Long-Term Roth Conversion Planning Mistakes 📉 - 4 Common Examples

[@EatLeadPal]

I'm 62, just retired, and am using the New Retirement software on their website. I will not be taking SS until I'm 67 and my income will be very low for the next 5 years. New Retirement recommends I do large 6 figure conversions in 2024 and 2025 and then smaller ones as I get close to 65 and 67 to minimize my IRMAA increases.

[@dc1741]

I'm a retired chemical engineer so I've put together a spreadsheet specific to my own situation. I'll use it to determine the best conversion levels, if any, from year to year.

[@kmiller5808]

That's interesting. Did you create your own format or use something already existing? Thx

[@Elephantine999]

Spreadsheet? Ha! I wrote an computer program! But there are so many variables that, like the man says n the video, you have to keep working your plan year by year.

[@erickarnell]

I'm planning to buy a subscription to planning software like New Retirement. It's not too expensive, and I appreciate the user-friendly interface.

[@terryadams1830]

Thanks Eric! I always enjoy and learn from your videos! The conversion videos are my favorites.

[@ld5714]

Another good video Eric and perfect timing. I suspect most followers are thinking about their final conversions for the year right now. Nice touch with the humorous laughing sound clip. Larry, Central Valley, Ca.

[@timreierson26]

What is the best Roth conversion strategy or tips for a 65 year old high income earner in retirement (due to a large pension) who: 1) will always be in the highest tax bracket; 2) will always have the highest IRMMA penalty; 3) does not need to draw down tax deferred accounts but intends to pass it to beneficiaries/heirs; and, 4) has fairly large taxable accounts (more than sufficient to pay conversion taxes but also pushes income to higher brackets). I don’t see any of your videos that address this scenario. Maybe because Roth conversion strategies are limited?

[@glendasheppard3493]

same issue..however I view it as a fortunate problem to have.

[@p56900]

Awesome videos...could you address NIIT Net Investment Income Tax and Roth Conversions

[@andylewis5662]

Thanks for the info. I always appreciate your advice.

[@everetteborr]

Thank you for an excellent presentation.

[@rodrigok1220]

If you have some cash set aside you can live off of for 3 - 5 years, think it would be wise to delay your SS to convert large sums yearly to take up as much of the 10 - 12 percent bracket. File for SS later and get a higher amount. Goal is to convert a large portion so in your mid 70’s, you won’t have to pay in the 30 percent bracket

[@alexfisher1684]

If you have an hsa but don’t max your Roth IRA, take the reimbursement and put it in the Roth. Gets you a triple tax advantage account

[@Whiskey_BS]

Eric, what did you use for tax bracket escalation in the graph for #2 Minimization? This is an important but unknown factor for Roth conversions. I’m 10 years from my first RMD and expect with reasonable tax bracket escalation that the RMD will not push me into the next bracket. So focusing on my own tax situation, why convert to a Roth?

[@johngarceau541]

Ty

[@paulsackles1329]

another super informational video; thanks

[@timelston4260]

Spending less and taxing more aren't the only two options for dealing with national debt. Keeping the deficit at around 100% of GDP through fiscal and monetary is sustainable indefinitely and arguably the optimal option for a long term healthy economy.

[@dlg5485]

The debt of a country like the USA (with its own currency that is tightly controlled by the central bank) is largely irrelevant. I've been reading extensively about Modern Monetary Theory (MMT) this year and it actually makes a lot of sense.

[@timelston4260]

@@dlg5485 I think MMT says inflation and GDP are the true constraints, not debt. Money creation can't indefinitely outstrip the production of goods and services, but if the creation of specific money is the means by which specific goods and services are produced, then the debt that created that money is not a problem but a good. I need to study it in more detail. I read Kelton's book, but no more than that and don't remember all the details. It doesn't seem like Eric is aware of the ideas of MMT, based on what he said in this video.

[@dlg5485]

@@timelston4260 MMT understands that inflation, resource availability, and environmental concerns are critical considerations when determining an appropriate level of spending. However, as long as there are resources available to 'absorb' that spending and recirculate it, the arrangement can continue in perpetuity. MMT also says that economic policy should be centered around low/middle income people since they are least likely to hoard wealth, instead recirculating it. The benefit to a trickle up economy is that it alleviates suffering at the bottom while also supporting capitalism, although with significantly more controls than in today's economy. Many Americans want to do away with capitalism altogether because corporate greed has clearly gotten out of control in the USA and average people are struggling, but I don't agree with that. In an economy that centers people over profits, well-regulated capitalism can actually serve the greater good, by reviving the American Dream and making it real, instead of being just a myth for the vast majority of people.

[@SafeguardWealthManagement]

I'm familiar with Kelton and MMT. In general, the premise is correct. Debt can be beneficial, especially in a growing economy, etc. The issue is to the extent she and other MMT proponents are willing to take it too. They are fuzzy on particulars (ex. ceiling at which debt becomes harmful). And unless the spending and debt is prudent (which I think everyone agrees we have big gaps here), we are making a more fragile system with a fraction of the benefit.

[@dgallahue3571]

Eric - question: I am currently exercising the "rule of 55" where I separated from service from my employer after age 55 and able to access my 401k funds early without the 10% penalty. My question is, are Roth conversions from my 401k also excepted from the 10% penalty? As far as I've looked, there is very little info on the internet on the "rule of 55" much less about how a Roth conversion can fit into it.

[@DonBurke1]

Not as I understand it. The conversion, at least in my case, starts with a rollover to a TIRA and then a conversion to Roth. The money is no longer in your 401(k), it is in an IRA. Worse, the conversion triggers the five year rule, meaning the amount you convert is locked in the Roth for five years from the date of the conversion. If your 401(k) allows conversion within the plan, the answer may be different. I think the five year rule would still apply, tho.

[@headlibrarian1996]

There is also implicit tax, otherwise known as inflation. The debt death spiral is real and very close at hand.

[@jacksons1010]

I’ve been hearing this “I sky is falling” argument for my entire lifetime, mostly from people making money selling gold. Undo the multiple rounds of tax cuts for the highest earners and the budget deficit goes away…if only the political courage to do that existed in America.

[@headlibrarian1996]

@@jacksons1010 Don’t be daft. Even if the tax rate was 100% it wouldn’t erase a budget deficit this outrageously large.

[@jacksons1010]

@@headlibrarian1996 If you’re actually a librarian you have easy access to elementary math textbooks that would teach you the basics. Do the math instead of hip shooting and you’ll see how increasing government revenue closes the budget gap. It’s been done in my lifetime (Bill Clinton as POTUS)…back before Bush cut taxes in 2001 and again in 2003, then Trump’s ruinous cuts in 2017. We HAD a balanced budget - with higher taxes.

[@joramster6001]

you mentioned a tax consequences for heirs of a ROTH, but I thought they do not have to pay taxes when inheriting a ROTH unless it was funded in the last five years before passing?

[@dlg5485]

I believe only a surviving spouse enjoys that privilege. Any other heir (including children) must withdraw the total balance of the Roth within 10 years after your death and any growth they see after withdrawal is taxable. Even if this is true, they can still leave it in the inherited account for 10 more years of tax free growth. That said, they might be required to take periodic withdrawals throughout the 10 years. I could be wrong, so you should definitely verify.

[@iluvmoney6767]

@@dlg5485 True and false. Heirs do have to liquidate the account within 10 years of the passing of the owner. However, NO taxes are due on withdrawals.

[@mbmatt100]

Actually they will just print more.