension income.
Here’s what we have. Married-filing-jointly with approximately $490k gross income ($378k taxable income) in 2023. Marginal federal tax rate in 2023 was 32%. State tax rate in 2023 was 9.3%. Husband and I late 40s (husband turns 50 later this year), one kid soon to start middle school. Also:
• $1.87 MM in tax deferred retirement accounts (plus $88k in HSAs).
• $819k in Roth IRA.
• $1MM in taxable brokerage.
• Plus $245k cash in HYS account (part emergency fund, larger part for potential rental real estate purchase).
Overall asset allocation is approximately 85% stock (30% of which is international), 15% bonds with most of bonds in tax deferred. Own home, mortgage of approximately $1200/month (at 2.65%). Approximately $140k in 529 for kid. No other debt.
Here’s what we’re saving this year (which is more in tax deferred this year due to new catch up ability):
• $77k in Roth through mega and conventional backdoor.
• $50k in taxable.
• $84k in tax deferred retirement accounts (we have access to my 457 plus my husband’s 403b and 457, and we max all three). Husband will turn 50 later this year so now has catch up ability for his 457 and 403b. Also, we now have Roth option for both 457s and the 403b.
No employer match for either of us. We estimate spending at approximately $11k-12k/month.
As for other income streams, husband has a vested and COLA’d pension. If he takes pension at 55, we estimate pension will pay $10,000/month. If he takes at 60, we estimate pension payment at $17,000/month. I also have a vested pension through my employer which I estimate will provide about $1,600/month if I take at 60. My husband pays social security taxes and has for 20+ years. I do not currently pay into social security but did for 9 years.
Not yet sure when we will retire, but likely will not want to work full-time after 60. My husband’s employer also continues to offer health insurance to retirees so health care costs will be subsidized. We live in a state that taxes pension and 401k income but not SS income.
The question is whether--particularly in light of my husband’s pension and the current balance in our tax deferred accounts (and anticipated RMDs)--we should continue to max out tax-deferred contributions to our 403b and two 457s (including catch up for my husband). Alternatively, should we redirect some amount of our current 457/403b tax deferred contributions to Roth 403b/457?
We want to maintain our current savings rate unless there's some good reason not to. If you recommend redirecting tax deferred savings to Roth 403b/457, and you can specify how much of our contributions we should switch to Roth 403b/457, that would be very helpful. Note that we’re considering using Pralana Gold (or something similar) to model specific scenarios but not sure that would be necessary or helpful for our narrow question here.
Thanks in advance and please let us know if you need more info.
We posted about this issue several years ago but wanted a fresh look given growth in our portfolio and new Roth options. We’re trying to determine whether to switch some or all of our tax deferred contributions to Roth contributions in light of our growing tax deferred portfolio and anticipated pension income.
Here’s what we have. Married-filing-jointly with approximately $490k gross income ($378k taxable income) in 2023. Marginal federal tax rate in 2023 was 32%. State tax rate in 2023 was 9.3%. Husband and I late 40s (husband turns 50 later this year), one kid soon to start middle school. Also:
• $1.87 MM in tax deferred retirement accounts (plus $88k in HSAs).
• $819k in Roth IRA.
• $1MM in taxable brokerage.
• Plus $245k cash in HYS account (part emergency fund, larger part for potential rental real estate purchase).
Overall asset allocation is approximately 85% stock (30% of which is international), 15% bonds with most of bonds in tax deferred. Own home, mortgage of approximately $1200/month (at 2.65%). Approximately $140k in 529 for kid. No other debt.
Here’s what we’re saving this year (which is more in tax deferred this year due to new catch up ability):
• $77k in Roth through mega and conventional backdoor.
• $50k in taxable.
• $84k in tax deferred retirement accounts (we have access to my 457 plus my husband’s 403b and 457, and we max all three). Husband will turn 50 later this year so now has catch up ability for his 457 and 403b. Also, we now have Roth option for both 457s and the 403b.
No employer match for either of us. We estimate spending at approximately $11k-12k/month.
As for other income streams, husband has a vested and COLA’d pension. If he takes pension at 55, we estimate pension will pay $10,000/month. If he takes at 60, we estimate pension payment at $17,000/month. I also have a vested pension through my employer which I estimate will provide about $1,600/month if I take at 60. My husband pays social security taxes and has for 20+ years. I do not currently pay into social security but did for 9 years.
Not yet sure when we will retire, but likely will not want to work full-time after 60. My husband’s employer also continues to offer health insurance to retirees so health care costs will be subsidized. We live in a state that taxes pension and 401k income but not SS income.
The question is whether--particularly in light of my husband’s pension and the current balance in our tax deferred accounts (and anticipated RMDs)--we should continue to max out tax-deferred contributions to our 403b and two 457s (including catch up for my husband). Alternatively, should we redirect some amount of our current 457/403b tax deferred contributions to Roth 403b/457?
We want to maintain our current savings rate unless there's some good reason not to. If you recommend redirecting tax deferred savings to Roth 403b/457, and you can specify how much of our contributions we should switch to Roth 403b/457, that would be very helpful. Note that we’re considering using Pralana Gold (or something similar) to model specific scenarios but not sure that would be necessary or helpful for our narrow question here.
Thanks in advance and please let us know if you need more info.
Statistics: Posted by Rogue1 — Wed Jun 19, 2024 9:43 pm — Replies 1 — Views 102