Retirement Planning/Roth Conversion


Hello, I'm 61, healthy, single, never married and no kids and I'll probably remain this way for the remainder of my life. Both parents lived into their 90's. I own my home free and clear, currently valued at $175,000. I have no other debts. I earn between $35-40,000 per year at my job but could probably live off of $20-25,000 per year.

I'm planning on retiring from full-time work in early 2017 when I become 62. I might find a part-time job to occupy my free time.

I have a Trad IRA worth $500,000 and a Trad 401k worth $110,000 both in target date 2020 Funds and $200,000 in taxable cd's and money market accounts. I'm eligible for a company pension of $300/mth if I start drawing at age 62. I'm planning on living off of taxable savings before using my retirement monies.

My employer will be offering a Roth 401k in addition to the Trad 401k in mid June 2016 and I have a few questions. In your opinion, should I convert my current 401k to the new Roth 410k? Also, should I put any new money into the Roth 401k?

If you need more information before answering, feel free to ask.

Thanks, John

Hi John,
You definitely do not want to convert your traditional 401k monies to a Roth at this point. You would be taxed as earned income for any amount you converted. If you were younger it might make sense but at this point, you may never make back the money you paid out in taxes, especially in a safe investment like you would probably want. It could make sense to put new money in a Roth, simply to avoid the RMD's (required minimum distributions) at age 70 1/2. You could use your employer's Roth 401k for the next year and then convert to a Roth IRA when you leave the job. After that, you will need earned income to keep contributing to the Roth IRA but you would have some if you continued to work at another job. Also a personal account gives you the option of investing the money where you want instead of just the options your employer offers.

I think the main issue for you is to figure out how much income you're going to need in the future. Spending your taxable savings first may not be the best strategy as we have no idea what future taxes will look like. One thing you may want to look into for at least part of you CD/Money Market funds is an annuity. You can get more fixed interest than the banks are currently paying as well as avoid current taxation. You could take income now or you could defer the income for later. The advantage to using non-qualified money for this purpose is that when you annuitize it, you would only pay tax on a small portion of the income payments because most of the payments are a return of principal. If you've got it figured out properly, it may not even be enough to generate taxes. The longer you wait to take income, the larger the payments.

The method I prefer is to use non taxable monies such as Roth IRA finds and monies that you will owe very little on such as you have in the MM/CD's to offset or eliminate the taxes you would pay on your taxable 401k funds. You can control the amount of taxable withdrawals using this strategy. The annuity income stream could work well in this scenario.

It sounds like you are in good place for a successful retirement but I would recommend that you sit down with an advisor who can go over things more thoroughly than I can in this forum. The decisions you make at retirement are some of the most important ones you will ever make. I've seen many people miss a few things that could have easily been caught.

I hope this helps and best of luck to you! Feel free to ask any more questions you may have.


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David M Iannopollo


I am a professional financial advisor who can assist you with answers on mutual funds, annuities, IRA's, rollovers, qualified and non-qualified retirement plans, retirement planning, educational planning, life, disability and LTC insurances. I can also show you how to take advantage of the stock market gains without the risk of loss!


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