Roth or Traditional IRA Withdraw

[BearMkt]

Planning for retirement in a year or so.  I will have a decent pension and SS but that will only replace about 45% of my current salary. My wife is 3 years younger and will keep working for a few more years. I'll probably need to tap into my retirement 401 (TSP specifically) which I'll roll into a fidelity IRA. I've also saved in a Roth IRA.  The question is do I tap into the IRA or Roth first and why.  Thanks. 

[Chahta]

A thought is use the TIRA. If the 55% is less than the first RMDs you might be cheating the tax man in the future. Let the Roth keep growing tax free.

[stats]

Dec 28, 2020 12:52:29 GMT BearMkt said:

Planning for retirement in a year or so.  I will have a decent pension and SS but that will only replace about 45% of my current salary. My wife is 3 years younger and will keep working for a few more years. I'll probably need to tap into my retirement 401 (TSP specifically) which I'll roll into a fidelity IRA. I've also saved in a Roth IRA.  The question is do I tap into the IRA or Roth first and why.  Thanks. 

(1) A sloppy rule of thumb is that any money rolled from a Traditional IRA to a ROTH should be left alone for five years to compensate for the taxes paid in the rollover.   

(2) I wouldn’t rollover from Traditional to ROTH if you have to pay the taxes out of the IRA.  So you will need upwards of 20% in cash to do the rollover

(3). The rollover is based on the fiscal year, so any rollovers should be done by Thursday (Dec 31).  

We have substantial RMDs coming up, which is behind our reason to rollover our Traditional) IRA to our ROTH. If you are planning on taking income from the Traditional IRA yo7 might as well leave it there.

I got off topic because I misread your post.  So as to your question, tap into the IRA first, this allows your balance to grow longer in a tax free environment.   Delaying paying the tax man is almost always the right answer. 

stats

[BearMkt]

Dec 28, 2020 19:31:55 GMT stats said:

Dec 28, 2020 12:52:29 GMT BearMkt said:

Planning for retirement in a year or so.  I will have a decent pension and SS but that will only replace about 45% of my current salary. My wife is 3 years younger and will keep working for a few more years. I'll probably need to tap into my retirement 401 (TSP specifically) which I'll roll into a fidelity IRA. I've also saved in a Roth IRA.  The question is do I tap into the IRA or Roth first and why.  Thanks. 

(1) A sloppy rule of thumb is that any money rolled from a Traditional IRA to a ROTH should be left alone for five years to compensate for the taxes paid in the rollover.   

(2) I wouldn’t rollover from Traditional to ROTH if you have to pay the taxes out of the IRA.  So you will need upwards of 20% in cash to do the rollover

(3). The rollover is based on the fiscal year, so any rollovers should be done by Thursday (Dec 31).  

We have substantial RMDs coming up, which is behind our reason to rollover our Traditional) IRA to our ROTH. If you are planning on taking income from the Traditional IRA yo7 might as well leave it there.

I got off topic because I misread your post.  So as to your question, tap into the IRA first, this allows your balance to grow longer in a tax free environment.   Delaying paying the tax man is almost always the right answer.  

stats

Yes, I've been told that but it's a little confusing to me because if I take 20K out of IRA, I incur a tax obligation right? But, if I take 20K out of Roth, I don't incur the tax obligation.

[Chahta]

I suspect the tax you pay now will be higher down the road. All the trillions being spent now will require that. My opinion is retiring takes some sacrifice at times. Your after tax income may need to go down or pay taxes from the TIRA. It will be the same as RMDs.

[BearMkt]

Dec 29, 2020 12:38:32 GMT Chahta said:

I suspect the tax you pay now will be higher down the road. All the trillions being spent now will require that. My opinion is retiring takes some sacrifice at times. Your after tax income may need to go down or pay taxes from the TIRA. It will be the same as RMDs.

Thanks. I'm afraid taxes may indeed go up as the sentiment of the U.S. voters seems to have trended that way. So, it sounds like it would be better to tap the 401K first, as needed and just leave the Roth alone. 

[Chahta]

I am thinking Roths are like gold. Why do we struggle to convert to Roth? I want to do my first large conversion in 2021. Paying the tax now will hurt.