Roth Conversion – IRA or 401(k) first?
Spouse 1: 59yo with $190k in an IRA from a prior employer. Now self-employed. Plans to retire in 6 years at 65 but will not need investment income.
Spouse 2: 49yo with 401(k) at current company. Current allocation going to Roth 401(k) but majority is in the traditional side. Plans to retire in 9 years at 58.
Couple wants to begin Roth conversion. Is there an advantage to converting one over the other?
Permalink Submitted by Alan - IRA critic on Mon, 2021-06-28 16:30
First, it would take a complete financial profile to determine if converting when both are still working can be done at a rate that is not higher than the expected marginal rate in retirement. But if a conversion in the next 6 years passes that test (probably a limited amount), then Spouse 1 should convert first, since that spouse will start RMDs 10 years prior to Spouse 2. Of course, since Spouse 2 is current contributing to the Roth 401k, that itself becomes a surrogate for a conversion by Spouse 2, as additional taxes are being paid to fund the Roth contribution rather than the pre tax contribution. Spouse 2 also has no TIRA account, so any additional conversions for Spouse 2 would have to be done within the 401k if it offers in plan Roth rollovers. Under these circumstances, converting amounts from Spouse 1’s TIRA account seems simpler, but both spouses will have several years post retirement before RMDs begin. These are good conversion years, particularly if SS benefits are delayed closer to age 70. In short, the questions to convert, when to convert, and how much to convert all trump the decision of which spouse should convert.
Permalink Submitted by Elisabeth Wang on Fri, 2021-07-02 17:10
Thank you. The goal will not be to convert it all, but the math shows that it makes sense to convert some, so your response helps.