traditional 401k to roth ira conversion

by Propagandhi711 Fri Jan 04, 2013 6:37 pm

anyone planning to make use of this provision? I'm seriously considering it given that taxes in the future will almost 100% likely to be higher and am still able to absorb the tax hit.

by MaxEntropy_Man Fri Jan 04, 2013 6:43 pm

i am thinking about it but the variables are hard to predict -- future tax rates, future income bracket (probably the most predictable), and future market performance. any assumptions about any of these things could swing the decision wildly one way or the other. i am stymied.

by Propagandhi711 Fri Jan 04, 2013 6:52 pm

even with all the unpredictables, if you expect future income bracket to be higher than current, it's almost a no brainer...ofcourse expected time of retirement plays a part as well.

by Idéfix Fri Jan 04, 2013 7:27 pm

I have a traditional 401k. Haven't looked into Roth IRAs. I don't think I want to live here until retirement. That's another complicating factor for me. So I am doing the simple thing, which is to go with the 401k that my employer set up.

by Propagandhi711 Fri Jan 04, 2013 7:32 pm

panini press wrote:I have a traditional 401k. Haven't looked into Roth IRAs. I don't think I want to live here until retirement. That's another complicating factor for me. So I am doing the simple thing, which is to go with the 401k that my employer set up.

You're gonna just help turn this place into communist worker paradise and leave???? Yeah it might not be a great option if your income levels IN THE US aren't expected to be very high at withdrawal...I need to rethink too...am expecting most of my retirement income to come from désh.

by Idéfix Fri Jan 04, 2013 7:41 pm

My retirement plan is based on current and future investments in India, and I expect to spend that retirement as a resident of India. So my US tax rate in retirement is likely to be lower than my US tax rate now.

This does raise the question of why I contribute to a 401k plan at all -- that plan won't let me pick individual stocks and I am limited to index funds and high-cost mutual funds. The portfolio I actively managed until late last year significantly outperformed my 401k plan throughout. Even after accounting for the employer contribution, I suspect I would have come out ahead if I had just kept the money in my brokerage account and invested it myself. This is something I will look into, as I am hoping to get back into equities soon.

by Maria S Fri Jan 04, 2013 7:54 pm

It's not the best option for me.

Don't think we have talked in 2013..

Happy New Year Capitalist friend DUT, and fellow-Comrade friend Carvaka (nice to see you).

by Idéfix Fri Jan 04, 2013 7:59 pm

Greetings, Comrade Maria. What did you think of the fiscal cliff deal? I thought Obama played it well, but I am concerned about his approach to the debt ceiling. I hope he unilaterally raises it and takes that Tea Party brinkmanship right off the table. Looks like both Pelosi and Reid are pressing Obama to do that. http://cnsnews.com/news/article/pelosi-raising-debt-ceiling-unilaterally-i-would-do-it-second-i-m-not-president

by Maria S Fri Jan 04, 2013 8:11 pm

Thanks.

I did not think it was a great deal (assume no one did!) , but some compromises were necessary and it was certainly better than going over the cliff.

My knowledge about raising the debt ceiling and the possible consequences are quite limited..seems like quite a bold move to do that..will have to find out more, before offering my views..hope to do that soon:)

by Marathadi-Saamiyaar Fri Jan 04, 2013 8:22 pm

Hahahahaha...

35 yr old expecting to retire in India (at 70) and planning accordingly...

40 yr old worried about retirement at 67 and want to convert into Roth IRA

Professor - who will never retire - worried about it as well.

..here is a synopsis of the conversion plan..

1. you may have to be 59 1/2 yrs

2. Only YOUR contribution and SOME employer contributions may be eligible - stock options, etc...etc.... who knows

3. Your employer must have a plan in place - don't know about 403K

4. you want to pay taxes for the money you are withdrawing from outside sources.

5. This is good only if you want to do it now next year, bcz rates will go up soon - if it did.

This is similar to rolling over IRA to Roth IRA - pay your taxes.

If you pull the money out of 401K before 59 1/2, you may be able to do it but with an additional 10% penalty

Until you make a decision to transfer, you can simply put in $6K/person/yr in to a Roth account. That will be 12K for a couple for yourself; and 5K/yr for each kid that does not make any money.

REMEMBER you cannot draw money out of Roth IRA until much later (70 I think) except under certain conditions.

Anyway... it is written by God that I must comment on this topic (as well) and so I did.

by b_A Sat Jan 05, 2013 1:05 pm

Funny thing about this thread about a tax saving method is that all the responders are the same people who were wildly cheering Obama's tax hike agenda.
And some of these people like max,PP were saying that they are OK if Obama raised their taxes.
Here is an idea if you want to pay more taxes and support Obama.
Don't contribute to an IRA/401k/Roth etc.
Just open an taxable investment account and put your retirement savings there so that your taxes will be maximized.

by Marathadi-Saamiyaar Sat Jan 05, 2013 1:17 pm

Supporting Obama for higher taxes is an act of responsibility to the society, while Looking for ways to minimize the taxes on personal income/wealth is an act of responsibility to the family.

2 different things.

That is why we support Obama to tax all those who make more than $5 mil/yr at the rate of 97%.... Razz

by Propagandhi711 Sat Jan 05, 2013 1:28 pm

b_A wrote:Funny thing about this thread about a tax saving method is that all the responders are the same people who were wildly cheering Obama's tax hike agenda.
And some of these people like max,PP were saying that they are OK if Obama raised their taxes.
Here is an idea if you want to pay more taxes and support Obama.
Don't contribute to an IRA/401k/Roth etc.
Just open an taxable investment account and put your retirement savings there so that your taxes will be maximized.

Well election ki nasha pe kuch kuch bolta hai...like they say in desk, tooch tooch.

Also, liberal comrades like to volunteer others for tax conscription, just like conservative fatcats love volunteering poor kids to fight in wars

by MaxEntropy_Man Sat Jan 05, 2013 1:35 pm

b_A wrote:Funny thing about this thread about a tax saving method is that all the responders are the same people who were wildly cheering Obama's tax hike agenda.
And some of these people like max,PP were saying that they are OK if Obama raised their taxes.
Here is an idea if you want to pay more taxes and support Obama.
Don't contribute to an IRA/401k/Roth etc.
Just open an taxable investment account and put your retirement savings there so that your taxes will be maximized.

you do want roads, an air traffic control system, a military, and unemployment benefits if you ever have the misfortune of getting laid off right? here is the truth -- most americans, liberals and conservatives, don't like taxes, but they like cuts in their benefits and their current way of life even less. why is this hard to understand? we don't want national debt to skyrocket, and we don't want a change in the way we live. what choices do we have? under any scenario, liberals and conservatives will seek to minimize their own personal taxes. none of this is hard to understand.

by Guest Sat Jan 05, 2013 1:35 pm

I converted to traditional and roth ira just recently.... had 401k money lying around with my ex employers, so consolidated all that into IRAs... My FA asked me to move it into his firm... but bff and an ex-colleague said you don't have to. So moved it all into Fidelity, which was holding one of my 401Ks. So, was an easy transfer.

Had a lot of cash money, for which fidelity people said, 'you are young, why not invest'. So, no one advised me for it, but ended up buying about 10 bonds, coz it looked sorta fancy. Good idea or bad? Also got a couple of stocks... Kept the rest as was pre-invested by my company into a bunch of Fidelity investments.

by Marathadi-Saamiyaar Sat Jan 05, 2013 1:47 pm

Vidya Bagchi wrote:I converted to traditional and roth ira just recently.... had 401k money lying around with my ex employers, so consolidated all that into IRAs... My FA asked me to move it into his firm... but bff and an ex-colleague said you don't have to. So moved it all into Fidelity, which was holding one of my 401Ks. So, was an easy transfer.

Had a lot of cash money, for which fidelity people said, 'you are young, why not invest'. So, no one advised me for it, but ended up buying about 10 bonds, coz it looked sorta fancy. Good idea or bad? Also got a couple of stocks... Kept the rest as was pre-invested by my company into a bunch of Fidelity investments.

Since you left a job you could do it. Also, if you were unemployed during the year, the withdrawal from 401K might be ok.

Regarding Bonds, etc...depends on the % of total assets you put in it. You are young (by american standards), and could have invested. But, then the markets so high, it makes more sense for it cool down a bit before reallocate your funds within RothIRA.

by Propagandhi711 Sat Jan 05, 2013 1:51 pm

Vidya Bagchi wrote:I converted to traditional and roth ira just recently.... had 401k money lying around with my ex employers, so consolidated all that into IRAs... My FA asked me to move it into his firm... but bff and an ex-colleague said you don't have to. So moved it all into Fidelity, which was holding one of my 401Ks. So, was an easy transfer.

Had a lot of cash money, for which fidelity people said, 'you are young, why not invest'. So, no one advised me for it, but ended up buying about 10 bonds, coz it looked sorta fancy. Good idea or bad? Also got a couple of stocks... Kept the rest as was pre-invested by my company into a bunch of Fidelity investments.

If you bought a bunch of fancy bonds before new year you got slaughtered this year already.

Ps: nothing can go wrong with taking advise from BFF and ex-colleague on financial matters. It's also optimal to seek advise from uppili.

by Guest Sat Jan 05, 2013 1:55 pm

Propagandhi711 wrote:
Vidya Bagchi wrote:I converted to traditional and roth ira just recently.... had 401k money lying around with my ex employers, so consolidated all that into IRAs... My FA asked me to move it into his firm... but bff and an ex-colleague said you don't have to. So moved it all into Fidelity, which was holding one of my 401Ks. So, was an easy transfer.

Had a lot of cash money, for which fidelity people said, 'you are young, why not invest'. So, no one advised me for it, but ended up buying about 10 bonds, coz it looked sorta fancy. Good idea or bad? Also got a couple of stocks... Kept the rest as was pre-invested by my company into a bunch of Fidelity investments.

If you bought a bunch of fancy bonds before new year you got slaughtered this year already.

Ps: nothing can go wrong with taking advise from BFF and ex-colleague on financial matters. It's also optimal to seek advise from uppili.

They didn't ask me to buy the bonds, but just to rollover into fidelity. Yeah, just checked, they have gone down by 160 each since purchase, i.e. in last 2 weeks. But they are for 10 years, so let's see. Overall, I am plus 90 since the purchase. That's 90 more dollars for my retirement, woohoo!

by b_A Sat Jan 05, 2013 4:39 pm

MaxEntropy_Man wrote:you do want roads, an air traffic control system, a military, and unemployment benefits if you ever have the misfortune of getting laid off right? here is the truth -- most americans, liberals and conservatives, don't like taxes, but they like cuts in their benefits and their current way of life even less. why is this hard to understand? we don't want national debt to skyrocket, and we don't want a change in the way we live. what choices do we have? under any scenario, liberals and conservatives will seek to minimize their own personal taxes. none of this is hard to understand.

It is funny that people talk about roads,air traffic control and other transportation costs first when talking about taxes when they account for less than 3 % of federal spending. Most of your taxes go towards the defense spending and welfare programs.
http://www.usgovernmentspending.com/federal_budget_estimate_vs_actual_2012_XXbs1n_00

by MaxEntropy_Man Sat Jan 05, 2013 4:46 pm

b_A wrote:
MaxEntropy_Man wrote:you do want roads, an air traffic control system, a military, and unemployment benefits if you ever have the misfortune of getting laid off right? here is the truth -- most americans, liberals and conservatives, don't like taxes, but they like cuts in their benefits and their current way of life even less. why is this hard to understand? we don't want national debt to skyrocket, and we don't want a change in the way we live. what choices do we have? under any scenario, liberals and conservatives will seek to minimize their own personal taxes. none of this is hard to understand.
It is funny that people talk about roads,air traffic control and other transportation costs first when talking about taxes when they account for less than 3 % of federal spending. Most of your taxes go towards the defense spending and welfare programs.
http://www.usgovernmentspending.com/federal_budget_estimate_vs_actual_2012_XXbs1n_00

i have no problems scaling back defense spending drastically.

by confuzzled dude Sat Jan 05, 2013 4:47 pm

b_A wrote:Funny thing about this thread about a tax saving method is that all the responders are the same people who were wildly cheering Obama's tax hike agenda.
And some of these people like max,PP were saying that they are OK if Obama raised their taxes.

It probably have worked out for them, most likely resulted into permanent tax cuts.

by MaxEntropy_Man Mon Jun 27, 2016 4:34 pm

anyone still thinking about this? i still haven't contributed a penny to a roth 401 k, but thinking about splitting future contributions between a roth 401 k and regular 401 k. no clarity after talking to three financial planners and reading everything written on the subject. the reason this is so difficult is the difficulty of predicting future tax bracket. i think i am going to bite the bullet and split future contributions equally between my current traditional and roth.

by Marathadi-Saamiyaar Tue Jun 28, 2016 12:16 am

Propagandhi711 wrote:anyone planning to make use of this provision? I'm seriously considering it given that taxes in the future will almost 100% likely to be higher and am still able to absorb the tax hit.

i just briefly browsed the conversion rules... looks like you will pay a 10% penalty and pay "income" taxes on the 401/403 money. if u r converting 200,000, then with ur annual income u will pay easily at 35 to 40% rate.

1. Taxes will go up for those over 250K for sure.

2. SS benefits will drop

3: Medicare benefits will be down. May cover only 60% of your med bills after a decade.

Don't try to overpredict the future and ruin your peace of mind. If u r going to make huge amount putting you in a higher bracket, why do u care? you are more than rich.

Give each of your kid $10 mi. still rich ? buy 4 huge homes - pay mortgages using ur 401K, etc..etc...

In anycase, i will be surprised if anyone retires with more than a 2 mil.

P.s. I used some calculator and it said I should have 2.7 mil to live at my 70% salary.... Not happening...so I know I will be working 2 jobs till I die or till I can.

by Marathadi-Saamiyaar Tue Jun 28, 2016 12:21 am

MaxEntropy_Man wrote:anyone still thinking about this? i still haven't contributed a penny to a roth 401 k, but thinking about splitting future contributions between a roth 401 k and regular 401 k. no clarity after talking to three financial planners and reading everything written on the subject. the reason this is so difficult is the difficulty of predicting future tax bracket. i think i am going to bite the bullet and split future contributions equally between my current traditional and roth.

I put some in Roth over the years but I was shocked to see that I am not qualified to contribute to Roth...and I was like WTF....

Seriously I need to find some "strategies" to escape from these Taxes. Will write to the Master Crook - Donald.

by MaxEntropy_Man Tue Jun 28, 2016 6:08 am

It doesn't surprise me that you aren't qualified to contribute to a Roth IRA, but if your employer offers a Roth 401 k, you should be able to contribute to that. I don't think there are income limits on that unlike IRAs.

by Marathadi-Saamiyaar Tue Jun 28, 2016 10:59 am

MaxEntropy_Man wrote:It doesn't surprise me that you aren't qualified to contribute to a Roth IRA, but if your employer offers a Roth 401 k, you should be able to contribute to that. I don't think there are income limits on that unlike IRAs.

I thot so too. But, my Turbotax said i was not eligible. will check on Roth IRA but I doubt it. Same limits should apply there as well.

by MaxEntropy_Man Tue Jun 28, 2016 11:15 am

Contribution limits for 401 k regular or Roth are the same. 18 k if you're under 50 and 23 k if you're 50 or older. Roth IRA has income limits. If your work offers the Roth 401 k option best to use that instead of the Roth IRA. There's still a way to play this if your work doesn't offer the Roth 401 k. It involves setting up two IRAs -- a shell account traditional IRA and a Roth IRA. Putting pre-tax money into the shell and immediately transferring into the Roth after paying the requisite taxes. Consult a financial planner, your mileage may vary etc.

I haven't done this because my work offers a straightforward Roth 401 k.

Roth 401 k is different from a Roth IRA.

http://www.bankrate.com/finance/retirement/roth-ira-401-k-what-s-the-difference.aspx

I thought the all knowing one knows all.

With the new rules for Roth conversions, high earners can convert to a Roth IRA from a traditional IRA, but they won't be able to make contributions.

Not so for a Roth 401(k), in which there are no such restrictions.

Roth IRA contributions are off-limits if your modified adjusted gross income in 2010 is higher than $176,000 for married couples filing jointly or $120,000 for single filers.

"For some people, the only access they would have to Roth contributions is through the 401(k)," says Hynes.

by Propagandhi711 Tue Jun 28, 2016 11:45 am

you cant contribute to roth IRA outside if your income exceeds a certain limit but lots of employees are offering roth IRA within the confines of their retirement plan. you can contribute upto 18k this year to it. if you meet the income limitation, you can contribute upto 5k on your own but I doubt most of us with joint family would be eligible.

by MaxEntropy_Man Tue Jun 28, 2016 11:50 am

The plan that (some) employers offer is a Roth 401 k, not a Roth IRA.

by SomeProfile Tue Jun 28, 2016 3:07 pm

I don't fully understand what you guys are afraid of w.r.t to future taxes. You will touch your 401 K money only after 59.5 years of age, right? Do you guys seriously think that you will be in a higher tax bracket during retirement than you are now? Somehow, I doubt the US tax laws will get so topsy turvy!

If you think you will touch your 401 K money before 59.5 years of age, you could Google a couple of things:

1. Roth Conversion Ladder

2. 72(t) distributions

While we are on this topic, another thing worth checking out could be: Tax loss harvesting.

by Propagandhi711 Tue Jun 28, 2016 5:20 pm

the thinking behind roth is that taxes on regular income are at historic low at this time and they can only go up in future. that's the bet roth ira participants are making at this time, not that we might be in a higher tax bracket in retirement compared to 40s or 50s (although some might be)

by MaxEntropy_Man Tue Jun 28, 2016 5:26 pm

Those of us planning on working well into our 70s surely will be in a higher tax bracket (health permitting). Couple that with the fact that you have to start making withdrawals at age 70.5 and what propagandhi said in his most recent post.

by southindian Tue Jun 28, 2016 8:33 pm

Propagandhi711 wrote:anyone planning to make use of this provision? I'm seriously considering it given that taxes in the future will almost 100% likely to be higher and am still able to absorb the tax hit.

I'm not planning to live that long and am looking to die around 70.

by Hellsangel Mon Feb 05, 2018 4:09 pm

Marathadi-Saamiyaar wrote:Hahahahaha...

35 yr old expecting to retire in India (at 70) and planning accordingly...

40 yr old worried about retirement at 67 and want to convert into Roth IRA

Professor - who will never retire - worried about it as well.

..here is a synopsis of the conversion plan..

1. you may have to be 59 1/2 yrs

2. Only YOUR contribution and SOME employer contributions may be eligible - stock options, etc...etc.... who knows

3. Your employer must have a plan in place - don't know about 403K

4. you want to pay taxes for the money you are withdrawing from outside sources.

5. This is good only if you want to do it now next year, bcz rates will go up soon - if it did.

This is similar to rolling over IRA to Roth IRA - pay your taxes.

If you pull the money out of 401K before 59 1/2, you may be able to do it but with an additional 10% penalty

Until you make a decision to transfer, you can simply put in $6K/person/yr in to a Roth account. That will be 12K for a couple for yourself; and 5K/yr for each kid that does not make any money.

REMEMBER you cannot draw money out of Roth IRA until much later (70 I think) except under certain conditions.

Anyway... it is written by God that I must comment on this topic (as well) and so I did.

I am sure plans have evolved since then.

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