Appreciate Boglehead input.
Single mom, 59, with 403b of 1.7mn after years of saving. Planning retirement at 65. Estimating that I will be close to 95% of my current income for retirement (low performance case through Fidelity).
Here is my question: is it worth rolling over a large chunk of 403b into Roth (with big tax hit up front) early in retirement, so that years of subsequent investment growth are tax free? If 403b grows over the next 30 years, it just increases tax obligation for years.
Let's say (worst case), I rolled over 300k each year (30% average tax rate = 90k). Now have 270k in a Roth. It will grow tax free for up to 30 years. In 30 years at 5% real interest (8% - 3% inflation) this is $1.17mn in todays dollars - all tax free.
If I leave it in 403b, it will be 300k at 5% real interest (8% = 3% inflation), this is $1,3 mn. HOWEVER I would owe 37% on this amount. so would be only 819k after taxes.
Conclusion is - early in retirement - it is advantageous to take a tax hit now, and then allow funds to grow in a Roth tax free.
One more point: as long as there is adequate cushion, I'm a proponent of a stock only portfolio to maximize returns. This works as long as you could wait out a market dip for a few years (e.g. two years of salary saved)
Appreciate input from others.
Single mom, 59, with 403b of 1.7mn after years of saving. Planning retirement at 65. Estimating that I will be close to 95% of my current income for retirement (low performance case through Fidelity).
Here is my question: is it worth rolling over a large chunk of 403b into Roth (with big tax hit up front) early in retirement, so that years of subsequent investment growth are tax free? If 403b grows over the next 30 years, it just increases tax obligation for years.
Let's say (worst case), I rolled over 300k each year (30% average tax rate = 90k). Now have 270k in a Roth. It will grow tax free for up to 30 years. In 30 years at 5% real interest (8% - 3% inflation) this is $1.17mn in todays dollars - all tax free.
If I leave it in 403b, it will be 300k at 5% real interest (8% = 3% inflation), this is $1,3 mn. HOWEVER I would owe 37% on this amount. so would be only 819k after taxes.
Conclusion is - early in retirement - it is advantageous to take a tax hit now, and then allow funds to grow in a Roth tax free.
One more point: as long as there is adequate cushion, I'm a proponent of a stock only portfolio to maximize returns. This works as long as you could wait out a market dip for a few years (e.g. two years of salary saved)
Appreciate input from others.
Statistics: Posted by Thoughtf$l — Thu Jun 27, 2024 9:34 pm — Replies 5 — Views 326
