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Using a Roth 401K to minimize RMDs - Good idea?
Posted on 4/3/24 at 2:33 pm
Posted on 4/3/24 at 2:33 pm
I'm 50 and my wife (no pics) is 48. We have currently about $2.5M in traditional 401Ks. We plan to work and aggressively save for 10-12 more years. A few years ago, we started a side gig that has done pretty well (~$100K/year). The side gig is an LLC and we are deciding how best to add to our retirement. A financial advisor that I work with is concerned about RMDs triggering crazy high taxes since all of our money is going into tax-deferred accounts.
After modeling various scenarios, he is convinced we should start contributing as much as we can into Roth 401Ks instead of traditional 401Ks. Remember that starting this year, Roth 401Ks are not subject to RMDs. His logic is that even though we'd be paying high taxes on the contributions now, the taxes paid in our 70s would be significantly more. After all, we'd be paying income tax and IRMAA on the 401Ks that have grown for 25 years more. The math makes sense, but it's contrary to the common belief that taxes will be lower in retirement.
TLDR: Should we use the new Roth 401K rules to minimize RMDs at the expense of our current tax bill?
After modeling various scenarios, he is convinced we should start contributing as much as we can into Roth 401Ks instead of traditional 401Ks. Remember that starting this year, Roth 401Ks are not subject to RMDs. His logic is that even though we'd be paying high taxes on the contributions now, the taxes paid in our 70s would be significantly more. After all, we'd be paying income tax and IRMAA on the 401Ks that have grown for 25 years more. The math makes sense, but it's contrary to the common belief that taxes will be lower in retirement.
TLDR: Should we use the new Roth 401K rules to minimize RMDs at the expense of our current tax bill?
5
Posted on 4/3/24 at 4:30 pm to FortunateSon
Did he model Roth conversions after you retire in 10-12 yrs? Aggressive Roth conversions for 10 years could reduce RMDs.
Another consideration, if one of you passes the tax burden on the remaining single filer might be even higher.
Another consideration, if one of you passes the tax burden on the remaining single filer might be even higher.
Posted on 4/3/24 at 6:18 pm to FortunateSon
I mean historically we are in one of the lowest tax rates, and our government cannot stop spending money. The only solution whether we like it or not is to likely raise taxes in the very near future..
Posted on 4/3/24 at 10:35 pm to FortunateSon
What is your marginal rate?
Posted on 4/5/24 at 9:24 am to FortunateSon
quote:
We have currently about $2.5M in traditional 401Ks
I just dropped in to say nice.
Posted on 4/9/24 at 4:55 pm to FortunateSon
Why not contribute to the Roth 401k as most likely the employer match will continue pre-tax. Also, in addition to the 401k consider a SEP IRA for the new LLC if it’s just you and your wife. You can contribute to a 401k and a SEP if you have a side hustle LLC.
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