Ranking (From Best-to-Worst) Ways to Pay Your Roth Conversion Taxes

[@johng4093]

I really like how you explain things so clearly. There's another channel where they take forever to get to the point, filling the time with irrelevant fluff, really frustrating.

[@marklefler4007]

isn;t there an error at 1:51? the $22 taxable acount money is a negative and not accounted for in the "wealth" at the bottom of the coumn where you show a mysterious 0. In fact, that savings would have also grown if also invested even in a simple interest bearing account, but more likley in stocks.

[@JaniceHylton]

I love these videos. Thank you.

[@stevesedio1656]

Taxes today vs taxes in the future - if you are filing jointly, and one spouse has a shorter expected lifespan, the tax rate in the future will be at the filing single rate.

[@twhite8308]

It seems like paying roth conversion tax out of a roth ira is good because $$ from a roth ira is not taxable income. So I can make a bigger conversion inside a lower tax bracket. Am I wrong? I'm 66 had my Roth since 1990s.

[@charmcrypto824]

Thanks for breaking down the Roth conversion tax game! It's wild how every move counts in retirement planning. Speaking of which, have you guys heard about My Digital Money? They're shaking things up, offering a seamless way to dive into crypto within your IRA. Perfect for those looking to stay ahead of the curve and build some real wealth for the future!

[@davejoseph5615]

So I burn up my cash savings to pay the Roth taxes and then 20 years later this only makes a 2.5% difference in the total ? ($377k vs 386K)

[@krishnadevulapalli315]

Hi Eric, What do you think of paying Roth conversion taxes out of HELOC?

[@michaelorr430]

is there a particular form to use when you pay taxes from a taxable( IRA) account so that it is referenced to the conversion?

[@f430ferrari5]

If one is going to move out of state anyhow then the sale of your home is the best place to use monies to pay for taxes on Roth conversions. Capital gains may be avoided since for MFJ there is 500k exemption. The 2nd best would be selling of any cars or any other possessions like jewelry. There could be sales tax but it’s lower than capital gains taxes possibly. I say possibly because capital gains is at 0% if income MFJ 80k or so. Not sure why anybody would put themselves in a position to have too much capital gains tax. Let’s say the “gain” is 25% on stocks. Pulling out 100k proceeds is only 25k gain. So couple could perform Roth conversion of 80k. Standard deduction 25k. 55k taxable income and could be less with other deductions/exemptions. Capital gain 25k. So 80k income with gain. So no capital gain and still in 15% bracket. So only 12k in taxes but the proceeds on sale of stocks was 100k. So couple would still have 88k left over for future Roth conversions. Only the excess is taxed at 15% also. Still no point in paying. Try staying one bracket lower than your norm from working vs retirement.

[@mariuszostro]

What about selling other stocks from a taxable account at a loss and using that to offset the taxes for the conversion? And if you do it late in the year, could the IRS still hit you for penalties?

[@headlibrarian1996]

Conversion income is ordinary not capital gain.

[@lewisautomatic]

As semi-retired single filer/standard deduction/67 y/o I make $70k income. If I were to convert $150k, how do I know what amount to withhold for taxes?

[@suracharawirojratana8723]

Thank you so much for your response. I have enough VTI funds to transfer in kind for the Roth conversion , but I will lose the value in dollars because I both these shares at the higher cost than what they are worth now.

[@suracharawirojratana8723]

Thank you again for your explanation! I really appreciate your help and most of all, your dedication for doing these great informative videos!

[@suracharawirojratana8723]

Hello, Question on Roth conversion , would you recommend to transfer in-kind assets to my Roth IRA instead of selling my VTI fund? Thank you

[@chrislewisking6667]

Roth conversion before 59 1/2- Can Roth principle monies be used to pay taxes without penalty?

[@longgone9738]

The conversion amount itself suffers no 10% penalty. The “extra” amount withdrawn to pay the tax at conversion is penalized with a 10% tax add-on.

[@larryydens3050]

Is it reasonable to re-allocate your tax deferred investments to MINIMIZE gains once the RMDs approach a high tax rate?

[@ewinslow822]

Never produce less to avoid paying higher tax rate. Maximize your productivity and then figure out how to minimize tax from there.

[@johnscott2746]

A point to remember is that the IRS is very particular about how you pay your taxes. If you do a conversion in say, ..October and you try to pay the taxes from any other source except withholding from the conversion, they will access a penalty for failure to make quarterly payments. Withholding is the gold standard for the IRS . You can do a conversion on the last day of December and the IRS will consider it to be done on the previous January 1st. If you have the taxes withheld from the conversion, you are in the clear. But if you just try to pay the tax from another source at the time you do the conversion, you are in trouble. Since the conversion is considered to have been done on the first of January, you are supposed to have done quarterly payments from the start of the year.

[@johnscott2746]

@@_-Karl-_ straight from the IRS. Go to their website and check it for yourself.

[@johnscott2746]

@@_-Karl-_ it makes sense because the IRS is not going to keep track of what day everyone does conversions. Just like they don’t care when your baby is born. My son and his wife had a baby on December 30th and got to claim him as a dependent for the whole year. With Roth conversions, they just give you credit for the whole year as well. If you are under 59 and 1/2, then there is a five year waiting period on the conversion. By doing the conversion on December 31st, you get a full years credit immediately and only have 4 years to go.

[@johnscott2746]

@@_-Karl-_ but you have to pay the taxes as if you did the conversion on January 1st.

[@johnscott2746]

@@_-Karl-_ it is my understanding that the annualized method only applies to corporations. So individuals doing Roth conversions would need to follow the pay-as-you-go methodology that the IRS uses.

[@johnscott2746]

@@_-Karl-_ the problem here is that your conversion will be considered to have been done on January 1st no matter when you actually did it. I may look up form 2210 just out of curiosity. I’m glad you have been okay doing it this way for ten years. But you should realize that the IRS is woefully undermanned and generally only goes after very large tax cheats or deliberate tax fraud. If your conversions have been smaller and you are operating in good faith, they probably won’t bother you even if you are incorrectly filing. Not saying that you are. But if you are making quarterly estimated tax payments based on your actual income, then according to the IRS , any conversion done at any time during the year is income that occurred during the first quarter. I have finished my Roth conversions and always did them in January and paid out of other sources so I never ran into that problem.

[@larryjones9773]

Even better option: pull equity out of your home to pay Roth conversion taxes. This provides the added advantage of having cash for living expenses, which allows a lower conversion tax rate (because less taxable income is needed for living expenses). As we know, lucrative Roth conversions are all about the tax rate paid vs the future tax rate avoided. I look at my home as just another asset (= to my stock investments). A timely inheritance is an even better option. I did a cashout refinance mortgage & received an inheritance in 2019, which paid most of my Roth conversion taxes.

[@sergiosantana4658]

With today's .mortgage rates nearing 7% this might not work so well.

[@larryjones9773]

@@sergiosantana4658 Use some of the proceeds for taxes on Roth conversions and invest the rest in the stock market. Stock prices are down. Timing is everything. Refinance again in a few years when interest rates have dropped. I heard today that not all countries allow mortgages to be refinanced. We're very blessed in the U.S.

[@sergiosantana4658]

@@larryjones9773 Have you looked into a reverse mortgage. All proceds are tax free with no mortgage payment (unlike the refi rout) . I encourage you to look up Ed.Slott who know endorses the use of a reverse mortgage to pay the tax on roth conversions.

[@larryjones9773]

@@sergiosantana4658 I'm not old enough for a reverse mortgage (62). I'm 61, and I completed my cashout refinance in 2019. Cash from a refinanced mortgage are tax free. I plan to do about three more cashout refinance mortgages during retirement (hopefully around stock crashes, so I can limit my stock sales). If I'm still alive at age 95, I plan to do a reverse mortgage. The equity requirement is only 30%, at that age. I'll invest most of my cashout money in the stock market. As long as stocks provide a return greater than my refi interest rate, I win.

[@wallace_n_gromit3180]

All these videos about the best way to pay ROTH conversions I have seen, make it seem like it's ALL or NOTHING about the ways to pay for a conversion. Do 100% this way (best) or 100% that way (better) or 100% the other way(ok). Since I don't have a spare $70,000 in cash to pay federal taxes for the top edge of the 24% tax bracket (for the next 4 years--$280,000+ for federal taxes just sitting in the bank), filing married, I do as much as I can from: 1) cash/cash equivalents FIRST, NOTE that a slight hack here is to maximize federal withholding on "forced" income and to live off the cash/cash equivalents. Since a federal withholding is preferenced over paying quarterly estimated tax payments (as Eric has mentioned in prior videos) in our tax code. 2) then what I can from taxable accounts, 3) then the rest from the Tax-deferred IRA distribution. AGAIN here, paying the federal taxes as a federal withholding is preferential rather than as a quarterly estimated tax. For my situation, this is the optimum way to it. I think what Eric is saying allows for this optimum strategy for each individual case.

[@straitjacketstudios]

Could you do a video on WHEN (and how) to actually pay the taxes on a Roth conversion? I have heard mixed signals that (for example) if you do a mass conversion in December, that you need to immediately pay the taxes on that conversion, versus just waiting until tax time (Apr next year) and paying the taxes during your normal tax filing. Can you help clarify this?

[@johnscott2746]

If you do a conversion in December and pay the taxes from some other source , the IRS can and may charge you penalties . Conversions are considered by the IRS to have been done on the first of January no matter when you actually do them. So, if you do the conversion in December and pay the taxes from any other source except withholding, the IRS will say that you missed the first three quarterly payments and they could access penalties.

[@silver6054]

@@johnscott2746 Don't think so! Conversions are done Jan 1 from the viewpoint of the 5 year rule, but the 1099-R you receive has the date of the conversion on, and you just have to pay the estimated taxes in the corresponding quarter. My financial advisor and most other videos around here state the same.

[@johnscott2746]

@@silver6054 there are two ways to pay taxes. Withholding is the gold standard for the IRS. If you do ANY kind of withdrawal from a traditional and have the taxes withheld then you are fine. But the other way to pay is with quarterly payments. Since the IRS considers that a conversion is done on January first, if you do quarterly payments you have to do them starting with the first quarter, no matter when you do the actual conversion. The IRS is woefully underfunded and understaffed so you can probably do it any way you want and not worry about it. Also, if you are acting in good faith and the taxes ARE being paid, they , again probably, won’t bother you. But you should look at the IRS regulations covering this subject. You might be surprised.

[@silver6054]

@@johnscott2746 This is just repeating what you said earlier. My position is that the conversion, for estimated tax purposes, happens on the date on the 1099R, as this is when the "income" arrives. Jan 1 is for the five year rules. Please give me a link to the IRS website article you are relying on.

[@johnscott2746]

@@silver6054 by the way, I just looked at 3 different 1099-r forms that I received and none of them have a date on them .

[@jerrylindner5431]

Time for some new wall paper behind you.

[@steves3234]

Wow there are some really misguided comments here on tax payments. If you are nit a real tax advisor or CPS you all need to stop.