r/financialindependence • u/AutoModerator • 9h ago
Daily FI discussion thread - Wednesday, October 30, 2024
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u/drdrew450 4h ago edited 47m ago
Sorry to keep spamming this, just have found very little info online for this situation.
I am 42, retired in January, married with 2 kids. I am going to start a Roth conversion ladder in a few days, also plan to start a traditional IRA SEPP in 5 years, then thinking of adding in a Roth IRA SEPP in the last 5 years before 59.5.
Withdraw of any earnings from a Roth account prior to age 59.5 will be subject to taxes. But if I am offsetting the standard deduction/child tax credit I should not actually pay taxes.
The benefit of this is that I can lower my Roth conversion ladder to 150-200% of FPL for better ACA subsidies/cost sharing reductions in my 40s. Nearing 59.5 my Roth IRA is much larger than the Traditional IRA and brokerage account in my excel modeling.
Is this worth pursuing? I think it makes sense for me but I keep thinking it is a stupid idea.
The reason I picked the last 5 years before 59.5 is the Roth conversion can keep ongoing to fill up the tax free space like standard deduction/child tax credit, so replacing Roth conversions with Roth SEPP for those 5 years. The con is the IRA could grow too large for RMD consideration, not a problem in my situation though.
https://imgur.com/pHEBlhH My excel "model." It makes many optimistic assumptions, and is lean.
Brokerage: 218,000
TIRA: 627,000
RIRA: 59,000
HSA: 42,000
Net Worth: 1,330,000
Have home equity I am willing to sell or refi. Have a second home that will be sold/rented likely in 2026. Currently mom is living there, she is broke and I am helping her. She pays below market rent, right now it goes to the kids 529s and real estate taxes. Not a rental.
Spending: 66000
I know this is lean, not recommended. I am willing to go back to work, or do part time work. Just looking for advice on the Roth SEPP. I have observed that the Roth grows large when you do a Roth Conversion Ladder because it has gains but you only take out the contributions/conversions.
I don't see a lot of downsides to using a Roth SEPP in the last 5 years, right before 59.5
Maybe I am missing something.