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My plan is to retire in six years at age 56. I will defer my pension until age 60 to avoid a 30% reduction. I will live off my I Bonds for the first four years of retirement. This means my tax rate will be close to 0% during those four years.

My plan is to convert 401k money to a Roth IRA each of the four years up to the 10 - 15% tax bracket.

I am currently funding my Roth (including the catch up), purchasing a chunk of I Bonds and funding $15,500 into my 401k. I can't really afford to put the extra $5,000 in catch up contributions into my 401k, but I would love to for the tax deduction.

Maybe I shouldn't be funding my Roth, but instead max out the 401k to $20,500. Then when I retire convert the 401k to the Roth. I could get the tax deduction now, then move the money when I'm in a really low tax bracket. I am currently in the 28% bracket on the Federal level and 9% State.

Can anyone see a reason why I shouldn't do this ?

Also, if I understand this correctly, I don't need an earned income to do a conversion to a Roth - is this correct ?

Thanks for any help,

-helen
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Maybe I shouldn't be funding my Roth, but instead max out the 401k to $20,500. Then when I retire convert the 401k to the Roth. I could get the tax deduction now, then move the money when I'm in a really low tax bracket. I am currently in the 28% bracket on the Federal level and 9% State.

Can anyone see a reason why I shouldn't do this ?


Makes sense to me.

Also, if I understand this correctly, I don't need an earned income to do a conversion to a Roth - is this correct ?

Correct. In fact, doing it in stages after retirement is probably something more people will be doing as years go by.

Bill
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WHy are you choosing to invest in I-bonds rather than contributing to the 401(k)? Doesn't your 401(k) offer an inflation-protected fund?
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Jrr7,

I have been maxing out the 401k and maxing out the Roth. The I bonds are purchased with money that exceeds the tax deferred account limits. This year I will be 50 and can also contribute the catch up contribution of $5k.

-helen

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My plan is to convert 401k money to a Roth IRA each of the four years up to the 10 - 15% tax bracket.

Good plan. There's no good reason to skip this opportunity for some low tax conversions.

I am currently funding my Roth (including the catch up), purchasing a chunk of I Bonds and funding $15,500 into my 401k. I can't really afford to put the extra $5,000 in catch up contributions into my 401k, but I would love to for the tax deduction.

Maybe I shouldn't be funding my Roth, but instead max out the 401k to $20,500. Then when I retire convert the 401k to the Roth. I could get the tax deduction now, then move the money when I'm in a really low tax bracket. I am currently in the 28% bracket on the Federal level and 9% State.


Given your facts, I'd certainly fund the 401k before the Roth. You're saving taxes now at 28% in exchange for the conversions in the near future at no more than 15%.

--Peter
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