Should You Consider a Roth Conversion After Retiring From Raytheon?
Retirement from Raytheon can create an interesting tax-planning opportunity.
While you're working, your salary may make a Roth conversion relatively expensive. After retirement, your income can fall significantly, particularly if you haven't started Social Security and required minimum distributions haven't begun.
For some Raytheon retirees, those years may be an attractive time to consider moving a portion of traditional retirement assets to a Roth IRA.
The basic question is simple:
Is it better to pay the tax now or later?
The Years After Raytheon Can Look Very Different
Imagine retiring from Raytheon at 62.
Your paycheck stops. Perhaps you delay Social Security. Required minimum distributions are still years away. Yet you may have accumulated substantial tax-deferred retirement assets during your career.
That combination can create a period when your taxable income is considerably lower than it was while you were working.
Instead of simply trying to pay as little tax as possible during those years, you may have an opportunity to deliberately recognize income through Roth conversions.
A low-tax year can be valuable. Sometimes it makes sense to use it.
Why Not Leave the Money Where It Is?
There's nothing inherently wrong with leaving money in a traditional retirement account.
But tax-deferred doesn't mean tax-free. Distributions from traditional retirement accounts generally create taxable income, and required minimum distributions can eventually force money out whether you need it or not.
Your tax picture can also change as Social Security and other sources of income begin.
For married couples, there is another consideration. After one spouse dies, the survivor may eventually file as a single taxpayer while still owning much of the couple's retirement assets.
We can't know what future tax laws will look like. But we can identify periods when you may have more control over your taxable income.
What If You Won't Spend All of It?
For some longtime Raytheon employees, the retirement plan shows that they're unlikely to spend all of their assets.
At that point, Roth conversions can become an estate-planning discussion.
Many non-spouse beneficiaries are generally required to empty inherited retirement accounts by the end of the tenth year following the owner's death.
If your children inherit a traditional retirement account during their peak earning years, those distributions could add to income they're already earning.
That raises a question worth considering:
Would you rather pay some of the tax during your retirement, or leave the tax liability attached to the account for your children?
The answer depends on your circumstances, but it should be part of the analysis if you're unlikely to spend the money yourself.
Don't Automatically Fill a Tax Bracket
Roth conversion planning is sometimes reduced to converting enough money to reach the top of a particular federal tax bracket.
We think that's too simplistic.
Additional taxable income can affect Medicare income-related premiums, state taxes, the taxation of Social Security benefits, and other income-based thresholds.
The goal isn't to complete the largest conversion possible.
It's to determine how much, if anything, makes sense to convert this year.
For someone with substantial tax-deferred savings, that may mean a series of partial conversions over several years.
Start Planning Before You Leave Raytheon
Timing matters.
If you retire late in the year after receiving most of a year's salary, that may not be an attractive year for a large conversion.
The following year could look very different.
That's why Roth conversion planning should be coordinated with your retirement date, Social Security strategy, withdrawals from retirement accounts, and other sources of income.
A Roth conversion won't make sense for every Raytheon retiree. Sometimes paying the tax today is simply more expensive than paying it later.
But the years immediately after leaving Raytheon can create a planning opportunity that shouldn't be overlooked.
The objective isn't to minimize taxes in any single year. It's to manage them over the course of your retirement.
If you're approaching retirement from Raytheon and would like to talk about whether Roth conversions should be part of your retirement and tax strategy, we'd be happy to help. Schedule a complimentary 15-minute call.
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This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
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