5 Reasons to Roth Convert If You Have A Pension [Joe Knows Retirement, Episode 56]

[@konbonwa]

I have a pension, I'm over 60 and I've been doing a series of Roth conversions. Additional reasons for me to do Roth conversions besides what's mentioned in the video are that future RMDs will disqualify me from an 80% elder county property tax reduction on my home since forced RMDs will increase my income later in retirement. In addition, forced RMDs would cause me to lose a large elder electricity bill reduction and an elder water and waste water subsidy. Finally, Roth conversions give me the flexibility to pay for large expenses (like a new car or home upgrades) out of my non taxable Roth IRA without pulling funds out of my traditional IRA and thereby inflating my retirement taxable income to the point where I lose my elder subsidies.

[@peakretirementplanninginc.]

Thank you for sharing this! These are all very good things to consider as you plan your retirement. Forecasting your tax and income situation to the best extent possible helps to determine how much action we need to take today in order to avoid penalties, higher taxes, or in your case, lost subsidies later on.

[@kerrybyers257]

Thank you for addressing this segment of the retirement population. I’ve had to try to figure this out myself over the past 10 years. I had it all tweaked until my father bequeathed an unexpected mini-fortune that has me scrambling to figure where to put it. Very humbled, grateful to have such a problem.

[@peakretirementplanninginc.]

Thanks for watching, Kerry! It is our pleasure and goal to serve and educate. Don't forget to subscribe to see more content just like this!

[@bigtoeknee11]

Good info my plan is to do Roth Conv. up to 12% soon to be 15% bracket from 55 to 67 then start SS. I should have at least half or more of my 401k converted by then. As a side note there are certain advantages to leaving some money in your 401k.

[@peakretirementplanninginc.]

Thanks for watching! It sounds like you have a structured conversion plan. You are correct in the fact that leaving some funds in your 401k is to ones advantage for situations such as the "Rule of 55". Don't forget to subscribe to see more content just like this!

[@minhjan7477]

Thank you very much for your time and effort to make these videos. I have learned lots valuable information from your channel.

[@dtovar2]

Thank you. This was a great video! I've been doing exactly what you mentioned in your video. It's been hard work but I know it will pay off in my retirement years. Thanks again.

[@peakretirementplanninginc.]

Thanks for watching! So glad to hear that you have been implementing these strategies successfully. It is oftentimes the case to sacrifice in the short term for long-term benefit. Don't forget to subscribe to see more content just like this!

[@reebeeable]

Exactly. I started my Roth conversions at age 63 and hope to be mostly converted by age 70 when I will start social security. The pension is high enough that that 85% of my social security will be taxable. I am also mindful that I will someday be a widow and in a higher bracket with a smaller standard deduction. In Minnesota the situation is even more complex because property tax refunds are income based so a Roth conversion reduces my rebate. I wish I’d realized this earlier.

[@peakretirementplanninginc.]

Thanks for watching! It sounds like you have a sound grasp on a few of the factors that may be affected by doing Roth conversion. The art of it is to find if even amidst those factors if the Roth conversion still makes financial sense. Keep it up and don't forget to subscribe to see more content just like this!

[@tedlaurvik3765]

I did two conversions ahead of starting medicare. This did increase my IRMAA amount. Fortunately this will eventually go away after I stop making conversions.

[@peakretirementplanninginc.]

Thanks for watching, Ted! You are right that IRMAA increases are dependent on income two years in arrears so once the income goes down the increased IRMAA premiums would hypothetically go down as well.

[@camela8445Mar]

Great video, With a Roth conversion, you pay taxes now, but your withdrawals are tax-free later. If the market dips, you could convert at a lower rate. However, if you don’t plan well, it might push you into a higher tax bracket and impact your overall savings.

[@V.stones]

Absolutely, converting to a Roth can be beneficial especially with the potential for higher taxes in the future. It could safeguard your retirement funds, but it's crucial to strategize correctly.

[@V.stones]

The current economic climate with rising inflation and interest rates makes it even more important to consider this option carefully.

[@Jonesmatsunaga]

I’ve been reading that having a pension can complicate Roth conversions because of Required Minimum Distributions (RMDs). Has anyone dealt with this? How did it affect your planning?

[@V.stones]

Yes, I went through this. Balancing my pension and Roth conversion was tricky. The RMDs from my pension could bump me into a higher tax bracket, so I had to be strategic about the timing and amount of my conversions to manage my tax liability effectively.

[@MONROEJACQ]

If not managed properly, a Roth conversion with a pension can indeed disrupt your financial planning. It's essential to look at your entire portfolio and future income streams

[@teraengsf]

So helpful. Thank you. I am one of those fortunate to have a very rich pension. I am 53 and would like to retire early at 56-58 years old. I’ll keep watching to plan well. Just subscribed.

[@peakretirementplanninginc.]

Thanks for watching and subscribing! Glad to hear that you are going to have a great pension in retirement!

[@jpdriver1967]

I have been contemplating doing some conversions. Going to do 2 conversions before 2026 when taxes have the potential to revert back to pre 2017 rates. Will not get it all done in those 2 conversions, but it is a start. For me it comes down to the widow tax and the potential tax bomb to my heirs.

[@gracechen7615]

I will have pension, but I’m not sure we are allowed to take out the pension until the day you retire.

[@calr4459]

Based on my experience, I wished I had a Roth once the mandatory RMDs started at 70 1/2. The RMDs hurt more during the frequent market down turns.

[@peakretirementplanninginc.]

Thanks for watching! The good news is that typically even after RMD age it is not too late, there still can be room to do Roth conversions.

[@patrickchappell5821]

Very affirming. I have a pension (already drawing throughout my 50s while I work 2nd career)....and we'll have about a million in 401-k at 60. We plan to not take SS until we convert that to Roths

[@scrapinmaniac]

I am figuring this out. I have a low 6 figure pension plus still working and I traditional 401k so I am working on how to do this. I am 58. My strategy is going to be converting my traditional 401k to Roth. I don’t need my 401k to live.

[@peakretirementplanninginc.]

Thanks for watching! This is a dilemma we see often in the families we serve, what to do with the investment funds now knowing when RMD time comes it will be income not needed. Great thought in getting started on the conversions but make sure to consult a professional as to not Roth convert too little or too much. Don't forget to subscribe to see more content just like this!

[@rodneylw10]

You are correct in that each person's situation is different. I have a pension and soc sec.(soon to come). I retired last week. My planner and I used calculator on my 403b deferred monies and it showed that my RMDs would start at 75 and the highest minimum is $19,800K a year. I am going to be in the same tax bracket always, even with the added $19K. What I did find out is that taxes will go up and that I will be out about $4K more (estimated) but the calculator showed a savings of just over $300 if I converted. I can only assume that it has to do with paying all the tax up front. Reading over the posts, I too would not know what to do with inheritance monies other than perhaps convert them all into a Roth account.

[@peakretirementplanninginc.]

Thank you for sharing, and congratulations on your retirement! One thing that we always say is that the tax code is written in pencil; we know where rates are today, but where are they going in the future? That is the question we have to consider when determining if Roth conversions are advantageous. We know that if the Tax Cuts and Jobs Act sunsets in 2026 that tax rates will rise, but we have to consider where they could go from there.

[@rayanderson3164]

Its beyond sad that those who saved so much get screwed later in life. RMD's shouldn't count against you in terms of additional penalties for income. I understand needing to pay taxes on money that was not taxed, that is only fair but to then turn around and decide everything else you do is charged more because you bothered to save any money during your working years is literally punishing saves who's only ever forwarded the economy for years.

[@peakretirementplanninginc.]

Thanks for watching! It is an unfortunately reality for all who are effected. Good thing is that there are opportunities now to optimize your situation even if you are taking your RMD.

[@rayanderson3164]

@@peakretirementplanninginc. Yes sir. It has compelled us to pursue an aggressive plan post-retirement, next spring, to convert to Roth as much as possible between 55 and 63 before IRMAA lookbacks kick in.

[@BW-kv9wj]

I have a state pension for life and I’m working full time in my retirement and paying into Social Security now. I read that if I get a pension, I lose my Social Security if I have a pension, The Windfall Act. Is this entirely true???

[@MrSteeDoo]

The Windfall act only applies if you weren't contributing to SS along with your pension.

[@peakretirementplanninginc.]

Thanks for watching! Great question. To qualify for Social Security you will need 10 years (40 quarters) of work to qualify. Depending on your situation the Windfall Elimination Provision will reduce your Social Security benefit if you qualify for Social Security. We hope this helps!

[@rodrigok1220]

Do you recommend taking a lesser amount on pension for survivor benefits? Just curious if it’s worth it because if you don’t, that could possibly be another financial hit.

[@peakretirementplanninginc.]

Thanks for watching! It's hard to say yes or no without knowing the full scope of your situation. It can go either way depending on the circumstances.

[@johnd9279]

@@peakretirementplanninginc. We each passed on the survivor benefit to have more pension for early retirement. It allowed us to let retirement accounts grow, and they have, but now getting enough Roth conversion done is an issue

[@jeffhaney2827]

Thank you for the great information.

[@peakretirementplanninginc.]

Thank you for watching, Jeff! It is our pleasure. Please subscribe to see more content just like this!

[@Kevinw4040]

I’m still working while contributing to 457 retirement acct. I’ll retire with pension about 1800$ a month. Do I have to retire first before I can begin converting those funds to a Roth?

[@peakretirementplanninginc.]

Thanks for watching, Kevin! Great question, you do not have to retire to take advantage of Roth conversions, in fact many of the families we serve are still working to some extent and doing Roth conversions. Don't forget to like and subscribe to see more content just like this!

[@tedlaurvik3765]

great topic....

[@mlee1308]

Just converted $5.7 million in pretax 401 k to Roth. All in one shot. 59.5 and just retired. Best thing I did. I also have $700 k in inherited Ira I must deplete in 7 years. Goal was no rmd and kids inherited tax free. My issue is estate tax. Net worth. $9-10 million. Right now. In 20-30 years it will be huge. Starting to gift to the kids. But doesn’t move the needle. I’m 100% in nvidia stock now. Aggressive investor. Now I need to think about estate tax and avoiding it if possible.

[@dq7143]

You have options to significantly reduce your estate taxes. Start by searching on KZbin, trusts and consult a CPA that understands investments.

[@arturbukatar4532]

How much did it cost you in taxes to convert $5.7 million at once?

[@mlee1308]

@@arturbukatar4532 2.6 million in fed and state. In my case, I think this is small considering I will be converting every year and still not being down the pre tax amount. And mainly my children. In 20-30 pot will grow so big, the kids will have a huge amount in pre tax . So to me. 2.6 is nothing. Plus my rmd taxes. Irma.

[@arturbukatar4532]

@@mlee1308 thanks for sharing, thats impressive.

[@peakretirementplanninginc.]

It sounds like you are in a great financial situation going into retirement. Our encouragement would be to seek out a trusted financial professional as well as a trusted estate planning attorney to assist in the planning process.

[@chesshead3943]

Widows penalty - may increase Medicare costs also - IRMAA

[@peakretirementplanninginc.]

You are correct that going from joint to single filing brackets the IRMAA tiers are split in half just as the brackets are, almost like a double widows penalty.

[@frankramirez3345]

I retired at 55 and I started collecting my pension. I have been retired now for 6 years. I also have a 457b. Should I or can I convert my 457b to a Roth or a Roth IRA. I was told that I can’t open a Roth IRA if I’m not employed Please advise. I want to leave it to my 3 kids when I leave this earth

[@larryjones9773]

You can open a Roth IRA if you are retired, after which you can convert from your 457B, to your Roth. You can't 'contribute' to your Roth without earned income, however.

[@peakretirementplanninginc.]

Thanks for watching! Frank, Larry has put it well in that you have the ability to open up a Roth IRA but you can not contribute to a Roth IRA since you have no earned income. You can, however, do Roth conversions to move the 457b funds into the Roth IRA. We always recommend doing this with the assistance of a professional due to nature and potential impact the Roth conversions can have. Don't forget to like and subscribe to see more content just like this!

[@mrbigcat9]

I heard there is a bill in Congress to do away with taxing social security?

[@BRuane-pw6xq]

Some want SS to be means tested.

[@peakretirementplanninginc.]

You are correct. There have been multiple tries at this over the years but no material change. Our expectation is that more than likely this will not be put into place.

[@mikeandsues2752]

I inherited a Traditional IRA in 2019. Am I allowed to convert this to a Roth IRA, or does it have to remain a Traditional one? Thank you

[@peakretirementplanninginc.]

Thanks for watching, Mike! To answer your questions, its a yes and a no. Yes, in that if it was inherited from a spouse you are able to do the Roth conversions. No, if it was inherited from a non-spouse you would not be able to do Roth conversions on the inherited IRA. We hope this helps!

[@philschiavone101]

I don’t have this delusion. I should barely be taxable when I retire. But I have converted some to Roth just in case I need a lump sum the year that I retire.

[@peakretirementplanninginc.]

Thanks for watching, Phil! That is a great policy to have some Roth dollars in the event of financial or legislative change. Don't forget to subscribe to see more content just like this!

[@juliewang8078]

Is there any age and amount limitations to convert from tax deferred income? Thank you! I was thinking about it but had no clue how to do it.

[@nickt.2825]

I think you have to be able to access your 401k without penalty so that would be at 59.5. The rule of 55 might also apply if you no longer work at your 401k's employer.

[@peakretirementplanninginc.]

Currently there are no limitations on the amount of Roth conversions one can complete.

[@andrewroth9175]

So if I’m married collecting 100,000 in social security benefits combined. While also collecting a pension of about 30,000 and have no other income, because the standard deduction is about 30,000 for a couple. Wouldn’t that be about 130,000 in tax free federal income, is that correct?

[@markdavis1116]

No 🤣😂

[@PaulWestkaemper]

No, half of your SS is included in your provisional income, and it is calculated on gross income, that is before the standard deduction. As described $36k of the SS would end up in taxable income. You still end up with a pretty low bill (a bit over $4k on a 2023 return), but not zero

[@peakretirementplanninginc.]

Social Security taxation is determined by the level of provisional income that you have. To calculate provisional income, you add the following things together: ½ your social security benefit, ordinary income, tax-free interest, capital gains & dividends. In your case, $50,000 of the $100,000 social security benefit would count towards provisional income, and since you are married filing jointly, this will force 85% of your social security benefit to be taxable.

[@brendangair2023]

If you don’t have current funds to pay the conversion taxes, should you pay them from the conversion it self and keep the converted amount low enough to be within a reasonable tax bracket 22-24%.?

[@Fjjfuffnr244]

Most advise agianst this, but you should always talk to advisors/cpa’s to find whats best for you.

[@peakretirementplanninginc.]

That is a strategy that many use due to that very reason of not having the cash on hand to pay the taxes. The amount to convert from the rate perspective depends on the expected rate in retirement for that individual.

[@colemant6845]

Great video that nobody on YT covers... You left out a big question... yet mentioned it several times: What is considered a "Higher Pension" in America today?

[@peakretirementplanninginc.]

Thanks for watching! Great question, tough to answer due to the background information we would need on an individuals situation and why tax planning is far from one size fits all since each situation is so different from the other. Don't forget to subscribe to see more content just like this!

[@rickynorris1694]

If you have a pension coming, maybe it would be best to start collecting SS at 62 to lower your tax liability. Does that make sense?

[@peakretirementplanninginc.]

If you have a pension and SS it may actually make more sense to postpone the SS benefit to allow that to increase and let your pension supplement income in the meantime. Postponing SS also allows for more room to do tax planning.

[@markdavis1116]

I have a pension I’m collecting now, age 61. I’m going to pull money from my 401k now until I turn 70, when I will collect social security.

[@peakretirementplanninginc.]

Thanks for watching, Mark! That is a strategy we utilize often with the families we work with. Delay Social Security to get the high benefit and leave more room to do tax planning. Don't forget to subscribe to see more content just like this!

[@莫民奇妙]

People love to donate to church, why wouldn’t happily donate to the government (pay tax)?😂