Hypothetical: John and Mary, both in their 60s and are delaying Social Security until 70. John is retired and has no earned income, but Mary does have significant earned income. Mary has new access to either 401(k) pre-tax or Roth 401(k) post-tax. The traditional wisdom is that Mary choose pre-tax to defer income at that age.
John is looking in his crystal ball and predicts tax rates now are as low as they will ever be, and doubts that current rates will remain in 2020, much less 2026. He has substantial money in tax deferred accounts, and has decided to convert an amount in 2018 to bring the couple MFJ to about $339k … the max amount of taxable income before getting into 32% marginal.
So now Mary is wondering why John would do a Roth conversion while Mary contributes to a pre-tax 401(k). Wouldn’t the result be the same if Mary went Roth 401(k), and John reduced his Roth conversion by $24,500? Well, no, John says. The difference is that John’s conversion will go into a Roth account that has aged for five years already. Mary’s would be a new one. Thus, Mary would have a 5 year waiting period before she could access earnings (though contributions access would be immediate). Thoughts on this; other considerations?