Personal Investments • Re: Question as a new working adult out of college!

Let's say he has a year where he is below 22%. He can't convert his entire deferred accounts in that year at below 22% unless he has a very small amount in them.

986racer,

A) So, you accept the possibility that OP may not be at 22% and above over the whole 50 years.

B) Then, why should you assume that OP cannot retire early? Aka, before RMD? Before 62 years old?

C) Your answer only make sense if and only if OP continuously fully employed and stay at 22% and above income over the 50 years. Aka, one possibility of many other possibilities.

It is very simple.

1) Only if OP continuously fully employed and stayed at 22% and above over the 50 years, there is zero Roth conversion at below 22%.

2) Any situation other than (1), OP can saves taxes by Roth converting at below 22%.

Please tell me is (1) or (2) more likely?

"As I said, for your strategy to make any sense, he needs to have his entire career be below 22%."

That statement is not true. The reverse is true. The likelihood for someone to be continuously fully employed until RMD is an exception. This hardly exists among my peers.

KlangFool

Let's use an example here... I'm planning to retire early and have about 15 years where I can do Roth conversions. Because I'm married, I'll be able to convert 94300 (22% bracket start) + 29200 (standard deduction) + 3000 (carryover capital losses) for a total of 126500 at below 22%. However, even converting that much won't be enough to stop the account from growing, and so I'll likely convert to the top of the 22% bracket (an additional 106750).

Using your strategy, in my early years of employment, I would've used a tax deferred account to save 12% on taxes but I would then pay 22% when I do the Roth conversion.

Let's not forget that in this example, I'll have 35 working years out 50 before RMDs kick in. I.e., 30% of my career will be unemployed

As I said, the only way your strategy of avoiding a Roth at lower tax brackets makes sense is that the OP never hits the 22% bracket. If he does hit 22%, then he's going to fund his tax deferred account with plenty of money at that bracket. So, when he then has a period of low earnings, he can convert money that was taxed at 22% rather than converting money that was taxed at some lower marginal rate.

Statistics: Posted by 986racer — Fri Nov 22, 2024 6:58 am

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