I have $2.3M in IRAs. How Do I Minimize Taxes in Retirement?

[@RS-jz2yu]

Hey James, I'm really enjoying these actual client case videos. I hope that you decide to keep them coming. Thank you for all the wisdom you share.

[@donger8]

Really appreciate these videos. No bombastic, hyperbolic nonsense. Two adults speaking normally and running numbers. I’m getting closer to retirement age these videos always teach me something new. Thank you!

[@andre-l3j]

James and his team made this a very easy experience. It was quite worthwhile for the new look at 'order of operations' than I had. James' advice to focus first on expenses and income necessary and Roth conversions later changed the way I was looking at this. Other DIY software packages I've played with really hammered on the large Roth conversions the first few years of retirement, but those may not be as necessary if our expenses and gifting exceed RMDs. So, "get your expenses right first" was on point. The downside reality (for me) is that this will have to be assessed annually, so it's something that I'll have to look at regularly throughout retirement. I won't have the luxury of 'set it and forget it' or 'just do a couple of these for $X and you oughta be set'.

[@dougdollison6228]

Andre, thank you for your willingness to share. Your example is very helpful to those in a similar situation .

[@dallison1961]

This was one of your best videos! It was good to see how the tool is working through the Roth conversions and how adjusting expenses has a significant impact. Great job!

[@bretschultz7321]

Great walkthrough, but probably should model one of the 2 passing away earlier that you would hope...Say one is gone by 75.... this will change a lot. The survivor would love to have more in the ROTH.

[@GailKim-hz1wu]

Really like this new format of in-depth planning analysis of real-life scenarios. So informative of all the different planning issues to consider when mapping out one's own financial future. Thanks, James and team - much appreciated!

[@ltanthrax8435]

Quite similar situation, this is really helpful for planning our retirement. Thanks to Andre for sharing his position and James analysis 👍

[@sskkant]

Loved it. Very close to personal situation. Thank you for doing this and sharing with us.

[@marciasmith8522]

Bravo this is one of your best videos! Keep doing real life scenarios.

[@peedah3236]

Really helpful info yet again James. It is great to see real life scenarios like this

[@BillMaass]

My recommendation is to convert to Roth through the 24% bracket both this year and next. Reevaluate in 2026 when you know what has changed in the tax law, if anything. Conversions are annual decisions. Flexibility is better than locking into filling a specific tax bracket forever. Pay the taxes while they are on sale today. Remember that taxes can go up in the future and one spouse can pass away prematurely.

[@andre-l3j]

Spot on. We are taking exactly this approach this year and next. Since we didn't have *any* Roth accounts in our portfolio, we needed to 'start the 5 year clock' this year in order to have access to these funds early in retirement. So we'll fill the 24% bracket both this year and next (these conversions were / will be done after the interview with James, so don't appear on the makeover) and then reassess after (if?) the TCJA sunsets in 2026. The 'widow trap' and changing of tax brackets later in retirement are two good reasons why Roth conversions can be beneficial beyond just the expected income level in retirement. IRMA surcharges (as seen in this makeover) can also be a powerful incentive to convert.

[@charlesd5307]

Having my retirement planning be based on an inheritance would make me REAL nervous. No matter how "sure" it might seem, life can get in the way. Perhaps they get sued and lose everything, they live longer and use up the majority of their assets, or they just got mad and don't want to give you anything. I'd model for not having it so I know what my true outcome, and maybe dream about what I'd change in 10 years if I got a windfall.

[@michaeldinardo6391]

Great real world examples of how this is done, thank you!

[@EJJ-EvArms]

I realize you're teaching *concepts*, not mere numbers, and you do it well, but gosh, his expenses are insane. One of the ironies when projecting is that lower returns can solve RMD issues. ;-) Higher returns cause greater RMDs, but kind of a good problem to have. My way of dealing with it is to evaluate the Roth conversion on a year to year basis, and only convert the minimum necessary to get to the next tax bracket. In a poor year returns-wise, can scale way back. The de-valuing of $$ over time is also not considered often enough by the "convert to roth" crowd. As you say, it takes a hit to one's portfolio early, so be careful. Sequence of returns is real. Bird in the hand.

[@SFSraptor]

42 minutes!! I am watching a heart-wrenching slow conversation taking for ever to make a point. Who has that much time? Sorry, buddy, you are going to have to consolidate this into one bite-size amount for the busy individual.

[@FishOn1]

Very educational. Love the actual data example!

[@ericgold3840]

Fantastic interview and analysis. Thank you both One thing I didn't see was modeling of the ACA PTC. I suspect that had it been included, the conclusion would have been to consider Roth conversions in the Medicare years before SS starts, and not in the first 'trough' By the way, I had to puzzle over why in one scenario the software modeled a *loss* from paying 12% Roth conversion tax. The answer is that in the last years the IRA runs out of money and during those years Andre is not taking advantage of tax deductions or the 10% bracket. This is a quirk of the software that rigidly applied a withdrawal strategy of Taxable, then IRA, then tax free without fail. In an optimized scenario, there would be a combination IRA/Roth withdrawal in the last years.

[@andre-l3j]

This is one of the reasons why those first 4-5 years of retirement are 'tricky' in terms of all the moving pieces. In order to avoid IRMA surcharges at age 65, with our relatively high "income" needed for planned retirement expenses, we can't realize big Roth conversions after 63. And in order to maximize ACA PTC, we'd have to keep our recognized taxable income down pretty low from 61-65, so we can't realize big Roth conversions then either. I've got some time to figure this out yet, but my fall back position is going to be that I'm going to have to 'eat it' in terms of either ACA PTC or IRMA or Roth conversions those first few years. It may not be possible to realize all of these goals simultaneously.

[@davidjwillems]

Great video. I'm in almost the exact situation as this guy.

[@janethunt4037]

Great analysis and a very good point that Roth conversions may not be the best thing to do. I question the inheritance - would any of that be IRAs that are required to be spent? And I'm well aware that future inheritance income is all guess work. James, I ALWAYS improve my retirement income analysis skills with your videos. Thank you!

[@patrickmallett8257]

Great content! I am wondering how the CFP management fees affect the graphs.

[@andre-l3j]

Patrick, usually the management fees-deducted directly from one of the pre-tax accounts for maximum efficiency-are assumed in the rate of return forecast. An important reason why many of the combined portfolio return rate assumptions seem low-ish from RIAs.

[@keithmarquis226]

One thing I keep seeing and wondering if this is not being taken into account is the change in the tax brackets over the years due to inflation and statutory changes. It is imperative to mention that the tax brackets will change and one would need to consider that although income may be consistent, the tax bracket is not. You may find yourself close to the upper level of a tax bracket when you retire but you might be in the middle of the bracket or drop a bracket in the future. In 2024, for instance, married filing joint, the 22% tax bracket is $94,300 to $201,050 while the 24% tax Bracket is $201,050 to $383,900. In this scenario, when RMDs are due, the tax brackets will have changed....increased. In 2010 the 25% tax bracket (now 22%) was $68,000-137,300 a change of $26,000-63,750. The 28% tax bracket (now 24%) was $137,300 but not over $209,250 change of $63,750-$174,650. Looks like the brackets changed in 15 years about 35-45%(didn't do the math). By 20 years, you might be looking at a 40-50% change in the tax brackets. One should consider which tax bracket you ESTIMATE to fall into before RMDs and how the RMDs will either keep you in a tax bracket or raise your tax bracket when considering if an earlier conversion is part of the equation. Problem is...we don't know where the tax bracket will be....roll the dice or remove any question?

[@andre-l3j]

Fortunately, a number of retirement calculators / programs (including Right Capital-the one used here) allow one to alter assumed tax brackets in retirement. Note that these brackets change to reflect the sunset of the TCJA in 2026 which may or may not come to pass. Yes, it will have to be continuously monitored both prior to and during retirement. But this alteration of tax brackets is modeled in most programs to the best of their ability. Also note that the brackets (TCJA or reversion to pre-TCJA) slope upwards over time to reflect the effects of inflation associated with the widening of the brackets. An income of $383,900 in 2024 puts one in the top of the MFJ 24% Federal bracket, but would have been in the 32% bracket in 2018-2023. Income of $383,900 in 2025 will be below the top of the MFJ 24% bracket, which will top out at $394,600 as it is adjusted for inflation/CPI/etc.

[@jamoscatelli]

Great video. If I were Andre, I'd be a bit concerned that 1/3 of my retirement funds are contingent on a large inheritance. If end of life expenses are higher than anticipated (long stay in a facility) that number could be significantly lower. Also, if a lot of those inherited assets are in IRA's (tax advantaged accounts), the withdrawal will be forced over 10 years, which may significantly impact their tax bracket.

[@janethunt4037]

I was thinking the same thing. Maybe it's expected to be real estate.

[@MT-sq3jo]

@23:53 mark - There are software out there that one can input retirement expenses with a limited time frame (e.g. mortgage payment ends 12 years post retirement, children supports end 5 years post retirement, etc.). That can solve the issue of having projected too high of ‘fixed’ annual expense to run the simulation.

[@AbeFroman-zx5hs]

I was in a similar position, a little less in 401k because my wife didn’t work out side the home, but apparently I had better insurance from work because ACA was never an issue. What did I do? Retired. Was able to enjoy time with my kids while they were in college, not to mention the losing the psychological stress This was 10 years ago. My Roth has eclipsed my traditional ira and by 68 (two more years when trumps tax rates expire). My tax liability be at minimal even on SS when I begin collecting at 68 and my kids will have minimal if any tax issues when I pass on. The pain was irmaa because you don’t know what it is until after the fact. Ie you have to estimate what it will be. Kind of stinks when you think about it because the penalty is ridiculous. Unless you really enjoy work, I would retire. Let your money work for you. Good luck

[@jimkotelly9288]

Great video. However it didn't consider keeping MAGI low during the 4 years prior to age 65 and the tradeoff of ACA subsidies vs filling up the 12% bracket. Getting subsidies in the early years of retirement can reduce the stress on the portfolio.

[@mariadrukker2557]

Roth conversions are a solid strategy, especially while you’re still in a lower tax bracket. The idea is to pay the taxes now at today’s rates, and then once your money is in a Roth, your withdrawals are tax-free. But you’ve got to plan those conversions carefully, so you don’t push yourself into a higher tax bracket.

[@jawdrop6038]

Great stuff! Keep it coming! I wish this software was available for anyone to play with on their own

[@hansangb]

If you sign up for James' course, you get access to the software.

[@keithmachado-pp6fv]

Great video as always. I wish the example showed the comparison of net worth instead of the tax savings. When you defer, you can pay more tax dollars and still come out ahead if the tax % is lower. Example. You convert $100k and pay $25k of tax and it doubles to $200k tax free. Or you defer and your $125k also doubles to $250k. You can pay $50k of tax (double the tax if you had converted) and still end up with $200k after tax. In addition, when you defer you don’t pay all that tax at once as tax on RMDs are paid slowly over many years. In fact, you may never pay all the tax in your lifetime (although your heirs will).

[@James4cycling]

Depending on the size of your IRA’s this can greatly impact your heirs. It will probably push them into a higher tax bracket. They may lose child care benefits, reduce or eliminate college tuition benefits, etc. If they inherit a Roth, it’s all cash in their pocket.

[@brianwalsh607]

Nice work. More like this!

[@jhogoboom]

Super content. So helpful.

[@keithmachado-pp6fv]

Outstanding video

[@1968jhermann]

Around the 25 min mark you touch on probability of success, stating you’d come back to what a good number is…can you share your view please? Awesome content

[@MONROEJACQ]

Taxes can definitely eat into your retirement income if you’re not careful.

[@adabamas]

The problem with the software is that it's not possible to dynamically set monthly expenses. For example, it should be possible to set expenses to $x year 1 -> n, $x -$y year n+ to take into account children leaving household etc.

[@墨紫月]

I love this episode

[@jerrylabat550]

LTC shouldn't result in an income increase. LTC will be a medical cost, which is almost directly deductible from income as an itemized deduction. Yes it will deplete the portfolio quickly, but it should result in a taxable income decline if you pull it from a tax deferred account.

[@TimOtero-nm5fg]

In this example, you removed the mortgage payment from the general expenses, but aren't the mortgage expenses accounted for elsewhere already?

[@keithkreeger2153]

Agreed?…thought the mortgage costs were accounted in the LOAN and taxes/insurance/mx are in the PROPERTY sections of NETWORTH?

[@andre-l3j]

The P&I of the mortgage was removed in the discussion-where the expenses got trimmed from 12k-9.5k/month-as the mortgage will be paid off by then. Since the kids will likely be out of the house then too, another $1k / month was figured in reduced monthly expenses. $1500 P&I + $1000 kid-free discount changes 12k to 9.5k. The mortgage currently consists of P&I on the loan plus escrowed homeowner's insurance and property taxes. Homeowner's and property taxes are accounted for elsewhere in the planning software in terms of ongoing expenses (assumed at the current rates, adjusted for inflation for both).

[@raywagner8075]

I wish there was a way to put in your smile spending. Like for the next 3 GOGO years I am going to spend 15K per month then 10 years at 12K then the rest at 8K etc.

[@SkinnySkinch]

I have a question for financial advisors in general. I always see planning for 30 years plus of retirement which means you are planning peoples money to last into their mid 90s. The age of retirement is 67 in 2024. The average life expectancy in the US is 78 years old. I feel like if I worked my entire life to save such a large nest egg I would like to enjoy life a little more for the 11 years of "guaranteed" life in retirement I have. I can always count on SS after the golden years and dont need to spend my entire nest egg in those 11 years but I would think front loading the draws from retirement for that first 11 years makes sense for most people on average bc they're not going to live longer than 78 on average.

[@darryls8066]

Trying to figure out how to convert funds in a MYGA into a ROTH IRA. Can you please explain the process for that?

[@peterwright837]

Loving the Academy and Right Capital. However, it seems to be way overestimating my capital gains taxes. I’m guessing that’s because I have almost 50% of my net worth in a taxable account with a very low cost basis, (~10%), and it’s assuming a lot of annual turnover. How can I change that assumption?

[@leftysidewinder]

In late 50s-60s, the 5 year holding requirement for Roth conversions/contributions makes funding Roth very undesirable. It’s not all about tax savings at that age, where liquidity is more important. Also, Andre will have lesser and lesser of healthy years left to spend down the portfolio, or mental capacity to manage Roth holdings. Also, Andre is unable to deduct realized Roth losses.

[@momhouser]

If you spend the Roth later, after tax-deferred are depleted, usually the 5 years are over. Hard to convert *all* IRAs and still stay in a low tax bracket.

[@roseyfischer]

Taxes can definitely eat into your retirement

[@stevebeaver6529]

Great video! I “tinker” with Right Capital on a regular basis to test various scenarios as I approach retirement in 3 years (age 62). I don’t think I’ve ever seen you compare withdrawal sequences: taxable, tax-deferred, tax-free vs tax-deferred, taxable, tax-free. For me, with a vast majority (80%) of my retirement investments in tax-deferred accounts (401K, traditional IRA, SEP IRA) it makes a significant difference in my projected ending portfolio balance to start with tax-deferred accounts. In the neighborhood of $2M+ before even applying conversion options. Can you tell me why that doesn’t ever come up?

[@ericgold3840]

Pulling from IRA first is what I call the 'pseudo Roth' approach. This question of which accounts to pull money from comes up ** all.the.time ** because it really is a huge lever. In this sense the Right Capital software can be limiting without a lot of tinkering because the user sets the order of withdrawal and that is used throughout the projection. A more nuanced approach would let the user vary the withdrawal order over time.

[@RonP48309]

I don't have $2M to be a client but the software tool is exactly what i was looking for. Has anyone purchase for $297? Is it easy enough to use on your own? Recommendations...

[@tomr8936]

Why do you need LTC for 6.5K for you and wife, total 13K/month? And then another 12K/month? The goal is to take max 100K/year from 401K, and then you pay 0 tax. 8K/month should be enough for everything at that age: 3K rent/house, and 5K for other expenses. (btw, include inheritance is not smart, because chances are you will need to use your parents money to pay for their LTC)

[@andre-l3j]

The inheritance calculation was an *extremely conservative* estimate of combined sources. Parents have LTC insurance coverage, so it's unlikely that they will have to drain their assets. Plus, it made more sense to include "something" of this specific circumstance in planning rather than ignore it altogether and have a lump sum windfall upset all planning. The LTC inclusion in this makeover was only included in the last two years of the plan, and only as a placeholder. 8K/month may be enough for you 'for everything at that age', but would be insufficient to cover all our needs and wants. Your mileage may vary.

[@momhouser]

LTC is more than 8K a month around here.

[@jeffb.4800]

$35,000 a year on home improvements?

[@andre-l3j]

@@jeffb.4800 That also includes maintenance, repair and refurbishment, furniture and so forth. 35k is probably high, as stated in the discussion.

[@gd9986]

Why was health care cost nearly double that first year?

[@ericgold3840]

If you mean Medicare at age 65, IRMAA uses the AGI from 2 years earlier

[@rodordie]

Guy has a Sugar Momma🎉

[@SuperMatt1235]

This guy has no budget and does not know how much money he spends and who he spends it on. Huge Mistake in life.

[@jimc336]

This video is nearly useless because you don’t state the numbers out loud in your narrative and they are impossible to see on a cell phone screen.

[@spineguy70]

12k a month expenses is cheap no? Are they just having one home? No hobbies.. golf.. tennis. Etc?

[@ChristopherCurtis]

Uhm? Just to be clear, $12k/mo is an after-tax $144k/yr. The US median after-tax income is $64k/household (2022), or $5.5k/mo. for people who are still working and saving.