Incomes over $200K are still be eligible for non-deductible traditional IRA thanks to a recent change in rules. The tax bill for capital gains and dividends is 0, but the $9k is not capital gains or dividends. Whenever I stumble upon such discussions of roth vs. traditional IRA, the considerations always seem to be whether one’s income would be lower or not at retirement (hence a lower or not tax bracket) or whether the tax rates will increase in the future (a very popular belief in Canada). If you only want one or two funds you can look at a target retirement fund at Vanguard. Couldn’t have said it better myself, T! I am concerned or perhaps just confused that the “pro rata” rule would prevent me from minimizing taxes on the conversion of traditional IRA to Roth IRA. I am totally lost on the best way to approach this (ie. I was trying to dig around and I can’t see any drawback to the 457 and it seems better than a 401k or 403b as it doesn’t have the 10% early withdrawal penalty. This is because when contributing to a traditional 401(k), part of the invested money will eventually be taxed. You can roll over your traditional IRA into a Roth IRA while you are still working but you would have to pay tax on the amount that you roll over. If so, you could start plugging in all your numbers to see what bracket you’ll be in and can then start making decisions based on your actual numbers. However, based on another post you made here http://www.madfientist.com/how-to-access-retirement-funds-early/ I still can’t decide between a Roth or Traditional. However you need to run your numbers yourself, for example if you are 20 years from retiring, in the 10% bracket, and paying 1.5% fees, it doesn’t look as good. C) invest anything above our 401ks in a normal brokerage account All of them could decrease and the healthcare credits would definitely decrease as I convert money from traditional to Roth. Should I worry about maxing out my tax sheltered accounts (and using the IRA ladder), or would I be better off using that money to get more real estate? He contributes the $70 directly into his Roth 401(k) where, over the next 30 years, it triples to become $210. When exactly are you suggesting you do this? In that case, I don’t ever foresee having enough money to fund a taxable account to live on while I potentially roll over my tIRA to a Roth as you describe. Thanks! So, I was thinking earlier today about this – why couldn’t you move an additional 5k from the roth to the regular as for tax purposes, this move is considered regular income, then you would be buying your 5k worth of regular ira with roth money? Of course this amount will change over time for inflation and back-and-forth about tax policy. Could this strategy be correctly labeled as a graduated backdoor Roth IRA? I have 125k in my traditional IRA and have been converting that to a Roth since I left my job. Anyway, I’m looking over your page here and GoCurryCrackers about never paying taxes again. To lower tax payment after FI, does 401K have to be rolled over to a traditional IRA account first, THEN to a ROTH IRA? Since Investor B converts less than his standard deductions and exemptions each year, he avoids paying taxes on the conversion and ends up having exactly the same amount of money in his Roth IRA as Investor A does when they reach standard retirement age. The following graph shows the value of the accounts of these two investors: Investor A is represented by the light green lines and Investor B is represented by the dark green lines. The goal is to shuffle things so that you never pay taxes on the money; not at the time of contribution, nor conversion, nor withdrawal. I will be able to take a one time withdrawal from my traditional TSP at that time but will get whacked with a significant tax bill that year which I’d rather avoid. If you already have money in a Roth, Great, don’t worry about converting it to tIRA. a 55K/yr pension and 12K/yr. I don’t know the math behind this all yet, but I wonder if that would be a reasonable compromise, or if I am still taking a huge hit? With a traditional 401(k) plan, if you’re in the 24% federal tax bracket, every dollar you contribute effectively saves you 24 cents on your taxes in the current year. I have a 457 plan that I plan to contribute the max to for another 10 years, at which point I will be 60 (not that early, I know…) and the account will have about $350,000 in it (it’s earning 4% in Voya [formerly ING] and is 100% invested in “stable principal,” meaning nowhere near the stock market). If AK is too cold, live in southern WA, and drive across to Oregon (no sales tax) for shopping. I enjoy your excellent blog. I think you need to update your article to include the loss of ACA subsidies due to the Roth conversion increase in income. 9,075 to 36,900 15%. The short answer would be, if you are eligible, you would just want to contribute to a Roth now and not a Traditional IRA, as the conversion would be taxed as income above the “post-retirement income” you expect and would likely push you into an even higher tax bracket. Looks like the exclusion applies to foreign earned income. I didn’t open a traditional IRA account when my income qualified me for deductible IRA. Does this plan have any potential issues? You should have a non-retirement account with sufficient funds available to cover you for at least those first five years until you are able to access your rolled funds. Assuming 10% rate of return, that could mean as much as the amount of money invested for the 10-15 years while working and putting money into the traditional IRA. As I wrote previously, I believe that traditional accounts provide a better opportunity for tax avoidance. You cannot take a tax deduction (i.e. DFG. ), IRA deductions for people NOT covered by a workplace retirement plan, ways to access retirement account funds before standard retirement age, http://jlcollinsnh.wordpress.com/2012/05/30/stocks-part-viii-the-401k-403b-ira-roth-buckets/, http://www.obliviousinvestor.com/sep-vs-simple-vs-solo-401k/, http://www.forbes.com/sites/josephsteinberg/2012/12/12/warning-about-roth-ira-conversions-often-misunderstood-irs-rule-can-cost-you-money-and-aggravation/, http://jlcollinsnh.com/2013/12/05/stocks-part-xx-early-retirement-withdrawal-strategies-and-roth-conversion-ladders-from-a-mad-fientist/, Retire Even Earlier without Earning More or Spending Less, http://www.madfientist.com/retire-even-earlier/, http://www.madfientist.com/how-to-access-retirement-funds-early/, https://thefinancebuff.com/case-against-roth-401k.html, https://investor.vanguard.com/what-we-offer/small-business/individual-401k?Link=facet, https://www.gocurrycracker.com/the-go-curry-cracker-2013-taxes/#more-2676, https://www.quora.com/Health-Savings-Accounts-I-am-in-school-now-and-my-HSA-charges-a-monthly-fee-When-I-was-employed-the-employer-paid-the-fee-Is-there-anything-I-can-do-in-the-meantime-to-avoid-the-fee-Transfer-to-another-bank-perhaps, https://clark.com/personal-finance-credit/investment-guide/, https://paulmerriman.com/how-to-invest-series-complimentary-download/, https://www.rothira.com/roth-ira-5-year-rule, Funded with pre-tax (i.e. Let me know where you end up deciding to go. That may be a cool calculator to add to the FI Laboratory. I love the blog (especially since I’m an actual scientist). Dive into the details of a traditional 401k vs Roth 401k below: Eligibility.