The combination of losing 401k catchup contributions & not getting any raises has led to 1/2 of the lion kingdom's income now going to the 401k. Lions don't take home a paycheck until June. There's a growing chance lions may have to cut back on deferred compensation in order to bridge the next 4 years & have some of the roth conversions go directly to expenses. Such is the price of moving large sums of the taxable cash to stonk to avoid taxes.
The 401k has really lousy returns compared to the IRAs, but nothing is going to see significant gains in 4 years.
At the same time, there's been enough passive income to offset the paychecks, which creates a huge tax advantage. As long as passive income can replace the paychecks, it's hard to reduce the deferments.
It felt good to meet expenses without selling any stonk, but if we're going to be shifting assets around to optimize taxes, there has to be some stonk selling & payment for capital gains if the taxable account is going to be stonk heavy. Bridging the next 4 years by selling stonk is still cheaper than full income tax.
Cash from previous years has been going into depressed stonks during the current sideways market, to try to reduce the tax burden. It's eventually going to run out. Lions have put off selling in the IRA's because the 401k cash has grown, but it may be necessary in amounts equal to the buying in the taxable account, because the 401k doesn't earn any significant interest.
It's very expensive to use money from a roth conversion to pay the taxes on the conversion. Converting $40k entails $4800 in tax, so you'd only get $35k into the roth, which can never be replaced.
Of course, if the taxes come from money previously taxed at 34%, it's still not a free lunch. The advice against paying taxes with conversion money is manely against using the stonk in the IRA to pay taxes rather than using the cash from the IRA.
Lions currently have 47% stonk, 49% cash, 4% bonds. The stonk market set a new record today, but lions are heavily into beaten down stonks which aren't doing so well & just surrendered a lot of money to taxes. Of course, it's a gargantuan amount of cash, all earning roughly enough interest to be dangerous.
The latest plan was to let it float to the bingo point, then start selling stonk to keep it 50/50. Another plan was to keep the cash fixed to 10 years of expenses & letting the stonk float on its own.
Lions are surprised how dramatically the internet swung to delaying social security as long as possible, after many years of favoring taking it as soon as possible. Exploding IRA balances have pushed up the tax penalty for claiming social security. They might extend the deferment to 75 or allow animals to claim a smaller fraction early while deferring the rest.
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