My company only recently started offering a Roth 401k option. As it stands right now I have ~$500k in traditional and ~$15k in Roth in my 401k. I would like to make conversions (from traditional to Roth) but am unsure of the best approach. Do I evaluate how much the conversions will bump up my income and figure out a specific amount to do every year? If so how? Can I do it after the end of the year and file it for the prior? Anyone with tax experience that could give me an ELI5 breakdown? My wife is in the same position with a good chunk in traditional and minimal in Roth…
Demographics that I assume may help:
Married, both 37M
Household AGI ~$300k
Thanks for any help!
401k Roth conversion strategy
byu/Left-Noodle inpersonalfinance
Posted by Left-Noodle
7 Comments
$300k HHI is not the right time to artificially add any more income. You should stick to [Traditional 401k](https://www.reddit.com/r/personalfinance/comments/10qwnrx/why_you_should_almost_never_contribute_to_a_roth/) and [BDR to Roth IRA](https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/).
Just stick to traditional and start contributing to a Roth IRA via backdoor roth
> I would like to make conversions (from traditional to Roth) but am unsure of the best approach.
> Household AGI ~$300k
The best approach would be to wait until a lower income year.
Any amount converted by you, at this income level, will be in the 24% bracket.
> Do I evaluate how much the conversions will bump up my income and figure out a specific amount to do every year?
Yes. And probably not worth it unless you have room in a tax bracket under 20%.
> If so how? Can I do it after the end of the year and file it for the prior?
Conversion counts for the year it actually happens, you can’t back-date it.
Mike Piper had a good [Roth Conversion Deep Dive](https://www.youtube.com/watch?v=Wjbf9KVSG7s) presentation at the 2024 bogleheads conference. Might be worth doing in a year where one of you stops working.
Hold off on the conversions until your HHI is lower (ie. early retirement, before SS). You could always shift future contributions to 100% Roth. Personally, as someone with a similar HHI, I’m 100% traditional while backdooring a Roth IRA. Traditional is the best tax shelter we have available today. I’ll worry about the conversions the day after I retire.
Do you have 500k total or 500k each in traditional?
And what do your career trajectories look like? Do either of you have a high likelihood of a major raise?
Also high tax or low tax states, and any known plans to move later?
You don’t want to do this right now. With 300k AGI, you’re in the 24% bracket. It isn’t a good financial decision to pay 24% tax now when you may be able to convert for 12% and 22% later.
As for future contributions, I’d still be looking to defer income that’s in the 24% bracket. “Winning” with a Roth is all about paying the lower tax rate.
I would put as much as you can toward maxing Roth contributions before considering conversions.
If you’re already meeting all your other financial goals and obligations, and you’re maxing all your Roths and you still have extra money looking for a purpose, then you could use that to pay for conversions up to the top of the 24% bracket.
I would not consider this a priority.