Converting 401Ks to Roth
Dear Terry,
I read your column in the Chicago Tribune every week. Thanks for all the sharp advice.
Your tagline says you welcome questions, so here’s mine:
Both my wife, 63, and I, 65, have significant amounts of money in our 401Ks. We both plan to stop working full time soon and so we should be in a lower tax bracket (22% or possibly even 12%) for at least 3-5 years, until, for instance, we start collecting Social Security.
Would that be a good time to convert our 401Ks to Roth 401Ks, to take advantage of the lower tax rate?
Many thanks,
Terry Says
This is a complicated decision with many moving parts. First, you need to have money OUTSIDE the 40l(k) to pay the taxes that are due. And while you will be in a lower bracket after retirement, tax rates may still rise.
Also, you want to delay taking Social Security until at least age 67 — and even later — to build the highest base on which future cost of living adjustments will be made. So you might be better off using your after-tax liquid funds to live on — delaying SS, and retirement withdrawals.
YOu really need a sophisticated FEE-ONLY FIDUCIARY financial planner to do all these calculations and tradeoffs for you — based on your retirement living expenses and income needs as well as projected income and asset allocation. This is not a matter for guesswork. I always refer people to www.Wealthramp.com, where you will be personally matched with a fee-only fiduciary financial advisor. Paying for good advice on a fee-only basis could help you avoid some expensive, long-term mistakes!
