Retirement in March 2012 and rollover Roth and regualr 401K
I have not been able to do a Roth IRA due to income limits until 2010 when I began opening IRA’s and then converting them to Roth’s as quickly as possible. I also moved my TIRA account into my 401k to avoid the pro rata rules on taxes.
I plan to retire in March 2012. Between my husband and I we expect we will report about 60k in income and around 23k in SS for 2012. I plan to fund a Roth 401k (rather than the standard 401k) at work next year and plan on getting the max (around 22.5K – no company match) in there by March before I leave. Once I leave work in 2012 I will roll over the 401k and Roth 401k into like instruments outside the 401k. Purpose: I don’t want to take any money out until I have to take RMD’s in about 2 years and also so as not to increase the total pre tax IRA’s to keep the RMD’s low.
This seems too simple to me and I wonder if I am missing something. Will any taxes need to paid once I have these Roths and IRA’s outside my 401k?
Thanks for all the great advice and sorry if someone posted this before
Permalink Submitted by Alan Spross on Tue, 2011-11-01 20:58
Your only taxes will come when your start RMDs or take any distributions from either of the pre tax plans. If you roll the pre tax 401k balance which contains your former IRA funds to a TIRA in 2012, then the pro rate rules will make further conversions of non deductible TIRA contributions mostly taxable. Perhaps you can delay the pre tax 401k rollover until you have made your last non deductible regular IRA contributions and converted them.
The main issue is whether your retirement income will put you in a higher tax bracket or not. If not, then you may have enough Roth assets and would deduct your TIRA contributions for 2012 because your joint incomes look to be low enough to deduct those contributions. And if you are not doing any more conversions you can roll the plan into your IRA without having to wait until you are done making non deductible contributions and converting them.
If this does not answer your questions, please advise.
Permalink Submitted by Janet Ulrich on Wed, 2011-11-02 13:43
Thanks Alan
Your answer is exactly what I neeed to know including the advice about making another comtribution to an IRA next year.
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