[quote=bearishgurl][quote=joec]From all the comments, it’s probably a good time to take that time off now if you can afford to.
Another thing to consider is if you’re financially ok for a while, you might consider doing a Roth IRA conversion while you are in an extremely low income tax bracket assuming you can pay the taxes out of your savings (I am assuming you can). I did that when I took some time off and you probably won’t see this income tax rate again…
Again, your specific situation may not make this worthwhile depending on when you stopped working and how long you take off, but it maybe possible to do conversions with 0 tax if you convert a small enough amount (or at least fall in the 10% bracket).[/quote]
joec, is it possible for you to PM me on the rules about this? In my research online, I don’t quite understand them. I want to do a small amount and am in a low tax bracket. Thank you.[/quote]
The rules are pretty simple to understand. In a nutshell, when you elect to convert from a traditional 401k/IRA into a Roth IRA, you are taxed at the current tax rate in taking your distribution. For example, if you decide to convert $50k from traditional IRA to roth, your $50k will be taxed at your year’s tax rate. That $50k or so might push you into a higher tax bracket if you are also earning a decent income that year, since it will be considered taxable income too. That’s why if you decide to take time off (and presumably not earning money during that time), and were planning to do a roth conversion anyway, it would be more prudent to do it in a year in which the rest of your income is low…It also works out if you need to go on medical leave for whatever reason, in which you’re not earning your full income.
Before, if you’re income was above some limit, you couldn’t convert roth. Now that restriction has been eliminated.
Also, you could also spread out your distribution. So instead of converting $50k in one year, spread it out.
Whether it makes sense to convert or not depends on a lot of factors. One being your age and when you think you’ll be tapping into those funds. Also, if you think you might have “overcontributed” to a 401k/traditional IRA and are going to get hit with huge taxes post retirement, that’s another thing to think about. (I’m pretty sure my tax rate is going to be it’s lowest right now versus when I retire).Rental income + corp income + mandatory distributions from 401k is going to be a huge it.
