60 with ALL PRE-TAX IRA. Who WINS 12% or 22% ROTH Conversion? Retirement Tax Planning Example.

[@benjamineprg4249]

Great video, one that folks really need to watch. I' m 50, retired a while at 45. 1 have 35% of my capital invstments in an IRA. 25% in index funds, and the balance spread across other investment accts. in cumulative of over $ 5M. I receive income from my rental properties too. Zero debt and all is going accordingly. My financial consultant has been patient and has done a wonderful job for me throughout the years.

[@benjamineprg4249]

Financial planning and retirement strategies are crucial, especially in today's economic climate. With global economic fluctuations and uncertainties, it's essential to have a solid plan in place to protect your financial future.

[@Sanchyfab]

Retirement is now more difficult than it was in the past. it's all about balancing your risk tolerance with your long-term goals. Nice move

[@Sanchyfab]

Well with the ever-changing global economy, tax laws and regulations can also vary, impacting how investments are taxed. It's essential to stay informed and plan strategies accordingly.

[@V.stones]

I just turned 44 and awfully late to investing with barely any portfolio except my 401k, I have a decent amount of cash saved up and with inflation currently soaring AGAIN, I'm getting worried about retirement, my intention is to retire at How best do l maximize my savings of over $220k

[@V.stones]

Please could you guide me on how to get in touch with your advisor? My funds are being eroded by inflation and I seek a more lucrative investment strategy to effectively utilize before I consider retirement

[@Resmith18S]

I sold most my positions during the dip at a loss and now those stocks are doing well. Most of my holdings are in cash of about 300 grand now. How do I stay invested and think long-term to help me ride out the market’s ups and downs.

[@LeepinLeopard]

Follow the S&P 500 by investing in ETFs like VOO, SPY, and SCHD. Dollar-cost averaging into these ETFs will likely outperform most investors in this bull run.

[@2024Red-j5t]

It is very easy to buy in on trending stocks but the problem is knowing when to sell or hold, which is why having guidance is important. I've been in touch with my CFA for about 3 years now and although I was initially skeptical about it, I will say I've made more progress within a that time frame generating 7-figure profits.

[@wealthychronicle-i1u]

This is incredible. Could you recommend who you work with? I really could use some help at this moment.

[@2024Red-j5t]

My CFA is ’Sophia Irene Powell’ , a renowned figure in her line of work. I recommend researching her credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.

[@Petroguest-i4g]

I’ve just looked up her full name on my browser and found her webpage, very much appreciate this

[@gingerkilkus]

I just switched up my Roth IRA to 50% SCHD, 25% SCHX, 25% SCHG, and my Roth 401k is 70% vanguard S&P 500 index, 20% vanguard growth index, and 10% vanguard international index. Seeking best possible ways to grow $350k into $1m+ before retirement in 2 years.

[@leojack9090]

consider financial advisory so you don’t keep switching it up... those sound like great picks anyways, not bad for $350k.

[@hasede-lg9hj]

Agreed, I'm in line with having an advisor oversee my day-to-day investing cos, my job doesn't permit me the time to analyze stocks myself. Thankfully, my portfolio has 5X in barely 4 years, summing up nearly $1m as of today.

[@lowcostfresh2266]

@@hasede-lg9hj this is huge! would you mind revealing info of your advisor here please? in dire need of portfolio rebalancing

[@lowcostfresh2266]

this is huge! would you mind revealing info of your advisor here please? in dire need of portfolio rebalancing

[@hasede-lg9hj]

I take guidance from an advisor Rebecca Lynne Buie. To be honest, I almost didn't buy the idea of letting someone handle growing my finance, but so glad I did.

[@billbreunig2534]

One thing that I think needs to be considered is the inflation adjusted value of taxes paid. Paying $300,000 in taxes in early retirement could be equal to or more than $700,00 in tax over entire retirement when much of the tax being paid is in the second half of retirement.

[@brettbly4571]

You don't actually need to "inflation adjust" these numbers as the pretax money is being invested and projected to grow and so is the post-tax ROTH money.

[@billyrayband]

One thing that could affect them is health care costs prior to Medicare. If their expenses are really 6500 a month, it may not matter. But an ACA policy for two people can easily be more than 2K per month, but if you can lower your expenses, and given the 25K standard deduction, that amount can be zero. Thats 24K a year of expenses wiped out for 5 years. For this reason I didn't do any conversions from 60 to 65. Its also very hard to predict future tax rates.

[@PH-md8xp]

Almost exactly what I’m doing. I keep my expenses at 7k per month, I’m 60, retired on ACA for healthcare, keep my MAGI low, so my premiums are under 300 per month. Will start Roth conversions at a low tax rate after 65. It is doable.

[@billyrayband]

@@PH-md8xp If you can lower your expenses a bit more, you can get that ACA for zero. But its a little harder, if you are single. Married, you get 25K off the top of your MAGI.

[@johnawara9719]

I believe the retirement crisis will get even worse. Many struggle to save due to low wages, rising prices, and exorbitant rents. With homeownership becoming unattainable for middle-class Americans, they may not have a home to rely on for retirement either.

[@LiamOlivia-4]

Got it! Buying stocks during a recession when prices are down could be a good move. You might get them at a lower price and sell later when they go up. Just do your homework and be aware of the risks before diving in!

[@zubairadamu2477]

@@LiamOlivia-4 That's awesome! Investing in stocks with a reliable trading system can lead to great outcomes. It's fantastic that you've been working with a financial advisor for a year now. Starting with less than $200K and being just $19,000 away from making half a million in profit is impressive! Keep up the good work!

[@FlorentGulliver]

@@zubairadamu2477 Mind if I ask you to recommend this particular coach you using their service?

[@zubairadamu2477]

@@FlorentGulliver MARGARET MOLLI ALVEY Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..

[@FlorentGulliver]

@@zubairadamu2477 She appears to be well-educated and well-read. I ran a Google search for her name and came across her website; thank you for sharing.

[@Tony-dx3eo]

Unfortunately, conversions from age 60 until 65 when they start Medicare will negatively impact the ACA health insurance premium credits significantly which will be extremely costly. This analysis, unfortunately, does not factor this significant expense in. Additionally, there are also negative and costly IRMAA impacts starting at age 63 that is also not factored in when performing these large conversations which are treated as ordinary income. Unfortunately, the IRS laws have us between a Rock and a hard place during these key conversion years.

[@turnertruckandtractor]

Exactly! Thanks for pointing this out. This has been my quandary as well.

[@DaleYuzuki]

Thanks for pointing this out - Roth conversions is only a part of the entire picture, complicating things. FWIW decided to try out PlanVision (no affiliation) in order to sort these expenses out for our situation.

[@OchoVerde]

we are wrestling the aca/roth conversion ballance as well.

[@Tony-dx3eo]

@@OchoVerde Misery like company...and I suspect I'm in good company if you're watching this 🙌🏻

[@hikergirly]

Really annoyed that I did not look into Roth conversions starting age 55, to avoid triggering some of these thresholds. But it’s a good problem to have.

[@erickarnell]

Converting 100%of tax-deferred retirement savings appears to be inefficient. You aren't able to take advantage of any standard tax deductions where the tax would be zero.

[@missouri6014]

Thank you, beautifully said

[@kersting13]

Yes, this is the part that surprises me with the results. Converting to 100% tax free would give away the standard deduction for decades by paying 22% federal taxes on a conversion up front? I don't understand how the math works out that paying 22% in conversions is advantageous to having (currently $29K, but may be different in the future) of tax free income regardless of your future income. I guess because their SS already takes up their standard deduction?

[@briankelly1240]

​@@kersting13pretty sure you nailed it, as is, social security counts as income and takes up most of that deduction as is.

[@kersting13]

I don’t think SS alone can be it. 85% of the maximum SS doesn’t put you into the 22% bracket. And even at that, there’s still the standard deduction and rolling up through the 10 and 12% brackets. It doesn’t make sense to me until I see the math.

[@jessicaquinn9730]

It depends on the situation of each person. I have $3800/month social security and $1800/month pension. Enough for taking standard deduction. I will consider 12% conversion.

[@briankelly1240]

Peace of mind of not needing to think about changes in tax rates is worth conversation too.

[@jimstoops]

Thanks for sharing. Many considerations as I approach retirement within the next two years.

[@missouri6014]

great job. Idea for a video.......How much should you have in an IRA in order to have the SD take care of the RMD's

[@swtexan6502]

That's exactly what my wife and I are going to do. She's going to use the Rule of 55 and retire next year. We're really looking forward to our next phase of life.

[@coastalhillbilly3419]

Do it, best thing I’ve ever done, got out at 50 almost a decade ago, dodged the BS c0flu years. TGIM Thank God It’s Monday

[@EJJ-EvArms]

In all my tests, the more I converted: 1. The less taxes I paid. 2. The less money I ended up with. This makes sense because: 1. Paying taxes up front kills compounding. 2. Of course the more money one has, the more taxes one will pay. As you note though, if I assume higher returns, the RMDs can get large. If one assume lower returns, RMDs are barely even a concern. It turns out that RMDs are a good problem to have. ;-) It means one has more. So merely reducing tax $$ paid, ignoring the time value of money, isn't always the best way to look at it. The primary reason for Rothing (made a verb out of it), is for one's heirs, as you point out. The tax bracket exercise is an excellent one to do. Problem is, as you point out, tax brackets keep changing. Programs can code for inflation; they can't code for politicians. ;-)

[@GuySkellenger]

I for one think passing along a larger deferred balance is a great way to go because it isn't taxed for up to 10yrs. This will make the heir pause before spending down and being more strategic. Also, converting to a Roth can be a huge mistake if you convert near the highs. Imagine a lost decade after you convert. Let's assume you convert 1mm at a 25% avg tax rate and the next 10 years your Roth assets are cut in half, leaving you with (1mm -250k) Divided by 2=375k and because it's in a Roth you cant write off the losses. So your 1mm that you paid 250k in taxes is worth 375k. The point is there are many ways converting can be a big mistake. Maybe just be strategic in who you pass your deferred accts to, think grand kids or great grandkids if practical. You will probably find they are in a lower bracket than your kids.

[@mauihj5134]

How r they paying the tax for conversion. From their principle or another fund?

[@travisshrey6720]

Exactly. No one covers this - there is this magic window when one retires at 65 and all the charts show that people have zero income so they can fund all of this conversion. What are people living off of during this time? That is when you are still young and can be enjoying retirement, I would rather live like a boss and spend down the pre-tax account during that time.

[@johnneil6653]

It makes ZERO sense to fill the 22% bracket now and fail to fill the 15% (or 10%, or even the 0%) bracket later. Your projection is fundamentally flawed because it fails to recognize the time-value of the taxes paid. More dollars of taxes paid later is not necessarily worse than fewer paid sooner.

[@Jack63141]

Not a fundamentally flawed analysis. RMDs force them to pay at a much higher bracket later. Additionally, if they can keep their reported income below $32K annually (not including social security) as is done with the 22% full conversion to Roth, then ALL of their social security income becomes tax free instead of 85% taxable. You gotta look at the tax code before calling something fundamentally flawed.

[@johnneil6653]

@@Jack63141 That wasn't what his 22% analysis proposed. It proposed fully converting to roth ahead of RMDs...not a median where some level of conversion was done ahead of RMDs to make RMDs manageable later. It's 100% fundamentally flawed to bracket fill via conversions at 22% and not use the 0%/10%/15% brackets later. Yes, "tax torpedo" considerations are there, but the "advisor" didn't address this. It is also 100% fundamentally flawed to try and "optimize" based on the overall number of tax dollars paid. Problem is, it doesn't matter if you pay a fixed tax rate (say 15%, for example) in tax dollars upfront (Roth) or upon disbursement (traditional.) The result is the same, despite there being a greater number of tax dollars spent in the second option. So you can't base optimization on number of tax dollars spent without considering the timing. He "optimized" by paying fewer dollars upfront, at a higher 22% rate, rather than a middle ground that still took advantage of lower rates...crippling the long term outcome.

[@Jack63141]

@@johnneil6653 Too many fundamental flaws in your response to respond/refute each one. I guess that the CFPs who produce hundreds of these videos advocating Roth conversions and paying taxes upfront are fundamentally flawed also. Oh, and the software program that he uses showing the savings and less taxes paid must be fundamentally flawed as well. You are correct and everyone else is wrong.

[@johnneil6653]

@@Jack63141 You'd be surprised to see roth conversions in my retirement accounts. What I am refuting is the basis on which the "full roth conversion" strategy was presented. Clearly you are glossing over the big picture math. The SSI "tax torpedo" is worth considering but 22% doesn't always beat 0%, 10%, or 15%.

[@GuySkellenger]

@@Jack63141 Well my opinion of most of the CFPs that produce these videos are just using it to solicit new customers. This one started out with a guy confused over the default settings on the prepackaged software. Plus, Johnnei is completely correct about the time value of money and just because you paid less tax today converting doesn't mean you are in a better position if you didn't convert. The truth is there are so many variables and seldom do these videos address the potential downsides of converting.

[@gizmobowen]

Thanks for the example. I'm in agreement with some of the other comments that doing a 100% ROTH conversion probably isn't the best idea, despite what the model is showing. I also enjoyed watching your video to see how you're using your modeling tool. I have access to the same software through my advisor and am still picking up tricks and techniques on how to use it myself.

[@flying.forward]

Enjoyed the video. Thanks Curtis.

[@SMeyer-u5x]

So how does one fund the estimated tax payments on the conversion? Does this assume that one has enough cash in taxable accounts to pay that obligation? If not, does it make sense to dispose of taxable investments and pay the capital gains tax on those transactions? Doesn't that create an additional tax hit in order to convert the IRA accounts? If you haven't the cash, and don't wish to pay cap gains taxes on top of the income tax at the conversion, aren't you left with paying the estimated tax out of the original pre-tax IRA account?

[@jefflloyd394]

This is very nice and simple explanation, thank you. Now, realistically their life expectancy is 82, and if I were them, I would plan to take SS at 70 as longevity insurance, incase they die at 110. Then it also gives bigger roll over window and avoids double tax on the SS - would love it if you could model that, currently it is what I am thinking if doing?

[@jrace2718]

I did not see what your assumption of investment returns was. What return did you assume? That will have a huge impact on this analysis.

[@jsilverback3795]

The IRMAA brackets may change what is the appropriate choice.

[@johnadair6108]

That's fine if the only consideration is paying minimum taxes...but at what cost in the "go-go" years?

[@ralphparker]

In an analysis like this, how much total taxes paid is a worthless number. This applies especially to Roth conversion cases. What I would optimize is ending value of after tax portfolio . I would derate the values of IRA by fed and state tax rates of the current bracket they are in. Your projections shows that topping out the 22% bracket each year leaves some lower taxed holes in the plan. What I would consider is maybe converting to about the 80 % of the 22% bracket to see if it fills in those holes. I would like to see how slipping the SS start date out to 70 affects the plan.

[@jerrylabat550]

I totally agree - these financial planner folks seem fixated on filling a tax bracket when even their software shows that the optimum tax planning solution in this case would be somewhere between 12 and 22. At 12% the tax planning software showed their tax burden increasing over their retirement (which suggests a more optimum solution would be slightly higher so that the taxes paid per year was a flat line). Filling the 22% bracket overpaid in that they basically didn't pay taxes after age 70, so the optimum solution was below filling the 22%.

[@pioneer7777777]

​​@@jerrylabat550I would think having a table with increments of assumed $10,000 per year conversions would be helpful to find the optimum point, and then realize that if you're +/- 5,000 on that value you are golden. Like start at that 12% fill value, then go up $10k per year and get the final portfolio value for each increment.

[@longgone9738]

These “equal” results “experts” never factor in the truly large IRA accounts that will trip 1) Medicare IRMAA penalties year-after-year, and 2) the RMD’s being so large a taxpayer will be bumped into a higher tax bracket unwillingly. Roth. No ifs. No ands. No buts. Roth

[@Smomobiler]

Good piece. I would like to know a bit more on how different market performance would affect the outcome. Two things in particular: 1. High inflation causing the markets to rocket up in overall value, and 2. Would the projections account for inflated value vs inflated distributions? If the currency inflates, we need to take out more than the projected amount... But our portfolio will hopefully inflate as well (assume some leve if staying invested in the market.l

[@cshigley]

For the Roth conversions, where does the tax payment come from? Is it assumed they come from the brokerage account or from the IRA?

[@MikeSTGL]

Seems like doing the hogher conversation till the tax change is a great idea. Re-evaluate after that .

[@keithwalters318]

Wasn’t able to tell. did they pay the conversion out of cash or out of the converted assets themselves?

[@J-2024-v8i]

Out of cash only the first few years, as they only had $180k in taxable. This scenario starts when they are 60, and would not work well for early retirement long before 59.5 if they deplete the taxable account before they can tap into their retirement accounts, unless they can use the rule of 55, as they don’t have much in taxable nor they have Roth assets to do a Roth conversion ladder.

[@seanwilliams9060]

What are the advantages & disadvantages of converting out of a 457 account?

[@TexasEngineer]

Take the excess RMD and use it to pay the tax for the conversation.

[@LarryFasnacht]

Does this include paying the extra taxes upfront out of the traditional IRA?

[@Robert-wb9tx]

I don’t understand how the numbers are better at filling up 22% bracket. I wouldn’t think that moving all your traditional IRA. to Roth would be the way to go. You would want to leave some in so that your income in later years would be eliminated by standard or itemized deductions. And perhaps a little bit more to where you’re paying taxes at 10% in later years compared to 22% now.

[@Jack63141]

Social Security income easily gets you to the standard deduction limit. His example has Joe at $2800 and Jane at $1900 monthly social security at 67. That's $56.4K annually total or about $48K annually at 85% taxable. Something that he doesn't highlight is that if you get to 100% Roth and can stay below $32K (married or $25K single) of taxable income (not including social security), then ALL of the social security is tax free. That fact is probably buried into why the overall paid taxes are much less with the 22% conversion.

[@garyherington2595]

​@@Jack63141 Provisional income used for SS taxation is 1/2 SS + other income (IRA, interest). That provisional income is then used to get how much SS is taxed. Then subtract standard deduction to get the final amount. This couple could withdraw around $19800 from IRA and still pay no taxes.

[@kbmblizz1940]

Roth is great if one started early. But if one were to make most of the wealth near retirement age, & have millions in tax deferred accounts, the breakeven time may well be in the 90s age when too frail to enjoy. If die before that, your healthy years would be flushed, with less spending $. Pay higher taxes is not always bad, it can mean one has made a lot more gains. The heirs have 10 years to w/d inherited IRA , a good problem in my mind.

[@TexasNomads]

Thank you for acknowledging the TCJA sunset in 2025. Another channel won't discuss it (deletes posts with any mention) and promotes the idea that all Capital Gains can be forever tax-free based on the current tax breaks under TCJA. If those breaks aren't continued or adjusted upward for inflation and rising wages we could all end up paying more taxes on our pre-tax investment earnings in retirement.

[@eddyfam6569]

As stated in a couple of questions below. It would be interesting to see how the SS tax and Medicare penalties would add to these two scenarios. I have been advised that I should also look to converting all of my +$2.5M pretax to Roth over the next 5 years to get to a similar point that this 22% example shows. I.e. after age 70, which we are waiting to take SS, we would have only our SS as taxable income. Thoughts?

[@BolsakTBagger]

Curtis- it seems to me that the main thrust of your analysis is to save taxes. I have 2 points to make. First, the government obviously controls those rates (whatever they are). So if you are changing your spending/withdrawing/lifestyle because of what the government wants, aren't you basically letting the government control you? Secondly, people who retire at 60 will be more active than people in their 70s, 80s, 90s. Why is it important to have so much money at those advanced ages? Time waits for no one. Also, I think it is silly to give your kids their inheritance when you one passes at an advanced age. If you die at 80, your kids would probably in their 50's and 60's and would already be established with their own lives i.e. they would already have a house, grown kids, etc. In other words, their utility of the money is much more when they are in their 30's when they need help with a house down payment, kid expenses, etc. So in conclusion, your strategy is spreadsheet and tax smart very but not very practical. A 90 year old with 3$mil will have more life regrets than a 90 year old who spent his money on nicer vacations (that cost more than 15k). I plan to give 18k per year to each of my kids as long as i am alive. They can fund their own retirement accounts (roth maybe) or their brokerage accounts on their own. In the long run, all the generations of the family (mine, theirs, and their kids) will be wealthier and will have to struggle less especially in their 30's when they need the most help.

[@DEEZEEMTB]

Excellent points. My wife and I plan to distribute our wealth early in our kids lives. Example helping with down payments for a house and early investment in their kids education (if they have children).

[@rmh691]

If I were to do a Roth conversion now, do I have to have cash on hand to pay the taxes? If that’s the case, it seems only the wealthy can do conversion, so I’m sure I’m not understanding something here.

[@Jack63141]

Once you turn 59.5 you can convert and pay the taxes from the traditional IRA account. Both of the people in this example are 60, so that is the case. They "withdraw" 112% or 122% and "convert" at 100%.

[@tlar1272]

For those of us without a degree in tax and finance, it would be more comprehensive to explain what is happening different between the different shape of line. Especially at 6:37. I watch content like this and it seems to intentionally complicate things to try to turn it into and advertisement.

[@dademack3544]

How many 90 year old couples do you know? Odds both make it to 90 are slim, pretty good that 1 will.

[@lqdxoni1]

dont you have to wait 5 years to take money out of a newly created roth ira?

[@johnnybq2]

You can take it out before 5 years is up, but you’ll then have to pay capitol gains tax on any investment gains… so most people will keep it put for the five years… Wall St bankers love this situation. Convert away people… the Govt and Fidelity thank you!

[@July.4.1776]

The examples for this couple are not even close to the median value of account holders balances in America. Even the above average account holders will likely never have any issues withdrawing from their accounts and having to deal with taxes of any significance…🤔

[@July.4.1776]

On the other end of the spectrum if you have a large portfolio retire early start spending it down. That will help you with all the taxes RMDs etc later.

[@gumby2241]

foolish to convert when aca money is on the table.

[@July.4.1776]

True

[@keithmachado-pp6fv]

Good video. A couple of comments. 1. If all they have is SS income they should not convert all, even in the 12% bracket if they can later pay 10% without making their SS taxable. 2. Focusing only on tax savings is not the right way to look at it. You can pay twice as much in tax dollars when deferring and still come out ahead. It’s all about the % paid not the dollars.

[@bobackerman54]

one item you do not address is what if both spouses do not live till 90 ... in my family tree my paternal grandparents died 6 months apart, maternal grandparents died 13 years apart and for my parents is 19 years and counting with my dad still alive ... i worry about a HUGE tax bomb to my wife if i die early and her tax rates are going to essentially double ... for that reason, i (higher earning spouse) plan on deferring SS to 70 and we will both spend down portfolio and do roth conversions till then ...

[@coastalhillbilly3419]

How about converting up to 22% or even a bit higher % on years when markets and 401k are up a good percentage and no conversions on years markets are down significantly? Also may have to factor in no tax on social security (as it is being floated and very popular among constituents) if it ever passes.

[@Robert-wb9tx]

Shouldn’t it be the opposite? You would want the better growth to happen after it is in the Roth IRA. So if you convert when stocks are down you pay taxes on the conversion on a lower amount and then as things improve the growth is happening in the Roth IRA where you will never have to pay taxes on it.

[@coastalhillbilly3419]

@@Robert-wb9tx That is true but so hard to tap a bucket that's down even for conversion Another idea, no Roth conversions or late conversions 70-75, tap 401ks deeper than needed when market is up from 60 to 70, use money to do the things we love and still can do from 60-70, and being an older parents spend time with young adult kids, invest in them now and help them get off to a good start and still leave them a good chunk

[@Robert-wb9tx]

The only funds you would be tapping into would be the funds needed to pay the tax unless you had funds outside of your IRA’s. Otherwise you would just be moving the mutual fund from your traditional Ira to you Roth IRA. wish I would have converted everything in March of 2020 when the market took a big hit. All of that growth since then would have been all tax free

[@lamleg1172]

Uncle Sam wins!

[@Rogue_Money]

“See the world” for $15,000/yr?!?!!!?? 😂 More like $150,000

[@EdA-bz3bu]

And the benefits of “low income” 😉