IRMAA-Income Related Monthly Adjusted Amount. Just a minor correction. Great points, I wish I had your dilemma.

@@Paka6267 Don't worry. If they keep fudging the inflation numbers so that they don't have to adjust the IRMAA brackets with inflation adjustments instead of actual numbers you'll experience IRMAA. Before my mom passed in 2022 between inflation, food, her medical expenses (heart and leg) and expensive prescription drugs and two other unplanned financial expenses she drew $240k out of her 401k pre-tax plus in addition to her pension and social security to address her expenses. I'm pretty certain that 401k amount included the 20% withholding I didn't ask her CPA. She was filing single so 85% of her social security was taxable and if she had lived she would have have experienced IRMAA premium penalties in 2024. She had no Roth accounts and this was a sizeable portion. Had she had some or all Roth her income taxes would have been lower and she wouldn't have needed to withdraw an extra $24k+ for income taxes. She was 67 and about 2 years into her retirement and the COLA from Social Security wouldn't have caught up and the timing with the market dip was bad as well. Had she lived the sequence of returns risk would have been a challenge to overcome and could have forced her to possibly go back to a riskier portfolio, part-time work when she had fully recovered or sell her home, live with me and my wife for a small time until she could move into a smaller apartment or condo. This was an extreme example and it didn't happen because she didn't survive. I'm just saying if she did and had a Roth she would have had the extra $24k in her retirement and a lower 2022 tax bill and her Medicare premiums would be lower because she wouldn't have jumped into higher IRMAA premiums. You could easily experience a medical event, a damaged roof, septic system replacement and not have the credit score for a decent loan or worse get a loan then have something which still causes you to draw more than you need to from your assets during retirement.

Thanks David! Your plan sounds very reasonable, not surprisingly. And yes, there's nothing KZfaq loves more than Roth conversions.

Thank you, and great question. That’s one that you’d want to look at with the big picture in mind, and I don’t have a simple blanket answer, unfortunately. Consider things like how much you might pay on assumed higher taxes vs. premiums, and for how long. Also, see how your cash flow is looking and other aspects of your taxes and overall plan. You could also look at dialing down the conversions at this stage and see if that makes sense.

Thanks for watching and letting me know!

That "widow's penalty" is certainly something to consider: A surviving spouse can end up in single tax filing brackets with an income that suddenly seems high.

Are you getting hit with state tax, IRMAA & NIIT, in addition to federal tax, on your Roth conversions?

Wow, that is big tax drag and is what has me a bit apprehensive to do this even after 59.5. On the other hand, I’d rather endure the tax implications than to pass that off to my children once I bequeath what remains. With a pension, SS, dividend income…I anticipate my taxable income will still be pretty high into retirement so it’s gonna hit hard when those conversions are being made. I don’t love not being able to touch the Roth until 5yrs either which I believe is applicable for each conversion separately.

I don't think (1) is the case if you are over 59.5.

@@alphamale2363 No, you cannot touch your IRA/ 401k without a 10% penalty before 62. That's in addition to the huge tax cost.

@@Borat_Kazakh You can take any contributions you made out of a Roth IRA without a penalty and with no age restriction. It's the growth of the fund that is subject to the penalties.

@@Borat_KazakhWrong. Look up the 5-year withdrawal rule for withdrawing prior to 59 1/2.

I agree I am taking the same approach convert now while I have peak available money and salary

It can certainly be prudent to keep some money in a safe place during (and leading up to) retirement. The question is always how much. It often makes sense to keep some assets invested for long-term growth so you can offset inflation and maintain your purchasing power over the decades to come, although you don't necessarily need to be aggressive with those investments. For example, you might have some cash reserves for bad times and some money invested for longer-term growth (whether those investments are conservative, middle-of-the-road, or something else). That said, if a catastrophic crash occurs, you can potentially suffer steep losses, and moving everything into cash would have been better-only time will tell. As you note, these savings need to last for the rest of your life. One way to think about that problem is the question of withdrawal rates. While I don't love the concept because it's not always realistic, you can learn more about withdrawal rates here: kzfaq.info/get/bejne/kJyqobJ4ucrZfXk.html. I should also mention that you might already have some relatively safe options within your existing 401(k)/457/etc. For example, money market funds and stable value funds tend to have less risk than stock funds. They're not entirely free of risk, and an FDIC- or NCUSIF-backed CD is safer from default risk, so you'll need to evaluate how much safety is right for you.

By the way, "buckets" are another (imperfect) way of looking at this, and you can learn more about retirement buckets here: kzfaq.info/get/bejne/i8CJibifm7zDY2g.html

@@ApproachFinancial Thanks for the information. I think; it should be enough withdrawal linked to SS & pension to survive & rest contributions (of 401K / 457) should be kept in CDs for one year & to change the required amount considering the inflation.

Good question, and it depends. As you withdraw money from pre-tax accounts, you generally increase your taxable income. But whether or not it will affect your Social Security taxation, cause IRMAA to kick in, put you into high tax brackets, etc. depends on how high your income gets. With $1MM, there's a decent chance you could face higher costs somewhere, especially if you wait as long as possible-until RMDs-to withdraw from those accounts (assuming you have resources elsewhere to fund all of your spending until then). But I can't say for certain what the consequences would look like without knowing details.

Your brain your thoughts to control 😅 it just gets taxes out of the way so retirement is tax free

Being able to make Roth withdrawals in order to avoid the higher tax brackets is very motivating to me. I'm avoiding $2.3 million in future taxes. My goal is to deplete my savings by age 95, and I will always have a mortgage. If I live past 95, then I'll take out a reverse mortgage. My goal: Die broker; as you say, 'what is the point of dying with the most money?'

If someone wants to create generational wealth, inheriting a Roth is a great way to help do that.

@@larryjones9773 I wonder what will happen people who retired at like 40 if in the next 55 years some invention comes along that allows people to easily live to 150, but they only planned for a max of 100

That is the million-dollar question, and unfortunately, there's no perfect answer. If we could predict how much you'll earn on investments, future tax rates, what inflation will do (and resulting inflation adjustments), and other factors, it would be a straightforward calculation. But without that knowledge, we can only make some educated guesses. This video goes over some of the things to look at as you pick the amount (kzfaq.info/get/bejne/rr2karR43J_Yn30.html ), but it's focusing on a different problem-you're withdrawing to pay off a loan instead of paying the taxes to convert. For instance, it probably ignores future RMDs, but it's reasonably close to what you'd look at when figuring out how much to convert.

Actually the math is a wash if Roth and pretax are invested the same. The only thing that matters is what your tax rates are. Secondary effects like ACA, IRMAA, and SS taxation effects are more complicated. All my research shows that Roth Conversions have little value if your portfolio is less than $500k. From there to $1 million it depends. Over $1m it can be useful. This also applies to drawing down your portfolio before RMDs. Also Roth CONTRIBUTIONS make a lot of sense if your tax brackets are low.