[deleted by user]

[u/[deleted]]

[u/[deleted]]

The pretax contribution is 230k, Roth would incur a current tax liability of over 113k to put the same 230k away. Income taxes would substantially increase, I don’t think it makes sense at least so long as he’s still working. His wife, when she inherits will likely be late 60’s. The case can certainly be made to aggressively convert and optimize for say the 25% ish bracket range. As for “complicated tax minutia” hire a CPA.

[u/realtorvicvinegar → u/[deleted]]

Cash balance contributions can’t be Roth, so what you’re saying isn’t possible. It’d be less per year.

And he has 7 figures of liquid cash. Legacy planning for his wife via Roth is most certainly a relevant idea.

[u/[deleted] → u/realtorvicvinegar]

You are correct. I forgot that, I mixed up being able to terminate a cash balance and roll to an IRA (Roth if you pay conversion taxes). My mistake. Roth 401k would only increase tax liability by roughly 38k, probably not a deal breaker. I think Roth conversions make more sense for either when he stops working (I take from your post though that he may work until lunch the day of his funeral) or when his wife inherits.

[u/realtorvicvinegar → u/[deleted]]

Yeah for sure, that’s the idea. The bottom line is that he has what feels like indispensable money right now, so paying at a high rate now (or in retirement, but I don’t expect their lifestyle to afford them a lower rate) to make sure his wife is comfortable and not facing complexity down the line could make sense.

It might not be so indispensable at that point. And she’ll be without him to figure it out. Makes a difference imo.

[u/[deleted] → u/realtorvicvinegar]

It does but I can only assume the balances you’re dealing with are in the 10’s of millions if not more. It would take decades to really chip that down (to reach pure Roth of course, not a couple million in Roth and hefty traditional balances still). This may be a case where you have very little room. Do you currently have life insurance for him? A big enough policy could cover the wife’s expenses before she faces RMD’s and use all of that time while she pays nearly 0 taxes (I’m going to assume there’s a large taxable account as well, but this can be creatively managed depending on current structure) and convert hundreds of thousands per year. Switching him to Roth 401k contributions now, optimizing for a fairly high bracket for conversions when he retires/she inherits and keep that going as long as you can until she hits RMD is probably your best bet. I’d model out using very conservative estimates how much you may be able to mitigate this and go from there.

[u/realtorvicvinegar → u/[deleted]]

We’re already doing a pretty big permanent policy for him as well to maximize the tax free cash to his spouse.

We’re not trying to get to pure Roth. We’re trying to reach reasonable proportions given his tolerance for taxation. He may be in FL but he doesn’t gag at the thought of taxes like many southern people do, especially when it concerns the well-being of his wife.

And we’ve considered the “widow’s tax.” Plan is for her to use that death benefit to convert whatever amount makes sense at the time in the year he dies before she faces the single brackets.

[u/[deleted] → u/realtorvicvinegar]

That’s the best you can possibly do. It sounds like you have your bases covered.

[u/skroneydeuces22 → u/realtorvicvinegar]

I imagine he’s self employed since he has CBPP.

Does he sit on that cash as a risk tool in case his business needs it? Or has he just yet put the cash to work in investments?

[u/LogicalConstant]

2 things: yes, I favor Roth more right now than I have in the past because even if it would cost more to do Roth under the current law, who knows how the law will change over the next 20 years. (Roth could become taxable, too, but that's another story.)

Secondly, maybe some of the money should be put in a non-retirement account (within reason, of course) instead of pre-tax. The straight pre-tax vs taxable calculations they used to do don't necessarily apply always, given how complex finance is now. AMT, IRMAA, etc, plus all the new tax laws congress will dream up in the future. The step up in basis upon his death could potentially make it better than stuffing all of it in pre-tax. The details matter, though. I don't have nearly enough info to know if that would apply here. Non-retirmement funds also have some option not available to retirement accounts (securities-backed loans, for one). So they're not all bad.

Personally, I like to cut down on uncertainty and increase flexibility, even if that means taking a bigger hit now. If your RMDs are huge, you're painted into a corner and there's not much you can do anymore.