A 65-year-old retired caller was advised to leave a $125,000 traditional TSP untouched until required minimum distributions begin. The advice can increase lifetime taxes because withdrawals are taxed as ordinary income and can push other income into higher tax and Medicare surcharge thresholds. The years before RMD start are often lower-tax years, since employment income has stopped and Social Security may not have started yet. RMD rules depend on birth year, with RMD age set at 73 for those born between 1951 and 1959 and 75 for those born in 1960 or later. Converting part of the traditional balance to a Roth during these lower-tax years can reduce future taxable withdrawals and associated costs.
"“the stupidest thing I ever heard.”"
"If you are between 60 and 72 with money sitting in a traditional 401(k), 403(b), TSP, or IRA, that single piece of advice can cost you tens of thousands in lifetime taxes. Suze is right, and the math is not subtle."
"For most pre-retirees, the years between leaving work and the RMD start date are the lowest-tax window of your life. The paycheck stopped. Social Security may not have started yet. You are sitting in the 12% or 22% federal bracket instead of the 24% or 32% bracket you lived in during peak earning years. That gap is the whole opportunity."
"Run the alternative. Deb converts $15,000 a year from her TSP to a Roth IRA for eight years. At a 12% federal bracket, each conversion costs her about $1,800 in tax. Total tax bill across the window: roughl"
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]