6 Reasons NOT to Convert to a Roth

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In past videos I've talked about the power of Roth conversions, but in today's video I'm going to cover the 6 reasons why converting your Roth might not be the best strategy for you!
In this video, we explore scenarios where Roth conversions could actually lead to having less money in retirement with a Roth conversion.
Don't miss out on these crucial insights to optimize your tax minimization strategies.
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ABOUT ME
I’ve always been passionate about personal finance, investing, real estate, and helping people find the freedom to live their life with purpose. But when my dad died in 2015, I tried to help my Mom find an advisor to sort out her finances. Instead of a helping hand, I found an industry of financial advisors dominated by glorified salespeople working on commission - pushing products that were not in my mother’s best interest. Or advisors with minimums that shut-out all but the ultra wealthy. Disappointed with the options, I took matters into my own hands and launched Foundry Financial, a wealth management firm with transparent pricing that specializes in helping provide clarity around money - so you have the confidence to make smart decisions.My goal is to help a million people retire without worry!
📅 THE BASICS OF RETIREMENT PLANNING
Retirement planning has several steps, with the end goal of having enough money to quit working and do whatever you want. Our goal is to help people master retirement and retire without worry.
Step 1: Know when to start retirement planning. When should you start retirement planning? The earlier you start planning, the more time your money has to grow. That said, it’s never too late to start retirement planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won't be playing catch-up for long.
Step 2: Figure out how much money you need to retire, The amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.
Step 3: Prioritize your financial goals. Retirement is probably not your only savings goal. Lots of people have financial goals they feel are more pressing, such as paying down credit card or student loan debt or building up an emergency fund.Generally, you should aim to save for retirement at the same time you're building your emergency fund - especially if you have an employer retirement plan that matches any portion of your contributions.
Step 4: Choose the best retirement plan for youA cornerstone of retirement planning is determining not only how much to save, but also asset allocation. It can make a massive difference in your retirement plan.
Step 5: Select your retirement investments. Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk. It’s often helpful to talk with an adviser to discover the right mix of stocks and bonds.
❣ SPONSORED No, this video was not sponsored.
⚠️ "DISCLAIMER:⚠️This is not financial or investment advice. This Channel is meant for EDUCATIONAL AND ENTERTAINMENT PURPOSE only. None of this is meant to be construed as investment advice, it's for entertainment purposes only. #retirementplanning #retirement #passiveincome

[@foundryfinancial]

Does this video change your decision on whether to do a Roth conversion?

[@Dr_Boult]

Thanks for this and all your previous videos (and the rightcapital links). This did not change my mind, but based on your previous videos and my goals for charity, I had already been looking at this, including using rightcapital to model, but I wanted to +1 your comment about sometimes needing more detailed analysis, Playing with Right capital I did not find any models where Roth conversion helped my rather complex case. However, after realizing that AGI limits for charitable are different for donated assets (30% limit) vs cash (60% limit), I felt I could use Roth to both reduce RMDs and also to have cash for charitable donations, which further reduced the AGI . Could not figure this out in right capital but verified with detailed Excel modeling. ( I had previously used right capita to validate the Excel models that I've been using for years). It looks like doing Roths combined with charitable to give me more room to convert at low tax rates, we can increase our charitable giving by 25-50%, depending on market performance and lifetime, which is millions more for the charity vs taxes. So, to anyone watching this, don't give up on Roth just because you want to do or want to maximize charitable giving. It just might need a more detailed analysis.

[@icedteamama176]

Which states do not tax retirement income (traditional 401K)? Thank you!!

[@3namechangezalowdevry90day7]

Conversions affect income guidelines for Obamacare assistance grant eligibility, as well. Also, overall income affects the cap gains rate, from zero to 15%. Are those things factored in? I'm not changing my mind but there are a lot more moving parts to work around.

[@usddcm]

Since I don't have heirs, it makes sense to do lower dollar value conversions. The charitable donations are helping.

[@mtn100]

😮😮😮

[@philzail2532]

I'm only moving an amount to stay in the 12% bracket. Avoiding my child and even possibly me to go into the 22% plus brackets.

[@jtixtlan]

I’m going to have to watch this about ten times and stop to look things up, because it seems like there is some very useful information here that is worth digging into.

[@missiontrails]

Super helpful. I'm surprised that there's so much more to consider than I already thought of. Thank you

[@abr7192]

Excellent. Thank you.

[@murkri8723]

Very nice video! Thanks...

[@Victor_Romero]

The key is to convert little by little if you have time on your side. I am doing a few thousand at the time. I have no idea the tax rates by the time I retire. So, I have some in traditional 401k and some in a Roth account, and converting as I go.

[@misaelhdez5162]

Not all the companies let you do that you have to quit a some job to do that I would like my company let me do that will be awesome

[@harryl7946]

My company has both traditional and Roth inside the 401. I select which I invest in. Roth baby! 😅

[@danniedecker7459]

​@@harryl7946 Excellent choice! Be aware though that any match is pre-tax. You actually have a Roth & a traditional. Shud you ever rollover you will need to roll each portion into a different rollover acct.

[@punknhead23]

My company finally has offered Roth 401K. Frustratingly, they will not let us convert any of the traditional. 😔

[@brucefredrickson9677]

Roth conversions are a great option for many people. I've been converting Roth for several years. Peace of mind knowing my Roth grows tax free and keeps Uncle Sam's hands off of it. Remember what Ed Slott says, "Your IRA is an IOU to the IRS. You don't own it...only partly.

[@g0989]

Both Traditional and Roth accounts grow tax-free. The difference is Traditional accounts get a tax break on the front end when contributions are made, and Roth is not subject to income tax on the back end, when withdrawals are made, but no tax break when contributions were made. It can come down to tax rates when making contributions vs. expected rates when making withdrawals, life expectancy, and whether or not you are concerned about potential tax impacts to heir(s).

[@vernshird711]

7. You'll be getting a sizable pension, your spouse will still be a high earner, and the conversion puts you in a higher bracket. My solution is to draw on the pre-tax and delay SS until my spouse retires.

[@samkitty5894]

Delaying SS is idiotic. It is free money...why burn your IRA/401K?

[@vernshird711]

@@samkitty5894 IRMAA my friend...IRMAA. It looks at joint income. SS isn't free...I paid into it. Also, I may plan on working p/t doing something I enjoy after I retire from f/t work. That would mean delaying SS and delaying draws on my pre-tax. I have to keep income below the IRMAA threshold while she's still working f/t - I'm not giving the gov't any more money than I need to.

[@samkitty5894]

@@vernshird711 Some of my friends thought the same as you. They wanted to delay SS until the age of 70, for maximum benefit. Until then they wanted to live off of 401K RMDs and their bank account savings. Well, some died...something they didn't plan on. I started my SS at 66 and will be drawing RMD at 73 (if I live that long). Why not take SS? If I don't, I lose it...Why let the government keep it while I wait for RMDs. Passing up SS and living off of other sources of income doesn't sound good. But, to each his own... Good luck and may you live to be 122, for maximum RMD draw.

[@vernshird711]

@@samkitty5894 I should have clarified that the SS wouldn't be delayed until 70, but only until my wife retires so I can avoid the IRMAA surcharge. I'd be in my mid-60s. Waiting a few years to collect isn't a big deal in the grand scheme of things.

[@ranman1959]

​@@samkitty5894 For me the main reason not to take SS early is if you're married to a younger spouse that also has a lower SS benefit. An inflation protected guaranteed income is a nice safety net for the surviving spouse.

[@chrisforker7487]

Nice educational video. Far too many people want to use IRA funds to pay the taxes, scary!

[@davJanko8052]

It took you perhaps 35+ years to get to this size of a nest egg. Can anyone guarantee I will get outsize returns after I convert? No. I will leave it be and let the person after me worry about taxes. I worried my whole life. Now is the time to enjoy

[@ivanvarykino8202]

Totally agree!

[@keithmachado-pp6fv]

I agree 100%. My dad passed away and I inherited his IRAs. He was a private person so I had no idea he had this money and I was pleasantly surprised at the amount. Never for a second did I think “I wish he would have paid the tax so I won’t have to”. It is found money and I am happy to pay my tax.

[@jschaff]

@@keithmachado-pp6fv Yeah, but now you have 10 years to use it up, AND pay the taxes on it. And if it's a sizable amount, your tax bracket will go up resulting in even higher taxes. But it's found money.

[@keithmachado-pp6fv]

Yes, but I retired this year so it will be at lower rates. I did not take anything out during the first 4 years so will have 6 more years to deplete the account which will be what I live on and aligns with when I expect to start SS.

[@davJanko8052]

@@jschaff not all dollars are taxed at the highest rates. Additionally, I can make a QCD if need be.

[@rodrigok1220]

I was hoping to prolong taking social security and convert small portions for 4 or 5 years… like 60k a year to grow the Roth portion and then stop when I start drawing social security. Am hoping to convert at a much lower rate - like 10 - 12 percent. I wouldn’t do large portions… just trying to reduce amount of RMD’s later in retirement. If I can get even a small portion moved over in 5 years, think it’ll be worth it in the long run.

[@jschaff]

If you are in the 10-12% tax bracket then do as much as you can convert as long as you have enough cash on hand to cover the taxes on it and not deplete your cash too much.

[@samkitty5894]

Some "experts" push IRA/401K saying when we retire we will be in a lower tax bracket. Other "experts" say IRA/401K are a bad idea because taxes later could go up dramatically and paying high taxes would eat away any benefits or profits. I learned not to listen to the "experts".

[@toantruong7901]

I agree. Do what is best for you bc nobody knows what is gonna to happen in the future. Even if tax will be raised in 2026 and if you won't convert a large size, the amount of taxes will be paid still marginal and likely irrelevant.

[@kbmblizz1940]

I don't see how magically coming up with funds to pay for your Roth conversion taxes makes a Roth conversion financially workable. If you don't take into account, the funds that were used to pay the taxes can also grow in value and you don't have to pay taxes on them in many investments. For instances, if you buy municipal bonds or just a market ETF but never sell any. Another point, if one is high networth, paying max tax bracket today & due to expected sizable growth of investments going forward to stay in the max tax bracket. The Roth conversion breakeven will be loooong time. Might as well enjoy life now vs pay less taxes when 90 years old. 😊

[@palerider7924]

RMDs can never go in a Roth. I pay 24% fed tax on conversions. I will not be in a lower tax bracket ever. For me conversion is logical.

[@keithmachado-pp6fv]

On Reason #2, whether you pay the tax from other funds or the IRA funds makes no difference if you are over 59 1/2. In both cases, you are using funds you could otherwise invest for growth.

[@tallmanjim11]

This article below explains the math behind why he’s correct on reason #2. The Arithmetic of Roth Conversions By EDWARD F. MCQUARRIE AND JAMES A. DILELLIO May 2023 from the Journal of Financial Planning: May 2023

[@keithmachado-pp6fv]

Nope. If you withdraw $100k and pay 20% tax, you have $80k after tax. It does not matter how you pay the $20k, that is $20k you cannot invest in anything, whether it’s a Roth or otherwise. If the funds are coming from a brokerage account, your heirs get a step up in basis, so you will never need to pay tax during your lifetime if you don’t sell and they won’t need to withdraw funds in 10 years like they would with an inherited Roth. . You can also harvest losses during your lifetime which you can’t do from a Roth.

[@keithmachado-pp6fv]

I read the article and get the point, but it is too simplistic on multiple fronts. 1. It assumes the money is invested in stock and tax will be paid. I have invested in stocks for 40 years and never paid $1 of capital gain. I do take my $3k of cap losses every year against ordinary income however. 2. You can invest in other assets that will not be taxed such as municipal bonds, universal life insurance or real estate (primary home). 3. It assumes you will have gains, which investing in stock is not guaranteed. The biggest issue with all the Roth conversion analysis is that they assume you will eventually pay tax someday on ALL of your traditional IRA money. Given that RMDs start at about 4% and it takes into the 90’s to get over 20% of total, it is conceivable you will pay tax on less than half the total in your lifetime. Yes eventually your heirs will be paying the tax but that is the only way I get the math to work to make conversion worthwhile

[@Toomanydays]

You are correct. Your net worth is the same regardless of how you pay taxes.

[@DeepFriedLiver]

⁠@@Toomanydaysbut the assets don’t have the same tax status anymore… that will impact the after tax rate of return and therefore the future value of your assets. Paying taxes from the conversion will reduce the amount of tax advantaged funds in your portfolio. While paying from a taxable account improves the quality of your tax-deferred assets to tax-free without decreasing them!

[@kellanhills1972]

I enjoy your channel. Always have managed my portfolio myself. I’ve made some stupid mistakes but also have persistently saved and worked hard so hopefully that makes up for it. I enjoy learning about money and retirement scenarios. I get a lot from channels like yours. You have an easy fun way of presentation. If there are a few things I have learned it is don’t try to swing for the fences. It’s ok if you want to do this in small ways but it can crush your overall returns if you try to pick the next Amazon too often and with too large amount of your portfolio. And even IF you DO pick the next Amazon remember you gonna have to hold it for a substantial period of time through fearful pullbacks which rarely anybody can stomach. I have picked several stocks that started out in the sub dollar and went parabolic. People don’t realize it’s extremely difficult to know how much to invest and when to add and when to sell. You can loose loads of money if you get any one of these wrong. Also don’t look at your portfolio too often. Maybe once a month. Have a good plan and ride it out. Also beyond a certain point money doesn’t provide any more level of happiness. Money can give choices.

[@Carandiru1992]

I am maxing out my Roth 401k. Because I am currently in a 19.5% effective tax rate. I am also doing in Plan Roth Rollovers. Because in three years my effective tax rate is going to jump to 35%. But that would still be for the state and federal combined.

[@miketracy9256]

If you believe tax rates will go down in 2026, then go ahead and stick with your taxable retirement accounts. If the state and federal government begin to take 50% of your distributions, you may regret not converting.

[@miketracy9256]

It works best for those who do it gradually, have increasing retirement income, and live in states with no income tax.

[@johnlittle8267]

I am surprised that all my friends that have retired early with large 401k balances are not converting because they don't trust that the government will not somehow undo the rules and tax the accounts. I don't think that will happen, but my concern is the risk that my tax rates will be low enough in retirement as I draw down the accounts that I will not have needed to convert, but I think that is in general pessimistic, so I think converting at the 22% rate might be worth it for me.

[@marcodepalma1940]

Even if you pay the taxes out of available taxable accounts…shouldn’t the time value of money matter here? In other words, should the tax payments with/without Roth conversions over lifetime be compared on a present value basis? If I pay taxes now, that PV $ is more expensive than PV $ paying later. The off setting factor is, of course, portfolio growth (tax free or not). So, maybe, the only thing that matters is effective net worth (ie. Netting out IRA rolling tax liability)…since that’s cash flow based…and shouldn’t there be PV overlay on that too in terms of spend power? E.g if I pay PV$1M in taxes in the relative now (ROTH conv period) vs PV$1M in relative taxes later (RMD period) then is, really is about when my net worth is better off…that might not be until my 80s…this becomes a life expectancy question. Anyway, the more I think about this the more complex the equation gets

[@keithmachado-pp6fv]

Reason #1 baby. Not paying a nickel until I have to. There are no longevity or growth guarantees and who knows what could change in the future for rules. I will take my chances.

[@davesubers3415]

No avoiding death and taxes and you can be sure taxes are going up!

[@jamesleonard4713]

I don't completely disagree, but I have kids and I'm doing the work upfront to make sure they don't get hammered with taxes.

[@roncraft2042]

@@davesubers3415this will happen in 2025 when the Trump tax cuts expire.

[@hoytoy100]

That is a good plan for you. I’ll continue to put my retirement funds into the safe n my back yard. No growth but no risk and no tax

[@rickw3243]

@@hoytoy100inflation is not a risk, it’s a certainty.

[@kinggeek1960]

You need a video specifically for high income earners (32% and above brackets) and roth conversions (pros and cons)

[@MrGrimmur]

Thank you for the video. On the 4th reason, even if you expect a drop in your rate at retirement, wouldn't it still make sense to convert if you are saving money from your salary? All saved money goes into a taxable brokerage account and my initial reaction is to think that it is better to use these funds to pay for the conversion instead. Am I wrong on that?

[@gassman55]

Setting up appointments with CFPs and CPAs for this very reason. Most online calculators show it to be a wash at 15-20 yrs. My wife and I are in high tax brackets and will remain in these brackets for the first 10 yrs of retirement (spending a good portion when you can still enjoy it). If I were to guess the outcome I will most likely convert some over the next 3-4 yrs prior to RMDs and let that grow with aggressive large cap tech companies for money needed in 15 yrs.

[@jschaff]

I'm in the same type of situation. I have trust income that starts me out in the 22% tax bracket. So not much wiggle room in doing a big Roth conversion without pushing into the higher tax brackets. But yes, you have to live a long time to overcome the tax payment deficit of the conversion. Other benefits though are reduced RMD and heirs can deal with the inherited IRA/401K balances at their leisure and tax free instead of 10 year limit and taxable withdrawals.

[@davejoseph5615]

Perhaps my retirement spreadsheet should include a column for the estimated taxes for each year.

[@kevinderrick8895]

Definitely. I have a pre- and post tax column and reduce all income by 24% to be conservative. Reality is, if rates stay high I'll put some 401k money into tax free bonds

[@ron9665]

8:33 How does that work with California's new leaving the state tax?

[@mikespangler98]

Reason 6. The ACA adds an effective 8.5% marginal rate to the taxes due. 22% becomes 30.5%. Ouch. It wrecks the effectiveness of a conversion really well.

[@jamesleonard4713]

Depending on your health and how many you are buying for, you can find private insurance that's not as expensive. Which is what I'm doing for a few years.

[@swingman50]

What's your thoughts and on potential means testing on future SS and how that would change your strategy towards converting IRA/ 401k to Roth?

[@Avo7bProject]

I have a sneaky suspicion that there are FA's out there who push conversions in order to earn more fees. A co-worker told me about a retiring relative that was being pessured to convert, and neither of us could make sense of the rationale of taking a huge tax hit. But as for the topic of this video, I think another reason not to convert, is if someone likes working - and plans to stay until full SS or work until age 70. Such a person would pay at a high tax rate upon money removed from first tax shelter, and has to make aggressive assumptions about the market for growing the funds again in a Roth. I think it makes sense to not overcomplicate things. Appreciate the tax advantage you originally had in the IRA/401k and execute RMDs the way it was designed to work.

[@foundryfinancial]

How does an advisor earn more fees pushing a conversion? Someone else said that recently and as an advisor, ai genuinely don’t understand. Nobody makes extra fees if someone converts - possibly less. Unless they’re selling conversion planning.

[@xwhyzzwhy]

If anything, most advisers are Disincentivised to convert because by paying the taxes, the Funds Under Management are reduced, and most of them get paid more only if that increases. So they are doing more work for less pay. Seems to me to be a sign that they are trying to do a good job for you.

[@jschaff]

What makes you think a FA makes fees on a Roth conversion. You can do it yourself. But if the FA is fee based and you convert, then he/she isn't getting anything more for doing it other than he/she makes more when YOU make more.

[@jamesfrancis7284]

At 65 I'm converting $50k per year till 75 when RMD's kick in. By then the roth base will be yielding tax free dividends...😊

[@martinguldner3990]

I am in the 12% US federal tax bracket so my retirement contributions are 100% Roth IRA/Roth 401k.

[@jschaff]

And any traditional IRA/401k balances that you have should be Roth converted now while you are low tax rate. Assuming you have the cash to pay that tax bill. Not worth it to used converted funds to pay the taxes. Reduces the Roth amount working for you over time.

[@OffGridandOutdoors]

Where is a link to the video on inherited IRAs?

[@victor4advice]

No mention of the real probability that taxes will he higher for everyone in the future due to the out of control national debt. So Roth conversions make more sense than ever before.

[@tedlaurvik3765]

One impact of doing the conversion is higher medicare costs due to the "extra" taxable income in doing the conversion.

[@foundryfinancial]

If you convert over a certain level, then yes.

[@mikeflair6800]

It is more complex than that. I can always tell the difference between 'A Tax MBA' and 'A Financial Analyst MBA'. The tax guy focuses on the future no tax benefit, nothing else matters. The analyst will look at that $300,000 payment in terms of forward opportunity cost lost (stocks pay 9%, with std deviation of 17.5). So do the tax savings = the forward opportunity cost, or better or worse? I know my answer.

[@user-yq7je1op3t]

So are you saying just keep as much money in the market as possible, for as long as possible? Am I understanding your point?

[@johnlittle8267]

I don't really understand no. 2, it seems like if it makes sense it would work either way paying taxes with after tax money or converting to pay, because money in an IRA is only worth the after tax amount now anyway, so $4 in an IRA is worth $3 outside etc. That seems like a small reason that would not push the answer significantly in one way or the other, but I'm open to a more direct proof.

[@jamesleonard4713]

Not sure on all the reasons, but one I can think of is the taxes you pay on a regular account. Say if you were collecting dividends in your brokerage account, compared to dividends you receive in an IRA.

[@denny5564]

I can not see how a Roth Conversions does not make sense most of the time. If one has a large IRA account they should start Roth conversions ASAP to avoid/minimize the RMDs that are going to hit them at 73. The RMDs are not eligible to be converted into a Roth IRA. A large IRA can be converted evenly over a given a time frame (20 years) in order to stay within the 24% tax bracket. A large IRA conversion to Roth (within a couple years) may put one in the 34% bracket which in the long run will reduce one's overall net balance/worth. I can not think of any disadvantages to having a large Roth account other than the unpredictability of government's tax rules.

[@LodianRB]

Was not aware RMD not eligible for Roth as that was my plan, now, no longer a plan

[@kersting13]

My wife and I will have decent sized pensions, so we'll have quite a large taxable income even in retirement years BEFORE RMDs and SS hit. If I were starting in a low tax bracket, I can see the benefit. That said, my calculation should really be the DIFFERENCE between my tax brackets before and after RMD and SS hit.

[@danshowalter9936]

Great video. One of the reasons you mentioned not to convert to Roth is if your heirs are in a lower tax bracket. What about the surviving spouse? The surviving spouse will have to file as Single and their tax bracket is essentially cut in half. Isn't that a reason to convert to Roth?

[@foundryfinancial]

Yes, but they may be in a higher tax bracket because they’ll be a single filer. I’m more referring to if your heirs don’t earn much income. But yes, the surviving spouse is a big reason to convert.

[@mrmorrison299]

Phil and Claire dunphy😂 I see what you did there!

[@skyoung419z]

100% of my retirement funds are in a Roth, and as a retiree I’ll never pay income tax again. With no income other than SS, easy qualification for ACA health coverage. Plus inheritance and RMD advantages make this a no brainer.

[@user-py7wp6nw9h]

My view on ROTH conversion is that in theory they are great. But in practice it depends if you need that money now or later. For example, if you decide to retire at 60 and have a 401k (in addition to a ROTH and a brokerage) , then delaying social security until 70 will allow you to take out the 401k (if it provides you the overhead for the decade) and avoid the ROTH conversion . This way your ROTH grows, the social security is delayed and taxes are minimal from 401k, IF and only IF you take our UNDER 42,000. Correct me if I am wrong {not sure if unemployment is also taken out of taxes from 401k }

[@pbtube58]

This is a good plan. You need to run some spreadsheets, because it all depends on your specific situation. It is best to have some money in Roth and some in Traditional IRA. What most people do not understand is that once they start taking Social Security, their effective marginal tax rates are likely to be much higher than they are right now when they work. Your income will be lower, but the effective tax rate higher. This is counterintuitive, but you need to explore this more to understand. The effective marginal tax rate is the percent of the federal tax you will pay on the last $100 of the taxable income outside of Social Security. In many scenarios, this is going to be 185% of your theoretical tax bracket. Read more info by googling the-taxation-of-social-security-benefits-as-a-marginal-tax-rate-increase I cannot provide the link here.

[@user-py7wp6nw9h]

@@pbtube58 true, but by my calculation CA does not tax social security AND if I dont take it until 72, then from 60 on, I can withdraw, say , $40K from my 401k and still not pay any taxes or very little.

[@pbtube58]

@@user-py7wp6nw9h There is no benefit of delaying SS beyond 70. Also, if you pay little taxes at retirement, it might mean that you paid too much when you worked. The best strategy is to be at the same marginal EFFECTIVE tax brackets your whole life (may not always be possible).

[@user-py7wp6nw9h]

@@pbtube58 true, my social security will be pretty average at 67. hence why I want to wait those 3 years to squeeze a bit more. I ve been self employed for most of my life so my 401k is in addition to an HSA and A ROTH. Also my wife is younger and still wants to work. Whereas me, at 60 (not yet there) , I am kinda sick and tired of that job. So that is why I figured that I can pay a bit more than half for our overhead from my 401k and wait for SS. Meanwhile, my wife can still work and save , while I drawdown the 401k. No debt whatsoever, so that is an advantage. It's just for me to get away from a job that I started to hate. And I will be too old to get hired in other industries. That's the thinking. Thank you for commenting. My hat's off to you !

[@pbtube58]

@@user-py7wp6nw9h Looks like a good plan. I will also wait until 70 for SS. In the last 5 years, I did significant transfers to Roth in order to go all the way up to 24% tax brackets, which I consider a good deal. Now, I have about 60% of my retirement money in Roth and 40% not yet taxed. This should be a good mix. I will no longer do Roth transfer this year, because now I need to watch for the Medicare Plan B and D limits, beyond which they become pretty expensive (times 2, including my wife). The problem is that they look 2 years back. I want to retire in 2026, so I need to keep 2024 with not too much income. I will be 66 this year. So, after I retire at 67/68, I will also draw before-tax money, and maybe even move some to Roth, if this does not cross my thresholds. Not much time until 70, but I am already well positioned with 60% in Roth. I have been working so long because I have a flexible job that I like. Good luck.

[@heart_and_sole]

Couldn't one simply take money from a traditional (non-roth) IRA up to the Standard Deduction and not pay taxes? Admittedly, its probably a modest life, with no debt. But could be subsidized by Tax Accounts, cash, and Roth withdraws.

[@johnknox7148]

RMD's might eventually force you to take distributions greater than the Standard Deduction, especially when one spouse dies and the other is forced to file single, and the Standard Deduction is cut in half.

[@rodneylw10]

What about a retiring teacher. I have a pension and SS to as retirement income. I started a 403B and have a savings CD. I have no tax strategy and live in FL. Is a Roth conversion of the 403B something to consider. I will say it is not a lot of money in the 403B as there is more in the savings CD. I retire from working May '24!

[@M22Research]

@@foundryfinancial … “roll it into an IRA”? Then convert to a Roth.

[@foundryfinancial]

Right! Thanks for catching that.

[@charmcrypto824]

I appreciate the insight on Roth conversions. It's definitely not a one-size-fits-all solution. Have you ever thought about adding crypto to your retirement portfolio?

[@ajarndann]

Question: I have the Traditional 401K and have not considered the Roth Conversation. The primary reason is that I plan to retire overseas and will qualify for the 2555 Foreign Income Exclusion which makes the first $120,000 USD not taxable in the USA. My retirement income is most likely under this threshold. As I see it, there is no benefit for the Roth Conversion or anything Roth-related. Or am I not considering something? In summation, with the traditional, I get the tax breaks now and I also get them in retirement.

[@Lex-rt7vd]

So you are retiring overseas and will continue to work for a US based company? Is that really retiring if you are working but overseas? So the income (from employment) that will be excluded from taxes will be Salary, Wages, Bonuses, Commissions, or Self-employment income? The 401k withdrawals, if any, would not be excluded from taxes, am I understanding that correctly? I don't see how you would not pay taxes on your Traditional 401k withdrawals.

[@nunuvyurbiz123]

Roth withdrawals will absolutely be taxed at some point, but indirectly. They'll do something like include it for purposes of calculating IRMAA, the same way that so-called tax-free income is included.

[@JasonBuckman]

Being hit by IRMAA from Roth is still better than being hit by IRMAA in addition to being taxed.

[@nunuvyurbiz123]

@@JasonBuckman That was just an example to illustrate the point.

[@JasonBuckman]

@@nunuvyurbiz123 Being taxed indirectly is better than being taxed indirectly in addition to directly.

[@jschaff]

So that would not be any different than the situation today. There are more advantages to doing it than not.

[@mikeb6386]

Where is the software to download for Right capital.

[@foundryfinancial]

In the description.

[@danshowalter9936]

Assuming tax brackets change in 2026, would it make sense to convert to the top of the 24% bracket now since when RMDs start, it will have to be taken out at the 25% bracket?

[@foundryfinancial]

It depends. But possibly.

[@sylviaskinner6849]

I have been wondering what to do. I just retired and have a 401(k) under 200,000. I am a single senior. I don’t know whether I should just leave it in there. It will not grow since I have stopped working for my company.

[@barrybmw6101]

Move it over the next X years. Try to get it all done by the time you collect SS. It will grow in your 401K based on what it is invested in. What you mean is there will be no more contributions. Move say 30 or 40 thousand a year until it is all moved. You have your standard deduction to help minimize the taxes. Pay for the income taxes on it from your personal unprotected funds if you have enough of that. Then you can invest the Roth IRA money in whatever you like, JEPQ for growth and dividends, VOO and QQQ to follow the S&P500 and NASDAQ are some stable suggestions.

[@thomasmoshier3920]

Yeah, I go back and forth on Roth conversions. At 65 with 1.8 million in my 403B. Do I delay SS until 70 and start Roth conversions now? Or do I take SS at my FRA and RMD’s at 73? It could go either way…..

[@foundryfinancial]

Have you run the scenario?

[@pbtube58]

It is best to delay SS until 70 and start Roth conversions now, but little by little. You need to run some spreadsheets, because it all depends on your specific situation. It is best to have some money in Roth and some in Traditional IRA. What most people do not understand is that once they start taking Social Security, their effective marginal tax rates are likely to be much higher than they are right now when they work. Your income will be lower, but the effective tax rate higher. This is counterintuitive, but you need to explore this more to understand. The effective marginal tax rate is the percent of the federal tax you will pay on the last $100 of the taxable income outside of Social Security. In many scenarios, this is going to be 185% of your theoretical tax bracket. Read more info by googling the-taxation-of-social-security-benefits-as-a-marginal-tax-rate-increase I cannot provide the link here.

[@nunuvyurbiz123]

Anyone considering conversions should beware compound taxes - i.e., causing more qualified dividend income and long term capital gains to be taxed. I'm in that boat, so any conversion I do involves an income tax on the conversion plus a 15% additional tax, due to causing dividends to be taxed.

[@barrybmw6101]

Not sure what you mean. Can you explain this a bit more?

[@nunuvyurbiz123]

@@barrybmw6101 Sure - income is stacked, so qualified income (like qualified dividends, long term capital gains) are stacked on top of regular income. Qualified income isn’t taxed, though, until your total income reaches $47K (single). Suppose you’re retired and you have $30K in non-qualified income (e.g., non-qualified dividends, consulting, social security, whatever), which is taxed at a marginal rate of 12%, plus $20K in qualified income, of which $3K is taxed at 15% since it’s above the total threshold. Now you do a Roth conversion of, say, $10K - you’ll pay 12% on that $10K, plus it will push $10K more of your qualified income into being taxed, at 15%. So really your tax is 27%, not 12%.

[@barrybmw6101]

@@nunuvyurbiz123 got it, thank you.

[@nunuvyurbiz123]

@@barrybmw6101 Beware that the same concept shows up in other areas too. How much your social security is taxed depends on your other income. How much you pay in IRMAA fees depends on your other income. So if your other income includes Roth conversions, then it could cause more social security to be taxed, or could cause you to owe IRMAA fees.

[@barrybmw6101]

@@nunuvyurbiz123 Yes, I wrote a very involved/complex Excel spreadsheet showing me everything from taxes to when the 401K will be completely empty and the yearly spend rate. Trying to get lots out of the 401K before I hit the IRMAA age and before SS and RMDs will not be a significant factor for me. I did learn (or refreshed my memory) from this video that gifts to charity should come from your 401K so adjusting the conversions down some to allow for that. This helps the tax situation a bit.

[@PDXLANDBARON]

I convert to ROTH when my passive loss (real estate rentals) permits me to pay zero tax or very little. Don't be an earner be an investor.

[@GREGGXYZ]

Which 13 states don't convert tax-deferred distributions?

[@kellanhills1972]

Thanks for showing the other side. I’m a high net worth individual and am not going to convert to a Roth. The benefit if any will be remote and I am doubtful given the massive upfront taxes. Also we have no idea of the Roth treatment in the future. And I have no idea if im going to live past 75 when the RMD kicks in. I suspect the RMD will go even higher as longevity changes.

[@user-jl7ui4sc7q]

Yes, a change in Roth treatment is the stuff of nightmares.

[@jamesleonard4713]

Not a bad Idea, I'd just add that I'm doing conversions, because I have kids. Basically, I'm doing the work up front so they don't have to worry about it. I'll save a little money, but it could be a whole lot of money for them. Both IRA types have to be emptied within 10 years of inheriting them, but just the Roth is tax free. So it could be a massive tax bill, especially if they are already high earners. You could have the whole thing in the 39% bracket (which returns in 2026), plus the 3.8% Medicare surtax. Even more if they live in a state with an income tax. If they happen to live in CA, they could be paying over 55% in tax on some or all of that money.

[@jamesleonard4713]

Just an FYI - I'm doing partial conversions over about 5 years and I have money outside my retirement accounts to pay the taxes and to live on while I'm doing the conversions.

[@barrybmw6101]

⁠​⁠@@jamesleonard4713why only 5 years?

[@jamesleonard4713]

You can definitely take longer, depending on how much you have. The one thing to remember is you have to wait 5 years, before using that money or you'll pay extra. I'm personally targeting to have everything done in 10 years, but that's just a preference, no specific reason and I may go longer if the taxes change.

[@hownwen]

Regarding RMD. Do they count all of a married couples accounts? If they are both of the Rmd age?

[@foundryfinancial]

An IRA owner must calculate the RMD separately for each IRA they own but can withdraw the total amount from one or more of the IRAs.

[@mikej1570]

WOuld LOVE to use your "ROTH IRA" conversion tool as stated in Video you would liknk in "Show Notes" All I found was a link to sign up for your services... DISSAPOINTING! IF there is such a link (without giving my first born,child, my cat, dog and goldfish information.) Please post it below. Perhaps if you used the KISS approach you would get more intrest and client.

[@thomaswiegmann4184]

You have to have faith in future if you want or need to convert.

[@Toomanydays]

You have to have faith in future if don’t want or don’t need to convert.

[@g0989]

Life expectancy can also be a factor in whether or not conversion will pay off in the long run.

[@jtixtlan]

I’m turning 63, working full time and hating it. This will be my highest income year at $80K. I wanted to retire mid-year but I am going to complete the year so this year will replace a $0 year in my social security calculation, and so the additional months will also help. I have a $500K trad. IRA, my house and car are paid, I have just finished paying off my two kids’ college educations, and I want to retire in January 2025. My husband is turning 65 and does not want to retire until 67, so I will stay on his health plan until I am eligible for Medicare. Big question: Roth vs. High Yield Savings account? Currently, I am saving my salary at a rate of $2000 per month. I have over $50,000 in a savings account, mostly in a CD at this time. I am doing this so that I have post tax savings to use when the time is right. I wanted money that will not be impacted by fluctuations in the stock market and that I can use as I please without having to pay more taxes on it. In the next six months as I finish out my full-time work life, should I continue saving in a savings account and CDs or should I be putting money into a Roth IRA or more money into my traditional IRA? For the 2023 tax year, it was the first time I did not put money into my IRA in many many years. Instead, I put my savings into a savings account. Is this a good plan?

[@jamesrobertson5370]

You also can’t withdraw earnings from a Roth until you’re 59 1/2 years old without penalty.

[@user-jl7ui4sc7q]

No, but that scenario where the couple paid less in taxes and ended up with less money was interesting.

[@Toomanydays]

I’m in the 22% tax bracket. I’d rather have $900k in a Roth than $1 million in a conventional IRA. But I have other income to fill into the 22% bracket.

[@wilma6235]

Can you show us IRMAA in right capital?

[@foundryfinancial]

Yes. It’ll show the bands.

[@SBB1955]

The link takes me to Foundry Financial NOT Right Capital.

[@michaellechner8981]

Why is it never considered to wait as long as possible to pay your taxes with inflated dollars?

[@foundryfinancial]

Well, you're also paying on inflated assets. It's not like a static amount -- or at least I hope it isn't.

[@idahoron]

The main thing that worries me is im 59. I have cancer, and I'm worried that if I convert to Roth, the stock market will tank. Not only will I pay a ton in tax, but i will lose a pile in a stock market crash.

[@ronbrendag7131]

Just chunk it up to the next tax bracket over 5 + years.

[@toantruong7901]

If the market crashes, then do in-kind conversion and hope the market will go back up soon.

[@wwz1011]

If you have a sizable IRA, say a million or more, converting means MASSIVE tax bill now, just to avoid taxes later. And you need the money in hand to pay the tax, if you use some of the IRA proceeds, you can trigger additional penalties (depending on your age).

[@tomowcaest.5999]

At the END...... It doesnt justify the means ?😮

[@FrankMeester46]

This Universal Trend of having a Beard has been proven to be counter productive Having a clean shave exudes confidence. This look is considered to be a confident and trustworthy look. It is a sign of confidence and honesty thus people are attracted to the clean shaven look. Psychologically, it symbolises self-confidence. That image of the beard makes it very difficult to be accepted in social interactions and thus the corporate culture. Have you ever wondered why sales people are advised to be clean shaven? A clean shaven face has high levels of trust associated with it. People can recognize you easily and you look non threatening and welcoming. The the most important characteristic trait of a good sales person is that he should be instantly liked and trusted. Facial hair does create a big psychological barrier between the approached and the one approaching. It takes a while to establish a sense of trust with the person if you have a beard. This Universal Trend of having a Beard the ''Scruff Look " has been proven to be counter productive Having a clean shave exudes confidence. This look is considered to be a confident and trustworthy look. It is a sign of confidence and honesty thus people are attracted to the clean shaven look. Psychologically, it symbolises self-confidence. That image of the beard makes it very difficult to be accepted in social interactions and thus the corporate culture. Have you ever wondered why sales people are advised to be clean shaven? A clean shaven face has high levels of trust associated with it. People can recognize you easily and you look non threatening and welcoming. The the most important characteristic trait of a good sales person is that he should be instantly liked and trusted. Facial hair does create a big psychological barrier between the approached and the one approaching. It takes a while to establish a sense of trust with the person if you have a beard.

[@salesadmieze9049]

I'm confused. What does this have to do with Roth IRAs and regular iras.?

[@fendermon]

I have more money growing by not having a Roth. I would be surprised if anyone could really do the math on what is better. As the saying goes "six one...half dozen the other". I do find it funny though when people ask if I have one and I say no. They are appalled :)

[@xlavahott4547]

Saying the money converted into a Roth "ARE GOING TO GROW TAX FREE FOREVER" is misleading. The money "CAN" grow for the rest of the time you are alive and have the account is more accurate. This is why I don't have a FA.

[@palerider7924]

and it can grow for an heir another 10 years tax free after they inherite it from you they do have to exit the Roth within 10 years then any future gains on that money is taxable to them.

[@peterdinglasan2158]

To avoid paying taxes Don’t make any money

[@TM_Stone]

"Why did your strategy cause me to lose money?" Kevin, I'll help you answer that question to Jim Doe. You lost money Jim because you're not a financial professional and you took what was educational information and turned it into an actual plan you thought was customized just for your situation.

[@JAT922]

I don’t understand your logic about paying the conversion taxes from the retirement account vs paying for the conversion using another account. Sure the Roth will be bigger if you don’t pay for the conversions out of the account but then the account you use to pay the conversions will be smaller.

[@notyetjp]

I struggled w/ that too. You want balance in Roth to grow as large as possible, since future returns will be tax exempt. You want to reduce your taxable account(s) as much as possible, since their earnings will be taxed as cap gains (in brokerage accnt) or as RMDs (in tIRA as ordinary income). It seems to be a finer point, but over decades, it has a profound effect on your taxes paid.

[@keithmachado-pp6fv]

Only if you recognize the gains in the brokerage account by selling. If you don’t need the money, which i assume is the case for many converting to a Roth, since otherwise why convert, just withdraw and use it, then the brokerage account allows you to defer gains indefinitely, harvest $3k of losses per year against ordinary income, and your heirs get a step up in basis and don’t have to empty the account in 10 years.

[@kayallen7603]

You pay the tax WHEN you convert. But you can convert a PORTION only.

[@soldiernomore3843]

How do you think Clinton balanced the budget??

[@toddmaniatoddmania9844]

Ha ha!

[@harryl7946]

Seeing more reasons to NOT convert than to convert.

[@foundryfinancial]

Well, I’ve got another whole video about the power of converting. I just want to give both sides.

[@vandiep3296]

Your second reason a little bias. You should also mention that the gain in IRA account is a tax deferred money, and the money that converted to ROTH would continue to generate a tax free income. You should run a parallel numbers comparing the growth on both IRA’s and ROTH’s account into the future of 10, or 20 yrs, so your viewers will have a fair numbers on both accounts.

[@kellanhills1972]

You also cannot withdraw from a Roth conversion for 5 years.

[@foundryfinancial]

I’ve got the 5yr rule on my list of topics.

[@user-gr6bv5lf8m]

If I'm not mistaken, if you already have had a Roth account for more than 5 years, you can withdraw the money you convert.

[@suzanneemerson2625]

Thank you.

[@jollama]

Way to admit you didn’t watch the video

[@keithmachado-pp6fv]

Only the gains are subject to the 5 year rule. The after tax contributions can be withdrawn at any time tax and penalty free.

[@joeysocks5718]

Taxation is theft!😢

[@raymonddee1059]

when you conver take out for taxes

[@ParvanehMinavand]

Guess this works for the very patient people

[@MadinehKhademian]

The future that awaits Roth seems unpredictable

[@PoryaRajai]

i wonder if one can get the desired value in the long run.

[@g0989]

@@PoryaRajai If they live long enough...

[@samkitty5894]

Roth IRA makes perfect sense for a young person who has his entire working life ahead of him. Roth IRA for an older person makes no sense. You want to pay taxes when you have the least amount of money, not when you have the most.

[@1wheeldrive751]

No. You want to do Roth conversions when you have the least income, so you have lower taxes on the conversion, not the least wealth. Many people have lower income right after retirement but before hitting RMD age.

[@samkitty5894]

@@1wheeldrive751 So you are suggesting someone who is retiring and has $ 1,000,000 in his IRA should pay taxes on that $ 1,000,000 now and not have to pay them later? Taxes on $ 1,000,000 are a lot of money. I said that young people just starting out in work force should put money directly into Roth IRA and not pay taxes later, when they start taking RMDs, 30-40 years from now.

[@1wheeldrive751]

@@samkitty5894 - not all at once, and not all of it either. The idea is to move enough out of the tax deferred accounts into Roth IRA so your RMDs won’t punish you tax-wise later on in life. First you need to project what your income will look like throughout your retirement. There are many good, inexpensive programs that allow you to input your individual situation and do “what if” scenarios of the future. RMDs start out relatively small, even on 1M dollars, but they will increase over time. Even after the RMDs start you can do Roth conversions after the RMD, and even use that RMD to pay the tax on larger conversions Plus that 1M will be increasing if you have it invested properly. Depending on your tax bracket you could convert 100k per year for 5 or 6 years to reduce the RMDs to something more manageable.

[@CraigandMandy1]

@@samkitty5894a little at a time,not all at once.

[@samkitty5894]

@@CraigandMandy1 That makes little sense.

[@Erginartesia]

You don’t even adjust for the 2026 tax bomb?

[@celestialfix]

Massively overhyped strategy by financial planners.

[@CraigandMandy1]

Maybe for you.

[@M22Research]

Wait. The slide at 5:41 shows an ending portfolio balance of $1.4 mil with conversion and $1.77 mil without. BUT, that $1.77 mil remains tax-infested. That is, more than 75% of it remains tax-deferred. At a 25% tax rate that balance comes right back down to the same ending balance as the totally tax-free, converted to Roth proposal. Am I missing something? Seems like, all other things equal, if you wish to spare your heirs from being driven into a higher tax bracket in this scenario, you’d seriously consider converting.

[@foundryfinancial]

The point is that it’s essentially a wash in this situation. It wouldn’t make sense to convert.

[@M22Research]

@@foundryfinancial but it is not a negative as portrayed. If your heirs are in their peak earning years, you’re not doing them any favors. Even if it turns out to be a breakeven for them, you’ve made tax time even less fun for them. Inheriting a Roth is simply a matter of determining whether the heir needs the money or wishes to leave it growing tax-free for another ten years. Speaking from personal experience - our father converted 100% to Roth. While I can no longer ask him what his marginal tax rate was or how long he took to do it, it did simplify matters for our far less financially sophisticated surviving mother. As well as simplifying matters for us heir-“kids”.

[@jamesleonard4713]

@@M22Research You are correct. I'm doing conversions, because I have kids. Basically, I'm doing the work up front so they don't have to worry about it. I'll save a little money, but it could be a whole lot of money for them. Both IRA types have to be emptied within 10 years of inheriting them, but just the Roth is tax free. So it could be a massive tax bill, especially if they are already high earners. You could have the whole thing in the 39% bracket (which returns in 2026), plus the 3.8% Medicare surtax. Even more if they live in a state with an income tax. If they happen to live in CA, they could be paying over 55% in tax on some or all of that money. I'll be converting over a few years, to keep my income in the lower tax brackets. I downsized my house, so I have the money to live on and pay the conversion taxes, outside my retirement accounts. You should appreciate your dad, sounds like he was looking out for you. :)

[@2cartalkers]

Consensus from several tax gurus is that the Trump tax cuts will go away after 2026 thus taxes will be higher, should this also be a consideration? Also should not age be a consideration? I am going to be 76 this year and are the upfront costs to convert worth it?

[@colinmiller1054]

Man you gotta move back from the camera. This is too intense to watch

[@bobbean4702]

Your inheritor will still have to take rmds on it. No benefit there.

[@palerider7924]

no rmd's on an inherited Roth account nor taxes but they do have to move it out of the Roth within 10 years.

[@bobbean4702]

@@palerider7924 you are partially correct...by today's rules but legacy inheritors were supposed to take RMDs and still do not have to close them out.

[@bobbean4702]

they are still a PITA to inherit

[@palerider7924]

@@bobbean4702 Even if they had a mandated schedule to move it out it's not taxed like rmd on a IRA

[@timothythompson4036]

I am just moving my 401k money to my life insurance policy. My wife get the death benefit tax free. This guy doesn't know anything.

[@simul8guy75]

So, you're moving your 401K money into an annuity with an insurance company??? Sounds to me like you're the one who knows nothing. 😂😂😂😂

[@timothythompson4036]

​​@@simul8guy75Hey genius. Life insurance death benefit is tax free. An IRA is often taxed at 50%. Sounds like you don't know anything. Stop taking advice from stock brokers. 2:58

[@simul8guy75]

@@timothythompson4036 So, you put all of your 401K into a life insurance policy? I guess you didn't have much money in your 401K, huh?

[@bigbruin1977]

Don't confuse Insurance companies as being the same as an S&P500 investment type. If you have money that you want to grow and product income, Insurance company is not the wisest choice. I have read many experts opinions about this in making this assertion. From Nerd Wallet: "If you don't need the insurance component, there may be better investment options on the market. The primary purpose of life insurance is to leave a sum of money to your beneficiaries. So, if you don't require the coverage, you may want to explore other types of investments first."

[@timothythompson4036]

@@bigbruin1977 Who cares what Nerd Wallet says?. They are just a bunch of stock brokers. Anyone can get on social media and claim to be an expert. You have to be very careful of S + P based investing, especially as you get older. The reason - extreme volatility. The markets can drop at the worst time, as you get older time is no longer on your side.

[@pbtube58]

It is best to have some money in Roth and some in Traditional IRA. What most people do not understand is that once they start taking Social Security, their effective marginal tax rates are likely to be much higher than they are right now when they work. Your income will be lower, but the effective tax rate higher. This is counterintuitive, but you need to explore this more to understand. The effective marginal tax rate is the percent of the federal tax you will pay on the last $100 of the taxable income outside of Social Security. In many scenarios, this is going to be 185% of your theoretical tax bracket. Read more info by googling the-taxation-of-social-security-benefits-as-a-marginal-tax-rate-increase I cannot provide the link here.

[@Bud88883]

IT'S A SCAM!!!!😀😀