Should you Convert your IRAs to ZERO? | Roth Conversions

[@knitordi]

You always show the graphs and limits based on a married scenario. It would be helpful to show a single scenario for those of us who are widowed and single and have no secondary income of a spouse to cushion their situation. Living alone is stressful enough. Having to manage a financial future alone is very stressful.

[@SafeguardWealthManagement]

Noted. We appreciate the feedback

[@headlibrarian1996]

Almost nobody who posts these financial advice videos shows a single scenario, they always show the married numbers because they're so much more favorable.

[@splitliving]

Amen, sister!

[@lindad6223]

based on married AND wealthy.

[@papasquat355]

Exactly. One of the biggest reasons for a Roth conversion is estate planning. When going from married to single tax rates, the tax burden is magnified and tax deferred accounts and RMD's can create huge tax issues.

[@andersonlegacy3136]

Please include single or head of household scenarios not everyone has married filing jointly scenarios. Appreciate your content! ❤

[@robertweiss7327]

Excellent video! I hope you consider discussing children (heirs) as a part of Roth Conversion planning in the future. For example, many families will have children in their 50s or 60s, near the peak of their earnings, when they inherit an IRA/401K. If they are high earners, they could pay 35% to 45% in Federal and State taxes on the distribution. So converting at a rate less than that may make sense for some and should be considered when creating a plan.

[@fancher1959]

Well-presented. I’d appreciate a deeper discussion about conversions around the time when the first spouse passes. It would seem that the step increase in tax liability for single filers would easily drive a decision to convert ALL of any remaining Traditional IRA assets.

[@heathmurphy55]

I may have missed it but you didn't mention anything about converting in a down market. If stock market dips down 20% and you convert, that eventual rise is essentially tax free.

[@johnb1571]

just did our last conversion from our T-IRA's. Will have enough money left in our 401k's to cover from 56 to 67 and military retirement. SS kicks in and covers everything. military retirement will go to investment account and our Roth's continue to grow. NO RMD's :-)

[@daveharness70]

That's exactly what we are planning to do with our early retirement (except no military or pension). Roll some over, and use the rest during the 55-65 age timeframe. Not only no RMD's but get "poor" 2-3 years before full SS age of 67 as they look back 3 years at your "income" to increase Medicare premiums and the like. It's a minefield....but when you have the right information you can at least plan.

[@johnb1571]

@@daveharness70 good point, totally agree!!

[@larryusagmail4751]

Sounds like a TARD PLAN

[@jimlow6824]

At age 70-1/2 and above, you can donate directly from your IRA via a QCD. It doesn't hit your income line and satisfies your RMD. No need to convert and pay taxes on money you're planning to donate.

[@SafeguardWealthManagement]

100%

[@nextwave1314]

If I knew I would have to donate my hard earned 401K money, I wouldn't have accumulated them.

[@oceanwaves3139]

@@nextwave1314 your comment gave me good laugh; that is true though; it took discipline and financial efforts to save money for my 457b during my working years.

[@wallace_n_gromit3180]

I am currently retired (federal govt) for 3 years age 59. Only needing my/wife's pension(s) and SPS (which will end at age 62), and QDI, to meet my needs. I don't plan on claiming my SS until I turn 67-70. I have a large Traditional TSP, a large personal account whose value is mostly LTCG's, and a relatively small ROTH IRA. After listening to various speakers and groups talking about F.I.R.E and Roth Conversions, Retirement planning, forward-looking Tax planning etc for several months now this year, I have to say that Safeguard Wealth Management presents this subject in a clear, concise (as can be with such a complicated subject), and (much more importantly) very comprehensive way much better than others that speak on this subject. My only regret that that I knew nothing about such things until this year/ I wish I knew about this 3 years ago.

[@M22Research]

Helpful information, particularly from a math perspective, but two factors not mentioned: 1) Ironically, the “Forced Income” issue, due to an inheritance - but not from your perspective, from your kids/heirs perspective. If you expect to leave a significant inheritance, often your kids are approaching peak income earning years. Do you want to be the cause of driving them into higher income tax brackets? Potentially sending more of your hard-earned money to the govt than necessary? Converting at least most of your 401K/IRA to a Roth IRA greatly minimizes this concern. 2) It is often likely one spouse will die several, even many years prior to the other. Therefore you have to look at the higher future tax rates of a surviving spouse filing individually. Furthermore, from a “soft” perspective, there can be significant emotional benefits to simplifying the tax situation for a less financially sophisticated surviving spouse - a Roth IRA can help with that.

[@annamartino5681]

Thank you very much for this video. The Graphs seem to be mainly for a married couples. Could you please show the Tables and Graphs for Wealthy and not so Wealthy Singles in Retirement. Also, ideally show Tables by Income CUT OFF for each part of the Tax Torpedo which is a complicated concept (as one must be familiar with calculation of "Provisional" Income=1/2 of Social Security Income plus MAGI of ALL OTHER INCOME, and then be familiar with Taxed Income Step once "Provisional" Income is above the Social Security Base Income of $25k and below $34k for Singles then suddenly 50% of Social Security Income is Taxed, and then once "Provisional" Income is above $34k then suddenly 85% of Social Security Income is Taxed and once Must have a Table of Effective Marginal Tax Rates by Income Calculated to realize that Tax Torpedo Spike in Taxes is hitting mostly not the Super Wealthy but those who were hoping in Retirement to be on Ordinary Income and remaining in the same Tax Brackets and yet we'll designed for the Middle Class Retired the Tax Torpedo Spike is amazing as it ERASING WEALTH for most of us who didn't Plan on these Extra Torpedo Spike in Taxes being that Torpedo Taxes on Retired with Incomes even $1 above $34k and Paying Taxes of 48% in Torpedo Spike Zone which is exactly what they designed to do when they planned it. Keeping in mind that trying to convert Rollover to ROTH until 2026 is most likely optimal Strategy for most (especially extremely sick with expensive unaffordable unpaid by Medicare Meds and unpaid by Medicare Dental and Vision and Hearing, etc. so one must almost Plan to spend $2-3k on these Meds and unpaid Medical costs and it's maybe only option for them to stay in the LOWER Income brackets and possibly then qualify for Medication subsidies through MEDICARE Savings Program MSP run by states individually but only for those withdrawing from Rollover IRA and paying Taxes and not Roth IRA which has Zero Tax and Zero Impact on Eligibility for MSP). In this video it's clear that 48% Marginal Tax Rate in the Tax Torpedo Zone designed for ordinary Income which was supposed to be in the 22% Tax Brackets is REALLY STUNNING! Most were mistakenly only thinking about the spike to 25% Tax Brackets and only hypothetical Future Taxes rising as of 2026 after the Sunset of TJAC when discussing Rollover to Roth Conversions. Please do show in all of the same examples IRMAA Surcharges Analysis and loss of Medicaid Insurance for those on the lower Income flow spectrum and those who are sick ans don't realize that they can't afford basic expensive Heart Medications such as Brilinta ($1250 month) and Repatha ($1250 a month) not covered by MEDICARE Insurance and suddenly would like to apply in income based subsidy Programs for Health and Medications just to live another day in Retirement. It's a common thing to think it's only for Extremely Wealthy with nest Egg of $6 M and yet it turns out that once someone suddenly is retiring even earlier than age 65 because they are sick and then they have a different dilemma of how to not outlive Retirement Savings and afford to pay TAX TORPEDO of 48% Marginal Tax Rates with Provisional Incomes above $34k designed to ruin their Retirement Plan which most do without Tax Consideration unfortunately thinking Taxes in Retirement are like Taxes while working. Some people also have children and are trying to leave Roth IRA to Children and Grandchildren, as Rollover and 401k are taxed at 35-50% if you consider inheritance is received after age 40 at a prime earning time and now after the wonderful secure act 2.0 seem to be needed to be withdrawn within 10 years and Taxes in these inheritance Rollover and 401k during the 10 years are going to be 35-50% making all of us feeling betrayed as all our lives we were told to save and there were stretch for the lifetimes of the Beneficiaries pre-Tax inherited Rollover IRA which was not just Torpedoed but simply destroyed as a Balloon being deflated by those who desided to take it away from ordinary people just in time at the end of our life and dreaming about passing at least some of the inheritance to our heirs.

[@mikefochtman7164]

Great informative video. I find myself in exactly this situation with 'forced income' filling up my lower tax brackets. Worse yet, since I'm single, the brackets shift 'left' on your graph such that I hit those higher brackets sooner. So I'm seriously considering even going into the higher brackets (and IRMAA) payments for the next 5 years. Turns out if I pay a lot of tax/IRMAA now, I can avoid higher taxes for many years after age 72. So, as with a lot of planning, it depends if I live long enough. lol Pay high taxes on RMDs for 15-20 years, or pay taxes on conversions for just 5 years. Of course if I do the conversions and die at 73, I'll have paid the taxes and not ever enjoyed the lower taxes later.

[@splitliving]

But, consider that your beneficiaries won’t ever have to pay those taxes, either. Small consolation, I know….

[@jackcapone4375]

You only get one go round in life in this respect, I figure I should pick up all the tricks. I am banking on longevity and doing everything I can to reduce lifetime taxes paid. Good luck, good health.

[@raybame5816]

I like your presentations. Fast, accurate, knowledgeable and very helpful. As an accountant/enrolled agent in bus for 47 years, I seen and practiced most of what I've seen in you videos. But, I've also learned and that is what I like. Liked and subbed. Thanks for your explanation of quite complex issues.

[@SafeguardWealthManagement]

Thank you!

[@TheBeagle1956]

We’re trying to convert our 401k/tIRA to Roth accounts before 2026 taxes revert to the old brackets. At 65 we’re only seven years from RMDs that would push us into the upper brackets if we did nothing. We’ll take the IRMAA hit now for a few years to hopefully lessen it later. We’re also concerned about paying taxes at a single rate when one of us passes. I don’t want to leave my wife or our kids with excessive tax burdens.

[@wichitazeb]

Nailed it!

[@Just_forfun9140]

Single people pay high taxes, couples get double the benefits, double deduction amounts, double exemptions, even health insurance is so much higher than for a whole family (on a per person basis). And when a single person dies all the contributions by employee and employer are gone, cannot designate a beneficiary. The system penalizes single people.

[@fancher1959]

Keith, I’m staring at the same issues you expose here. I have some forced income in the form of a military pension and have decided to delay SS until 70 to make room for significant conversions between now (I’m 62; wife is 64) and SS and RMDs.

[@smd3697]

@@Just_forfun9140 Is it possible that the system incentives marriage? I think that was the original intent , since societies on a whole prosper more when marriage and the family prevail.

[@joeb1522]

@@Just_forfun9140 There is a marriage tax penalty. The tax brackets aren't double if you are married (outside of the lower tax brackets). 2 single people making the same amount each pay less tax as single than if they were married.

[@stevegould5185]

Thanks for the discussion! I hate converting now, but if I do nothing I'll be in the 22% then 24% bracket when RMD's hit. Retiring in 4 years. Pensions and SS will be around $120k to $125k annually. Already in the 22% bracket so converting to the top of the 24% for two more years then re-evaluate to avoid IRMAA or not (I'm 60 now).

[@Wegl79]

Steve, I’m soon to be 67, and I am not an expert. However, if I were in your shoes I would do everything you can to convert before you become 65, and start on Medicare. Essentially, I’d convert even if it would push you to the 24% bracket. The difference between 22 & 24% brackets is relatively small. You do want to stay beneath the $182,000 threshold to avoid IRMMA adjustments to your Medicare payments.

[@stevegould5185]

@@Wegl79 Hi Dave, I did max the 24% bracket for 2021 and 2022. I will review my numbers before deciding how much to convert next year, but it will probably be similar. Next year is the last year before IIRMA would affect me at age 63 in 2024. I am looking at options for smaller conversions thereafter to stay under that IIRMA limit. If all goes as planned this will save me around $100k in Income tax and IIRMA payments over doing nothing.

[@Wegl79]

@@stevegould5185 I wish I had your foresight. I really don’t know if I have a problem or not. I retired @ 63 and managed to stay in the 12% tax bracket for a few years. If my calc’s are correct, we’ll be ok with our RMD’s, and be within the 22% bracket.

[@stevegould5185]

@@Wegl79 I didn't start preparing early enough in my opinion. I always heard to start 5 years before retirement, but that is kind of late in my opinion. Had I started my research a few years earlier I could have used the current lower tax rates to spread my Roth conversions out over a longer period and stay in the 22% bracket. Oh well. When I did my initial review it looked like we would be in the 24% bracket when RMDs hit and it may have climbed into the 32% bracket later on. I can't complain, though. I am just happy I saved enough to have this problem.

[@Wegl79]

@@stevegould5185 I guess this is a good problem to have🥴. Like you I wish I had prepared earlier. I guess we can tell the next generation of they’ll listen.

[@kimappreciateslife]

Also need to consider ACA if retire before 65 & the look back for Medicare. Also if you sell your home you could have capital gains in today’s housing market

[@jerrilayman5414]

You ROCK!!! Thank you for all this info. I've watched most of you videos in the last 2 days and it has helped me TREMENDOUSLY!

[@dmoon9037]

2:00 Forward Looking Tax Planning - that plan should commence with one’s very first contribution to pre-tax / traditional plan. Every single pre-tax dollar must be assigned a role downrange, at what point (when) will it be withdrawn or Roth converted (or charitably donated, etc.) and what will one’s individual tax environment be at that point.

[@tvstation8102]

Honestly was hoping for some more details in a response..perhaps a couple of scenarios for both singletons and married who DONT anticipate forced income, laying out an example 'desired' Tax Deferred retirement account balance as they head into their retirement years that would optimally fill their lower brackets given some example numbers.

[@robertfugate5827]

They really don't want to go into detail. They want you to contact them, so they can give you personal information about your situation.

[@Just_forfun9140]

As I understand defined benefit (pension) and defind contribution plans (401K, 403B,...) are covered by ERISA. So, protected from creditors and litigants. Where as IRAs are not covered by ERISA, and protection varies by state. And even if a state gives same protection, not sure it is at the same level as for plans covered by ERISA. Something to research and consider protection level.

[@Just_forfun9140]

@@seetheforestthroughthetrees Very useful info for planning purpose. For judgements from lawsuits, do the same protection rules apply.

[@polymath5119]

Protection of IRAs from creditors and judgements varies state by state. Some have none, while some are fully protected up to the amount contributed to the IRA until the judgement date. There are several online articles with charts listing those protections. Also, note that 457 accounts are not covered by the ERiSA protections, as they are in a different section of the code.

[@swim31swim]

Can you do a "Foward looking tax plan" that delineates the essential components please? Thanks

[@lostinmyspace4910]

There should be no question about converting. do it while you still can afford to during your earning years. Convert, convert, convert. You don't know what will happen in the future. Do it while you're young. Then all you earn is tax free and not even reportable. It won't even affect your combined social security income, or other incomes for the taxation formula. No RMD's which is great. If you own a business do SEP's IRA's to yourself, then convert that into ROTH. Before you know it, you'll be sitting on a million dollars all tax free. What's there to think about?

[@snowdenc]

Great video and information -thank you! You didn’t mention how QCDs can save taxes on RMDs. Rather than convert all IRAs to Roth, I plan on leaving just enough money in my IRA to make the annual RMD equal to an annual QCD when I turn 70.5 years old. That way, I don’t have to pay taxes on RMDs.

[@longgone9738]

Your RMDs will likely grow higher because the IRS recalculates this yearly. Your comment suggests you think the RMDs will remain steady (flat). They will grow.

[@snowdenc]

I am actually counting on my RMDs increasing so I can also increase my QCDs.

[@matta7739]

Very good presentation! Very informative. Thank you.

[@SafeguardWealthManagement]

Thanks Matt!

[@rudged123]

Two points to consider: 1. The widow/widower penalty - if there is a large age difference in the couple, converting to Roth while you can still file jointly makes a lot of sense. 2. In previous videos, attention has been drawn to the benefit of moving money into the Roth environment so that the future growth is not subject to tax. This video seems to ignore the potential advantage of having tax free growth.

[@mr.j2776]

Happy New Year! And great advice. My wife and I will get about $48,500 per year from pensions and annuities. Before I take social security at age 70, I will convert all of my rollover IRAs to Roth. When I am 71, we will have a manageable amount that will be taxed at 25% (or whatever the "NEW" rate might be by then.....)

[@johnc2438]

You mean, of course, the "NEW and IMPROVED" rate! 😆😆

[@mr.j2776]

@@johnc2438 one way to look at it, I guess... LOL

[@Just_forfun9140]

One way to save a lot of taxes is by moving out of NY., NJ., CA, unless you are a public school teacher, in law inforcement, firemen, etc, and in some local, state level jobs where they are highly paid. NY has 3 counties with highest property taxes in the nation, these are just average houses. When you combine all state and local taxes, NY should come out on top. And NY taxes longterm capital gains and qualified dividends as ordinary income

[@jimlow6824]

"And NY taxes longterm capital gains and qualified dividends as ordinary income" So does Calif.

[@Funexpected]

Erie and Niagara counties are 2 of the 3 I believe, and I'm in one of them. I can't realistically move out of NY for about 12 more years.

[@1BADGT500]

Thank you, this answers my questions regarding my situation. I was waiting for this video!

[@SafeguardWealthManagement]

Glad it was helpful!

[@molloarden8938]

Seeing concurrent pension and social security payouts also raises the question of the government windfall provision effecting reduction in social security for those on public agency pensions, in turn affecting the actual total income one may anticipate.

[@RamSamudrala]

I like the figure @ 1:25. @ 4:00 it's not that simple as just 3%. It's always the opportunity cost of the taxes you'll have to pay right now instead of having it grow (either tax-free or even in a taxable). In order to convert a dollar at a 25% rate, you have to pay 25 cents in taxes. Where will this come from? What else could you have done with these funds? THIS is the vexing question in my view. I apologise if it gets addressed later and will edit my comment if that occurs.

[@mikephilpot9857]

Will convert all ours. Our pensions and Social Security cover all expenses. We will convert partial amounts over time keeping below our next IRMAA brackets. SS will be 85% taxable no matter what we do. We want to eliminate RMDs to keep as much of our assets growing in the ROTH for as long as possible. Once the traditional IRAs/401Ks are depleted, we will have a very simple retirement financial plan. We can simply pull discretionary funds from the ROTH tax free. We plan to spend as much as possible making memories with our family and friends, making donations to our charities and gifting money to our kids to help fund their own ROTH accounts. The latter is part of our ROTH conversion strategy as well. It gives our kids ROTH assets now to compound for decades and when we are gone that money will not have to be withdrawn within 10 years like the funds in the ROTH accounts they will inherit from us. 👍

[@gieb6428]

I agree with you. That is just how I see it.

[@personaltravelandexplorati9627]

Can anyone suggest a ggod and free calculator for Roth conversion?

[@weliveinsf]

Good video. One question which I noticed have not been mentioned, would it be advantageous to first establish residence in a “no state-income-tax state before doing Roth conversions?

[@richardrainey2124]

Definitely it makes sense to avoid state income taxes during Roth conversions if you live in a state with income tax. It'd be an interesting topic for a video, "The dos and don'ts of declaring residency in no state income tax state." For example, live in an RV or large enough boat, get a PO Box with mail forwarding, etc. Thoughts?

[@jackcapone4375]

Of course. There are also some states that have state tax but do NOT tax retirement income e.g. Pennsylvania.

[@toreckman8899]

It’s suffice to say taxes will never be at these rates again. Understand how much determines the breakeven amount. . I take distributions or convert up to 83k. Insane to take or convert at a marginal rate of 22 up from 12. That said, rates are going up and depending how much the market corrects itself, I may bite the bullet and convert more. My challenge is deciding when to take SS and spousal benefit. My wife is 4 years younger than I, so I would love to wait until 70 especially if I’m healthy. That would allow me to get deferred account to standard deduction. Great video. I will subscribe.

[@walala1172]

How about to avoid being Taxed at 22% from convertion at 22% tax?

[@1BADGT500]

I might add that if you are expecting very large gains from investments in your IRA or any other qualified bucket (such as in Bitcoin or other digital assets... or maybe the next Google or Amazon startup type returns for example) then Roth Conversions are really desirable to avoid huge tax bills in the future. If you do nothing and your IRA investment does a 10x in just a few years, it would be much better to see those gains in your Roth bucket(s) than in your qualified bucket.

[@nextwave1314]

There is discussion at present about the "unfairness" of very wealthy people accumulating high grow stocks within Roth IRA, thus shielding million (and more sometimes) from the taxman. I believe that Roths will be taxed at some point in the future, at least over a certain balance level.

[@randolphh8005]

Your math is wrong, unless you are paying the higher tax rates in the future. Remember you are starting with 22-34% less money in your Roth after paying conversion taxes. Money in the IRA would have more total growth over the same period. Plus how are you feeling about a 10x return in just a few years as of today?

[@jackcapone4375]

@@nextwave1314 There is no unfairness - they have paid the tax under current rules. (Anyone can also easily argue the rules today are unfair to most Americans.). Remember the analyses clearly shows that the after-tax value will be no different. If you happen to have a huge gain in one of those rare stocks that explodes - that's hardly unfair, you're just lucky - same as in a brokerage account or tIRA. So, just because you got very fortunate in an account you paid to move you funds into that's unfair? I think that is ridiculous.

[@longgone9738]

@@randolphh8005 If you use savings or other funds to pay the taxes at conversion, 100% of the regular IRA balance can transfer to a Roth IRA, preserving capital to appreciate tax free.

[@dmoon9037]

6:01 Down To Zero is an ideal, not an absolute requirement.

[@jackcapone4375]

Eric - love your presentations, I have watched 1-2 a day on and off for several months. All great stuff, I of course can see the themes you hammer on, rightly so. Thanks I have a question, if you might. I have run many analyses on converting my tIRAs. (I have been maxing the 24% range lately). For all the reasons you have pointed out, the scenarios where I push big now and completely wipe them out while TCJA is still breathing I get the biggest bang/benefit from reduction of lifetime taxes paid. This leaves me with a large taxable account and about $2MM in Roth IRAs. My tax rate for the rest of my life (actually, my wife and I) then is very low for the rest of our lives. My question - it seems going 'too low' on taxes isn't necessarily seen positively - why is that? It seems to me whatever I do that results in the biggest tax reduction in the big scheme of things is worthwhile regardless of where my tax rate ends up in life. Would you agree or share any thoughts? In any case, many thanks for your presentations. I can go on at some length explaining how helpful they have been.

[@coevers1962]

If your “forced income” in retirement is already above the cap for 85% tax rate on SS, does the tax torpedo impact the discussion?

[@Erginartesia]

What if 10% of your 401k is already in ROTH? How can it be used to advantage for a draw down plan?

[@RDM1776]

Great video! you use the same graph each time you speak to tax planning. Can you do a video explaining each of the categories? Example: what is strategy income? I know you did it a little bit at the 8:30 mark, but more detail is appreciated. Thanks!

[@stephtraveler7378]

I know it sounds illogical but doing conversions WHEN you are working and have disposable income to pay the taxes is a viable strategy. Its basically suggesting to pay the taxes when you can afford to pay them regardless of the break-even analysis.

[@captsorghum]

And while you can still avoid IRMAA.

[@johnc2438]

Great video! I'm on a fast learning curve about Roth conversions and am working with a financial planner whose thinking matches yours. Happy New Year 2022!😎😎

[@michaelmclaughlin1958]

I would like a review of my Roth Conversion plan. Do you do that for your KZbin followers? I live in Austin Texas and likely we could do this via a remote session or two. Please respond.

[@touchofgrace3217]

I am 50 and just now saving for retirement. For me, it’s not just about the tax rate itself but rather my money’s ability to grow tax free vs literally letting taxes grow in my tax deferred account. If I convert my SEP into my Roth every couple of years until I retire it will be a massive tax savings regardless of whether the tax rate changes in 20 yrs. So I disagree that the only reason to convert is simply the tax rate.

[@dmoon9037]

Do you use a Monte Carlo approach to identify optimum tax plans?

[@ultramegasuper11]

I think having it simple as I get older will be worth a lot . If almost everything gets converted, I don’t need to pay a financial advisor 1% of my account yearly to manage it. Pulling $ out of a Roth is simple.

[@SafeguardWealthManagement]

Certainly simplicity has value. I think there is a 'peace of mind' value hidden in there as well with being insulated from tax risk.

[@gieb6428]

Yes, I am sick of the Hoop Jumping. @@SafeguardWealthManagement

[@cliffluxion7019]

Thank you for the helpful content!

[@splitliving]

You might mention sometime what the options are for non spousal beneficiaries of both Roth and pretax IRAs.

[@toddhallam9598]

Excellent video and explanation. I think I will need to convert a significant amount of my 401K but maybe not all of it.

[@splathub]

I have a regular IRA with about $35k in it and a similar amount in a Roth IRA. I was thinking for converting the entire IRA into the ROTH. I'm 43 years old so I have a bit until retirement. I plan on contributing to my Roth going forward as the money in my IRA was from a rollover from a prior employer 401k. I don't have any other retirement accounts. Based on your video it seems maybe the 35K is too low of an amount to convert because of the tier tax brackets? Thanks

[@captsorghum]

Or do it during a sabbatical or layoff when your tax rate is unusually low.

[@southothehighway]

This ignores the fact that RMDs are taxed at ordinary income while non tax deferred accounts benefit from qualified dividend rates and capital gains rate.

[@chestcutter1468]

Great video...lots of food for thought. I'm 56 with > $1M in retirement accounts, 32% marginal tax rate, filing jointly, no pension, and plan to work until 62 at least. I have a CPA but I would not necessarily trust him to develop a detailed tax planning scenario for my family and me. Where would you suggest that I go to get a well-designed tax planning strategy to begin implementing now? Thanks in advance.

[@samsmullen991]

If my only incomes are from the retirement account and social security, I would wait until I'm 70 to collect SS and use retirement account without ROTH Conversion since after retirement marginal tax rate will be lower than 32%.

[@swright5690]

Talk to Eric and Tony at SWM and they'll do one for you. But it is a bit more complicated than that.....even if you have a plan, you have to execute the plan and know when to do it and do it correctly - and the IRS does not tolerate mistakes. I am a client and very impressed with what they have done for us.

[@swim31swim]

Forward looking tax plan video 😁

[@bluesky2145]

Doesn't the combination of social security and RMD income make it smart to convert all of a traditional Ira over to a roth?

[@SafeguardWealthManagement]

There is still some room within the standard deduction + 10% bracket (15% or 18.5% marginal zone when inside the Social Security Tax Torpedo) that can be realized at low rate so keeping some small tax-deferred account balances can make sense in many cases.

[@bluesky2145]

@@SafeguardWealthManagement Would love to see another video with a variety of examples if you have the interest . Thanks again, your channel kicks butt.

[@jzhou23]

Great video. I have a question. Is dividend or interest considered forced income?

[@mr.j2776]

If it's in a taxable account, I would consider it forced income.

[@Stocks1986]

Say at 70 you still have a balance of around 300k in your pretax IRA and then start SS, etc and don't need to tap that money - allowed to grow that money could be over 1m at the end of life which would steadily add to RMDs. Still trying to understand the value of keeping assets in pretax if you can get it all converted

[@johngill2853]

You may not want to convert it all quickly if you have no other income. You may want to take advantage of the standard deduction every year. There is no cookie cutter advice you either have to get a tax calculator out and figure this out or pay someone

[@drbassface]

What about the five year rule?

[@gieb6428]

For the five year rule, check the irs site. Any where else and you will get all kinds of wrong information.

[@CGAZ66]

I am 55 and I contributed to a Roth and then found out that I made to much money at years end. What do I do now?? so just re characterize it to a traditional Roth?

[@rightshotphotography2576]

Or you take a distribution out of the Roth (I’m assuming IRA) of the excess amount. You’ve already paid the taxes on it so shouldn’t be any tax consequences. Just put it in a normal brokerage account. If you have 401K, the limits on a Roth 401k are higher, so you could maximize that going forward. Just my $0.02

[@samsmullen991]

I wouldn't convert all from IRA to ROTH since medical and dental expenses greater than 7.5% of AGI is tax deductible. It could be used as long term care or dental implants.

[@Abraham.Lincoln22]

People who brush their teeth twice daily should not need dental implants. Problem solved. 😎

[@rcwilson9510]

I have also considered that, but most people are at least in their 80's by the time they would need long-term care, by which time RMD's would have wiped out a good portion of their tax-deferred savings. And in the meantime, the RMD's may have raised income enough to incur more taxes, on SS or otherwise. It's certainly a good point and a difficult question to answer because it's impossible to predict the future with 100% accuracy.

[@samsmullen991]

@@rcwilson9510 If you have a spouse who is much younger, your RMD stretch much longer term since it's based on couple's longevity. But as you've said, impossible to predict the future. Best thing that anyone one of us can to present is to plan and hope for long healthy life to enjoy our retirement with all our savings during the working years.

[@rene.s.s]

Additional 1.35 taxed from $1.

[@roberthelman2379]

Is there any way you can help me decide how to do my RMD I am 76 with approximately 1.6 million and I think my tax bracket will continue going up should I take more than the minimum?

[@Random-yq1wu]

not much you can do

[@dmoon9037]

0:48 It Depends(tm) is a strong platitude in any domain of planning, not just financial planning.

[@nextwave1314]

It's a shame that older folks are forced to deal with such byzantine tax structures, exactly when their mental capacities decrease. It's akin to elder abuse. Truly a disgusting system.

[@mr.j2776]

Next Wave - I have said essentially the same thing over and over. I have tried to help older relatives and there is always this glazed look in their eyes. Now I'm the older guy..... dang!

[@knitordi]

That is so true! I have noticed changes in my ability to focus and mentally visualize the numbers in just over a year. I am 66. I cannot comprehend how I will be in my 80s. I better get out the Sudoku puzzles. Beyond this I feel the elderly are penalized for a lifetime of working hard and saving. Not fair!

[@johngill2853]

Deal with this way before that point. You should be strategizing your taxes before you even retire.

[@gieb6428]

@@johngill2853 Nope that won't work.

[@johngill2853]

@@gieb6428 it surely could work , dealing with taxes could simply be getting the help of a professional or a family member If something is a "worry" , then you plan accordingly.

[@DB-xp9px]

when someone hits retirement age w/ 1-2 million in their 401k (tax deferred), there appears no reasonable way to avoid all these traps. u can only convert so much each year between retirement and when RMD's kick in, especially considering u likely have distributions already using the lower tax brackets for simple living expenses. all the while SS income is making the conversions even more tax-vulnerable and increasing your healthcare premiums. in an indirect way, ppl get penalized for being avid savers

[@shockwave1126]

Yep. This is why I’ve never been a fan of tax deferred stuff.

[@longgone9738]

Some CPAs and certified planners would state convert huge amounts (absorbing huge tax payments now) to get remaining balances into a Roth. These kinds of videos seem never to address that the peace of mind is a factor the math ignores.

[@DB-xp9px]

@@longgone9738 yea, i'm constantly wanting to "get it over with" and feel the urge to convert everything to Roth so i simply don't have to think about it anymore. it's difficult to ignore the negative tax consequences of doing it all at once though.

[@miketracy9256]

If you want to avoid high taxable RMD income you may always do QCDs. Better to send your hard earned money where it will do the most good, then trusting the current politicans to do anything worthwhile with our tax money.

[@roberthelman2379]

I failed to tell you that I have approximately 220,000 annual income between me and my wife that includes pension and rental property that includes my last RMD.

[@miketracy9256]

What happens "IF" Congress raises taxes? Even if we vote the Democats out this November, our federal government is broke, and someone will need to bail them out and soon.

[@Random-yq1wu]

If tax is too high right now, Traditional will become popular than Roth

[@johnwhite2576]

the entire roth discussion assumes feds will not withdraw the tax free aspect....they will REALLY need the tax dollars down the road...

[@gieb6428]

Don't see that happening. But, they will use other ways to dig in your pocket. You can only get Tax money from those that have the money.

[@auricgoldfinger8478]

I would love to convert to Roth but the numbers are challenging. I’m 66, I pay the max penalty on Medicare irmaas , I pay 3.8% penalty on investment income. 3.8 million mine/ 1.2 million wife. Make sense to try to convert any?

[@joerozario4406]

If you have high yield investments in non-retirement accounts, holding onto some blue chip growth stocks with less dividends might lower your investment income.

[@auricgoldfinger8478]

@@joerozario4406 fully invested, any sales trigger c.g. plus 3.8%. Mostly already S&P which pays 1.3% dividends. These are first world problems. I will likely donate the first $100,000 of RMDS to charity to lessen marginal rate instead of various manipulations

[@polymath5119]

In your case I'd be tempted to do a few years of very large conversions. One of Eric's videos has a greater-than : less-than chart that indicates which strategic moves are more beneficial when two are in conflict, e.g., your issue of Roth conversions vs. triggering higher steps of IRMAA and NIIT. If I remember correctly his chart has Roth conversions > avoiding IRMAA and NIIT charges.

[@auricgoldfinger8478]

@@polymath5119 I’ll look for it

[@virginiasanmiguel9930]

only makes sense not to convert to Roth if there was a guarantee that TAXES weren’t going to increase.

[@gieb6428]

And no one dies

[@pgraham5674]

Great video!!! I do have a question, and it's something I really don't see discussed. Converting from a traditional IRA means that you'll incur the taxes today, which will reduce the balance of the portfolio, potentially losing gains that would otherwise be compounded going forward. How would the impact of this opportunity cost affect the decision to convert? Again - love the videos.... Lots of great information shared in a way that's easy to understand!!

[@E.E.F.]

You best pay these taxes with other money (savings, brokerage) to avoid lowering the balance in your retirement accounts.

[@johnc2438]

If you have existing cash, may be better for you to pay the taxes from the cash you have on the side and convert into the Roth the same number of dollars pulled from the IRA to do that conversion. Then, the "compounding going forward" effect doesn't lose traction and, later, you probably will be happy you paid the taxes in "yesteryear." And when you start taking Roth withdrawals, Uncle Sam will have to stand aside and whimper (unless, of course, the CCP method of "governance" takes over in the U.S. -- something we can influence only in the voting booth). This is what I'm doing going forward into 2022 and for the next few years until tax rates do increase (no "maybes" there). Also, you don't want to bump into those higher tax rates with higher RMDs (and worry about IRMAA reaching into your wallet as well).

[@rightshotphotography2576]

Use other money to pay the taxes, OR pay it out of your retirement account. You pay the same amount of taxes either way. If you take from external existing savings - like a regular brokerage account, then those funds don’t grow either. I mean it’s nice to maximize the amount going in to ROTH, but for me personally, my brokerage will be paying me dividends in retirement that really won’t be taxed (I’ll be only drawing less than $40K in dividend, the cutoff for us singles to pay no tax on dividends).

[@rcwilson9510]

You will have to pay tax on the amount you withdraw from your tax-deferred account eventually, so you might as well do it now while the tax rates are low and you can fill up the lower tax brackets each year. And if you are not yet drawing SS, you don't have to worry about having income high enough to force you to pay tax on SS.

[@nicoleo601]

I’m confused. If I convert $500k to Roth right now at 24% or even higher, let’s say 32% (I’m 57), that’s 32% of $500k ($160k) with 0% on any appreciation over that. So if I do nothing now and pay 22% on $1.5m over time when I’m in retirement that’s ($330k). So what difference does it make what my retirement rate is when I’ll have a much higher balance then? Hopefully. If I paid $160k on a $1.5M investment, that’s about 10%. What am I missing? Also I’m single so my tax brackets are much lower

[@mr.j2776]

Nicole O - You might want to watch some more videos on this subject. Looks like the first RMD (age 72) on 1,500,000 is about $55,555 (ballpark number). Add that to any SS, pension and annuity - and you will be in a much higher tax bracket. AND - once you take the first distribution, your balance would KEEP GROWING to about 1,574,500 dollars by the end of the following year (assuming a 9% growth rate.) The 2nd RMD will be higher then the first. And it gets worse and worse going forward. You would have entered what I call TAX HELL.

[@longgone9738]

@@mr.j2776One huge benefit to making regular conversions from a regular IRA to a Roth is to minimize or better yet, eliminate IRS “required minimum distributions” RMDs. The higher a traditional IRA balance is at retirement, the higher the FORCED RMDs are.

[@Bonez1999]

FIRST!

[@rcjordanii]

Roth conversions are taxed as income, then doesn't that contribute to a person's SS payment when drawing on retirement? For example if a $300k conversion occurred. True, it's averaged against 29 other years, however, won't SS bump up your payments some too as you would be in a higher income bracket. I don't see this being discussed?

[@rcwilson9510]

As I understand it, only income from work is used to determine your SS benefit.

[@mr.j2776]

Chuck - No - investment income does not count towards SS. Quoting from my SS statement: "To qualify for benefits, you earn 'credits' through your work..." In other words, Earnings are taxed for social security and Medicare benefits over an individual's working career - to be paid out when retired or disabled, etc.

[@wdeemarwdeemar8739]

What if congress raises taxes…. Ha ha. That is a guarantee!

[@johngill2853]

Yes probably is guaranteed But that doesn't mean specifically your taxes will go up. If you plan you should be in a much lower effective tax rate when you retire. And the tax increase shouldn't affect you that much

[@steves3234]

Showing the example of government retire sample was just disgusting to see how well the government is ripping of tax payers. They retire like kings and queens while the rest of us get screwed.

[@jbin2756]

Deleted

[@texastexas4541]

If you use money to pay tax now (Roth conversion) while market is down, your conversion strategy fails miserably.

[@steveshannon7904]

please explain, I have the reverse understanding.

[@texastexas4541]

@@steveshannon7904 If you are a young person, it is worth converting even if stock market is down. If you are close to retirement, it is not. For you to benefit from Roth conversion, you have to give it many years. For most people, Roth conversion is bad in the long run.

[@steveshannon7904]

@@texastexas4541 I have the reverse understanding. Can you give meof why you are of that opinion? I am 73 years old and have been converting for 7 years. This strategy allows me to avoid the widows tax trap, Potential Social Security tax trap, and IRRMA. I'm Loving my ROTH conversions. Oh and my heirs will appreciate what's left of it too.

[@johngill2853]

@@texastexas4541 I don't know statistically how you know it's bad for most people? But I assume you think people are using tax advantage money to pay the taxes in general. Which would make your statement accurate for those people in general

[@texastexas4541]

@@johngill2853 My point was about Roth conversion during your retirement years. IT DOES NOT work for MOST people because most people don't have millions of dollars when they retire. If you have started doing this since young age, you have a better chance of success.