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I’m 58 and Have $1 Million Saved

Updated: 09-11-2024, 11.43 AM

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I Am 58 With $1 Million in My 401(k). Should I Switch to Roth Contributions?

Whether to make the move from contributing to a tax-deferred workplace plan or switch to a Roth isn’t a question of “should” but a question of, “What works best for you?” Just a few of the considerations are:

  • How much you plan to save toward retirement

  • Your current vs. future tax situation

  • The specifics of your Roth option

  • Whether you’ll leave money behind for heirs

You can speak with a financial advisor to help you understand the tradeoffs, as retirement decisions made early on in your journey are important.

With a 401(k) plan, your contributions aren’t taxed at the time you make them but are taxed when you take withdrawals – along with all the investment gains. In many cases, you’re also getting an employer match to your contribution, which is free money. If, for example, your employer gives a 50% match on contributions up to 5% of your salary, you’re getting an automatic 50% gain on that money every time you make a contribution. That kind of return is hard to beat.

But, like any other tax-deferred plan, you’ll also need to start taking required minimum distributions at age 73 (or 75 for those born after 1960), which will result in taxes and could very likely result in making up to 85% of your Social Security benefits taxable.

With a Roth IRA, you don’t get the tax break when contributions are made, but you’ll never pay any tax on withdrawals – including all your investment gains – as long as you are at least 59-1/2 years old and the account has been open for five years.

The younger you are, the more sense a Roth account makes, because you’ll have decades of compounded returns on your investments that will be shielded from the tax man’s grab. One common piece of advice to young workers is to make 401(k) contributions up to the limit of any employer match and put any other retirement savings into a Roth IRA.

Part of that advice also applies to older workers. Even at the age of 58, you’ve got decades of investing ahead of you – nine years until you reach your full retirement age of 67 and up to 30 years in retirement. That makes having at least some of your assets in non-taxable accounts a smart move.

But unlike young folks, older, well-paid workers are likely to hit the contribution limits on a Roth IRA. For 2024, you can’t put more than $7,000 into a Roth, plus another $1,000 if you’re older than 50. In addition, your modified adjusted gross income must be less than $146,000 to $161,000 (for single filers) or $230,000 to $240,000 (joint filers) to make Roth contributions. Anything in between those ranges gets the contribution limit phased out.

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