STOP Converting! When NOT to Convert to ROTH in Retirement

[@RetrieverTrainingAlone]

We are 5 years off from huge RMD starting at the age of 73. Using recent inheritance to pay taxes on each Roth Conversion from 401k every year until RMD. Another advantage is heirs get tax free inheritance when we die. Considerations include IRMAA, social security taxes, minimizing federal and state income tax liability.

[@straitjacketstudios]

I agree with the tax code "assumptions" which also falls into your "ROT" topics. While it is likely that taxes will always go up in the future, I think about those that active with a Roth conversion strategy, only to run into the Tax Cut and Jobs Act which raised tax brackets for most everyone. Anyone who was actively pursuing Roth conversions prior to this likely LOST $$ due to these tax code changes, proving that we can not just assume taxes will be going UP in the future.

[@lamchowing]

I guess one thing Mark forgot to metion was the benefit of tax free capital gain when you contribute to retirement accounts roth as you're still working. Let's say you're 40 and life expectancy is 80. The tax free capital gain can out grow the principal x10 to x20 easy.

[@earlyretirementadvisor]

💪💪💪

[@zluca05]

Mark, I came across your channel after a ACA search. I like the way you break down the different scenarios. I do have a question about the ROTH conversations. When converting from the traditional IRA you have to pay the taxes to convert. Where does your calculator take the tax money from. Is it from the IRA principal,(reducing the going forward principle), or from another account, such as a bank or brokerage account. If it’s from a savings or brokerage account isn’t that money that is now lost for future compounding growth? Thanks

[@earlyretirementadvisor]

@@zluca05 Great question and observations!For this scenario, the tax money came from savings. You are absolutely correct that the money lost to paying the taxes needs to be factored into the decision whether or not to do the conversion. For these examples I made sure to factor that in.

[@casa87blue]

Tax deferral into 401k while living and working in CA...I am considering renting my house and changing residency to a tax friendly state for a few years in early retirement for Roth conversions. Rent an apartment while I do the bulk of my bucket list traveling. Will change residency back to CA after the majority of Traditional is converted to Roth....whatever is left can go to QCDs to satisfy RMDs. Thank you for your service sir. Some good insights on Roth conversion strategies.

[@johngarceau541]

Good info

[@rickstephan6707]

Am I the one questioning the reference to Arizona (that was never revisited)?

[@earlyretirementadvisor]

😂 I mentioned it because I intended to give a detailed breakdown of both state and federal taxes. But…I didn’t.

[@charmcrypto824]

Really appreciate the breakdown of when Roth conversions might not make sense! It’s crazy how many factors come into play, especially with health insurance and taxes. I’ve been thinking about rolling over my Roth into a crypto IRA with My Digital Money, but I’m curious if anyone here has thoughts on how that fits into a broader strategy like this?

[@tedmartens5260]

I am curious how from 2024 to 2031 when withdrawing $12k per month from a taxable account with no other income sources or explanation for how they are maximizing tax advantages (i.e write-offs from rental depreciation, etc.) that the tax bill is negligible. Is there a pension or post-tax withdrawal or something that I missed? Also, 4k-5k withdrawals per month after they first start drawing SS isnt "off the map" - it is about 1/3 of their monthly spending. What am I missing here on both questions? Ive re-watched from the beggining 4 times and clearly am missing an assumption somewhere.

[@earlyretirementadvisor]

I’m not sure how to answer your question. I’m happy to chat to try and give you a better answer. 801-228-0103 Feel free to call my office.

[@lindsaynewell6319]

He said they have $1m in a taxable brokerage account. So they can take $29k standard deduction. Plus $94k LTCG at 0%. Plus $21k principle (e.g. gains have already been realized). In reality, they would probably have to take more principle and carefully manage interest and dividends but it's very doable to take $12k/month tax free with $1m account balance if the cost basis is favorable.

[@johnsmith-dm2tq]

i dont understand the very basics at the start. i.e. a 401k looks like 10k and you pay 20% tax so, 8k. with a return of 5% over 10 years for a total of 13,031$....a roth looks like 10k with 5% return over 10y is 16,288...oh wait theres a 20% tax for a total of 13,031$ same total. so what i dont know is, do the tax brackets count for retirement accounts? if so i want a smaller income.

[@grahamcollins5416]

If you're going to have a lower tax bracket in retirement, Traditional is less expensive. HOWEVER, that benefit is realized NOW, with more cash in your pocket. This isn't good enough for me, unless the difference is massive. The balance in a Roth is always worth more than the same balance in a Traditional due to taxes, and I'd rather absorb an inefficiency now rather than have more complexity/taxes in retirement. Here's the horrible truth of Traditional being more advantageous: most people don't use the extra cash they're left with and invest it. The compounding is lost, and they're left with a Traditional they'll pay taxes on.

[@fictitiousnightmares]

Nonchalantly says 2.5 million dollars and 12,000 a month, etc. smh Must be nice. I'll be retiring on $34,000 a year with about the same in expenses.

[@onlywenilaugh6589]

Didn't save much through your life eh?

[@fictitiousnightmares]

@@onlywenilaugh6589 Certainly didn't MAKE enough to save 2.5 million or even consider spending 12,000 a month. That is for sure.

[@tedmartens5260]

​@onlywenilaugh6589 I'm not sure if you meant it, but that's kind of a crappy, condescending comment. Not everyone has the income to save $2.5M over their career, even with the best savings strategies. As a servicemember with a family I certainly didn't.

[@onlywenilaugh6589]

@tedmartens5260 didn't say you need to save 2.5 mill. But save 10 or 15 percent through your working years. Sacrifice some then to enjoy retirement. All my cars are over 15 yrs old, I have small house we raised 4 kids in. You can do it if you have the forethought and decipline. Just don't play the poor me game. It's not about total saved, it's about percent of your income. Good luck.

[@fictitiousnightmares]

@@onlywenilaugh6589 What are you saying I 'can do'? LOL I have already retired as of yesterday. I told you I was retiring on $34,000 a year. As you said, it's not about total saved, it's about percentage of income. And I never said you said you HAD to have 2.5 million, I was making fun of the fact of how nonchalantly you said it as if it were 'normal'. You are out of touch with reality if you think that is normal or even reasonable. It is a horrible example.