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Pre tax and roth accounts for retirement what is the most tax efficient way

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  • Avatar rserrano20 
    Participant
    Status: Physician
    Posts: 7
    Joined: 01/16/2018

    Hi, can you help me figure out if switching a 457 pre-tax account to a roth account make sense when I hit retirement age:

     

    This is my current scenario: 38 years old (6 years in practice)

    457 for 2018: $18,000  /  ORP for 2018 : $16,500  /  403b for 2018 :  $9,625

    I now have a total of 400k in pre-tax accounts

    Roth accounts:

    Back door roth: 11k )

    Roth 403b: 18000

    Total: 29 k

    My employer lets me switch the 457 pre tax to a post tax 457

    Should I switch?

     

     

    #189764 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3315
    Joined: 01/08/2016

    what is your projected RMD at 70?

    #189766 Reply
    Avatar rserrano20 
    Participant
    Status: Physician
    Posts: 7
    Joined: 01/16/2018

    with an estimated rate of return of 6% the RMD at age 70 is $88.870

    #189783 Reply
    birddog birddog 
    Participant
    Status: Physician
    Posts: 23
    Joined: 02/05/2019

    It likely depends on your current marginal tax rate (where the pre-tax savings would occur) and where you project to be in retirement (some predictable factors like RMD estimations and some unpredictable factors like future tax rates).  Another option would be to keep the 457 as-is in pretax and invest the difference between pre-tax and Roth in a taxable account.  A taxable account affords one a lot of flexibility including the ability to tax loss harvest…

    #189803 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1017
    Joined: 02/15/2016

    Assuming you’re in your peak earnings years, it’s unlikely a post tax 457b will make sense.

    #190071 Reply
    Avatar rserrano20 
    Participant
    Status: Physician
    Posts: 7
    Joined: 01/16/2018

    Why do younsay that? I ‘ m trying to understand the long term consequences

    #190140 Reply
    Avatar rserrano20 
    Participant
    Status: Physician
    Posts: 7
    Joined: 01/16/2018

    My Marginal tax rate is 33-35%

    #190141 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3315
    Joined: 01/08/2016

    with an estimated rate of return of 6% the RMD at age 70 is $88.870

    Click to expand…

    um what?

    assuming 2x max trad 401ks (38K/year), with a present value of 400K, 32 years to go, at 6% return, the pretax portfolio will hit ~6MM.

    assuming still married, that puts your RMD at 165K.

    thats the 24% bracket. not including SS, other pensions, std deduction, etc etc etc etc

     

    so worst case right now….you want to pay tax at 35%…..and then spend it at <24%…..

     

    that would be your long term consequence currently.

    #190152 Reply

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