Have an old employer 401K about 250K

I'm 46 yo , me and my wife are in a high tax bracket

I want to slowly convert it over to my Roth IRA, I was thinking of taking out 50K a year over the next 5-6 years. I know I will have to pay the tax bullet so to speak but want to spread out the pain over a couple of years. Currently have about a 100K in my Roth. I like the idea of the money growing tax free with a goal to get my Roth close to 800K to a million by age 60. At that point I would Convert that sum of money to a high yield Dividend ETF like JEPI and JEPQ and cut down on my work significantly and do a partial retirement

For those in a similar situation does these seem like a good strategy or should I just leave it in a 401K and plan for a 4% withdrawal rate down the road .

I have or had the same or similar question. All (well most) of my retirement accounts are qualified money. I am presumably much closer to retirement than you (62), so the advice I got, being in a fairly high tax bracket now, was wait until retirement to start converting money to Roth.

At your age it'll double 2 or 3 times before you start taking withdrawals. That's only a $40-$60k annual withdrawal. Add all your future incomes up, what's your tax bracket look like?

Compared to paying 24-37% now and letting it double a few times.

35% tax bracket for 2022 and 2023

The wifey makes pretty damn good money and she is one of those who will work even though she financially has the means to retire comfortably

Actually we both love what we do but will just look to decrease the hours we work in as we both get to 60 years old

Congrats! But that'd be a definite no for me.

2 things from a guy who has been there. First it's not going to make a big difference whether you do it now or later but if you have a big income year I'd do a bigger chunk, but there are worse problems than having lots of money in a traditional IRA.
Second, almost everyone wants to retire at 60. Very few do, even if they can.

More info needed to make an accurate assessment, but for most people, it doesn't really make sense to recognize the income now at 35% unless you expect to be in the same or higher tax bracket when you withdraw that money (and really it's the average tax you will withdraw the funds at that matters). Even if tax rates go up in the future (probable considering the size of the US debt), hard for me to imagine the average withdraw tax rate being 35% or higher.

Agree w/themissinglink on need for more info.

You need to find out if your old 401K plan allows for a gradual withdrawal. Some plans are all or nothing when doing withdrawal if you aren't w/the company it is through.

Taxes? You're going to pay taxes on the earnings somehow, sometime. It's just a matter of what you're comfortable with doing & when.

Good luck!

Appreciate all the responses gonna call Fidelity today and see what the rules are with withdrawals from my old 401K and if I can do a conversion then I'm gonna set up a phone call with my CPA to discuss a withdrawal strategy that I can manage tax wise

Just in case, since it hasn't been covered, there are no taxes now if you convert to a traditional IRA. If your tax bracket will be lower when you need it then wouldn't that be your best option?

if still working it would inhibit backdoor roth contributions (pro rata rule)

02skiag said:

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Just in case, since it hasn't been covered, there are no taxes now if you convert to a traditional IRA. If your tax bracket will be lower when you need it then wouldn't that be your best option?

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this is my thought. Its better to let it compound now and withdraw at a lower tax rate than take a 35% hit in your value.

Your marginal tax rate will likely go down in retirement and you will have a chance to convert it then. Your effective rate will likely be lower in retirement as well if you simply want to live off that money rather than Roth convert it today at 35%.

I would only consider a Roth conversion in the near future is we have a massive (30%+) stock correction and you can convert a huge chunk while the value is lower and try to ride the rebound up on the Roth side.

MemphisAg1 said:

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I'm 60 and recently started converting pre-tax and after-tax 401k to Roth 401k. Was in the top tax bracket for 15 years or so and deferred every dollar I could with pre-tax 401k or deferred comp to keep the government from taking 40% of my money. I recently changed jobs to come back home. My income reduced substantially along with that change, which is fine because I'm where I want to be. The upside is I'm now converting as much pre-tax money as I can each year and still stay in the 24% tax bracket (married, jointly). That's 16% in avoided taxes that I get to keep instead of handing over to the government. If Trump extends current tax rates for several more years I plan to eventually convert all of it to Roth because I'm convinced tax rates are going up long term.

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In the same boat myself. Are you having the taxes taken out as part of the conversion, or paying later with money from a separate account? It's more convenient to let them take the taxes out during the conversion, but if you have the means it's of course better to pay with separate money. The other little conundrum is medicare at 65. Your premiums go up if your income goes above the thresholds, so you may be limited with how much you can convert to stay below those thresholds.

I'm paying the taxes with separate money to keep the Roth balance from shrinking. I'm aware of the Medicare premium impact but right now I'm thinking I have much more at stake by locking in a lower tax rate because I'm convinced taxes are going up long term. I also want to get the conversions behind me and keep my future income as low as possible because they'll probably means test SS at some point too, and I'll be damned if I'm going to give that up after paying into it for almost 50 years.

Quick update to my original post

My old 401 K does allow a rollover into a traditional IRA , in a one lump sum cash payout which was done with the help of a fidelity rep on Monday

Gonna convert 50K a year to Roth every year until it's all fully converted probably over course of 6-7 years.

I Invested in 40% VTI, 40% FIDELITY 500, and 20% SCHG , it was originally invested in my 401K at 50% target retirement fund 2045 and 50% FIDELITY 500

Gonna stay aggressive in my Roth portfolio till I hit 60 then gonna convert most back to the target fund

hope you realized you'll no longer be able to backdoor roth without tax implications

Yes sir
Wife who makes good money and is 3 years younger than me plans to work until she is at least 65 to 70 years old.

As for me I plan to dial it back or work quite a bit at 60 so we will be in a high tax bracket until I hit about 70 yo or so , there really wasn't a good time from a tax standpoint I'll just let me money grow tax free for then next decade and then take out slowly (again tax free) once I hit 60 yo

I can also see the fed government looking to take more taxes from 401K down the road so that played a factor in my decision

Just be aware that I believe you will have to pay a 10% penalty on the amount you roll over to Roth from 401K in that tax year if you are younger than 59 1/2. You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

I just went through this process. I retired and turned 60 in 2024, did the rollover right after the new year to take advantage of my lower tax bracket (I previously had been at 33-37% over the last 20years.). Did a full rollover so took the full tax hit in one shot. Would have done it incrementally over several years but my goal was to benefit from the tax free status of Roth distributions asap even as it meant a big tax bill this year.

Other advantage to the rollover to Roth is I don't think you have to deal with required minimum distributions at age 73 like you would with IRAs.

iamtheglove said:

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You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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There's conflicting information out there suggesting restrictions continue after age 59 1/2 for Roth conversions, but that is not correct. I researched it, including looking at IRS regulations, and once you turn 59 1/2 and your Roth account is at least 5 years old, then you can take withdrawals from money you converted at ages 55-58 without penalty.

MemphisAg1 said:

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iamtheglove said:

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You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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There's conflicting information out there suggesting restrictions continue after age 59 1/2 for Roth conversions, but that is not correct. I researched it, including looking at IRS regulations, and once you turn 59 1/2 and your Roth account is at least 5 years old, then you can take withdrawals from money you converted at ages 55-58 without penalty.

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Yes, I think we are saying the same thing. I was never eligible for a Roth due to income restrictions so I opened the Roth in 2025 at age 60 once I retired. My 5 year clock started this year. I was reacting to the OP's note that he is currently 48.

iamtheglove said:

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MemphisAg1 said:

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iamtheglove said:

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You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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There's conflicting information out there suggesting restrictions continue after age 59 1/2 for Roth conversions, but that is not correct. I researched it, including looking at IRS regulations, and once you turn 59 1/2 and your Roth account is at least 5 years old, then you can take withdrawals from money you converted at ages 55-58 without penalty.

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Yes, I think we are saying the same thing. I was never eligible for a Roth due to income restrictions so I opened the Roth in 2025 at age 60 once I retired. My 5 year clock started this year. I was reacting to the OP's note that he is currently 48.

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10-4, I understand that. I was just sharing a learning from my experience. There can be some bad info out there, and one needs to pressure test it and compare against several sources to narrow in on the real story.

iamtheglove said:

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MemphisAg1 said:

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iamtheglove said:

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You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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There's conflicting information out there suggesting restrictions continue after age 59 1/2 for Roth conversions, but that is not correct. I researched it, including looking at IRS regulations, and once you turn 59 1/2 and your Roth account is at least 5 years old, then you can take withdrawals from money you converted at ages 55-58 without penalty.

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Yes, I think we are saying the same thing. I was never eligible for a Roth due to income restrictions so I opened the Roth in 2025 at age 60 once I retired. My 5 year clock started this year. I was reacting to the OP's note that he is currently 48.

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One more thing on that... I became ineligible for a Roth IRA about 20 years ago but heard about backdoor contributions where you put after-tax money into a Traditional IRA and then immediately convert it to a Roth IRA. There's no earnings, so there's no tax due. Did it every year like clockwork for the wife and I. But the growth has all occurred tax-free to this point. I can keep doing that every year as long as I have enough earned income that equals the amount I put into the IRA's.

MemphisAg1 said:

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iamtheglove said:

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MemphisAg1 said:

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iamtheglove said:

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You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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There's conflicting information out there suggesting restrictions continue after age 59 1/2 for Roth conversions, but that is not correct. I researched it, including looking at IRS regulations, and once you turn 59 1/2 and your Roth account is at least 5 years old, then you can take withdrawals from money you converted at ages 55-58 without penalty.

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Yes, I think we are saying the same thing. I was never eligible for a Roth due to income restrictions so I opened the Roth in 2025 at age 60 once I retired. My 5 year clock started this year. I was reacting to the OP's note that he is currently 48.

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10-4, I understand that. I was just sharing a learning from my experience. There can be some bad info out there, and one needs to pressure test it and compare against several sources to narrow in on the real story.

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Totally agree, lots of rules, caveats and unique conditions that don't universally apply regarding Roths. Would always recommend anyone doing a conversion to be extremely diligent.

iamtheglove said:

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Just be aware that I believe you will have to pay a 10% penalty on the amount you roll over to Roth from 401K in that tax year if you are younger than 59 1/2. You also wont be able to withdraw from the Roth for 5 calendar yrs from each rollover.

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huh? this isn't 2 separate rules, you don't pay a penalty unless you withdraw before the 5 year wait period

the rollover/conversion itself doesn't trigger any penalty, and after 5 years you can withdraw without penalty regardless of age

https://www.investopedia.com/how-roth-conversion-ladder-works-5214808

also note for the purposes of this rule, 12/31/20 - 1/1/25 = 5 years since the 12/31 conversion counts from Jan 1 of that year

Quote:

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Just be aware that I believe you will have to pay a 10% penalty on the amount you roll over to Roth from 401K in that tax year if you are younger than 59 1/2

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Why would you pay a 10% penalty on a 401k to Roth conversion? You're not cashing out the 401k, but instead performing a rollover. If anything, there would be a tax withholding if you're converting a traditional 401k to Roth, but not a penalty.

txaggie_08 said:

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Quote:

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Just be aware that I believe you will have to pay a 10% penalty on the amount you roll over to Roth from 401K in that tax year if you are younger than 59 1/2

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Why would you pay a 10% penalty on a 401k to Roth conversion? You're not cashing out the 401k, but instead performing a rollover. If anything, there would be a tax withholding if you're converting a traditional 401k to Roth, but not a penalty.

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Yes, my bad, thanks for the correction. I had confused the many rules. If you take a Roth IRA distribution before you turn 59 1/2 , then you will be subject to regular income tax and a 10% early withdrawal penalty on the earnings portion of the distribution. Sorry again for the faulty info.