For investment newbies, I second the “target retirement date” Fidelity and Vanguard funds. If you have the skills to buy a pair of shoes online, you have the skills to buy into one of those funds. 
I think for young people, Roth IRA makes sense. For us, there would have been pros/cons to Roth transition. So for simplicity, we opted to keep all in traditional IRAs. Yes - we’ll be taxed on it But we won’t need to sort through which IRA accounts are tax deferred vs not.
I set up Roth’s for both of my kids and they fund to the max each year, I think, though that is not very much. ShawD is switching jobs this month (one year end). Not a job we love for her, but she’s getting a $20K annual pay increase. Not her reason for taking the job — which was to move nearer to BF so that they could start living together and try out their relationship in the same city.
I would love to have a Roth IRA. Good things to bequeath to kids, I think. But, conversion is too expensive — at least it was under the old tax law. Did anything change as a consequence of the new tax law? Unless there is a change, I don’t think I set one up on my own.
I have maxed out my Defined Benefit Pension Plan and have had to roll it into a 401k. I think I can contribute $24K a year to the 401k and maybe another $30K as a makeup because of my advanced age (over 50).
You can no longer recharacterize conversions from a Roth retirement account to a regular Roth account. Some people used this ability to fine-tune the conversion amounts to take them exactly up to the next tax bracket. Some people use it to “game” the conversion - if your converted amounts lose money, you could revert it back to the regular IRA and not pay taxes on the lost amount.
You can always wait until your income in retirement is lower to convert. Right now we are at a 40+% incremental rate (AMT phaseout territory and state income tax) and there’s no way we will be this high when we retire, so we are only doing tax-deferred. A backdoor Roth doesn’t help because we have too much in regular IRAs.
The 401k limit for 2018 is $18,500 with a catch-up of $6,000 for employees over 50.
Your company can match whatever they want (subject to some high-income limitations), however the sum of employee+employer contributions cannot exceed $55,000, not counting the $6,000 catch-up.
@notrichenough – do you know if there is an age after which one can no longer covert IRA money to Roth? I am guessing by 70.5, but that is just a guess.
@CT1417 AFAIK there is no age limit.
Note, however, that you cannot use funds from your traditional IRA to do the conversion and have that also count as the RMD.
There’s no age limit. We just went through this. Recharacterization is no longer allowed under the new tax law.
If you invested well, your RMDs combined with investment income may just put you in a higher bracket in retirement.
Has anyone thought about bitcoin investment?
I wish. Pretty much zero chance of this happening, though. B-)
At age 70 1/2, when the RMDs begin. But between ages 65 and 70 1/2 there will be some low earning years (for us, and likely for others in similar situations) so I will be looking at possibly doing some IRA-to-Roth conversions.
Every dollar that I will take out of my traditional IRA will be taxed as ordinary income (except for a very very tiny basis). It does bother me that I have lots of long term capital gains in that account that I am converting to ordinary income. Not really the way you want to go. I have some long term capital gains in my regular investment account that are taxed at a zero pct rate.
Let’s hope. But even without that, it’s very possible tax rates could go up. If the massive net worth split between those who have invested and those who haven’t continues (it will), that resentment combined with the mantra for “paying your fair share” along with looming deficit and entitlement costs indicate to me that tax rates could go up significantly. Upper income or assets…that’s where the money is. I wouldn’t count on tax rates to go down because your income declines.
I feel like “investing” in bitcoin is sort of on par with “investing” in lottery tickets.
Ah, you mean bitcoin gambling?
Yes, I’ve thought about it, well before it became particularly popular, since one of my sons is into it. I keep asking him when to invest, and he keeps saying to wait. But I started asking when it was about $400, so maybe he’s a little too conservative.
You waited at a wrong time :). But now maybe it the right time to wait. There was a dotcom bust in 2000. Will be a bitcoin bust in 2020? People recovered from the dotcom bust. Will people recover from the bitcoin bust?
There’s nothing that says Roths can’t be changed either. Asset caps, forced distribution of “excess assets”, taxation on “excess earnings”, forced conversion to an after-tax IRA, removal of estate-planning features, etc.
That’s true. And I can see how they can put future limitations on Roths, or do away with them entirely. However, the massive outcry if they try to force something retroactive would be deafening. They still do need their donors. If they do something that causes future pain, I’d expect the market to completely tank when people withdraw money from their Roths to avoid paying taxes on them.
That’s why we backdoor Roth the max each year, added to one year of mega backdoor Roth, but don’t attempt any heroic measures to convert to Roth. We gladly pick the low hanging fruit (i.e., the $6500 that would otherwise go to a taxable account), but don’t do any conversions proper.
We don’t do anything heroic to convert (because we’d want to pay the taxes outside of the IRA), but we did convert an account worth around 145K once. Just about killed us to come up with the 50K or so taxes, had to borrow from our HELOC for it. But the account is worth maybe 480K now, with a 16.8% annualized return since inception. If they start changing things around so we have to pay taxes on what has already been paid taxes on, we’ll jump out of that Roth in an nanosecond.
I’d appreciate thoughts & any guidance on unexpected early retirement.
Background: My husband planned to retire in 2.5 years from now, when he will be 66 years old. At that point, we projected that social security benefits & returns from his 401k & other investments would be adequate.
Instead, unexpected changes where he works, including a worse 401k plan, & the change in the tax laws led us to reassess. In 2018 we can’t fully deduct our state taxes as an itemized deduction. We’ll most likely take the standard deduction, especially if he were to retire soon, as our income would be much less.
We have enough savings to live modestly for 2.5 years especially if we supplement savings by withdrawing from traditional IRAs or take capital gains on some investments. (we also have Roth IRAs) However, that does not include paying for health insurance. Our coverage has been through his work.
These are issues I’m trying to research earlier than I expected:
How to figure out the cost of health insurance from now until we’re eligible for Medicare. (His health insurance provider was very opaque about COBRA) Then, the cost of Medicare.too.
Guidance on converting his 401k, which under the old plan did very well. (The options and management cost under the new plan are worse.)
How to asses if it makes sense in 2018 to convert traditional IRAs to Roth because income will be lower than in the past.
I’d appreciate any words of wisdom and suggestions of websites or books to gather information to guide me.
Thank you, in advance, you’re an amazing thoughtful and kind group