Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

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Topic Author
MrCheapo
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Joined: Tue Dec 22, 2020 2:43 pm

Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by MrCheapo »

Currently at top of 24% tax bracket
In retirement in 3 years (age 55) I'll be just at the bottom of the 22% tax bracket.

At age 55 (in 3 years) we will have:

401/403/457 balance will be $1.6M
Roth balance will be $350K

Pensions and other income sources meet our expenses so no need to draw from either for expenses.

Our plan is to roll over from the 401/403/457 to the Roth every year for the 20 years until RMDs kick in.

So two main questions:

a) How much to roll over? By our calculation (4% real return) the 401/403/457 balance will be $3.5M in today dollars at age 75 so first RMD will be about $125K.
b) What asset allocation in the 401/403/457 so as to mitigate risks such as sequence of return. Currently it's all in high growth 2050 targeted funds.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by smitcat »

MrCheapo wrote: Sat May 27, 2023 8:40 am Currently at top of 24% tax bracket
In retirement in 3 years (age 55) I'll be just at the bottom of the 22% tax bracket.

At age 55 (in 3 years) we will have:

401/403/457 balance will be $1.6M
Roth balance will be $350K

Pensions and other income sources meet our expenses so no need to draw from either for expenses.

Our plan is to roll over from the 401/403/457 to the Roth every year for the 20 years until RMDs kick in.

So two main questions:

a) How much to roll over? By our calculation (4% real return) the 401/403/457 balance will be $3.5M in today dollars at age 75 so first RMD will be about $125K.
b) What asset allocation in the 401/403/457 so as to mitigate risks such as sequence of return. Currently it's all in high growth 2050 targeted funds.
b) "Pensions and other income sources meet our expenses so no need to draw from either for expenses."
This indicates you do not have a sequence of returns risk.

a) I would utilize a calculator such as RPM or Pralana to figure your optimum plan using all of your numbers and goals. Since you do not need these funds the ultimate use of them will affect the choices (heirs, charity, etc)
RPM
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model
Pralana
https://pralanaretirementcalculator.com/
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TheTimeLord
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Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by TheTimeLord »

As I understand it tax rates change after 2025 (because of the expiration of tax cuts enacted in 2016) so I would doublecheck that bottom of the 22% tax bracket assumption.
IMHO, Investing should be about living the life you want, not avoiding the life you fear. | Run, You Clever Boy! [9085]
Topic Author
MrCheapo
Posts: 1450
Joined: Tue Dec 22, 2020 2:43 pm

Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by MrCheapo »

smitcat wrote: Sat May 27, 2023 9:34 am
b) "Pensions and other income sources meet our expenses so no need to draw from either for expenses."
This indicates you do not have a sequence of returns risk.

a) I would utilize a calculator such as RPM or Pralana to figure your optimum plan using all of your numbers and goals. Since you do not need these funds the ultimate use of them will affect the choices (heirs, charity, etc)
RPM
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model
Pralana
https://pralanaretirementcalculator.com/
Thanks. But whether there are expenses or conversions to the Roth isn't there a SOR risk? I'm drawing a steady amounts from the account.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by smitcat »

MrCheapo wrote: Sat May 27, 2023 10:05 am
smitcat wrote: Sat May 27, 2023 9:34 am
b) "Pensions and other income sources meet our expenses so no need to draw from either for expenses."
This indicates you do not have a sequence of returns risk.

a) I would utilize a calculator such as RPM or Pralana to figure your optimum plan using all of your numbers and goals. Since you do not need these funds the ultimate use of them will affect the choices (heirs, charity, etc)
RPM
https://www.bogleheads.org/wiki/Retiree_Portfolio_Model
Pralana
https://pralanaretirementcalculator.com/
Thanks. But whether there are expenses or conversions to the Roth isn't there a SOR risk? I'm drawing a steady amounts from the account.
I do not understand, if you do not need any of those accounts....
"Pensions and other income sources meet our expenses so no need to draw from either for expenses."
How can there be SORR?
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Wiggums
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Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by Wiggums »

We retired at 56 and reduced out asset allocation to 65/35 by age 60. Our withdrawal rate is small so we did not worry about SORR.
Sequence-of-returns risk is the risk that an investor will experience negative portfolio returns very late in their working lives and/or early in retirement. This is an issue for investors who must sell down the portfolio to pay bills. You have the option not to sell until RMDs.

https://www.blackrock.com/us/individual ... -va-us.pdf

We hold cash for Roth conversions and so that we have more control when we sell if the market is down. We are doing Roth conversions to the top of the 24% before the tax rates revert. The stock/bonds move in-kind from the rollover IRA to Roth.
"I started with nothing and I still have most of it left."
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: Roth Conversions Are A Certainty - 401k Asset/Fund Allocation

Post by smitcat »

Wiggums wrote: Sat May 27, 2023 12:44 pm We retired at 56 and reduced out asset allocation to 65/35 by age 60. Our withdrawal rate is small so we did not worry about SORR.
Sequence-of-returns risk is the risk that an investor will experience negative portfolio returns very late in their working lives and/or early in retirement. This is an issue for investors who must sell down the portfolio to pay bills. You have the option not to sell until RMDs.

https://www.blackrock.com/us/individual ... -va-us.pdf

We hold cash for Roth conversions and so that we have more control when we sell if the market is down. We are doing Roth conversions to the top of the 24% before the tax rates revert. The stock/bonds move in-kind from the rollover IRA to Roth.
"We are doing Roth conversions to the top of the 24% before the tax rates revert."
I am guessing you are watching your IRMMA rate and not just looking at the 24% rate - unless both of you are still under 63.
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