Two comments.
1. Converting your tIRA to Roth in the 32% bracket is probably a poor idea. I don't think you get this yet. Here is a simple example.
If you have $10k in tIRA and convert it to Roth at 32%, you have only $6,800 left. Let's say it doubles in value before you use it, giving you $13,600 to spend. You paid $3,200 in tax.
If you have $10k in tIRA and do not convert it to Roth and it doubles in value, you have $20k in tIRA. If you then take that money from the tIRA at a tax rate of 22%, you are left with $15,600 to spend. You paid $4,400 in tax.
Most people think "I want to pay less tax" but that is the wrong way to look at this. Would you rather have $13,600 to spend or $15,600?
Notice that the only thing that has changed between the two scenarios is the tax rate. Time is not relevant. It could have taken 1 year or 100 years to double in value...it just does not matter.
The amount of tax paid is not relevant either. In fact, you paid more taxes in the second example but ended up with more money.
Only the tax rate at which you convert matters. That is why doing Roth conversions that trigger 32% tax rate is generally a poor idea. There will almost certainly be a time later in life when you are in a lower tax bracket.
(Note. To be strictly correct, the taxes in this case would be paid from a savings or taxable account, not the tIRA. So the numbers are not 100% accurate. In a real life example, you have more in Roth after the first conversion and less in taxable. But the point is the same...you end up with more money by converting at the lower rate.)
Your best choices here are to roll into the 401k (and pay extra fees) or you skip backdoor Roth and put the money into taxable instead. Making non-deductible contributions is not a good choice unless you can convert to Roth in just a few years. Converting to Roth at 32% is not a good choice either.
2. Regarding your plan to get the money invested. Make a plan that you will invest ____ every ____. Stick to the plan. In other words, every investment day is not a time to decide "will I invest today?" That decision will already have been made. The only deviation from the plan is to invest MORE on that day. And that's fine. Never less.
You may make a goal of 80:20 and realize over the next months that 80:20 is just out of your comfort zone. Assuming you get to something reasonable (say 70:30 or 65:35), that might be a good time to stop increasing and just maintain that.
1. Converting your tIRA to Roth in the 32% bracket is probably a poor idea. I don't think you get this yet. Here is a simple example.
If you have $10k in tIRA and convert it to Roth at 32%, you have only $6,800 left. Let's say it doubles in value before you use it, giving you $13,600 to spend. You paid $3,200 in tax.
If you have $10k in tIRA and do not convert it to Roth and it doubles in value, you have $20k in tIRA. If you then take that money from the tIRA at a tax rate of 22%, you are left with $15,600 to spend. You paid $4,400 in tax.
Most people think "I want to pay less tax" but that is the wrong way to look at this. Would you rather have $13,600 to spend or $15,600?
Notice that the only thing that has changed between the two scenarios is the tax rate. Time is not relevant. It could have taken 1 year or 100 years to double in value...it just does not matter.
The amount of tax paid is not relevant either. In fact, you paid more taxes in the second example but ended up with more money.
Only the tax rate at which you convert matters. That is why doing Roth conversions that trigger 32% tax rate is generally a poor idea. There will almost certainly be a time later in life when you are in a lower tax bracket.
(Note. To be strictly correct, the taxes in this case would be paid from a savings or taxable account, not the tIRA. So the numbers are not 100% accurate. In a real life example, you have more in Roth after the first conversion and less in taxable. But the point is the same...you end up with more money by converting at the lower rate.)
Your best choices here are to roll into the 401k (and pay extra fees) or you skip backdoor Roth and put the money into taxable instead. Making non-deductible contributions is not a good choice unless you can convert to Roth in just a few years. Converting to Roth at 32% is not a good choice either.
2. Regarding your plan to get the money invested. Make a plan that you will invest ____ every ____. Stick to the plan. In other words, every investment day is not a time to decide "will I invest today?" That decision will already have been made. The only deviation from the plan is to invest MORE on that day. And that's fine. Never less.
You may make a goal of 80:20 and realize over the next months that 80:20 is just out of your comfort zone. Assuming you get to something reasonable (say 70:30 or 65:35), that might be a good time to stop increasing and just maintain that.
Statistics: Posted by retiredjg — Thu Jul 04, 2024 9:23 am — Replies 23 — Views 2120