At 65, with 6 months to a year remaining before likely ending employment, I am wondering if there is a way to clarify the best use of remaining time for payroll contributions towards general retirement savings - continue to fund 403b vs more to taxables? Our combined RMD's will start at around 45k and likely already exceed our needs, tax implications, etc.
Quick overview is
deferred = 1.3 (of which about 150k is Roth) - all in V indexes
taxables = 800k - mostly in V indexes
cash = 300k
SS = spouse 1700 (current) and mine in 5 yrs at 70 will be ~3300
Expenses (high est) of 85k
no debt, have been maxing out Roth(s) along the way and now it's maybe continue the 30% of salary to 403 ... or not.
current tax bracket 22% ... estimated lower in full retirement. What am I missing in understanding the situation conceptually to make that decision - reduce the 403 contributions, or just let it be? It may not make a huge difference this late in the game, but still seems worth considering, and will be a tad more consequential with turning off the HSA contributions soon, too.
Thanks
retirement contributions approaching retirement
Re: retirement contributions approaching retirement
Clarifying: Spouse is currently taking SS of 1700, and in 5 years you will reach 70 for an additional 3,300? Any pension?
when I entered 1,300,000 and divide by the first RMD factor of 27.4 at age 72, that would yield an RMD of 47,445.26. And that would assume zero growth between now and age 72. Or is the 1.3 not the current balance but an anticipated number at age 72? If you back out the 150k Roth from the 1.3 you have 1,150,000 in deferred, which would result in an RMD of 41,970.80 at age 72
And you are going to work for another 6 months to a year, so really one years worth of 30% of your income of ?. So, we're talking about what to do with the 50-60 income over and above your high end estimated expenses?
You have over three years income in cash to get you to 70 if there is no pension.
When I did my planning, I looked at a possible total income using the equation (Pension + Social Security + Dividends/Interest + RMD's).
Using that equation Pension ( ?) + SS at age 70 (60,000) + DIV/INT (?) + RMD (41,970.80)= 101,970 Income plus any undisclosed dividend and interest and pension. Let's say for arguments sake you get 10,000 in interest and dividends, bringing income to 111,970 at age 72. If your current income is substantially greater than that, I would continue to defer during your last year of work. And when you are done working, if your only source of income is spouses SS (20,400) it allows you to do some early conversions from deferred to Roth while your taxable income is low. (remember, you cannot do a Roth conversion until AFTER you have taken your annual RMD, and by then with your SS your taxable income will be higher.) Also, are you factoring in Medicare and supplemental insurance in your 85k max budget?
Hopefully the above makes sense. I'm not great in all this, and many much more knowledgeable disagreed with the concept. In our situation, our SS+Pension+Div/Int+ RMD's totaled much more than our after deferred working income, so I feel like I should have cut back on deferring more.
when I entered 1,300,000 and divide by the first RMD factor of 27.4 at age 72, that would yield an RMD of 47,445.26. And that would assume zero growth between now and age 72. Or is the 1.3 not the current balance but an anticipated number at age 72? If you back out the 150k Roth from the 1.3 you have 1,150,000 in deferred, which would result in an RMD of 41,970.80 at age 72
And you are going to work for another 6 months to a year, so really one years worth of 30% of your income of ?. So, we're talking about what to do with the 50-60 income over and above your high end estimated expenses?
You have over three years income in cash to get you to 70 if there is no pension.
When I did my planning, I looked at a possible total income using the equation (Pension + Social Security + Dividends/Interest + RMD's).
Using that equation Pension ( ?) + SS at age 70 (60,000) + DIV/INT (?) + RMD (41,970.80)= 101,970 Income plus any undisclosed dividend and interest and pension. Let's say for arguments sake you get 10,000 in interest and dividends, bringing income to 111,970 at age 72. If your current income is substantially greater than that, I would continue to defer during your last year of work. And when you are done working, if your only source of income is spouses SS (20,400) it allows you to do some early conversions from deferred to Roth while your taxable income is low. (remember, you cannot do a Roth conversion until AFTER you have taken your annual RMD, and by then with your SS your taxable income will be higher.) Also, are you factoring in Medicare and supplemental insurance in your 85k max budget?
Hopefully the above makes sense. I'm not great in all this, and many much more knowledgeable disagreed with the concept. In our situation, our SS+Pension+Div/Int+ RMD's totaled much more than our after deferred working income, so I feel like I should have cut back on deferring more.
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Re: retirement contributions approaching retirement
Given that you will drop from 22% to 12% when you retire,
Contribute to 403b to get tax deduction
RMDs are not required until age 72, so live on taxable and convert
403b funds to Roth to the top of the 12% bracket, that should be about $108 or $109K per year minus any gains from taxable moved from 403b to Roth. Let's assume this is $70 K/yr.
In 5 years you will move $350K from tax deferred, but it also gained about $40K/ yr so it decreased the tax deferred to about $900K.
You will take SS at age 70. Continue this strategy to convert tax deferred to Roth until such time as the RMDs get down to a manageable level. If you don't do this RMDs will push you into the 22% bracket and when one of you goes, it may be even higher due to filing single.
You might even want to game out a few conversions at 22% before rates revert to 15 and 25%.
Contribute to 403b to get tax deduction
RMDs are not required until age 72, so live on taxable and convert
403b funds to Roth to the top of the 12% bracket, that should be about $108 or $109K per year minus any gains from taxable moved from 403b to Roth. Let's assume this is $70 K/yr.
In 5 years you will move $350K from tax deferred, but it also gained about $40K/ yr so it decreased the tax deferred to about $900K.
You will take SS at age 70. Continue this strategy to convert tax deferred to Roth until such time as the RMDs get down to a manageable level. If you don't do this RMDs will push you into the 22% bracket and when one of you goes, it may be even higher due to filing single.
You might even want to game out a few conversions at 22% before rates revert to 15 and 25%.
Re: retirement contributions approaching retirement
Thanks capran and MathWizard for the perspectives
no pension and ongoing salary of 85
Yes, some upcoming possibilities for Roth conversions, or cap gains harvesting.
It's an interesting question - take the modest tax break now (continue to contribute to deferred) ... or not as it seems that if that account continues to grow (which it may anyway) it will just need dealt with later. Not a terrible problem to have I guess, and behaviorally the most predictable path (and least resistance) is leave things as they are.
no pension and ongoing salary of 85
Yes, some upcoming possibilities for Roth conversions, or cap gains harvesting.
It's an interesting question - take the modest tax break now (continue to contribute to deferred) ... or not as it seems that if that account continues to grow (which it may anyway) it will just need dealt with later. Not a terrible problem to have I guess, and behaviorally the most predictable path (and least resistance) is leave things as they are.
Re: retirement contributions approaching retirement
Good luck. Before COVID travel restrictions, retirement was amazing. You are in a perfect position to be going into early retirement years with a lower tax bracket for conversions and no IRMAA worries. When we started trying to get down our IRA balance from 1.5 it bumped us up into an area with a higher tax bracket and keeping income below the IRMAA penalty level. But part of that is looking at her survivor income when I pass as being up in the IRMAA penalty as a single filer, which we'd like to avoid (by drastically reducing the IRA RMD's.daleddm wrote: ↑Tue Jan 18, 2022 10:54 pm Thanks capran and MathWizard for the perspectives
no pension and ongoing salary of 85
Yes, some upcoming possibilities for Roth conversions, or cap gains harvesting.
It's an interesting question - take the modest tax break now (continue to contribute to deferred) ... or not as it seems that if that account continues to grow (which it may anyway) it will just need dealt with later. Not a terrible problem to have I guess, and behaviorally the most predictable path (and least resistance) is leave things as they are.