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>it is just the tax all at once that you would normally pay over the life of the distribution. It's not. You don't have to rollover the ENTIRE account. You can
by stu2b50 5y ago
>it is just the tax all at once that you would normally pay over the life of the distribution.
It's not. You don't have to rollover the ENTIRE account. You can choose to only rollover a certain amount of money.
The idea is say, you calculate that as a person you spend, say, $60k a year. So 5 years ago, you convert $80k of your 401k into a Roth IRA. It becomes ~$60k after being taxed. Your tax bracket is just the one that's an income of 80k would be at, because you only converted 80k.
Now you can take that 60k and spend it on your life. Repeat every year, that's the ladder part, and you can spend money out of your 401k no penalty, normal tax rate, as if you were retirement age.
- SavantIdiot 5y agoSo you are paying lump-sum taxes on X amount to store it in a Roth IRA for 5 years so that you get five years of tax-free growth in the Roth.
- stu2b50 5y agoNo, you're doing it because you can withdraw contributions from a Roth IRA with no penalty. The Roth IRA merely exists as a vehicle to get money out of a 401k with no penalty. In this situation, there is no difference from if you were actually retirement age and withdrawing from your 401k. Same taxes, no penalty.
- SavantIdiot 5y agoThe light just went on. Got it. Thanks for the explaining.
- SavantIdiot 5y agoHey just wanted to say thanks for explaining that. I had a talk with my RIA and he never suggested it because my position for the past decade of working with him has consistently been that I would be working past IRA penalty age so it wasn't an issue. But we are considering it for other reasons now that I know it exists (e.g., early retirement).