Good calculator recommendations?
I am about 4 years away from planned retirement (I am 56) and somewhat freaked out that I have saved too much in my 401K for tax purposes in the future. I did start last year converting portions to Roth 401K, when my employer added that option. I have a very small taxable brokerage account on the side but my primary focus in the next few years is converting to Roth 401K as much a possible. I will file for Social Security at 62. I do plan to eventually meet with a CPA for more specific guidance, but can anyone recommend a good free website where I can put these planned numbers in and understand them in relation to my tax brackets? Also, I would appreciate any recommendations of good videos about this (tax planning for those with most money in their 401K. I am head of household, so won't have as much bracket as married couples.
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What about the size of your 401k concerns you? Are you worried about future RMDs or something else? As Roberto points out, doing Roth conversions while you're working is likely less tax efficient than waiting to do them until you're retired since your income in retirement is probably going to be less than your income while working.
What is the reason for taking Social Security at 62? Take Social Security if you need it for your living expenses for sure, but if your plan is to do Roth conversions in retirement, you probably want to delay Social Security in order to keep income lower while converting.
The best tool I can suggest for this is Projection Lab , though you don't get their tax planning tools in the free version. With free tools, you're going to have to piece together what you want to see, probably across multiple tools. Here are some great free tools.
The ChooseFI platform has a bug that prevents me from including more than one unique link.
- The Portfolio Backtester tool at Testfol dot io
- engaging-data dot com/tax-brackets
Hi Boston and thank you for your comments. RMDs concern me, esp since I am head of household and unmarried, so I dont have more tax bracket runway. At 73, there could be 3-4 million in that account (Yes, I know thats a good problem to have). I'm taking SS at 62 because of major health issues and a high stress job.
Listen to what Boston and Roberto shared. There are ways to get money out of 401k free so wouldnt be doing conversions while working. Look into 72T specifically.
Start with your favorite ai tool and let it educate you on your situation and options to help educate and then meet with an hourly fee advisor.
If you are still working and doing Roth conversions, that there is a very good possibility that you are paying more taxes today than you are likely to pay in the future by doing normal withdrawals. If you leave employment at age 60, then at that point* you will have access to your 401(k) funds penalty free. Put another way, the sum of "income today + Roth conversion amount today" has a good possibility to land you in a higher tax bracket than "no income/SS income later + normal withdrawal later". That is, unless your Roth conversions today are really tiny or you expect to have $100k/year in SS income.
In any event, I don't have a specific calculator recommendation, but in my own case I have built spreadsheets to figure out the "optimal" Roth conversion amounts (because I too was thoroughly convinced that I had over-saved in pre-tax accounts), only to find out that in my case the "optimal" Roth conversion was none at all. Sean Mullaney (a.k.a. The FI Tax Guy) has tons of content on his blog and YouTube channel that really helps nail down just how low tax rates end up being in retirement. (Hint: they are almost certainly far lower than you are imagining.)
Hi Roberto,
Thinks for your quick and detailed response. I am indeed making small conversions because I am a high earner. (Small=10-20K/year). My 401k however, is in the $2M range already. I think I hear you saying it might benefit me to wait until after age 60 and then do larger conversions because I won't have that salary pushing me higher? I'm still contributing to my 401K now to get the 6% match, and then I have another 4% going directly into the Roth 401K. My plan was to save up enough money in the Roth 401K (eventually to be rolled into a Roth IRA at age 60) to pay tax-free my mortgage and my healthcare. At 62, my SS will take care of my mortgage. Then I would take out of the 401K enough money to live on, but also to fill out that tax bracket, which I expect to be 22%. I did buy Sean and Cody's tax book which is amazing, but I will take your advice and go check out more of their podcast and blog.
I'm not a CPA (or any sort of financial professional, for that matter), so please keep that in mind.
When you convert today, what tax bracket are those dollars landing in? You said "high earner", so I'm assuming at least the 22% bracket, if not higher. If that is the case, then your conversions are most likely happening at 22% or 24%. Since you mention that in retirement you will withdraw enough to fill the 22% bracket, that makes your Roth conversions today basically a wash (i.e., you are paying essentially the same tax rate on those dollars today as you would likely pay on them in the future).
However, I'm confused by something, which is your plan to take SS at age 62. Why? To me, the main reason to file for SS at age 62 is either because, (a) you have insufficient money in your portfolio (which doesn't seem to apply if you have $2M in pre-tax and you are still adding to it), or (b) you expect to die relatively early and thus benefit from receiving the lower monthly amount from SS starting at an earlier date. If neither of those are true, then you might consider waiting on SS. That would let you have more room to take regular withdrawals from your 401(k) and pay less tax on it than if you withdrew that same amount + received SS.
BTW, I think that given recent changes related to how retirement accounts are inherited, I would favor regular withdrawals to put money in a taxable brokerage for your heirs, rather than leaving them a retirement. But that's just my opinion.
Also, since you have their book, start by reading that. It's going to give a much more succinct and polished presentation of much of the same material that is on their blogs.
Thanks to all of you. I have started reading Sean and Cody's book, which is prompting some o these questions. I have bad chronic health issues and an extremely high stress job, thus taking SS at 62. That is a definite. I would leave that job today if it made any sense.
My logic in doing some conversions now is also so that the money will have some years to grow tax free, and to avoid much larger ones later.
It sounds like you need to speak with a financial professional ASAP. With a $2M 401(k), you could conservatively take $80k/year. Since you are 56 and plan take SS at 62, you could also do something like this:
With something like that, you could literally make yesterday your last day of work, live on $100k/year for the rest of your life, and still have a very good possibility of leaving a substantial inheritance (if that's something you care about).
If you want to share more details, I'm happy to help you work through some potential scenarios. However, I still think that working with a financial professional is going to yield the best/fastest result.