Roth Conversions if Tax Cuts are Extended? (What To Do...?)

[@Deitricklaverne]

I get so confused sometimes, these strategies are quite rigorous for the regular-Joe. As a matter of fact, they are mostly successfully carried out by pros who have had a great deal of skills and knowledge

[@Deitricklaverne]

Retirement is now more difficult than it was in the past. it's all about balancing your risk tolerance with your long-term goals.

[@camela8445Mar]

Well with the ever-changing global economy, tax laws and regulations can also vary, impacting how investments are taxed. It's essential to stay informed and plan retirement strategies accordingly.

[@camela8445Mar]

It's crucial for individuals to diversify their portfolios, seek professional financial advice, and stay informed about market trends to navigate these challenges effectively.

[@Sanchyfab]

Honestly this cannot be overemphasized, helping people mitigate unforseen circumstances and mistakes .It's always good to have a financial plan,

[@Sanchyfab]

Consulting with a financial consultant can provide personalized insights and help align your investment strategy with your retirement goals.

[@ld5714]

This was a good discussion and very thorough. I have been doing Roth conversions, filling the 22% bracket and avoiding IRMAA for the past few years, I got started late. If the TCJA is extended, like I expect, I will continue with conversions in the same way. My main motivation for doing so is controlling RMDs and Next Generation Planning. I'm 75 and in good health so I should have at least another 10 years on my clock. After I go, if my heirs let is grow the maximum 10 years in a Roth, 20 years of tax free growth should do well for them. Thanks for the useful content Eric, it's always educational and of value to your followers. Have a great week. Larry, Central Valley, Ca.

[@BSinNH]

I'm 61 and share exactly the same thoughts.

[@EatLeadPal]

I'm 63 and doing the same thing you are.

[@daveschmarder-1950]

I did forecasts starting in my mid 50's 20 years ago. At that point I changed my asset locations. Later on I started doing Roth conversions. When I hit 70.5 the QCDs began. I'm now in RMD land and they are very manageable for myself and heirs. I do small Roth conversions now as I manage my tax burden now and in the hereafter. My IRA is relatively small as I switched to to Roth contributions in 1998. Believe me, this works. After my review, the information given on this video is factual and can benefit you.

[@scottstowe4056]

This is a very thoughtful presentation! Very helpful. It would be great to see another presentation assuming the current tax rates are extended 8 years AND no tax on Social Security!

[@robertyoung2661]

We should expect a "sugar high" short run stock market increase of 1.5-2 years due to tax cuts, followed by high inflation and deep recession. It is hard to know whether the ballooning deficit Trump will create is a problem or not. Japan did/does ok with very high deficits. Taxes may need to go up (Bush sr. style) to cover a massive budget deficit. However, much of the national debt may get inflated away due to high inflation, and we cannot predict whether the deficit ballooning or the inflation will go faster. Any retirement portfolio should now be robust to possible record high inflation, and should contain sufficient international investments to survive the possible domestic US upheaval that can follow after for example, the Fed losing independence. A high tariff economic experiment would certainly result in international investments outperforming domestic ones, and a case can be made that the US market is overvalued as this point anyway. A high exposure to government bonds should be avoided due to the combination of high inflation risk, high deficit risk, and pressure from Trump to artificially keep interest rates low. Diversification, and not bonds, will be key to creating a low risk portfolio.

[@cutehumor]

I’m retiring in 7 years and 2 months with irs rule of 55. Do you think we will be out of recession by then? I don’t want to retire in a recession due to sequence of return risks

[@robertyoung2661]

@@cutehumor Realistically, this is impossible for anyone to know. What is perfectly clear however is that we are entering a very high volatility period, with risks for serious inflation, for wild fluctuations in the US dollar exchange rate, and for US debt problems. Absolutely anything can happen economically in the next 5 years. You will not like this, but in the current situation, I would recommend maximum frugality and maximal saving in the next 7 years for you, as a precaution to what might happen (and asset diversification). If everything turns out well, then you can have a well funded retirement. Better be safe than sorry.

[@captsorghum]

Thanks for starting the discussion on this, even though we won't have definitive answers until legislation happens. I plan to finish 2024 conversions as planned, and possibly hold off on 2025 conversions until later in the year on the chance that more information becomes available. I'll need to revamp my strategy to account for COLAs and updated balances anyway.

[@evanfraser64]

Expiring ACA subsidies need to be considered.

[@PH-md8xp]

The subsidies remain after 2025, they’re just less generous and the subsidy cliff resumes for people in the +400% of federal poverty level MAGI.

[@evanfraser64]

@ That cliff impacts a lot of people

[@Random-ld6wg]

i went up to max of 24% in conversions for 2024 but i may still go up to 24% in 2025. i am only 59 next year and i need to significantly cut back the amount in the tax deferred so as not to grow as much by rmd age. the extra 2% allows 188K more in conversions and i wouldn't count the chickens before they hatch regarding the tax cut extension. as with before the widow trap is a big consideration as to why i am doing conversions and partly legacy issues.

[@Eric-wc7lx]

I was doing up to 24% but have been getting hit with NIIT, so dropping to $250k AGI for conversions to avoid NIIT for 2024 and watching to see if extended beyond 2025

[@Random-ld6wg]

@@Eric-wc7lx in 2023 when i converted to max of 22% plus deductions i still ended up trigerring the NIIT on about 15K of capital gains. once i triggered it, i just got resigned to the idea. i am living off my taxable bucket. though all my capital gains are subject to the NIIT for 2024, i liquidated my worse performing investments that had less in capital gains. so i am generating less capital gains for '24 than '23 although the total NIITis more. i do my conversions in tranches during the 1st , 3rd and 4th quarters so i will see if i change my mind.

[@keithmachado-pp6fv]

How about layering in whether SS will be taxable which is a big issue for those of us who planned on deferring in order to withdraw more from IRAs. If it becomes not taxable does that mean take it now?

[@Sutc-x6h]

Nobody mentioned the fact, the government can change the amount of your RMD. Also, I am very aware of seniors who missed their RMD because of just getting old and sick. Lastly, your state may have their own rules concernig RMD and Roth conversions.

[@HB-yq8gy]

Agreed but most pros charge on going fees and they want to manage all your assets. The average fee is 1% of AUM. So if you have a 1 million dollars the on going yearly fee is $10,000 dollars!

[@Sutc-x6h]

Because Roth conversions can be complicated, I had moved everything I wanted to convert to one account. I waited one year to keep tax forms to a minimum per each year. Then, I made quarterly estimated tax payments. After I met the required tax payment, I performed a conversion. Age 60 was a good choice. It was so much work, and recordkeeping, I will keep it to one year. Also, I assumed the worst - Roth conversions would go away. Fortunately, I used savings rather tha IRA's to pay the tax. A mixture of 50 50 (savings / IRA) was a good move for me. My state requires me to keep track of conversions, gains and their formular for taxability because these funds were from employer matching. Know your state rules. My goal is to keep my Roth, but spend down my IRA's as needed. My IRA's will draw down faster until I start SS. My reason to delay is to balance income as I retired early. 😊

[@anujgupta9293]

I was waiting for this topic to be covered. Thanks

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@Eric-wc7lx]

I was converting to top of 24% bracket but was getting hit by NIIT. I’m lowering 2024 conversion to $250k AGI in hopes that I can spread out conversions beyond 2025 and avoid NIIT

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

Te* le * gra* me*!

[@gcburkett]

I don't want my RMD to be higher than what I need to spend causing my taxable account to grow. This become and even bigger problem when one of us dies. I think I will have some room to Roth convert to the top of the 12% bracket if its extended. Not sure where things stand if tax brackets revert. It is harder to embrace Roth conversion in the 22% bracket. Maybe I should some before retiring so I can manage for ACA premiums. Some people have done big conversions. I struggle with wanting to pay the tax check.

[@ronmorrell9809]

Although I haven't run the numbers, my wife & I'll probably about as much IRMAA by stretching out conversion horizon as we will save in income tax.

[@Dave-sw2dm]

My main reason for doing conversions now is to protect against the situation where I or my wife outlive each other by many years. What is called the widow trap in this video.

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@kenb2145]

Elephant in the room: Are financial planners even considering the however-slim possibility that income taxes could be eliminated? Like maybe not doing a 2024 conversion to wait and see.

[@davJanko8052]

Agree. Also, not every dollar is at the highest rate. Live life, stop worrying about paying a few dollars more in life

[@PH-md8xp]

Extremely slim possibility since the majority of the government’s revenue comes from taxes.

[@James4cycling]

That’s a campaign promise to get votes and will never happen.

[@Theodore-tu5zg]

Retirement isn't an end goal, but a journey best secured by careful and consistent investments.

[@curtdalgleish2903]

I regret not doing more Roth contributions only because although I'll have plenty of money for large purchases in retirement, it's likely a large withdraw will push me into a higher tax bracket compared to normal retirement spending. If i want to buy a car, or remodel the house, I may still be getting a loan vs using my own money to avoid the big tax hit in that year, regardless as to whether or not it's at the higher bracket. Am I wrong in this thinking?

[@cutehumor]

You can’t avoid taxes forever. Your heirs will pay the tax unless you give your estate to charity

[@hm51008]

@@cutehumor As usual, “it depends.” Brokerage accounts receive a ‘step up’ in cost basis at death so no tax is due to the beneficiaries until a brokerage investment is sold. Traditional IRAs become Inherited IRAs for the beneficiaries and withdrawals are taxed as income, plus the account must be liquidated 10 years after death. A recent IRS clarification indicated MRDs must take place each year starting in 2025. Roth IRAs are not taxable to the beneficiaries, and the account must be liquidated 10 years after death.

[@johnpapas2658]

"And more" is the key one

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

Te* le * gra* me*

[@davJanko8052]

You didn’t mention about the clock restarting on tax free withdrawals upon making a conversion

[@hm51008]

This came up a month ago on another channel and my research indicated if the Roth account was established 5 years prior AND the individual is over 59.5 it’s not an issue. Check out IRS Publication 590-B, Roth IRAs, ‘Are Distributions Taxable’, Figure 2.1.

[@rdspam]

The fundamental idea is unchanged, no? Will future rates, at your income level, be higher than the current rate in which you have headroom? The thresholds may differ, but the decision making methodology is unchanged. Change the values in your spreadsheet, or flip the switch in your software.

[@lindsaynewell6319]

takeaway #1 clearly shows there is more to consider than just the federal marginal rate.

[@jerrylabat550]

@@lindsaynewell6319 Agreed! Marginal tax rate only affects the next dollar. It makes more sense to focus on effective tax rate as that affects all dollars. Realistically going $2k into the next tax bracket has very little impact on your effective tax rate (or total taxes owed), it just feels bad psychologically.

[@stephtraveler7378]

New variable: What if the new admin moves to a tariff based system with reduced income taxes. Like the early 20th century when we had zero income tax and got government revenue from tariffs????? Would that mean my IRA/401k would not get taxes on drawdowns???? Sounds kinda sexy..

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@ff5973]

Great video, no one knows what will happen in the future. We need to try to make the best plan on what we know now. Not everything works for everybody!!!!!! Everyones Tax Situation is different!!!!

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@lifestream4191]

So, if it doesn't make sense to convert or contribute to Roth, do I have to finance a car? How do I pay cash when I don't keep an extra $60K laying around?

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

📝Write to my broker for better insight

[@lifestream4191]

@@SafeguardWealth_Management It was kind of a rhetorical question. Anyway, all we can assume is what the law is today. IMO, guessing is not a good strategy. I'll keep on my path to contribute to Roth, as well as convert our IRA's. It's much cleaner to actually own 100% of our retirement accounts. Nice video.

[@James4cycling]

Why is the personal tax rate reductions only for 10 years, but the corporate reduction is permanent?

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

📝Write to my broker for better insight

[@SafeguardWealth_Management]

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[@AndrewFlores-n1o]

Need your take on a strategy. I'm 56. I'm retiring in January. I plan on withdrawing $60000 a year out of my Roth 401k using the rule of 55, so no penalty. A thought I have is to withdraw 5000 each month out of that Roth 401k for living expenses, so that Roth money will be growing tax-free but decreasing each month by 5000. Also in January I will rollover 60000 to a roth IRA from a tradional IRA. Which will also allow that money to grow tax-free all year minus what I owe in taxes for the rollover. The original is taken out tax-free, and the rollover is taxed. So I pay the same amount in taxes. The advantage I see is that both amounts grow tax-free all year minus what is used each month. I plan to stay in the 12% tax bracket. Please provide your thoughts

[@jerrylabat550]

You should look into the rules on withdrawing Roth 401k funds. I believe you can't separate contributions from earnings. So you might owe taxes on the prorated portion attributable to earnings. If 50% is earnings, I believe you owe taxes on that under the rule of 55.

[@AndrewFlores-n1o]

Thanks, I'll look into that.

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

[@SafeguardWealth_Management]

Te* le * gra* me*

[@EdA-bz3bu]

So excited to have more opportunities to not pay our fair share! Even though there are so many loopholes already.

[@cutehumor]

You can freely pay more federal taxes to the irs if you feel you are not paying your fair share 😂

[@nunyabidness3075]

IOW’s our economic futures as retirees depend all too much on government decisions made by a group of people with an under 20% approval rating. What we need to do is get on a road map to end social security, 401ks and all the fixes created to make oversized government palatable and necessary.

[@nunyabidness3075]

I forgot my main point, lol. The real bet is going to be on whether the clow… err congress doesn’t use taxes to make social security more “needs based”.

[@cutehumor]

@@nunyabidness3075there is a proposal to cap social security to 2050 dollars per month by executive order of president in 2033. Since congress can’t fix the border, dreamer issue, and student loan forgiveness

[@SafeguardWealth_Management]

write to my broker for more helpful info.

[@SafeguardWealth_Management]

@itsCoach_Stephanie

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