How I calculate this year's Roth Conversion Amount using a spreadsheet? How do I determine taxes?

[@joekuhnlovesretirement]

*_PLEASE STOP USING Spreadsheets!_** It falls way short optimizing every retirement factor* Retirement Tool Link I reference and highly recommend -- New Retirement. Free 2 week trial. $120/yr after. You will buy this after trying (I have purchased for 3 years). www.newretirement.com/?nr_product=NRC&nr_a=35&nr_medium=affiliate& -------------------------------------------------------------------- Need a CFP to create your retirement plan for a one time fee? My Recommendation: Neil Fortwendel [phone]. Neil created my plan. Plan updates as you wish for a smaller fee. Check Neil out on Facebook and LinkedIn. ---------------------------------------------------------------------- *DO NOT GO IT ALONE!!!!!!!* *Money Pickle - FREE! use link to set up a FREE 45 minute dialog with a Financial Advisor* No obligation. Get answers to your questions. Get an expert to look at your plan. moneypickle.com/joekuhn

[@stevemlejnek7073]

Thanks Joe. I use NR also. For me as a single pre 65 retiree, (currently age 58) my Roth conversion strategy is filling as much of the 12% bracket as possible while also ensuring I keep my MAGI low enough so my ACA subsidy is sufficient to cover the premium cost of my Bronze health care plan. For me it is a balance of doing some Roth conversions and having subsidized health care.

[@BadPhD777]

I'm in the exact same scenario except I'm 63. Gotta keep the numbers so I don't lose my ACA subsidy and I'm choosing to stay in the 12% bracket like you.

[@tedlaurvik3765]

Just be careful of having Roth conversions once you get 62. Your medicare premiums are based on your taxable income from two tax years prior to 65 (or two years before you claim for medicare). Convert with care, my Part B/D premiums (IRMAA) are higher due to my conversions in the past two years.

[@BillMaass]

I like the spreadsheet Joe. Especially the colors 🤗! A few suggestions. 1-Tell people to open a Roth IRA immediately. Start the 5-year forever clock. Contribute $100 to it if that is all they can afford. Or convert $100 if they can’t contribute. The younger they are the better. 2-Show how much money is eligible for conversion in this example. It is clear from the New Retirement tax bracket graph that the amount is significant. 3-Based on the amount eligible in item 2 above, the couple should most likely convert through the 24% bracket in both 2024 and 2025. Perhaps (but likely not) down to 15% bracket if the old brackets return. 4-Agree with Steve below that there are other factors. ACA as he noted. Also IRMAA since your couple is age 62/63 if I recall correctly. Converting through the 24% bracket will trigger IRMAA. Would have been better to convert at your young age of 59-60! More complications if couple has qualified dividends and/or LTCG but you are wise to keep it simple at first. I know you know that but some viewers won’t. 5-When looking at the New Retirement tax bracket graph, mention the ages the spouses are expected to survive to. Then change the assumption to show one spouse passing away prematurely at say age 72. Then show what happens to the tax bracket graph. Reason--strategically convert while eligible for married tax brackets. Good work Joe…you are enjoyable to follow.

[@joekuhnlovesretirement]

Great ideas but need to keep videos simple and 10-15 minutes. This always presents a challenge

[@BillMaass]

@@joekuhnlovesretirement I know Joe. It is a balancing act. That is why you do daily videos. May I suggest upping your game to 3 daily 15 minute videos…just kidding!

[@peteroreilly7105]

Great comment Bill. I didn’t understand your first comment about 5-year wait….so asked ChatGPT. Thought I would share in case others weren’t sure. Yes, opening a Roth IRA now in anticipation of future Roth conversions can make sense. Here’s why: Five-Year Rule for Roth IRAs The five-year rule for Roth IRAs states that for tax-free withdrawals of earnings, the Roth IRA must be open for at least five years. Here’s how it works: 1. First Contribution Rule: The clock starts on January 1 of the year you first contribute to any Roth IRA. If you open a Roth IRA now and make your first contribution in 2024, the five-year period will end on January 1, 2029. 2. Conversion Five-Year Rule: Each Roth conversion has its own five-year holding period. This rule means that each amount converted from a traditional IRA to a Roth IRA needs to be in the Roth IRA for at least five years before it can be withdrawn tax-free (regardless of your age). Implications for Roth Conversions • Opening a Roth IRA now (2024): By doing this, you ensure that the five-year clock for the first contribution starts ticking. This allows you to potentially withdraw earnings tax-free once you reach age 59½ and the five-year period is complete. • Conversions at age 59 (2029): Each conversion will have its own five-year period, but since you’ll already be 59½, the five-year rule for conversions is less significant because you can withdraw contributions (but not earnings) tax-free. Summary • Pro: Opening a Roth IRA now starts the five-year clock early, allowing for greater flexibility and potentially tax-free earnings withdrawals when you reach 59½. • Con: If you don’t plan to withdraw earnings soon after turning 59½, the benefit may be less significant. Next Steps 1. Open a Roth IRA: Make at least a small contribution to start the five-year clock. 2. Plan Conversions: Schedule your Roth conversions strategically over the next few years. This approach can provide flexibility and potential tax benefits, aligning with your retirement strategy. Thanks all!

[@BillMaass]

@@peteroreilly7105 Thanks, Peter. I am old school so I go to IRS Publication 590-B. Navigate down to the Roth IRA section. They have a nice flowchart to identify what is a Qualified Distribution. The 5 year “Forever Clock” Rule is critical. To clarify, it begins on January 1 of the year when the taxpayer opened any Roth IRA. So, one could open a Roth IRA today and close it tomorrow, but the 5 year clock will continue to tick and strike 5 years on January 1, 2029. Of note, it appears to me from IRS Pub. 590-B (and I have read articles and watched videos) that once the 5 Year Forever Clock has wound down AND the taxpayer is over 59.5 -- that the 5 Year Conversion Clock is no longer applicable. That means you don’t need to wait 5 years to access the conversion amount as long as you had a Roth IRA opened at least 5 years ago and you are 59.5. The moral of the story is to start your 5 Year Forever Clock ASAP.

[@deirika0613]

A question I need answered… I inherited a Roth IRA in 2023 and assumed since it was inherited, and has its own 10 year clock, I cannot contribute or rollover IRA funds into this account? Do I need to open a new Roth to start the forever clock?

[@miel001]

The spreadsheet made WAAAAAY more sense! It was simple and to the point. You bring up the software and it becomes information overload. Plus it requires you to do way more splainin!

[@joekuhnlovesretirement]

Thanks

[@jploehn]

Joe… definitely do that next Roth conversion video. As always this was a great one and very helpful. Loved seeing an example of one of your spreadsheets as you always talk about them. Joe from Texas… out!!

[@joekuhnlovesretirement]

You got it!

[@davidfolts5893]

Thanks, Joe! Doing Roth conversions gives you more control over uncertainty in tax changes. Control as much as you can. Don't worry about the rest.

[@kathymills1959]

I'm not retired yet but am very interested in looking into Roth Conversions so I appreciate any content you can provide from the various angles that should be considered - thanks!

[@genglandoh]

I just retired on Friday and this video is very helpful. My wife has not been interested to learning about our retirement plan, so I have posted some of your videos to my Facebook account which she watches. I will be posting this video because it explains why we will be doing some Roth conversions in 2024 and I do not want her to get alarmed when we have to pay the taxes. Please do the video on where you get the money to pay the taxes on the conversions.

[@tedlaurvik3765]

I wish my numbers were this easy to define. Thanks for the interesting discussion.

[@over07ful]

The video you’re planning for the mechanics of a conversion would be greatly appreciated! I think conversion should be done sooner than later as this opportunity will most likely come to an end. Convert while you can everyone. The taxes are coming.

[@ralph8479]

Joe, excellent video....small manageable bites are easier to 1) explain, and 2) viewers to absorb and understand. I too am a NR convert (thanks to you). As a retired engineer, I've had to constantly watch out for analysis paralysis! I am confident you know what I mean! Anyway, appreciate your effort (as always) and look forward to the next bite out of this looming elephant!

[@joekuhnlovesretirement]

Glad it was helpful!

[@nr5384]

I recently did a Roth conversion at vanguard and I didn’t even have to call them. It was between two existing vanguard accounts, so super easy. Would love to a video on the mechanic of conversion on a scenario more complicated than mine, and also how you fund the taxes. Thanks Joe!

[@livezero264]

Thanks Joe. Yes, very interested in a video of doing a walkthrough of a Roth conversion. I will need to start doing conversions next year.

[@SuperiorSteve4]

Thanks Joe! This is a very timely video for my wife & I. I have watched dozens of other videos on Roth conversions. The other videos I have seen just want you to think that Roth conversions are so important and so complicated, you must hire their firm to figure it all out for you! You have just shown me how simple it is. We have already bought New Retirement, but I haven’t filled out the tax saving part yet. I’m headed there now. Thanks a lot!

[@dandawson8128]

All good stuff! The twist is adding contributions to a DAF for charitable contributions, and how those deductions could allow a greater conversion. NR could be a great tool, but getting a CPA involved is a good idea when it gets more complicated.

[@BadPhD777]

I started using a DAF for the 2023 tax year to help me save on taxes! An excellent tool for anyone, not just retirees!

[@Jeff_Slown]

Thanks Joe. Great to see how you use both excel and NR. Definitely interested in the future video on the taxes piece.

[@PorscheSpeedster-kz6nc]

Nice job Joe. You are starting to get NewRetirement centric but I understand. On the next Roth video, your viewers might need to understand the 5 year rules and that you can touch the principle penalty free if needed for emergencies. Have a great Sunday.

[@mattvalen3839]

thank you for doing what you do here. I have been hungry for information on roth conversions and taxes. the follow up video you mention of on taxes and when will be great to see. Thank You again.

[@andre-l3j]

Yes! Thank you, Joe! My greatest question in terms of how to manage my retirement portfolio. I also look forward to the second part of the Roth conversion question too. Many thanks!

[@EatLeadPal]

Great video, Joe. I went through this in April when I did my first Roth Conversion. I used the Roth Conversion Explorer in New Retirement (NR), trying to stay in the 24% bracket. Even though NR takes into account returns you get, they are really a guess so I converted a little less than NR suggested to account for higher returns. Good news! I heard on the news that the Republicans have already convened a committee to begin strategizing renewing the tax cuts when they expire. Let's hope they have the power to do so. It would be nice to keep those low brackets for a little while longer.

[@timmotley5032]

Thank you Joe, a very timely video as I am planning to do a few Roth conversions when we start retirement while our income is lowest. Yes it would be helpful to know best time of year and how/when to pay the tax.

[@muffintopnc]

Hey, Joe, thanks for this video. I really like seeing your spreadsheet while you talk through your logic. Even better than the whiteboard! :) What I learned today is how to think more strategically about those tax brackets. The increase from 10 to 12 is so small that I'm inclined to leverage that bracket. However, I'm sure I need to model the entire conversion strategy, because of the RMDs in my future. I use New Retirement and I've played around with the Roth conversion utility they have. Since I have real estate owned in one IRA, it's not practical for me to take the NR recommendation at face value or I would have to sell that property. This was an excellent video. ~ Steven in Raleigh

[@BadPhD777]

I've done a Roth conversion on the Fidelity website with no help from a rep. Very easy to do!

[@yestohappiness2721]

This was excellent - loved the spreadsheet! Definitely interested in how to do the roth conversions and when/how to pay the estimated tax due... will have to do them this December first time. TY!

[@joekuhnlovesretirement]

Coming soon!

[@chiparooo]

I love a good spreadsheet! Nicely done. Great topic, well explained. Any other info on Roth conversions that you feel is important, feel free to share. Thanks for sharing!

[@kaytee1617]

Really enjoy this type of video. I like Excel and am learning NR. Thank you.

[@jeffclements2114]

Hi Joe. Thanks for the videos. They helped me pull the cord at age 60. Now if I can get my wife to retire it will feel real. Our numbers add up and I feel our planning is sound. One topic I don’t see covered ( I apologize if you have a video on this that I missed) is the impact to my wife if I die early. I know she’ll get my SS, but hers will be dropped resulting in less SS overall. I was the higher wage earner so this scenario has the biggest impact to my plan when I modeled different scenarios. I’d love to see a video on this. Again, thanks for the videos.

[@joekuhnlovesretirement]

See “why I’m taking SS at 70”. Exactly your issue. I model easily in NR. Also taxes change since filing as single.

[@mikephilpot9857]

Another great video. Thx Joe. 👍 For my ROTH conversions, I’m also concerned with filling up IRMAA brackets and making sure I don’t push over into the next bracket. That is a huge cost if you make a mistake and go over by just a dollar too much. 😮 Social Security taxes are another concern for many. I have high enough guaranteed income that I’ll always be paying taxes on 85% of my SS, but others might not; so, that’s a consideration as well. For most people, NR helps with those concerns as well. Not so much for me; because, NR doesn’t handle SS if someone in your family collects SSDI; so, that throws off all the tax calculations. You can fudge things a bit, but the tax projections are never really accurate. 😞 So, I end up calculating my taxes with other software and I manually calculate my MAGI to check what my IRMAA bracket will be. Then I know how to calculate the amount of my ROTH conversion. Two other considerations in favor of higher ROTH conversions: Once a spouse passes, the taxes for the remaining spouse will jump; because, they will be filing as single. So, you want as much in ROTH as possible at that time. The other is that you really want as much legacy value in ROTH; so that, your heirs don’t have taxes on any wealth they inherit. 👍

[@caregiver_life]

We're in a similar situation with SSDI. I do wish NR allowed for Social Security income pre-65. The way I've been doing it is as a 2 pension items - split 85 / 15 (we'll be fully federal taxed on 85%) with LTD and other income. But, like you said it's still not accurate. Agree it's a tricky balance with having to also consider IRMAA limits. What other software are you using to get the calculations? Thx for sharing some tips here in the comments, this is still very new to us so I'm trying to learn everything I can to avoid all these tax pitfalls!

[@mikephilpot9857]

@@caregiver_life Yeah, in NR I have to enter SSDI as an inflation adjusted pension. This mostly covers the cash flows correctly, but SS taxes are incorrect and MAGI calculations are wrong for the SSDI “pension”. As for tax software, we use a tax professional; so, he has software that handles all that. But if you want to do it yourself, you could use something like TurboTax or even something like an online calculator from a reputable site like AARP. IRMAA brackets are a two year look-back; so, you need to understand that as well. You can use the current year brackets which will guarantee you won’t be over into the next bracket two years from now, but they always increase for inflation; so, you’ll be short the full amount you could have converted. You just don’t know how much that will be. Personally, I just use this year’s brackets and won’t worry two years from now about missing out on a small bit of ROTH conversion dollars I could have had. 👍

[@joekuhnlovesretirement]

Great insight

[@stephtraveler7378]

Yes, def interest in the Roth conversion tax implication vid. Especially, if you Roth convert with no tax withholding then taking a 401k/IRA tIRA distribution use the Rollover tIRA 60 day rules and reinvest in a tIRA. All to withhold the taxes needed to cover the Roth conversion... to avoid the tax late payment penalty. Would love to see the example applied to the top of the 24% bracket.

[@kevinpurcell9589]

Joe, this is exactly what I want to do and would love to see you show us how!! I'm from Placentia, CA

[@bubbme]

I really enjoyed the screen share and found it effective. I would like to see you do that more!

[@Jayme09]

Kansas. Yes, show how to pay these Roth Conversion taxes. Thanks Joe!

[@AskSabado]

We just began the process of roth conversions this week. Daunting to say the least. Started small and are working up to larger amounts.

[@JohnMcClure-i3r]

Great video Joe. I appreciate your work.

[@dittom1725]

Thanks Joe. Helpful stuff. Would love to see a video about how you pay the taxes on your Roth conversions.

[@mattpenn3972]

Excellent video, thanks. We're starting to plan what our retirement looks like (still years away) and we're looking at doing Roth conversions. Since we have the wonderful problem of a very good pension, we'll be paying taxes. I'm interested in your ideas for the source of those tax payments, and in particular how does the 5 year rule play into that. Fan of your videos, I write my own spreadsheets too, and I use newretirement as well... thanks again for all of your work here!

[@jeancarloferreira9770]

Im looking to do roth conversion next year so this is great info. Thx u

[@GaryWetz]

Joe, thanks for another good topic. I wanted to share another lesson learned for me....I completed my plan in NR and ran the Roth solver and was receiving some results that did not make sense because it skipped some of the years pre-RMD and had several very large conversions post RMD. I paid NR (Nancy) for a coaching session. She also thought it was strange. She had me take all of my "one time" expenses out and enter them into the detailed budgeter to be paid during the year they were needed. It cleared up the issue and the Roth conversions began to make sense....Also, the one time expenses began to be adjusted for inflation. They are not adjusted for inflation when entered into the one-time expense section of the tool. Have you seen this as well?

[@joekuhnlovesretirement]

Yes. But great info for all

[@kennyhart2699]

Yes, please make all the videos you can about doing roth conversions and paying tax on these. If I am going to do them, I will need to start next year, and I'm struggling with what I want to do. I'm wondering if it's worth doing it if you're going to pay the taxes out of the pre retirement account. Thanks

[@robertmoore7575]

thanks Joe - Just learning. I'd like to know how to pay the taxes on a conversion.

[@caregiver_life]

Exciting Indeed - I have a new Excel spreadsheet to prep 😅. Yes please do go through your Roth conversion process - appreciate it! Someone else mentioned it in the comments and I will add that starting the "forever clock" on the Roth IRA asap is a great idea - even if it's just a small amount. We couldn't do it for years because of income limits, but the first year we became eligible we didn't because we thought, well we have Roth 401k's, this was a rookie mistake. The timer is separate for regular Roth IRA and Roth 401k. We thought we'd have more time, then disability hit. Disability allows access to the 401k - but dealing with employer plans is a headache (especially if they have pre-tax and Roth combined), having a regular Roth IRA > 5 years old would have saved that headache.

[@BillMaass]

Yes, rookie mistake. That is why I mentioned high income people who exceed contribution limits can open Roth by converting a small amount like $100 just to get the Roth open to start the clock. I was fortunate to open Roth in 1998 when we were allowed to convert and spread the tax hit over four years. My rookie mistake was failing to convert more when the market crashed in 2008-2009. Probably more rookie mistakes I have conveniently forgotten too.

[@roburb73]

Great video! We'll be doing this in about 10 years. At that point both my wife and I will be done, but she'll be 50 and can't access her portfolio. We will use that 9-10 year period to do our Roth conversions. We'll have my retirement income, but will be paying the 12% v 24%-32% bracket on those top dollars.

[@BillMaass]

Keep your fingers crossed that tax rates don’t increase by then…already slated to climb in 2026.

[@roburb73]

@@BillMaass Even at the projected 15%, I'll still come out at a minimum of 10% better, and some funds nearly 17% better. The only risk is is my wife decides she doesn't react to retire at 50. With her income and my pension, then it may be a wash.

[@berniekeene868]

Thanks! Please make a video on paying the taxes for the Roth conversion. Since I won't be receiving a paycheck or SS during the conversion period, I think the only option for me is to pay through my investment account. Selling some Vanguard index fund shares. Thanks!

[@philedwards6613]

Great Video! Now that you covered the mechanics. Would be interesting to get your views on how much pretax to convert to Roth. I think at a minimum one should try to avoid RMD pushing you into higher tax brackets later in retirement. What about converting more during gap year before Social Security? Up to 25% tax bracket…die with everything in Roth? Would be really nice to not worry at all about RMDs later in life. What is your decision process and goals. I have a lot in pretax wondering how far to take Roth conversions. Any thoughts on how to compare tax free assets at end of life to taxable?…etc. Giving to charity to satisfy RMD with QMD may be consideration as well.

[@andre-l3j]

I'm a rookie at this too, but New Retirement models out different strategies (convert to top of 10%; 12%; 22%; 24% brackets, etc.) and then tells you-based upon other income streams what your most efficient conversion timing / quantity is. It then also explains what this (whatever amount / pathway chosen) plan: 1. Saves in lifetime taxes 2. Impacts end of plan asset value 3. Impacts on IRMAA surcharges and 4. Other impact that I don't recall while I'm typing this :) I've noticed that sometimes the conversion plans that leave me with the largest tax savings don't necessarily result in the greatest asset value at the end of plan. I've also noticed that sometimes the most efficient conversion plan *may* cost more in IRMAA surcharges-particularly early in retirement if one is aggressively converting before SS or Medicare kick in. So you may need to pick between tax-free assets OR minimizing IRMAA surcharges OR paying more for unreimbursed ACA coverage. Choices.

[@MidlifeCrisisManagement]

thanks for the NR-Excel comparison for all us visual learners out here, Joe. living in a no-income-tax state, your demo makes me wonder if that'll make Roth conversions more valuable or not.

[@joekuhnlovesretirement]

No impact

[@mdcummins62]

Thanks, Joe. Good stuff. In your "mechanics" video, can you touch on how you decide timing of your Roth conversions? As in, beginning of the year, end of the year, or several throughout the year?

[@jimroberts6176]

Thanks for the details, Joe.

[@situated4]

Excellent overview with examples.

[@TerryParish-iv6zz]

I would be interested in a video on paying the taxes on Roth conversions. We have just started to convert some money from Our IRA to Roth.

[@davidh8279]

Very simplified explanation. One item that was not discussed is the IRMAA tax for anyone 63+ on Medicare or going on Medicare in the next 2 years (IRMAA is a 2 year look ahead on MAGI) You showed that as an option in NR when you showed the options but did not talk about that at all. People need to be aware of that additional charge when converting into the 22% tax bracket. Not saying that is something to definitely avoid, people just need to know that their Medicare payments will go up for the years they exceed that IRMAA limit in the previous 2 years of exceeding that limit. I do not believe that one should not convert 100% of the IRAs to Roth as it does not make tax saving sense especially if one plans on doing charitable giving via QCDs.

[@joekuhnlovesretirement]

I tried to keep simple. I’ll add IRMAA to next Roth discussion. By the way NR has a tab for IRMAA conversions to limit

[@ESmith-hk4tx]

Joe, your videos are terrific! What is the best way to pay taxes on a Roth Conversion? Pay it out of proceeds, pay out of your short term fund at year end? Thank you!

[@joekuhnlovesretirement]

Best from other funds to maximize what goes into Roth

[@jeffgehman8344]

Great vid 👍 A few questions: When do you actually do the Roth conversion? (ie, what month(s)) I presume it would be December since then you know how most of the year went, but please correct me if otherwise. Also, assuming I'm correct that dividends and interest are included in the taxable income total, how do you account for D & I that might arrive in December, especially late December? I feel like my Vanguard fund dividends are unknown until they are actually paid. Unless you know some way to know how much they'll be ahead of time, do you just wait until Dec 31 so you don't accidentally convert too much to Roth that kicks you up into the next higher tax bracket? Thank you!

[@whatsup3270]

Let me say it this way, years ago I had architects call me from all over about green roofs, they would ask questions for 30 minutes to 2 hours then eventually ask the price. Once they heard the price the deal was over. So after wasting enough time I started the answers with a formula, budget over footprint, if it did not exceed $600/sqft, we stopped. If it did not exceed $1,000 the deal was unlikely, that saved hundreds and hundreds of previously wasted hours. Same here if you don't start with $500,000.00 pretax savings per retiree it is time to stop.

[@teresas8238]

Hi, Joe! I learn a lot from your videos. I also would like to know how to pay the conversion taxes. I understood from several other videos that you shouldn’t pay them from your withdrawal amount. I set up the receiving rollover accounts in Vanguard myself to see how easy it would be to do and it was. Since we don’t have a lot of cash outside of retirement accounts, that reason alone would prevent us from doing many conversions. Maybe you have other ideas. Thank you for all your information.

[@joekuhnlovesretirement]

Paying from conversion is still a good idea. Not sure who gave you that idea

[@BillMaass]

No problem if over 59.5 years old

[@FailureatRetirement]

Nice video. Looking forward to the next one.

[@amyw.9477]

Great video, thanks! Question: If you contribute to Roth 401k with an employer, and then roll the money out into a new Roth IRA at retirement, does the 5-year clock restart for the new Roth IRA established at retirement?

[@BillMaass]

Amy, I recommend googling “Retirement Plans FAQs on Designated Roth Accounts”…I get an IRS document posted April 15, 2024. The 4th bullet point down addresses “Rollovers from Designated Roth Accounts.” Item number 2 in that section appears to address your question. It seems the 5-year clock starts with the first taxable year that your earliest Roth IRA was contributed/converted to. I refer to this as the Forever Clock. Hopefully you opened a Roth IRA at least 5 years ago. If not, then yes, it appears the clock begins with your new (i.e. your first) Roth IRA you established at retirement. As I commented earlier, everyone should open a Roth IRA asap even if only contributing or converting a small amount to start their Forever Clock.

[@BillMaass]

Paying the taxes on Roth Conversions can be as simple as withholding directly from the conversion as I do because I am over 59.5 and I don’t have a separate taxable brokerage account. I transfer from Roth to my checking account as needed to pay monthly and one-time expenses. Be careful if under 59.5 to avoid early withdrawal penalty. In that case, pay from taxable brokerage account. If still employed, you can increase your tax withholding from your employer. Another option is to access funds from a HELOC but interest rates are higher now. It all comes down to knowing and being mindful of your cash flow and tax rules.

[@tiarewilliams9186]

I’d love to know the mechanics of how to convert. I need to convert some traditional to Roth in 2024 (and beyond). Side note: I asked several videos ago about which account to convert-my husband’s who’s already taking SS and will have RMDs soon or mine (another 13 years to SS). New Retirement suggests mine.

[@BillMaass]

My IRA’s are at Fidelity. Roth conversion is soooo simple. Open the Fidelity app on my phone. Select “Transfer” and then I transfer from my traditional IRA to my Roth IRA. It then gives me the option to withhold 0-99% Federal and State income tax. Very easy. Pleased with Fidelity.

[@joekuhnlovesretirement]

Not sure matters

[@Bill-vk7fh]

The consensus I have seen is the older spouse uses/converts first to lower RMDs, but not sure when they are already at RMD age.

[@markanderson1354]

@@joekuhnlovesretirement I agree that I can’t see why it would matter. However NR definitely suggests different spouses do conversions in different years. I can’t figure out why.

[@MCW6229]

Thanks - using NewRetirement, BUT would like a manual check where can specify exact amounts (dividends from vanguard, etc not exact in NewRet) so convert maybe a few thousand below a critical amount (IRMA threshold etc..) - can you add a link to spreadsheet?

[@joekuhnlovesretirement]

No on spreadsheet. I don’t want liability of misinterpretation

[@happy_exmo9422]

Thanks Joe!

[@stevehowe209]

Joe - Good stuff. Can you share your excel spreadsheet here please?

[@joekuhnlovesretirement]

Sorry No. I don't want to take on the liability of errors and lack of understanding of my assumptions.

[@jerrylabat550]

You should actually also do the minimize lifetime taxes option. This would show you that you really don't need to target filling a tax bracket. This would target giving you the lowest effective lifetime tax rate, which virtually never aligns with completely filling a tax bracket. In fact this example would not have filled the 12, 15% brackets because it appeared they stopped paying taxes in the future.

[@joekuhnlovesretirement]

Need to be careful. You might min taxes for you but not heirs

[@jerrylabat550]

@@joekuhnlovesretirement Assuming the software works correctly it should have accounted for one spouse dying. However, I agree with your statement because if you planned to die at 95 and instead died at 80 your heirs will have a tax hit (unless you give it all to charity :-)).

[@peterwright837]

I’ve played around with the New Retirement Roth Conversion Explorer several times. For my situation, with less than 20% of my savings in pretax accounts, whatever approach I try results in a lower Estate Value at longevity despite reducing my lifetime tax bill. In fact if I choose the optimize highest estate value strategy it produces no results, which indicates that no conversions is my best strategy. Have you seen this result before? Is it primarily due to the fact that my pretax savings are not a major part of my overall retirement portfolio? Why shouldn’t everyone at least start with the optimize highest estate value strategy as a baseline?

[@joekuhnlovesretirement]

Be careful. Highest estate value may leave a tax bomb for heirs. 800k Roth is better than $1MM pretax.

[@peterwright837]

@@joekuhnlovesretirement understood, but my base plan without any Roth conversions only hits the 22% bracket. If I fill up the 12% bracket New Retirement says I’ll actually increase my lifetime tax burden more than $240K and reduce my Estate Value at Longevity by nearly $2M. Even limiting conversions to the 10% bracket only reduces my taxes by a few thousand and still reduces my estate value more than $500K. So the only justification would be my heirs tax burden.

[@twofathoms1]

Yes, please give a nitty gritty Roth conversion example. How does the standard deduction come into play? A person with a $50,000 pension "not collecting" social security, married filling jointly with 0% tax up to $94,050 plus a standard deduction of $29,200. Can they have a total income of $123,259 - $50,000 pension with a roll over allowance of $73,259 equals 0% tax?

[@joekuhnlovesretirement]

Not sure I understand but you must pay tax on pension. Standard deduction amount is only 0%

[@twofathoms1]

Basically trying to do a complete Roth conversion before taking Social Security to get maximum tax avoidance with long term capital gains. ​@@joekuhnlovesretirement

[@sergiosantana4658]

When you subtract the standard deduction of $29.200 from the 50k pension you will be left with $20,800 of taxable income with a fed tax bill of $2,080. You are correct this leaves $73,259 of tax free long term capital tax treatment inside of the 12% marginal bracket . This equates to a 2% effective tax rate

[@gregcampbell4467]

That's a great example for one already into retirement. The decisions are harder and narrower pre retirement. I'd love to see a hypothetical (not mine) example at 55 years old pre-retirement making married joint $200k of gross wage income with large-ish 401k but also trying to max a roth IRA. They are up against 5 year rule and income limits ($230K-$240K) on Roth IRA contributions (limit $7K /each or partial) (estimated $70 of future in retirement go-go expenses, no mortgage). Point being, the Federal government is capping how much one can contribute if one is doing a Roth conversion. So should they just wait until retirement to start conversions? I am aware that this is a much larger than median income with relatively modest expenses, so it may seem like a tax "game" with no real impact on their day-to-day beyond those future taxable RMDs on the 401k.

[@joekuhnlovesretirement]

You can do Roth conversions while working with no limits. The problem is income raising your tax bracket

[@davidperry2725]

@@joekuhnlovesretirement... and for some people, the impact on the cost of ACA health insurance.

[@whatsup3270]

That is the heart of the US Real Estate problem. Visit independent CPA who works for independent business owners on taxation. The most common answer is real estate. The US Congress treats rental better than homeowners, and it is a huge problem.

[@gregcampbell4467]

@joekuhnlovesretirement Yeah. This example is still not me but exemplifies the principles. For the high-ish income makers, the tax bracket flexibility is almost immediately available the year of or after retirement starts. There's a decision between convert out of 401k while working vs wait til retirement to convert (while making the modest IRA contributions today)

[@termita358]

Great video. ❤

[@TimIsThankful]

Thank you, Joe. I have two IRA accounts at Vanguard, a traditional account and a roth account. If I want to gradually move the traditional amount to the roth, can the taxes be paid from that account? For instance, if the gross transfer is $50k and the taxes are $10k, can $40k net be rolled over to the roth with the other $10K going for taxes? Or does that $10k for taxes have to be paid with outside money?

[@joekuhnlovesretirement]

You can pay from transfer if you’re 59.5. NR lets you pick that as an option.

[@joethecomputerguy1]

LOL, I convert the amount I can convert at an amount that I pay ZERO, yes, -0- in income taxes. So happy I understand taxes.

[@jonathanschwartz8]

Engineer also. Already using NewRetirement. But like you, I’d like see the isolated calculations for myself. Would you be willing to share the spreadsheet template?

[@joekuhnlovesretirement]

Sorry no. Too much liability

[@jonathanschwartz8]

I know EXACTLY what you mean. I just dropped Pro Bono non profit project that involved web publishing the official high school student directory. Could no longer afford to chance the liability if some bad event occurred based on info found in the directory.

[@PH-dm8ew]

When I do a fixed percent draw in new retirement it tell me in insights withdrawals that my first year draw will be $47000. Then once I enter a Roth conversion the first years draw says $250. Just doesn’t seem like the software really shows or explains why that is. Is the assumption that my conversion takes place of my normal 3.5 percent withdrawal? Doesn’t seem correct.

[@joekuhnlovesretirement]

I have to think on this.

[@genglandoh]

I just had a review with my financial advisor that I pay $1,000 per year for 4 detailed reviews. This meeting was to review my Roth Conversions and taxes Well to start I pointed out in an earlier meeting that their software tool was very poor. My birthday is in October and when I turn 70 and start taking my SS their software thinks I will get a full years with of payment. So they decided for this meeting they would use a spreadsheet instead. In general the spreadsheet was OK but I found 4 mistakes. Not big mistakes for the next 4 years but these mistakes make a big problem over 20 years. The advisors plan is to redo the plan each year, so the errors will not cause a problem. I am not really happy with this. Moving forward I will use New Retirement and will not renew my contract with the advisor.

[@duanekanai6677]

joe ... just subscribed ... where can the excel be found?

[@joekuhnlovesretirement]

I don’t share my home grown excel sheet. Too much liability

[@chrisdaigh2085]

How do you do your roth conversion. Does your brokerage have to do it, just wondering cause there is a max amount you can contribute to a roth.

[@joekuhnlovesretirement]

No limit on Roth conversions. Note don’t confuse with Roth contributions. Yes, made through brokerage

[@texascamper]

I'm interested in future video on how to pay taxes on the Roth conversion (or just withdrawal). Also, question is what if I don't want to do a Roth conversion, I just want to move it to a cash account such as CD or move it to an S&P 500 investment account or something other than Roth account. How is that different?

[@joekuhnlovesretirement]

Why pay taxes on growth?

[@texascamper]

@@joekuhnlovesretirement I currently do not have a Roth at all so I would have to start the calendar from beginning on the withdrawals...

[@johnkollm3243]

@@texascamper You can still withdrawal all your principle contributions tax free; only need to wait 5 years on the growth and get it all tax free for life (+10 years for heirs).

[@rwc3500]

rather than choosing a tax bracket, can you choose the IRMAA limit?

[@joekuhnlovesretirement]

Yes. Just a simple selection.

[@Bill-vk7fh]

Does New Retirement consider ACA tax subsidies in their Roth Conversion Explorer ?

[@joekuhnlovesretirement]

Yes. Yes yes.

[@Bill-vk7fh]

@@joekuhnlovesretirement I think the triple yes Means yes. Thanks.

[@EileenLancaster-ye1nw]

@@joekuhnlovesretirement where in NR do you see that? re: ACA tax subsidies taken in to consideration w Roth conversion amounts?

[@Jfhelwig]

All but a couple grand a year of my income is tax free. So I use my standard deduction amount as the $ I convert from traditional to Roth IRA. Over time I move entire amount to Roth and pay nothing

[@peardisplay]

So if u don t convert it all. U will have some ira money left for the 0 % tax bracket in the standard deduction. Good luck.😅

[@raymiller764]

For those that are not interested in NR, is there an excel like yours available anywhere for download?

[@joekuhnlovesretirement]

I don’t know. I don’t want to share mine because of potential misunderstandings of my logic.

[@raymiller764]

One question I had and I am not 100% sure you touched on it, is,, If I go over the 12% for some reason, a miscalculation or whatever, the next bracket only applies to the small amount you might go over, correct? If so I think that is key and means frankly I don't need to measure with a Micrometer :)

[@BillMaass]

@@raymiller764 Correct Ray. No micrometer needed. Odds are you won’t nail the bracket limit to the penny.

[@tinahenry6209]

I'm not super great with computers...is New Retirement hard to use?

[@joekuhnlovesretirement]

They have training videos for free and one on one coaching for a fee.

[@nashorn8485]

Thank you

[@jonathanschwartz8]

Understand the concept of a 10% withdrawal today is same as 10% withdrawal later. But doesn’t IRMAA break that simple example?

[@joekuhnlovesretirement]

No. Both 60. But need to factor in at 63. May still be worth it. NR factors that in

[@christinab9133]

❤❤❤

[@markmiller3145]

Work with me here......we pull out $80,000 a year currently to live on.....standard deduction is $29,200 this year......$50,800 taxable income after deduction......taxes owed $5,653 total. I guess I am missing something....that is just over 7% tax I am paying. We were paying 22% just a few years back. If you are smart about things.....tax rates should decrease. Also.....we never did any Roth conversions.....this is fully taxable retirement accounts. I even figured Social Security (85% taxable)....RMD's......estimated interest.....at 75 years old we will be paying just over 10% for Federal taxes.......That is living on about $130,000 a year. That is still less than half of the tax we were paying 2 years ago.

[@joekuhnlovesretirement]

You need clear vision of annual taxes at RMD time - 75 yo. Expect to be shocked

[@BillMaass]

Yes, Mark, I think you are missing something. You say you were paying 22% just a few years back. How did you calculate that? Was your taxable income like $500,000 with total taxes of $110,000 to arrive at a 22% effective tax rate? Or are you simply saying you were in the 22% tax bracket just a few years back? Similarly, today you have an effective tax rate of 7% using your numbers but you are really in the 12% Federal tax bracket. Now, let’s say the 12% bracket becomes 15% as slated in 2026. If the RMD forces 85% of your social security to be taxable, you are actually paying 185% of 15% or 27.75% tax on part of your RMD. And, it could be even worse if tax brackets increase to help slow down the burgeoning National Debt.

[@gilscholl7396]

If I need to take out money from Roth after conversion I still have a 5 year waiting period on both converted amount plus earnings, correct?

[@joekuhnlovesretirement]

That’s my understanding. Believe me, 5 years goes by fast when retired

[@BillMaass]

@@joekuhnlovesretirement There are two five year clocks. The first is the “forever” clock which starts when you open your Roth IRA. The second is the “conversion” clock which applies to each conversion separately. That said, being age 59.5 voids the conversion clock as long as the forever clock has exceeded five years. That is why it is wise to open a Roth IRA as soon as you can so that the forever clock starts kicking. The logic for the age 59.5 exception to the conversion clock is that you could access traditional IRA dollars penalty free at that age. There are lots of videos about this. Again, I suggest looking at Safeguard Wealth Management videos. If I recall correctly one is titled 13 Frequently Asked Roth IRA Questions…posted May 18, 2023.

[@whatsup3270]

$600,000.00 income in retirement, that is what is on the chart. (red flag) Don't worry about the taxes we will discuss them later (red flag) Now here is the thing you never want to convert 100% because you want to use your future tax standard deductions and typically a lot of your 10% bracket. Meaning a married couple needs to plan about $35,000 minimum and rising ($40,000/yr), and singles about 1/2 that. Future IRA/work income to reap those tax free ranges, with at least a minor overshot. Otherwise you pay a 22% conversion rate now which only saved a 5% future tax rate, yes a loss, because of over converting now and thus paying too much tax now. The fact is most retirees, by far most retirees, pay very low taxes often 7% or under (effective rates). Thus conversions are very limited and typically only used against tax creep to keep future tax rates in that 10% or less range (effective tax). This video does conversion in 22% and even 24% ranges most retirees never pay in those ranges. Others rarely pay in those ranges and it is from unusual withdraws or sales. I am not saying this is always wrong I am saying it coaches 90% of retirees to do the wrong thing. Remember most retirees have less than $200,000 in these funds and they should target drawing those out closer to their Standard deduction rates (0% federal taxation). A married couple drawing for (their) 30 year plan needs to leave roughly $969,000.00* unconverted IRAs to take advantage of future standard deductions, alone. A married couple drawing for (their) 30 year plan needs to leave roughly $696,000.00* unconverted IRAs to take advantage of the 10% tax bracket. Folks that is $1,665,000.00 unconverted funds before the need to do Roth conversions * those 2024 dollars times 30yrs

[@BillMaass]

Disagree. Watch Safeguard Wealth Management video that came out last Friday regarding why one needs to focus on Marginal not Effective tax rates. No guarantee the married couple will live (or remain married) all 30 years. Converting higher amounts (without going overboard) is like buying insurance to avoid the Widow Tax Trap. Insurance is often valuable just for peace of mind.

[@berniekeene868]

What impact would receiving SS have on the IRA balance needed to take advantage of the standard deduction and lower tax brackets? 85% of my SS in 2030, when I turn 70 and start receiving, will be $44,880. I know tax laws will be different by then, but I think the $44,800 will be enough to take advantage of the standard deduction and lower tax bracket. Please let me know if I am missing something. Thank you.

[@whatsup3270]

@@BillMaass Marginal rates are important however very misleading, for a guy like me the 22% marginal tax range is over $53,000 which means tax losses range from $0.22 to $11,742. There are tons of FA out there that will advise you to lose tens of thousands in tax conversions so you only pay that 13 times in this video that is 13 X $11,742 = $152,646 while others may option to pay the $5,000/yr x 22% x 30 yrs= $33,000. Btw the break even was $23,128 per year in 22% bracket, which is added on top of std deductions+ 10% range + 12% range. Or simply roughly $90,000 per year per retiree of income.

[@BillMaass]

@@whatsup3270 I can’t follow what you are trying to say. Marginal rates are not misleading. It is simply the percentage of tax you pay on the next $ of income that you report. Now, I will say that you need to know if that next $ will also trigger some other tax or, if collecting SS, another 50 or 85 cents of Social Security being taxed. If the latter, then your marginal tax rate is actually higher than what the Federal table shows. Watch the Safeguard Wealth Management video for a clearer description. Effective tax rates are misleading. Simply dividing the total tax gives most people a low effective tax rate especially if they receive tax credits that reduce their tax liability.

[@whatsup3270]

@@berniekeene868 Married or single? other sources of income? withdraw rate, pensions? employed or unemployed pre-age 70? All shift the numbers however as above singles ballpark numbers over $800,000 while couples ballpark $1.6 million. The numbers in the post suggest around $1.06 million which is over for a single and under for a couple. A single would look for opportunities to convert $200k-$300k