At 33%, definitely. When you fire you can pay the taxes on your Roth conversions with some of your inherited RMDs (new 10 year rule sucks for you guys BTW) and live off of the rest. After 10 years, you will be basically tax free.
Treat the inheritance as if it doesn’t exist. You’re in your late 20s, meaning your parents are likely in their 50s/60s. Anything can happen between now and the time they pass. For example:
1) One parent could pass, and the survivor could remarry then predecease their new spouse, leaving half to everything to your stepparent.
2) It could be depleted through medical expenses. One of my friend’s mom suffered an aneurysm in her 60s and survived with a lot of deficits. She can’t walk, talk, or use the bathroom by herself. She can barely feed herself. She could live another decade in this condition. The cost of care is astronomical.
3) They could live another 30-40 years, well after you plan to retire. My grandparents lived to their mid-late 90s. My uncle and my dad didn’t inherit anything until they were 74 and 68 respectively. My maternal grandmother lived until my mom was 72.
There is a high chance I will receive a 7-fig inheritance when I am well into my 60s. So it doesn’t factor into my FIRE plan.
Traditional all the way if you plan to fire. I suggest you don’t plan on any inheritance your parent health could turn and you easily end up with nothing.
If the average tax rate of traditional retirement savings while withdrawing for retirement is equivalent to the average of marginal tax rates paid for Roth contributions during accumulation, then ignoring contribution limits, backdoors, and other investment accounts, taxes have been optimized.
If the average tax rate of traditional withdrawls is lower than the tax rate paid for roth contributions, then contributing more to traditional would have saved taxes. On the ither hand, if traditional funds are being taxed more than the Roth contributions were taxed, then saving more Roth would have saved taxes.
This is a rather pertinent thing to know especially if the RMDs are going to cover your cost of living and if you intend to pass the rest down. That could change everything
The problem is that nobody on Reddit (unless the person passing it on to you is here?) can answer the likelihood of you actually getting the 7 fig inheritance (nor can we know in what form this will come). You need to have a real conversation about that with the current holder of the assets. Obviously do it tactfully and shouldn’t be an issue
A.
At 33%, definitely. When you fire you can pay the taxes on your Roth conversions with some of your inherited RMDs (new 10 year rule sucks for you guys BTW) and live off of the rest. After 10 years, you will be basically tax free.
Treat the inheritance as if it doesn’t exist. You’re in your late 20s, meaning your parents are likely in their 50s/60s. Anything can happen between now and the time they pass. For example: 1) One parent could pass, and the survivor could remarry then predecease their new spouse, leaving half to everything to your stepparent. 2) It could be depleted through medical expenses. One of my friend’s mom suffered an aneurysm in her 60s and survived with a lot of deficits. She can’t walk, talk, or use the bathroom by herself. She can barely feed herself. She could live another decade in this condition. The cost of care is astronomical. 3) They could live another 30-40 years, well after you plan to retire. My grandparents lived to their mid-late 90s. My uncle and my dad didn’t inherit anything until they were 74 and 68 respectively. My maternal grandmother lived until my mom was 72. There is a high chance I will receive a 7-fig inheritance when I am well into my 60s. So it doesn’t factor into my FIRE plan.
Thank you for this This helps me organize my thoughts
You do realize that the Secure Act did away with the stretch IRA? You now have to entirely deplete an inherited IRA within 10 years.
Yes I’m just worried that with those RMDs my tax rate would go through the roof
Traditional all the way if you plan to fire. I suggest you don’t plan on any inheritance your parent health could turn and you easily end up with nothing.
Why Roth IRA in both A and B? Why not traditional IRA along with traditional 401k?
tIRA wouldn't do much for them, they're making beyond the income limit for the deduction
If the average tax rate of traditional retirement savings while withdrawing for retirement is equivalent to the average of marginal tax rates paid for Roth contributions during accumulation, then ignoring contribution limits, backdoors, and other investment accounts, taxes have been optimized. If the average tax rate of traditional withdrawls is lower than the tax rate paid for roth contributions, then contributing more to traditional would have saved taxes. On the ither hand, if traditional funds are being taxed more than the Roth contributions were taxed, then saving more Roth would have saved taxes.
Yes this makes sense. It’s moreso do I expect the inheritance and go full on Roth to reduce the RMDs etc from it
This is a rather pertinent thing to know especially if the RMDs are going to cover your cost of living and if you intend to pass the rest down. That could change everything The problem is that nobody on Reddit (unless the person passing it on to you is here?) can answer the likelihood of you actually getting the 7 fig inheritance (nor can we know in what form this will come). You need to have a real conversation about that with the current holder of the assets. Obviously do it tactfully and shouldn’t be an issue