STOP! Why You Shouldn't Do a Roth Conversion

[@goneretired7030]

One of the reasons that I’m glad I did several partial ROTH conversions back in the day, in addition to Tax Free Growth, is that I now have a sizable account that I can use to pay for large expenses without impacting my taxes.

[@jamoscatelli]

Also remember, capital gains rates are lower than ordinary income tax. I was surprised to find, when modeling my retirement finances, that I was better off taking from tax deferred accounts early in retirement, and brokerage later. That lowered my total taxes, eliminated the RMD issue, and left most of my assets in brokerage accounts to be passed on to our kids, with a step up in basis and no RMD's.

[@ld5714]

I do conversions to avoid IRMAA surcharges and for legacy planning; to reduce tax burden on my heirs. Happy Thanksgiving!!

[@obifox6356]

I am in my 80s now and am so happy I did a Roth conversion over 3 years. No RMDs that we do not need. No ordinary income tax on capital gains and dividends. No taxation of SS income. No IRMA forever. No inflation forcing me into higher tax brackets. Withdraw from Roth as needed (or wanted) without considering potential taxes.

[@saltwatergator2952]

I'm a big fan of both of your channels. You should definitely sprinkle in more of these collaboration style episodes. Thank you for all you do!

[@Jal10500]

9:22. Just be clear, RMDs are required income, but you don’t have to spend it. 😊

[@gcburkett]

I struggle with whether I should do some Roth conversions while I am still working in the 22% bracket. Doing Roth conversions at 12% or 15% would not bother me but the 22% rate is enough to cause me pain. Voluntarily increasing my tax now is not easy for me. I don't know how others do it so easily.

[@jonathanschwartz8]

Love the co-host format. Do more.

[@n8katz]

Love the combo episode. Great to see you together.

[@ron8566]

Good video discussion. I’m recently retired and I’m in the IRMMA sink hole due to some deferred comp plus some other one time income surges. I am looking at Roth conversions in 2025. My strategy will be to keep from triggering IRMMA down the road. You did bring another important point to my attention which is to consider that one of us may depart earth and leave the other in a single taxpayer bracket. That will undoubtedly skyrocket future taxes, so in my mind, Roth conversions may be even more important between now at age 66 and my RMD AGE.

[@poncho82able]

Like the collaboration, with bringing additional retirement insights form two planners who are on the same financial page. Hope to see more

[@susanlee594]

Happy TG! But friends... take a day off!!! You're the best out there. Thankful for all you do.

[@timothyoboyle994]

You guys are great, I am wondering if you are waiting to see if anyone noticed your names below your headshots are swapped. Thanks for all the good information and scenarios. Someday my odd scenario will be covered...

[@FIREhiker]

Good to see you both in a video. Keep up the good work!

[@cassiusv]

Happy Thanksgiving fellas. Grateful your content.

[@JohnSimpson-r5d]

This is very good advice resulting in a better quality of retirement living. “Do not let taxes be the main thing”, James. Great advice. You are right “Roth conversion” has become a “buzz word” with many other advisors.

[@jonathanfoster2263]

I have been going back and fourth on roth conversions down the road. I am retired now and will not even be eligible for social secuirty for 2 years. So I have 15 years until RMD's even begin. I kind of just realized I don't have to move everything into my ROTH IRA. I can easily move enough into my Roth over the next 15 years so that RMD's don't hit as hard when they kick in. I have always looked at RMD's as a good problem to have but its could still be a problem, so I can minimize it without experiencing the minimal amount of pain between now and then.

[@July.4.1776]

Agreed one part of the Roth calculation most people miss is the tax deduction you gain today on a traditional plan. … If in an a traditional plan retire at 59.5 and start spending it down this will help with RMDs later.

[@carlboehm6738]

Thanks, James and Ari. This is a useful discussion and I appreciate the fact that you candidly recognize that there is no formulaic answer to the optimal Roth conversion question. One of the most helpful things I heard an advisor say - and I think it was James in a different video perhaps a year ago - is that doing SOME Roth conversions is an interesting way to diversify your tax strategy. The amount of conversions you do might not turn out to have been quantitatively optimal, but it will allow you to avoid the "all your eggs in one basket" risk. One other point worth emphasizing is that the IRMAA surcharge can become quite large when large RMDs kick in later in life causing your MAGI to rise. It's easy to look at the first levels of IRMAA that kick in at a MAGI level of $206,000, and conclude that the surcharge is small. But watch out at higher levels of income - the surcharges become materially larger!!

[@Me-nd3bn]

My 2 favorite guys to watch in one video, awesome!!

[@hardlygamaliel455]

If you're married, don't just consider your tax situation now - also consider your tax situation after one of the spouses dies (or you get divorced). It makes a DRAMATIC difference in your tax situation. Experience speaking here.

[@brianh6680]

Will retire next year at 57 and savings are evenly split between IRA and brokerage accounts. RMDs will be a problem, so the two options are Roth conversions or to draw on the IRA instead of the brokerage for income. Running the numbers in planning software, I was surprised to find that the latter approach of drawing on the IRA resulted in a significantly larger legacy to pass on. Paying taxes on income only, instead of both income and Roth conversions, is why.

[@nealcohen9973]

James and Ari-The name of your show should be “Compound Interest” . I mainly have been a follower of James but like the combo format too.

[@jjcnpa]

I am retiring early and won't be worried about RMDs so I have zero plans to do Roth conversions. If you retire earlier than 65 and plan to use Obamacare you don't want high income which the Roth conversions will do so that is something to consider if you are pre-Medicare age.

[@dlg5485]

"We gotta keep the main thing the main thing" I like that because too many people allow the tax tail to wag the retirement dog. This is why I think a detailed spending plan built around your life goals is essential, then you determine the tax plan.

[@dancurran8977]

Thanks for the video. Happy Thanksgiving!

[@July.4.1776]

It would be interesting to know what the median retirement account balance is at the end of 2024? ….. I would think the retirement account holder drawing the median amount from their portfolio would not be paying much tax on their withdrawal. 🤔

[@LegalBeaver1]

I am 50 years old and want to retire in the next 2-3 years. I watch a lot of your videos. This one was really great. Thanks. I worry about the need for Roth conversions but perhaps my worry is misplaced.

[@steveweiss8920]

The question of should I do roth conversions during the gap years while factoring in SS and IRMAA surcharges is certainly complex as you look at the impact over time such as a 25 or 30 year retirement period. Life time taxes, portfolio growth and legacy goals are all impacted in different ways. The "Boldin" software for the cost is a great way to determine outcomes. What I discovered in our case is that roth conversions had minimal impact over time.

[@ddddc]

I think also need to mention the Affordable Care Act (ACA) subsidy for those people that retire between the ages of 59.5 and 65 years old. Roth conversions would potentially result in not receiving the ACA subsidy due to exceeding the income ceiling for the subsidy.

[@Fedupgarbageguy]

I would like to understand your thoughts on the time value of money. I’m currently squarely in the 22/25% bracket and will be in the 24/28% bracket when RMDs hit in 13 years. Converting $100K today would cost $22,000 to avoid $28,000 in 13 years. A present value calculation with 2.5% annual inflation shows that $28,000 thirteen years from now is worth $20,311 today. I feel I'm paying a premium as the money is worth more today.

[@bourbontraveler]

Just do Roth conversions up to the certain tax level you’re comfortable with. If you’re 10 grand under your 22% tax max and you don’t mind paying the additional tax put it in. Been doing that at different levels for years, now I have over 7 figures in a Roth.

[@James4cycling]

Happy Thanksgiving 🦃

[@wilma6235]

The main reason I need to do Roth conversions is to avoid IRMAA penalties later on (reduce IRA balance) Taxable social security that does not increase with inflation, etc.

[@Catherine_2571]

Having money to convert to Roth is a great tool to control your income when retired.

[@franks4973]

For example, if my retirement funds make .08% ($40k) more than I need to live on in 1 year and I don’t need my retirement accounts to grow anymore. Wouldn’t a strategy be to do a Roth conversion of that extra money and then be able to use it in the future to buffer bad stock years so that I don’t draw down my retirement funds more than I want. Since I would be in the 22% bracket until I hit rmd age 75 anyway. That gives me 10 years of possible Roth contributions and a bucket of clean tax free money. 1 thing that does make me crazy is the attitude that planners have that you must spend everything you “move” from retirement accounts.

[@michaeldy8426]

Should people far out from retirement be doing Roth conversions? In their 40s/50s?

[@mrtimhawk1]

I’m a stage 4 cancer patient on disability. I have a 401k with 500k have some bills need to take care of among other things . I’m 60yr also thinking if there’s any money left to have it in a Roth for my children. What’s the options? Thanks

[@SkinnySkinch]

I have 200k in a 401k with an old job. I am 36. I can pay 50 or 60k in taxes today on 200k or I can pay significantly more taxes on a a few million in retirement as im forced to withdrawal it and then my beneficiaries get to pay taxes on any they inherit. No thanks.

[@tacticaltruth8118]

Nice overview. QUESTION: Why is February 12th the best time to do a Roth conversion?

[@globalfamily8172]

Why would I do a Roth conversion if my tax bracket is 38%? I only wish I would be in a higher tax bracket when I retire, but I won't be.

[@DunRovinRanch-1969]

Im married, retired, 63 with a pension. My wife is also retired, 65 and receives SS. I’m converting up to and sometimes a bit over the 22% tax bracket. I started with moving my REITS into the Roth, then the stocks that are down the most.

[@curtdalgleish2903]

I’ve got a weird Roth conversion planning issue … I’ve had the same Fidelity employer sponsored retirement account since 1988. From 1988 until about 1992, my contributions went into my account after tax according to plan design. Around 1992 the plan switched to a standard 401k so contributions from that time until now are before tax. As of now, nearly 12% of my 401k account is allocated to “Employee after tax contribution”. This after tax money is NOT part of my Roth 401k. Fidelity wasn’t sure how the tax would work. Seems like only .88 of every dollar I take out should be taxable. Is this a common scenario?

[@ff5973]

i like both of your channels. Glad to see both of you together giving good advice. As a newly retired firefighter , I would love to hear how having a pension would change the Roth conversion question. BTW I am planning on doing some. 55 y/o, total portfolio 2.2M , abou 1.4 in TD.

[@artimuscoffee8921]

Love the vegetable analogy. I want to live a full carnivore retirement

[@lindsaynewell6319]

Good content, but at 16:20 it should have been made clear that the $200k RMD is in 2036 dollars, not 2024 dollars. It would be more like $140-150k today - still a lot, but significantly less than people watching might think.

[@VitalyYuriyevou]

Great content

[@antomakeria7881]

Happy TG!!

[@TheSingingDoctor325]

Instead of doing annual back door Roth conversions, take the after-tax $7K (or $8K if you're over 50) you'd "spend" on doing a conversion and use that $ to pay taxes on converting $20K - $50-K. At the end of the day, you've used the same $7K or $8K to get a lot more into your Roth IRA.

[@jeffb.2469]

You can say the same about contributing to a Roth IRA or Roth 401k. You pay the tax today in hope for a better position tomorrow.

[@daveschmarder-US1950]

Two pretty faces at once. :) My IRA isn't that big but I do Roth conversions. My hard limit is 4xFPL, which is a little under the top of the 12% bracket. I fit in a QCD because I can and want to. That also puts me past the 85% of my SS being taxed.

[@Powercise1]

So many other considerations and advantages to a Roth. Its a no brainer for anyone under 60 who could live another 30-40 years. Its insanity not to do a Roth when very young too. My 20 year old has had a Roth since age 10 and the babysitting and lawn cutting money was put into growth stocks which have increased 20 fold. All that growth will never be taxed no matter how much the account grows the next 40 years. A Roth has no RMDs either. A Roth can be handed down to heirs who can let it grow another 10 years before taking the money out, again, tax free. A Roth's distributions is not counted as income. A Roth has so many huge advantages for everyone but the very old.

[@livingrural8165]

One thing to keep in mind doing roth conversions is medicare part B premium cost which is based on AGI. If you pass the first AGI threshold a couple will pay 1.4 times the base premium in 2025 or an extra $1,776. The 2nd threshold brings it to 2 times the base premium or $4,440. Looking at it as a tax rate, the 1.4x threshold is $212K MFJ and the 2x threshold is $266K. That means you are paying $1,775 on $54K or 3.3% if you go all the way to $266K. If your just $1,776 over $212K, the premium increase eats 100% of your AGI increase. Be warned and be careful.

[@anguyen-ms9kl]

Roth conversion is not feasible if I don’t have a good chunk of taxed money to pay tax upfront.

[@ede3237]

Legacy motivated for my two sons

[@JanisRay-k8i]

Question! I need to grow aftertax accounts. I was thinking of meeting my companys 4% match, and then at the end of the year convert my 4% contribution as a roth conversion. Vs just doing a straight roth through the year, therefore missing the 4% company match....thoughts???

[@ryanlindsay4117]

I could spend way over 20,000 a month!

[@zoraster3749]

No one I see ever addresses inflation and taxation of nominal gains. Everyone addresses this as if the value of the numbers is static; it’s not. And the numbers are heavily manipulated. Everyone always focuses on the marginal tax brackets as if the currency they are dealing with is stable. If inflation is defined as an expansion of the money supply (not consumer price increases), true inflation has averaged 6.5% per year for the last 30 years. Yet the government reports inflation as 2% which means inflation is underreported by 4.5% each year, compounded. This forces more of your purchasing power into higher relative tax brackets whatever they are. Also, because inflation drives up asset prices ,over a 20-30 year period half of your gains might be inflation. Now half of your gains is only a nominal increase relative to purchase power but the government taxes you on nominal gains which is effectively double taxation. So you’re sitting here saying is it 15% when I’m not working or 22% when I am working or you’re fretting over if the bracket is going up 5% but in reality the 15% is 30% AND the ranges within the brackets have been suppressed due to underreported inflation. You’re trying to optimize for a 5-10% question when the impact of inflation is 50%-75%; the longer you have to retire the bigger the compounded impact is. Factor the 50-75% in AND also expect marginal taxes rates to increase. My thesis is put as much into Roth as humanly possible as soon and as early as you can. There might be a case to have “some” pretax accounts to be used for donations at the end of your life but beyond that 80-90% of your investment accounts should be in Roth.

[@Simplyput3451]

Please make sure you tell your clients to make sure they have enough cash OUTSIDE of their qualified accounts to pay the taxes due from their ROTH conversions.

[@danielpinzow3900]

That couple with $2,500,000 in their pretax IRA has a mountain to climb to convert that into a Roth unless they have a ton of money in some other location (like a brokerage account). Great video and content

[@eddieklemm661]

Thank you

[@davidhenington7679]

So “legacy goals” if that will be a big part of your estate no reason to do a conversion? I plan to send my RMDs to QCD to my College and Church annually.

[@mr.seanster]

Wow both in one video. Who is better? :)

[@thevortaz1]

Ari, in the beginning, you said 2/10, later you answered again 2/12. Someone is listening, care to clarify?

[@alrocky]

neither is correct as it's a joke

[@char23c]

FYI, I too thought my income in retirement would be less than it was when I worked. Guess what, I've been retired 25 years and my income is almost twice what it was in my working years. The interest income, dividends, and distributions from Mutual Funds, are putting me into the MAGI levels of $206k. About 20 years ago I converted my IRA's and 401k to a Roth IRA, and the amount in my Roth is over 4 times what I converted. Yes, I paid the taxes on the converted amount from my taxable funds, put 100% of the pre taxed money in the Roth. Any doubts, NO , RMD's would put my income over the $206k MAGI.

[@FunStuffBuddy]

FIRST 🎉

[@foilcap]

If you have qualified disabled beneficiaries of your IRA and their life expectancy is much higher than yours - might not make sense to do Roth conversions. And who needs millions when they are in their 80's? Plus demented. You, guys, are good to stress quality of life over tax benefits.

[@darrenmatthews1667]

I wish you would have talked about how Roth conversions are taxed as ordinary income and will have the affect of pushing Long-term capital gains and qualified dividend income into higher tax brackets. This can mean that adding a dollar of Roth conversion at 10% will cause a dollar of Long-term capital gains to get taxed at %15 instead of 0%. This means that dollar effectively gets taxed at 25%. This problem only really affects people that have ordinary income below the 15% Long-term bracket which is very likely for people that have retired.

[@sheldongardner3150]

I converted my 401k to a Roth IRA to avoid higher taxes in the future. I'd rather pay taxes now than be stuck paying taxes on my retirement income when I'm 59 and living off my savings.

[@hbgaw88]

Can you both go straight to the point. Too much unnecessary talk.

[@DWilliam1]

Retiring in 4 months at 59 and I’m never doing a Roth conversion. I’m going to collect a government pension of $8K a month with a partial COLA and have $970K in retirement accounts, including $600K in a 403b that has a guaranteed 7% option as long as I leave it in that 403b. The state will pick up my entire healthcare until 65 then they will pick up the cost of Medicare care C and D. I also own my retirement house which bought back in my early 40’s and will start taking my social security at 62, which will be around $2600. I’m also going to probably inherit close to 10 million in the next 5 years. That said, my wife doesn’t work and my son from a previous relationship is under 10. I’ll use the non 403b to go on vacations, buy a new car(Porsche or Vette and a new MB SUV).Unfortunately, I also do have some underlying health concerns. I’m never doing a ROTH. I do enjoy your videos. Keep up the good work.

[@jbowen281]

Totally worthless video. I think you guys just like to yap and create videos where you are the stars of your own show. The way I compute the maximum amount of IRA money to convert to a Roth is whether it will move me into the next tax bracket. Of course, you have to spread these conversions out over a number of years. And factors like RMDs and IRMAA and SS income have to be considered. That is why a calculator dedicated for this purpose is necessary and will also allow you to run different scenarios. I understand Fidelity has such a calculator which I intend to explore.

[@leemcfarland4769]

Instead of a roth conversion, just spend more money??? I remember at work they told us to spend this money or our budget will be reduced next year. It's so dumb. Engineers are so much smarter than accountants.