4 Reasons You Should NOT Do a Roth Conversion

[@gizmobowen]

Not sure why most financial channels don't take the time to give helpful examples like this. It's so nice to have this spelled out with basic examples. Thanks.

[@RootFP]

Glad it was helpful!

[@burlingtonillinois688]

@@RootFPhelpful But is there someplace to do the calculations with different amounts than you posed above? You did a good job I’m on about the sixth video and yours is the best so far.

[@johngill2853]

Great job 👍 Many financial "experts" on social media just push Roth conversions.

[@5metoo]

It's just a preference for Roth, not pushing them no matter what. Everyone should acknowledge it doesn't always make sense. What drives this preference even more is the fact is that recent legal changes have significantly decreased the desirability of pre-tax IRAs in comparison to the prior regime. Because if you plan to leave any of it to heirs, you've handed them the tax problem you tried to avoid (thanks dad!) since you can't stretch inherited IRAs anymore.

[@zokitchvlog]

Great info i need to know about my IRA

[@burlingtonillinois688]

One problem, though this was a new idea to me, because I do expect to donate to a foundation Aren’t there a lot of new charitable laws where often it doesn’t even even help our taxes . Do you have a video on that or no want to refer us to ?

[@lftucson]

Thank you for the explaining in a way that's easy to comprehend. This has now made me rethink my strategy of converting Rollover to Roth

[@jaynelson8304]

Loved the info on charitable giving through the IRA. I've never heard this before and it will probably keep me in the 12% tax bracket for the rest of my life. Thanks!

[@burlingtonillinois688]

How is that working out for you with the new charitable deduction rulings from the IRS?

[@burlingtonillinois688]

My CPA is too busy to answer very many questions, and also too high priced!

[@patrickbaldwin3580]

Your content is on point and presented in a calm, confident and relaxing manner that makes viewers want to learn. Well Done! I have 3 kids all starting their careers and investing and I have told them to subscribe to your channel and LISTEN to what you have to say.

[@RootFP]

Awesome, thank you!

[@dougscrubjay3939]

Another reason to not do Roth conversions - qualifying for the ACA Federal Tax Credit. The MAGI limits are suspended because of ARPA and IRA until 2025, but then we return to the 400% of Federal Poverty Line MAGI limit to get Tax Credit Subsidy. I did some Roth conversion right before I retired, now that I'm retired, I keep my MAGI at $73k (MFJ) and get a substantial tax credit for ACA insurance. After we're on Medicare, we may look at restarting Roth conversions before Social Security at 70 and RMDs at 70.5/72 (or whatever the age is by then).

[@benwillis124]

Very clear and helpful video, I am now a subscriber! However, I would add a caveat on your 4th reason to not do a ROTH conversion. If you don't have a long life expectancy, it may not matter to you, but it will matter alot to your heirs. With the new 10 year liquidation rule on IRAs, your heirs will have to pay that tax on inherited pre-tax accounts. However, if the inherited IRA is a ROTH, your heirs do not need to pay taxes on distributions, thus saving them taxes. I sure hope I have that correct, please correct me if I'm wrong!

[@RootFP]

Correct! Good caveat.

[@everlastingarms3065]

I just did a massive spreadsheet comparison which included indexing everything (tax brackets, social security, withdrawals, etc) for inflation. Everything starts in an IRA. In the 1st scenario, the spreadsheet takes out what is needed to live plus a healthy vig for the unexpected, and then the RMDs kick in at age 75, though the RMDs don't outspend me until age 80. In the 2nd scenario, the spreadsheet moves everything between what was taken out & the end of the 12% tax bracket (which jumps to 22%) into a Roth. The Roth remains untouched. FYI, each scenario assumes starting age 60, start taking SS at age 62, spouse gets spousal benefit starting at age 67. Assumed average of 6% returns. (One can quibble about any of these, but these are my situation.) What shocked me is that even though the RMDs kick in at 75: 1. The total tax paid break-even point doesn't happen until age 87.5. Wow. 2. In the first scenario, RMDs go into the 22% tax bracket starting at age 83 & continue until 98. 3. In the 2nd scenario, RMDs go into the 22% bracket starting at age 89 until 98. 4. The total taken out in the 2nd scenario was actually significantly less, primarily because RMDs were lower, even though more was taken out in early years for the Roth conversion.... But the total leftover at the end counteracts that by about the same amount. So the growth made up for the lost taxes early on. 5. At age 90, the difference in taxes was nominal, about $17,500. 6. At age 100, the difference in taxes turned out to be about $84,000. Factor in that those $$ in the late years twenty years from now will have a lot less buying power than $$ can buy now, and this really appears to be a wash. By far, most of the tax cost comes after age 90. The tax cost is significantly more at higher rates of return (7-8%), far less at lower rates of return (5%), but still doesn't kick the RMDs until late 70s, though that's a small problem. If I'm getting 7-8% up until that point, I'm essentially set for life. I'm rethinking the Roth conversion strategy altogether now, gonna run some more numbers. (FYI, changing the inflation rate doesn't change anything, because the numbers are all relative.) Yes, I could lose a lot in taxes way late in life if I make 8% & live that long, God willing. But those would be good "problems" to have. Anyway, I realize this was only one very specific situation, but it was an excellent math exercise for me. Thank you James for getting me to think about this, and solve for it. That's what makes videos & info like this so valuable.

[@gehartman]

Have you also considered this scenario. Take the money that would be used to pay the taxes on the conversion, and invest that in long term etf fund voo, it will grow to more than enough to offset the taxes paid on the RMD,s plus enough to cover the taxes paid on this invested money when withdrawn to pay the taxes on the rmd,s. In my analysis, the only way it makes sense to convert is if you live to 110 or more, or you want to leave tax free money to someone.

[@Ldlax40]

Love the clear examples and scenarios you use to illustrate your presentations

[@ralphwallace2223]

Four good reasons. A 5th good reason is you are continuing to work in a high compensation profession past age 65. I have worked 6 years past my normal retirement age and I want that money staying put. Then I’ll look at utilizing qualified contributions after age 73 as we have no heirs except for our legacy aimed to be given to a charity we believe in.

[@桜花-o5u]

Great explanation when the wealth service recommends me to convert the whole 401K to Roth IRA under their management when I have the highest tax bracket. Thank you so much!

[@john_nip_nop]

Another reason to decide against a conversion - the 5-year rule. If you may need to withdraw Roth conversion and Roth earnings before 5 years, you could run into tax (again) and penalty on the conversion money when withdrawn. You can withdraw contributions you made from after-tax earnings at any time, but the conversions need to simmer for 5 years.

[@WallaceDunn]

I would recommend in that second example of taking the balance of $12,000 from your traditional account and preserving the balance of your Roth account.

[@Kimmer]

If the market is perceived at being very high, then Roth conversions are not as beneficial as when the market is low. This could be another factor in deciding timing of Roth conversions.

[@madras61]

The best simple to understand video on Roth conversion

[@laenvirolatina4763]

Thank you for your informative videos. Qualified charitable contributions seem like yet another reason billionaires make foundations…

[@chadbell1840]

One aspect you're missing leaning towards conversions -- if you're married filing jointly, when one spouse passes, the RMDs for the surviving spouse (now filing as a single filer) get very large and will push them into a higher bracket.

[@dianemckim9535]

I am concerned about the nonspousal inherited IRA law requirements that force one to withdraw and deplete the inherited IRA within 10 years. IMy siblings and I were not aware of this law and I bet many of your viewers do not know of this law and it can have a great tax impact on the beneficiary.

[@Jan-oi3du]

Excellent, Thank you for this, you are so easy to listen to, clear, calm, concise.

[@travispipkin2434]

James - Love your content. Appreciate the consistently thoughtful and well-communicated approach you take. And in particular I appreciate that you bring in considerations/strategies relative to charitable giving. It's disappointing to realize how few finance-related content creators do that.

[@EconMBAStudent]

First video I have seen of yours, very grateful for the clear explanations and examples. Just subscribed.

[@davidfolts5893]

Always the best from the best, James Conole.🎯🎯🎯

[@RootFP]

Thanks David!

[@edgaracevedo9658]

This was a great video! Can you touch more on legacy on another video? It's my understanding that when you pass away and the 401K balance goes to your estate heirs etc, they are required to withdraw the money within 10 years. My Financial Advisor felt that if I move some to a Roth IRA then my beneficiaries would inherit some tax free money. Except, I did some deep thinking which is when it comes time for me to withdraw from 401k in the future, I would probably take it from the Roth to remain in lower tax bracket so back to square one.

[@philshelleyruch1033]

Reason 5: If you plan on leaving your estate at death to charity. A mix of brokerage, IRA, and Roth, in a proportion that leaves little to none in the ROTH at death ( always a moving target).

[@dianeturner9503]

I currently enjoy a $0/month health insurance premium for my ACA policy. I'm only 62 so not yet eligible for Medicare. I receive a modest pension which covers all current expenses, and I own my home. I have $1M+ in my IRA and originally planned to do Roth conversions from ages 62-67 when I plan to start SS, until I realized that the extra income would make me ineligible for my ACA subsidies (about $11,000/year). Feel like I am between a rock and a hard place.

[@jebhorton1830]

I'm in a similar situation, living off my brokerage account and a $600/month pension. I'm doing Roth conversions each year up to the max taxable income to keep the subsidies. Is your pension taxable, and have you looked closely at income requirements for subsidies? There are other ways to reduce MAGI, as well. I'm making a maximum contribution to my HSA and using the HSA to cover deductibles and copays. This reduces taxable income, and I make an additional conversion for the amount of the HSA contribution. Altogether, it's still not as much as I'd like to convert, but losing the subsidies would totally swamp any tax gains.

[@dianeturner9503]

@@jebhorton1830 I also have an HSA which I max out with after tax money to reduce taxable income. I'm using the HSA strictly for tax-free savings and growth. I cash flow my limited medical expenses. My pension is taxable income. I don't even have enough deductions to itemize anymore. I just filed my federal taxes and had to repay $83 of my subsidy due to higher interest earned on my savings. A good problem to have, I guess.

[@jpturner171]

Excellent presentation James!👍🏽👏🏽👏🏽 Thank you!

[@RootFP]

Glad you liked it!

[@cabojacks5106]

So if one is required to pull out more than they need because of the RMD, then why not use the excess to put it into a Roth IRA?

[@topliner9534]

I'm 72. The reason I don't want to do a Roth conversion is that it forces me to pay taxes on the account NOW rather than deferring the taxes as long as possible (maybe even never, if I die), and those deferred taxes will continue to earn money as long as they are deferred.

[@p56900]

Thanks for what you do, great videos...would love to see video that explains how bucket strategy and 60/40 portfolio should be used together

[@eikoGoldstein]

Clarification: The QCD allows a maximium deduction/IRA account. And a husband and wife, filing jointly, cannot each make a deduction from one account, ie 100K X 2. Each would need to make the 100k QCD from his/her respective IRA, a rather powerful deduction and a problem I wish I had. This was a confusing statement @10:38.

[@burlingtonillinois688]

I now enjoy no bookwork…doing all etrading in my Roth Ira. I did not consider that years ago!!!

[@Erginartesia]

I have been planning for 5 years around the notion that I will have RMDs starting at 70 1/2 .. aka this year (2023) … but since congress keeps pushing back RMD age .. I have been thinking “Great! Now I can do a Roth conversion” BUT .. after a financial scare, I started to prioritize paying off my mortgage, and instead dropping my annual budget. So NOW I’m thinking … maybe I should just stick to the original plan, take out the 401k $ this year ANYWAY, and pay off my mortgage by 2025, essentially in 3 big payments. NOW I can take that mortgage payment and instead, put it into a brokerage account. I am thinking this is a safety hedge? Any thoughts on this? Basically it would only be 5% of my 401k each year. I’m expecting taxes to go up in 2026 so now is a better time to withdraw?

[@stevenlanier2422]

Would LOVE to see a video that deals with inherited IRAs, and how that affects current non-inherited accounts [IRAs, Taxable, and Roths] - how should we invest in light of future large IRA inheritances? Not a video about taking them in 10 years, etc. but rather how a future inheritance should affect the non-inherited accts [how can they be best invested, withdrawal strategies/orders, how to invest that inherited IRA, knowing the ten year clock is ticking, etc.]

[@brianchapman4051]

My situation with my spouse may be unique, we retired early 56 and 62 (2 years ago), we got an inheritance (non taxable event). We were going to do some Roth conversions but we discovered that we qualified for free medical due to our income being so low. We are now supplementing with one spouse doing early Social Security and some rental income. My point of the planning is considering medical costs in your planning, in our case we are able to conserve our capital for longer by not having an outlay for medical expenses.

[@johnscott2746]

My wife and I are retired and neither of us is old enough for Medicare. Actually my wife is 11 years younger than I am. We got a policy through the ACA and due to our income it was completely subsidized. I have quite a bit in a Roth IRA and we use it for emergencies for now. That way we don’t go over the income that we projected and lose our subsidy. Good thing we have it too! Between car repairs and a leaking roof, we have already spent over 10 grand from the Roth this year in addition to the projected income we took from my traditional Ira. That in itself is a good reason for a Roth. Find the right income level to get a good policy and take that much from a taxable source. Then supplement it with the Roth and you are in good shape.

[@chrisstrickland4433]

Could you do a video on what to do with a 401k that is 80% pretax and 20% post tax.

[@tcc447]

Wow thank you...I didn't realize the QCD is now indexed to inflation starting in 2024! 2024 QCD max jumps to $105,000.

[@KayakFishingAddict]

Additional reasons not to do a Roth conversion: 5. you can't pay the tax for the conversion from current after tax accounts; in other words don't use monies being converted to pay those taxes, ideally you convert shares and don't sell and transfer; 6. if you have taken ACA health care premium credits and you can't afford to pay back the amount that the additional income from the conversion will wipe out.

[@dforrest4503]

I’m lucky that I only have about 15% of my assets in a conventional 457 plan, with the rest in Roth and a taxable brokerage account. I plan on taking distributions from the 457 starting at 59.5 if I need to supplement my income, and if I don’t need it as income I’ll use that for Roth conversions if I’m still in the 12% rate, but not if it pulls me into the 22 % rate.

[@burlingtonillinois688]

Something one of my CPAs did not tell me, but the other one did just to be clear for everyone I’m in the 12% tax bracket and I thought everything would be taxed at the next bracket if I went over but actually your taxed up to the 12% level and then anything over goes to the next level. That was never clear to me, until it was explained by the second CPA .

[@JT_70]

You described my situation almost exactly in reason #2. I’m 71 and paid 0 taxes last year (poor planning, huh). I expect tax brackets to increase, perhaps significantly, in the future to pay for Congress’ spending and giveaways. I am taking advantage of QCDs. I have been considering funding a Roth this year but don’t want to push myself into an upper bracket or to drain by after-tax funds to pay the tax on the conversion. Recommendations??? Does the Roth 5-year withdrawal rule apply to Roths opened after age 70-1/2?

[@jameswitte5676]

I’m doing Roth conversions now. When I researched I don’t recall any exceptions for age. I would suggest that you estimate this year taxes to see what bracket you’re in and converting an amount that keeps you in that bracket. Or do a smaller amount if you’re worried about the 5 year rule. If you’re leaving it to your children they will appreciate it.

[@chemquests]

I intend to do conversions to maximize flexibility. I can’t predict which scenario I’ll be dealing with in the future and avoiding RMDs means not being required to do anything. I’d rather spend my planning calories on how to create a circumstance to minimize the taxes while I’m doing conversions. Fortunately I have 12 years before it’s feasible to do anything without the penalty.

[@normt430]

I know! I hate having to wait to Roth conv at 59 1/2 while we are in paying single digits taxes!

[@richardo6357]

My issue with the Roth conversations is the future growth of the principal. If I convert $100k and pay 32% Federal and State taxes my principal is now $68K. How long will it take to make up the taxes I payed to become even again and then future gains. Understanding I have to pay taxes on my 401k anyway I rather have MORE money working for me now. The huge swings in the market for 20 years wont stop and I would rather have the larger base working is all situations. The more money you make the more taxes you pay, I don’t see anything wrong with that. Not saying I won’t look into Roth conversions, I do like the no taxes on capital gain side of it.

[@BW-kv9wj]

I also like the 401K because of the tax deferral. But here’s the problem when it grows very high in value. It’s not unheard of to have a several million dollar balance when it’s time to take mandatory distributions at age 72. Those distributions will be enormous and will bump you into the highest tax brackets. If you can avoid that with a Roth conversion than it’s something to consider.

[@kannermw]

You have no idea what taxes will be in future. A huge money grab is about to happen. You can see it by the tone of the political puffery and actions like Biden's student debt write-offs. I can virtually guarantee the progressive socialist democrats will dramatically increase taxes on those who have most retirement savings. Those that have planned for their future will be forced to pay the price for being responsible just to subsidize the irresponsible. In particular Demonrats will start taxing capital gains from 401K at a lower income threshold and higher rate. Those capital gains are taxed initially at 15% but what if that becomes 30%? Best time to perform Roth conversion is in a down market. That way you can convert a higher percentage of investments for the same tax liabilty into Roth. Then have complete tax free rebound of capital gains in the future.

[@Kel1Tan2]

@@BW-kv9wj Good points. I guess it all depends on time frames and tax brackets. Also, it would seem preferable to NOT use any funds being transferred from an IRA to a Roth to pay federal/state taxes. To get the maximum benefit from a conversion using the example above, the entire $100K should go into a Roth account rather than just $68K. That means that ideally one should already have sufficient funds available to cover the $32K tax bill. (Ouch!) But the principal in the Roth would thus be $100K (rather than $68K), all of which would continue to grow tax free without the requirement for RMDs and no taxes on future withdrawals. (Yay!) Depending on market vagaries and how the Roth funds are invested, a moderately conservative break even point might be something like five years, so a Roth conversion is really a longer term play. Another key point to weigh is the benefit it provides for a surviving spouse who otherwise might end up in a much hire tax bracket due to IRA RMDs. Lots to consider all around!

[@goldengriffon]

People put too much emphasis on avoiding a higher tax bracket. The real goal is to maximize after-tax dollars in your pocket, which might actually be achieved with higher tax brackets.

[@casa87blue]

Thank you for your analysis. I have a question regarding the cost and potential tax deductions for long term care. If someone has a large RMD distribution with 180k AGI but is paying 100k per year for long term care wouldn't their tax liability be reduced by 82k (LTC expense over 10% of AGI)? Would this be a valid consideration in not doing Traditional/Roth IRA conversions when considering the expense of LTC and its tax deduction affect on their marginal tax rate?

[@burlingtonillinois688]

Also please comment…we have great long term care jnsurance….can that affect anythjng? Do they pay caregiver firectly? Allianz prorated package Paid in one installment originally.

[@randolphh8005]

Nice presentation James. A slight twist on this video, would be when not to CONTRIBUTE to a pretax account, and instead contribute to a Roth or even a brokerage account. Other than to get a company match, I’m not seeing much benefit in contributing to 401k or pretax IRA if you can instead fund your Roth IRA in lower tax brackets. I See mostly “conversion” videos. It seems that most low to moderate wage earners would be better off going straight to the annual Roth IRA limits, especially with the current low tax rates.

[@dforrest4503]

For me it makes sense because that money is taxed at the 22 and 24% rates based on my current income, but if I withdraw it in retirement when my income is lower it will be taxed at the 12% rate. That’s a huge difference.

[@5metoo]

@@dforrest4503 - IF. Not everyone who think they'll be able to get that 12% will do so. Most especially those whose spouses pass away, since they'll have to withdraw at single filer rates.

[@normt430]

Safeguard Wealth Maganement said the difference in Traditional and Roth at 20-years with 6% interest is over $300,000 difference in grow for Traditional. All depends on your taxes and how much time you can let it grow.

[@normt430]

​@@dforrest4503with W2, LLC, and 1099 incomes we were taxed at 2.6% last year. Still paid more than Trump's $750.00 but getting closer to that low amount. My W2/1099 will drop off when I retire in a few years but wife's LLC will remain as long as she is cognitive. Even if tax brackets doubled would we be able to keep taxes low with SS and retirement and skirt IRMAA thresholds when RMD start on Traditional 401k? Or should we just start converting and pay for Roth at single digit taxes now?

[@coastalhillbilly3419]

My favorite charity is me and mine, nonetheless we all are forcefully giving to “charity” through multiple layers of taxation whether we want to or not

[@CheckThisOut77]

Clear and concise info. Very helpful.

[@RootFP]

Glad it was helpful!

[@SW-nq1bx]

Another aspect to consider is Traditional IRA is the Required Minimum Distribution whether you need/want it or not. With ROTH IRA, you do not have that. Outside entities forcing/choosing your financial decesions is never to your advantage.

[@karen4stars]

Taking money out of a roth doesnt count against the social security earnings limit and it is not taxed so it doesnt raise the percentage of tax taken on your social security you do make

[@myramoxley4334]

I'm 65 and am looking to open a Roth IRA for 7,500. I have an IRA and 401K. Is it too late to open a Roth IRA? What would be the upside aside from the tax savings

[@DennyMannavong]

I am more concern about fees pay to 403b manager vs self manage Roth IRA. I believed I paid almost $3K every year for my 403b manager whether I market ups or down.

[@PaulMarriott-p9v]

While I agree for the most part, for the 4th case of short life expectancy, you need to consider the effect of leaving a large traditional IRA to your beneficiaries. It may well be more beneficial to gradually transfer traditional IRA to Roth IRA, staying within the lower tax brackets (22%/24%). This not only moves funds to Roth IRA, but also reduces RMD liability or totally eliminate if you can do the conversion before age 73, . In that regard you may want to convert before 2026 unless you want to bet on the next government extending the current reduced tax brackets!

[@gieb6428]

How about addressing one spouse dies early and the other dies late

[@arisgod2749]

My issue with Roth conversions is the opportunity cost of that taxable money you need to give the government right now. Even if you are in a 10% you are giving 10% of your returns to the government right now instead of letting it grow for the next 15 years (I am 60 and retired and don't need my 401K money right now) Unless taxes skyrocket and I just don't see that happening, it almost a wash in the long run.

[@normt430]

In a similar boat but still working. We have two SS incomes and her PERS plus my retirement income. But my marriage to ger LLC business continues to keep us in single digit in taxes lowers are AGI to poverty levels. We not look at doing to much Roth conversions.

[@jameswitte5676]

If your investment return and taxes remain the same it makes no difference which way you do it. A x B = B x A. I would suggest converting some (just don’t push yourself into the next tax bracket) for 2 reasons. The Trump tax cuts expire in 2026 and I watched RMD’s push my mother into a higher tax bracket as she aged.

[@MicahsJourney...]

One reason not to do a Roth conversion: you don’t have the money available to pay the tax on the conversion, so you choose to use IRA dollars to pay the taxes. Bad idea.

[@zy5915]

If you consider the growth, which assumes at 8% annually, is also going to be taxed at income bracket, probably converting as soon as possible if you are young. am I right?

[@dwightwhite6738]

If you don't need the money from your IRA it is excess cash. You invest that money into a brokerage account income on both hands. sounds good to me

[@davidfunvideos]

@Root Financial It is my understanding that if you move money from your traditional IRA into a trust even a special needs trust your inheritance tax in 90% for any amount of $15,000. Although the trustee has 5 years to move the money over. so the amount is more like 75,000. But this does not happen if the money is in a Roth IRA. I would like to see a video about what happens to your IRA when you pass away.

[@igotstoknow2]

An income of $140k produces about $115k of post-tax income (depending on state taxes). That's a lot better than $80k pre-tax income!! So, don't worry about paying higher taxes!

[@rogermills2418]

i got laid off from work and thought i would put money in an ira since i couldn't put it in a 401k plan. once i put it in a traditional ira (since my salary and severance package put my wages too high to go straight into a roth ira), i then did the backdoor roth strategy by converting the ira money into a roth. i didn't even realize that when doing roth conversions, you have to look at all your ira accounts. i have a larger ira account that another financial planner manages that has money in it that hasn't been taxed. now, the money i converted (even though it was money that had already been taxed), i will have to pay taxes again on when i did that conversion. My financial planner is from one of those big companies that has different departments i could/should have consulted. when i talk to the person i normally do with this financial advisor company, they always tell me to talk to my cpa about tax issues like you mention in your other videos. my old financial planner was a smaller office that had cpa's, social security experts, etc.

[@SicilyJo]

Sounds like Fidelity. Could not get any guidance from them about a general strategy to minimize taxes - zip. Not sure what you mean when you say you’d have to pay taxes on money you already converted to Roth and paid taxes for that conversion.

[@johnscott2746]

You do NOT have to pay taxes twice on the same money. Get a knowledgeable tax advisor to help you.

[@ihaveadreamformykids4400]

When you do your income tax return, you have to enter the Traditional IRA contribution you have made for the previous year by doing so, it will deduct it from your taxable income.

[@jpdriver1967]

Question: What if you have a pre-tax retirement account that you never plan to use because your other income streams will cover all expenses through retirement? Thinking that it would be good to do small conversions each year between 60 and 67 before social security kicks in to stay below the next income ceiling in an attempt to get as much rolled to non-taxable as possible. When I pass, I would like my heirs to get the tax free inheritance instead of facing the tax burden. Love to hear your thoughts.

[@RootFP]

I would compare the taxes you’d pay on the conversion to the estimated taxes your heirs would pay when they inherited your accounts.

[@jameswitte5676]

At age 63 watch out for the Medicare IRMAA surcharge.

[@bethmcguinn8606]

Might I consider a Roth conversion when my taxes are low, and I plan an activity with a tax credit greater than my tax liability? I'll be getting those $$$ back with the tax credit.

[@SicilyJo]

You’re right, I am terrified because the RMD percentages just keep going up and up. To me, would I be right in thinking this is a compounding tax bite each year? Part of me just wants to bite the bullet, and withdraw as much as I can over a 3 year period. For instance, let’s say someone has a pre-tax portfolio of $1 million dollars and $1 MM in after tax accounts. Over a course of 3 years, take out $335,000 each year from pre-tax. Add in SS and/or pensions which mean income will likely be over )400K for 3 years. Or, maybe take out just enough to keep income under $400K. Tax liability will be big (unless doing a QCD), but the nightmare will be OVER WITH going forward and the money left will only continue to grow for years to come with no RMDs required and feeling free after suffering through this for 3 years. Thoughts?

[@johnscott2746]

I think the taxes would be too much doing it in 3 years. Also, if your income is too high you could trigger surcharges on your Medicare. If you drew it out over more years you would avoid the the surcharges and save taxes.

[@SicilyJo]

@@johnscott2746 Thank you for taking the time to reply. I have to figure out the likely reality of the tax consequences in the coming years and maybe that will help me stop hyperventilating about this😂. I have reached out to and met with a recommended CPA about this a month ago, but haven’t heard anything back yet given his other priorities. Hopefully, I will soon. Thanks, again.

[@normt430]

​@@SicilyJoCPA's are not financial planners and don't usually give tax advice. Usual examples of Roth con reasons are $100,000 or less. It is basically filling the rest of the current tax bracket. Allot depends on what tax bracket you are currently in and what bracket you will be later on. If not change then no need to convert and just let tax differed grow.

[@denniskirschbaum9109]

Two other reasons you may not want to do a Roth conversion. 1. If you are under age 65 and getting a subsidized health plan from the ACA and doing a conversion would reduce your subsidy and 2. If you are on Medicare and doing a conversion would push you over the IRMMA limit.

[@jamesmayiii8137]

Do States like FLA's Retirement Tax Regulations come into play?

[@jamesmorris913]

I could be wrong..but doesn't Roth-conversion make less and less sense, as the RMD age keeps moving up?? I'm 59..living just fine on a pension..and with the recent increase in RMD ages, I won't even be thinking about it, for at another 16 yrs...and, WHO KNOWS what other changes to RMD age could be made between now, and then!

[@MichaelToub]

Great Video!

[@cardp17]

it would be nice if someone spoke to converting the taxable portion of a solo 401k Roth to a roth ira. can it be rolled into the roth portion of the 401k?

[@babusrinivasan3207]

I don't think your conclusion -- that if RMDs are not an issue, then it might not make sense to do ROTH conversions --- is correct. At age 65, filing MFJ, if you have 1 million in IRA and your social security is equal to your standard deduction and you need another 40K for expenses, RMDs wont be an issue as you are already taking the equivalent of RMD from the IRA. Your taxable income is 40K but if the first 93K are taxed at under 12%, then you can take advantage of that by taking 93K from IRA and putting 53K in ROTH. The whole idea of IRA is to put money into it when your tax rate is high and take it out when it is low. Comments?

[@skepticalmechanic]

Figures you got no comment… you have to pay to get that 😅

[@blanketwodahs6741]

I agree with your conclusion. If you will "always" be in the 12% bracket, in theory it doesn't matter whether you pay it for income or to convert. However, it could be argued that the 12% tax cost you are paying to take more out than you need for a conversion could have been left in your pretax account for more gains. But on the positive, having more roth money available could be an advantage in the future. Could end up just a personal choice or a choice you make year to year based on conditions.

[@user-cd9ui4qv4q]

Consider the Infinite Banking Concept as an alternative to Markets. Just a thought.

[@danitzm]

If you are under 65 and are getting ACA subsidies it probably doesn’t make sense to do a Roth conversion.

[@larryfenske1868]

There was mention that RMDs take the money out of your portfolio. The only money that has to come out is the taxes on that RMD. You're going to have to pay taxes on it eventually anyway, now or later. Invest the rest in a regular brokerage account and it's still in your portfolio, just no longer tax-advantaged.

[@mathew3267]

If you don't need all the RMD can't you put some it back into a roth or another account and try to make some of the taxes back?

[@carolmorrison7725]

Always great content. Thank you

[@gingerkilkus]

With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.

[@Discovery123.]

How much maximum do they let Roth conversion ?

[@marie-louiseleroux828]

It is better to invest now,. You will never be younger than you are today and there will never be a perfect time to invest. Due to compounding, which Einstein called the 8th wonder of the world, you can get rich slowly from investing if you do it from a young enough age..

[@ctzerbe1]

Another reason not to convert. We are retired, but less than 65. If we keep our qualifying income below the ACA limits the subsidy essentially pays for our health insurance. The Roth conversion counts against this, so it would cost around $20,000 if the conversion bumped us above the ACA subsidy limits.

[@jackpalczynski7884]

Something I didn't hear covered was income vs Medicare IRMAA, which I am focused on. People who super save, don't take social security until 70 and start getting RMDs can hit the IRMAA extra charges. This in combination with the upcoming 2026 tax reversion to higher rates means that people in this boat (like my wife and me) would be kicking ourselves for not having Roth converted at least to the IRMAA limit. I will point out that you have to be very careful with this because interest and taxable account dividends add to income and going $1 over means big Medicare cost increases. And yes, when the wife and I are taking RMDs, with no other income, we'll be well over the IRMAA limits so we're doing conversions now in the tax brackets before the 2026 increases and before we get to RMD land.

[@Rancanfish]

I have an upcoming 401K split happening with a soon to be ex and the IRMAA thing scares me most about it. I survive currently on SS and selling our house cost me big w/ IRMAA. I guess even us low income peeps need to hire a CFP.

[@pmstirling]

A couple of things I noticed! You used mortgage payments as an example of needing more income. True, but mortgage payments are tax deductible, so surely wouldn't push up your tax bracket? Secondly, it matters how you pay the taxes on the Roth conversion. If you don't have enough outside IRAs, you'll have to use part of the conversion money for taxes, creating a possibly severe "headwind" on the Roth conversion growth.

[@nealjohnson6369]

thanks so much! Very well explained.

[@RootFP]

You're very welcome!

[@billobrian2249]

A fifth reason, which applies to me, is if you plan to retire outside the United States in a country that does not recognise Roth accounts as tax free. Most countries do not treat Roth withdrawals as tax free. An increasingly large number of Americans are retiring abroad for many reasons, including much better and cheaper health care, fewer guns and less violence and other crime, slower pace of life and less political strife.

[@Davefederer]

That's my position, plus my spouse is much younger than I am and will continue working while I am retired, allowing us to withdraw just a little from tax deferred (which we don't have a lot), and all at lower tax brackets as compared to know at 22%. Maybe that's 5 1/2 reasons?

[@margaretzhang1107]

Very good information . Thank you

[@RootFP]

You’re welcome

[@deerhunterthom5458]

Does the QCD count as the RMD?

[@CC-lb1yu]

I’m currently single 64 yr old and in the 32% federal tax bracket. I plan on retiring Sept 24. Wouldn’t it make sense to initiate some level of Roth conversions, from my 401, in 2025 when my tax bracket is lowered as I plan on waiting to take SS when I’m 67-70 and I can also stall my Pension for 1 year

[@jdgolf499]

All good reasons, however, you also want to understand tax consquences of your beneficiaries if you plan to leave money to someone. Taxes on pretax money is more complicated, and could be higher for the beneficiary. It might be worth paying a little higher taxes doing a roth, than leaving rhe tax problem to the beneficiaries. Just consider that when saying no for those four reasons.

[@ruthmo8912]

After making the contribution of my choice from an IRA account, can I still get the standard deduction?

[@alrocky]

yes

[@bruceanderson8179]

We started conversions up to bracket creep at age 65 when we began retirement income streams and Medicare. Why? Well when RMDs start in a couple of years it's going to push us into the next marginal tax bracket. Right now that would be a 22% marginal rate but if TCJA sunsets it could then be a 25% marginal rate. I don't know about y'all, but I don't want to pay any more taxes than I have to. We'll have around $300k converted by the time RMDs start. This means we'll have paid taxes at a 12% marginal rate on our conversion whereas a larger RMD would take us tens of thousands of dollars deeper into the 22% marginal rate. By the way, we delayed conversions until Medicare kicked in as we took advantage of ACA provisions for health insurance.

[@your_royal_highness]

One big reason to move money out of an IRA is if you care about leaving a legacy. Kids and grandkids will be paying a lot more in taxes in the not too distant future and as Ed Slott (the IRA guru) would say, leaving a tax free legacy is far better, especially with recent changes to how non-spousal distributions are made. Heck, Ed has done “deathbed” Roth conversions. No kids? Probably ok to let things lie. Or, if your income (and income needs) will substantially drop in retirement.

[@breyrey7612]

Wouldn't it be a safe assumption that they were planning to use charity for tax deductions? If QCD's are not taxed, that means you cant claim it as deduction for charity anymore. There does not appear to be an advantage either way in tax savings. If all things equal, would rather convert to have the flexibility of doing what I want with the money it instead of having donate option only.

[@philiptornelli3477]

I’m not sure why you left out inheritance of IRAs. And inheriting child might already be in a high tax bracket, and now has to take withdrawals at an accelerated rate, pushing much of that withdrawal into close to the highest tax bracket. So if I person anticipates a significant portion of their IRA going toinheritance when the people receiving it are in high tax brackets that’s another reason to convert to Roth now

[@heidikamrath1951]

That’s certainly a reason to convert to Roth. But the video was about when NOT to convert to Roth.

[@viadharmawheel]

Regarding giving, gifting directly from a pre-tax IRA is a no brainer.

[@aj5434]

--many people on youtube who push roth conversions, leave out the "5-year rule" ... after you convert a traditional IRA to a Roth IRA, you have to wait 5 years before you can withdraw without a penalty? I think. something to consider, or factor in yr decision.

[@TheTruthSeeker756]

I’m confused on the direct to charity RMD loophole you mentioned. I give a couple of thousand through Charity Navigator every year where you pick a bunch of charities and they distribute the funds. But I pay with a credit card. You’re saying the funds would have to go directly to Charity Navigator?

[@jameswitte5676]

Yes. The money goes directly from your IRA to the Charity. They get 100% and you pay no taxes. Using your credit card the charity loses about 3% due to credit card fees.

[@timtoolman9940]

RMD gets larger over time. It might be 80k in the beginning but 250k later. RMD money cannot go into a Roth. I'm paying 24% FED 6% State doing Roth conversions. It's a gamble it will grow tax free much more than the increased tax I'm paying now in a few years. I pay the tax out of income to maximize the Roth conversion. I will never be in a lower tax bracket either.

[@marlenebyard5259]

In MD RMD get taxed 4.75% and local tax is 3.2%. This is on top of federal taxes. Is this a reason not to do a Roth conversion? Could you give an example of a 50K RMD that has been taxed so I can see what a taxed RMD looks like at the 22% tax bracket.. Do Federal taxes include deductions for SS and Medicare? Does it make sense to decimate cash reserves to pay for the conversions?

[@dforrest4503]

I’d never thought about SS and Medicare on that. I assumed those didn’t apply, but I’m not sure. Does anyone else know?

[@gehartman]

James, you state that it makes sense to convert is your in a 10% bracket and if you don’t convert you’ll be in a 22% bracket. I disagree. If you take the money that you would have used to pay taxes on the conversion, and instead invest it in a long term ETF like VOO, after 10, 15, 20 years you'll have more than enough in that account funded with what would have been used to pay taxes at 10% to pay not only for the taxes on the original IRA at a now 22% rate but also to cover the taxes needed to pay for the money pulled from that account that was invested instead of paying taxes for a conversion.

[@signingangelclown]

I am wondering if you have future properties you plan to sell (a real estate property that was inherited) the income will raise your tax bracket. So then a conversion would not make sense? right?

[@Blublod]

If the capital gains on the future sale of those properties is significant enough to launch you into higher tax brackets, then yes, you would be correct that Roth conversions at that time would not make sense.

[@jameswitte5676]

Consult an accountant on this one. As long as you hold the asset for over a year it will be a long term capital gain and taxed at 0/15/20%. Capital gains tax is not supposed to push your other income into a higher tax bracket.

[@Jack51971]

I am going to give all my wealth to St. Jude's Hospital and I will go live in a cave up on the Musshelshell like Hatchet Jack in the movie!😊. Seriously? I thought a ROTH account (Sen. William Roth R-NH) is after tax contributions and all withdrawls are tax free both contributions and gains? I have a company 401K with both Roth and non Roth contributions and gains...I have no clue what percentage is what? It seems to me that if retirement is years away not to do a ROTH conversion is unwise. I dunno...James gives me a headache...😊

[@nobodyreally8441]

I’m right there with you!

[@krishnadevulapalli315]

The 5 th reason being if you don’t have enough money from savings or brokerage accounts for conversion.

[@florabamabear2058]

Let’s just give away all the compounding we worked decades for! Just give it away, isn’t that awesome????