last revision date: May 7, 2020
Assumptions, at Dec 31, 2021
401k: $125k
Brokerage: $125k
Total: $250k
Year 1-3: Roth IRA Conversion Years
Year 4-8: Non-conversion years
2022:
Annual Budget: $35,000/yr - 6703 tax bill = $28,297/ yr
Source: Brokerage
Roth IRA conversion:
Convert $40k on Dec 1, 2022
12% tax rate, amount due: $6703
Balances, as of Dec 31:
401k: 125k-40k = $85k
Roth IRA (converted from 401k): 40k
Brokerage: $125k - $35k = $90k
Total: $85k + $40k +$90k = $215k
2023:
Annual Budget: $35,000/yr - 6703 tax bill = $28,297/ yr
Source: Brokerage
Roth IRA conversion:
Convert $40k on Dec 1, 2023
12% tax rate, amount due: $6703
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k
Roth IRA (converted from 401k): 40k+40k = $80k
Brokerage: $125k - $35k = $90k - $35k = $55k
Total: $45k + $80k + 55k = $180k
2024
Annual Budget: $35,000/yr - 6703 tax bill = $28,297/ yr
Source: Brokerage
Roth IRA conversion:
Convert $40k on Dec 1, 2024
12% tax rate, amount due: $6703
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k
Roth IRA (converted from 401k): 40k+40k = $80k +40k = $120k
Brokerage: $125k - $35k = $90k - $35k = $55k - $35k = $20k
Total: $5k + $120k + 20k = $145k
>>>THE NON-CONVERSION YEARS<<<<<
2025
Annual Budget: $29,000/yr (w/ bonus: $34k/yr)
Source*:
Roth IRA: $25k
Brokerage: $4k
[Bonus pension: $5k]
Withdraw funds on Jan 1 of calendar year
*source allocation does not matter from here on out; just divided brokerage balance by 5
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k
Roth IRA (converted from 401k): $120k - 25k = $95k
Brokerage: $20k -4k = 16k
[Bonus pension: $25k - 5k = $20k]
Total: $5k + 95k + 16k = $116k
2026
Annual Budget: $29,000/yr (w/ bonus: $34k/yr)
Source*:
Roth IRA: $25k
Brokerage: $4k
[Bonus pension: $5k]
Withdraw funds on Jan 1 of calendar year
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k
Roth IRA (converted from 401k): $120k - 25k = $95k -25k = 70k
Brokerage: $20k -4k = 16k - 4k = 12k
[Bonus pension: $25k - 5k = $20k - 5k = 15k]
Total: $5k + 70k + 12k = $87k
2027
Annual Budget: $29,000/yr (w/ bonus: $34k/yr)
Source*:
Roth IRA: $25k
Brokerage: $4k
[Bonus pension: $5k]
Withdraw funds on Jan 1 of calendar year
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k
Roth IRA (converted from 401k): $120k - 25k = $95k -25k = 70k - 25k = $45k
Brokerage: $20k -4k = 16k - 4k = 12k - 4k = 8k
[Bonus pension: $25k - 5k = $20k - 5k = 15k - 5k = 10k]
Total: $5k + 45k + 8k = $58k
2028
Annual Budget: $29,000/yr (w/ bonus: $34k/yr)
Source*:
Roth IRA: $25k
Brokerage: $4k
[Bonus pension: $5k]
Withdraw funds on Jan 1 of calendar year
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k
Roth IRA (converted from 401k): $45k - 25k = $20k
Brokerage: $20k -4k = 16k - 4k = 12k - 4k = 8k - 4k = 4k
[Bonus pension: $25k - 5k = $20k - 5k = 15k - 5k = 10k - 5k = 5k]
Total: 5k + 20k + 4k = $29k
2029
Annual Budget: $29,000/yr (w/ 401k: $34k/yr)
Source*:
Roth IRA: $20k
Brokerage: $4k
Bonus pension: $5k
[401k withdrawal: $5k]
Withdraw funds on Jan 1 of calendar year
Balances, as of Dec 31:
401k: 125k-40k = $85k - 40k = $45k - 40k = $5k +/- 5k = 0
Roth IRA (converted from 401k): $45k - 25k = $20k - 20k = 0
Brokerage: $20k -4k = 16k - 4k = 12k - 4k = 8k - 4k = 4k - 4k = 0
[Bonus pension: $25k - 5k = $20k - 5k = 15k - 5k = 10k - 5k = 5k - 5k = 0]
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