The Sweet Spot in ROTH IRA Conversions and Chunking

[@KristinPMosher]

Small taxes can affect investment decisions such as whether to choose tax-free municipal bonds over taxable bonds or do a Roth IRA conversion. I’ve been sitting on over $745K equity from a home sale and I want to invest on the stock market, how do I achieve this without being taxed twice?

[@JackBJacobs233]

There’s more benefit to holding fixed-income assets in tax-deferred retirement accounts as opposed to taxable accounts. If you're not who understands strategies to invest in the market, seek a Financial advisor to guide you.

[@ThomasChai05]

Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time

[@mariaguerrero08]

@@ThomasChai05 Mind if I ask you to point at how to reach this particular person assisting you? Seems you've figured it all out unlike the rest of us.

[@ThomasChai05]

My advisor is "Camille Alicia Garcia". You can easily find her online. She has a wealth of experience in the financial market gained over several years.

[@mikegarvey17]

I just googled her name and her website came up right away. It looks interesting so far. I'm going to book a call with her and let you know how it goes. Thanks

[@stephencullum8255]

Retired with Social Security and Medicare makes it a little more complicated. You do not want to bump up your part B payment. But the tax load difference married versus single for the same income is huge. By doing this while you are couple you are saving the survivor a ton of taxes. As well as any heirs beside your spouse.

[@daveschmarder-US1950]

This morning I did the last of my Roth conversions. I'm near the top of the 12% bracket. I waited until all other income was known (mainly mutual fund/etf distributions). In 2 years I'll do my first RMD, but I don't have a lot in my IRA compared to other places. My IRA has only the GNMA mutual fund. I do my powerlifting in my Roth and taxable. Did my first QCD this month as I am now of that golden age. Nice video presentation! Thanks.

[@emikami1]

There's a lot more that needs to be analyzed than targeting and filling up tax brackets. One issue is the tax credit for buying health insurance under the Healthcare Exchange (Obamacare) which is calculated based on household size and Modified Adjusted Gross Income including tax free income. The other issue is how much of your social security income will become taxable based on 1/2 of your social security income + other income excluding Roth distribution. The other issue is Income Related Medicare Adjustment Amount (IRMAA) which increases Part B and drug coverage premium at higher income levels which the impact is directly proportional to increase in medicare premium. There's also the 3.8% Net Investment Income Tax that the income threshold has not and will not be adjusted for inflation so it'll impact a larger pool of the population as more time progresses. Many of these might not impact a married couple nearly as easily as a single individual but at some point, one of the spouse will probably die not at the same time as the other thus a sudden change in their tax situation starting the year after that. So while they might not have to worry about IRMAA initially, it might impact them when one of the spouse dies for example. The other aspect is what will you do with the money if you decide to postpone your conversion to the following year or even several years down the line? Presumably, you might end up investing that in a taxable account. Since taxable account tend to be not as tax efficient as money in the retirement account, it'll grow slower. Thus even if the tax bracket were declining, if the conversion ladder is too long, it'll wind up with less money left in the Roth after everything is converted. The other is a implicit time limit to do this--the new Required Minimum Distribution (RMD) starts at age 72. For Roth IRA, there are no RMD for the original owner or the spouse whom inherits the Roth IRA. The new law also forces distribution of all non-spouse inherited IRA to no longer than 10 years after death unless the non-spouse heir was no more than 10 years younger than the deceased. You definitely do not want to leave so much in a tax deferred account to a non-spouse if you can avoid it by converting the money before it becomes a problem. It's much easier to convert earlier than later because as the portfolio grows, the brackets for these sweet spots will look tiny in comparison--a good problem to have for sure but a lot of people neglect this and are only concerned that they are in the higher tax bracket currently thinking it can never get and worse. Their very effort in deferring more income is causing a larger tax bomb that becomes much harder to address later in life. Pension earners are even more vulnerable for all of these tax traps.

[@andym1594]

For sure. Also I'm going through this the first time with a "recharacterization" of 401k to roth 401k. Suppose I'm converting 25k over, when I look at the forms in turbo tax, it looks like that money is treated differently depending on how much of that is contribution vs growth and if it's growth...over what time period. it's june and I won't see the tax form until feb!!!! So tax planning is a dark art. AND- yes- I'm also buying from the health exchange and this definitely will impact us.

[@everettcalhoun8197]

You are spot on, Sir I have 5 children who are all doing very well financially and the last thing I want is to give them pre-tax retirement account assets to disperse as taxable income on top of their own AGI.

[@caseyhartman7094]

Very informative. I've been "chunking" conversions while I am a student since my earned income and tax rate are low. I'm down to about $5400 market value left in my traditional so perhaps next year will be my final conversion, depending on the fund's performance. I definitely want it all converted before I graduate as a full-time job and my military pension will put me in a much higher tax bracket than I am currently. Taxes are paid on the converted amount when income taxes are filed and not at the time of conversion, unless requested.

[@rapfreak7797]

You may be required to make quarterly payments to the IRS

[@swb3248]

If you go a little over into the next bracket that is not a need to panic. Only the amount over is taxes at the higher rate, not the entire amount. But I do agree with him that an extra 10percent is not desirable

[@DEMediaDrive]

Mark I appreciate all the help you are providing to myself and all of your viewers. Amazing work! Very fortunate we have this type of info available. Very grateful.

[@MarkJKohler]

Thank you DE, I am happy to help!

[@MMDX70]

Great video. Here's additional info that will be helpful for people who looking to do this which was left out. Let say you are a single who made $50k in income looking to convert std ira to roth ira in the amount of $10k. Let say standard deduction of $12k will bring your taxable income down to $38K. So you are now in 12% tax bracket but due to 12% tax bracket ending at ~$40K your ira to roth ira conversion will be taxed at 12% tax rate for first $2k then remaining $8k will be taxed at 22% tax rate. This is because IRS will look at your orth ira conversion amount as part of taxable income (i.e. $38k+$10k=$48k). @Mark J Hohler am I right on this?

[@cjgood]

Thank you for this! This was just the question I had. I guess I'm in this no mans land. Although, I suppose it would be beneficial to get that deduction to bring you into the 12% and then contribute to a roth directly?

[@MrSatwatcher]

This is really good and very relevant to me. I spent a couple of hours in a spreadsheet trying to work all the what ifs to try to aim for those sweet spots over the next 5 years. Thanks much for this.

[@MarkJKohler]

Ken, glad you enjoyed it!

[@sliderule5891]

Ken, please send copy of the spreadsheet. In addition to higher taxes, conversion income can put you in a higher Medicare B premiums. There are two boogies out there.

[@FennaVa]

I am 53 years old and consider myself to be a high earner. My job provides me the option to contribute the employer contributions to my Roth 401k. Should I do that or should I continue to direct that to my Traditional 401k ahead of retirement?

[@marcellasilva4015]

As a high income earner can you easily afford to contribute max of $22,500 to your traditional 401(k) and towards retirement? What is your Federal Tax Bracket and percentage of company match? I f you don't know all this then its best you consult with an advisor.

[@ralfbrown-kl1gp]

Thanks for replying, You seem to know much, How did you go about it and can you recommend an advisor like yours?

[@marcellasilva4015]

Myself and a few other employees work with Sharon Ann Meny . She helps me max out on the Roth 401k in the month of November each year. My company matches 6% and I think my tax bracket is 22%.

[@ralfbrown-kl1gp]

Thanks, I just googled her now and I'm really impressed with her credentials. I reached out to her since I need all the assistance I can get.

[@skiplauderbaugh5058]

Another thing to take into consideration are the Medicare brackets that will increase your Part B and Part D costs - they are slightly different from the income tax brackets - a few dollars over will increase your TOTAL monthly costs Medicare - where as if you go over the bracket with income tax you only pay the higher tax level on the amount of $’s over the limit -

[@mukundagirisadagopan5634]

Thanks for a useful and lucid, clear presentation. Can you please check if my understanding is correct (as follows). When I convert an amount from my Traditional IRA to Roth IRA (a) the "converted amount" is considered "ordinary income" such as wages, (b) it is added to my year's income and (c) it may cause my "tax bracket" to be bumped up to the next higher bracket.

[@margaretmarshall3645]

Exactly. Correct on all 3 counts.

[@lostinmyspace4910]

If you have to look at your W-2 to decide if you're going to convert IRA funds into a ROTH, you're already too late. You must make the decision by December 31 to get it into that year's tax return. Yes, you can look at your accumulated pay stubs, and check what your wife's going to report, and include all other reportable anticipated income, but you also make allowances for the standard deduction of 24,800 married filing jointly. Remember though, not all your taxable income will be taxed at that dreaded 22%. You first satisfy the 10% bracket up to taxable income of 19,750, then the following 30,240 at the 12% bracket, and the next bracket of 22% of 45,399. BUT if you only have to nudge into the 22% bracket just a little bit over the edge, well then just pay it knowing not all your money got hit with 22%, but maybe only 5,000 did. Well, that's the difference between 12% and 22%, so just pay the extra 500 bucks and be done with it. Try to avoid it, but don't loose sleep over it, and know that you also reaped the benefit of the lower 10%, 12% brackets. And thank God you can pay taxes. Never complain about paying taxes; only complain if you don't have a job!

[@braceyourselvesfortruth2492]

Bloody brilliant. Thank you, Mark.

[@tarrantcountykid]

I wish I’d known to do this back in March when my IRA lost $200k in value then came back up even higher. I would’ve converted it when it was low to a ROTH.

[@everettcalhoun8197]

I knew that and my IRA lost more than that, but I was in a position I had to keep my withdrawal below $87,000 per year. Medicare sucks. Get as much money as you can into a Roth IRA before you retire.

[@Dr.TJ1]

I converted my entire traditional IRA (that I had at the time) to a Roth in 2009 when the tax could be spread over two years and the value of the traditional IRA had fallen to it's lowest point. The Dow was something like 7200 if I recall correctly. Timed it perfectly and of course have been doing nothing but enjoying the tax free earnings ever since. Your strategy is a sound one.

[@notyetjp]

@@Dr.TJ1 Congrats. This is one kind of market timing that can make a huge impact if it's timed right. I dove hard in March 2020. It's been a good year. Tax free. It's a cycle. Patience.

[@RickMartinYouTube]

to be fair, when talking about jumps in the bracket, NOT ALL INCOME IS TAXED AT THE HIGHEST LEVEL - only the excess above.

[@dennismartin7664]

Good video: Just an added note, when talking about the $80k 12% tax bracket you can have income as high as $105k less the standard deduction of $25k which totals $80k keeping you in the 12% bracket. This allows you to chunk more to your roth.

[@stuboyle666]

Correct me if I'm wrong, but in your example for married filing jointly the top of the 12% tax was $80,000 in your example. According to my calculation, if you take $78,950 (max income @ 12%) plus the standard deduction of $24,400, you could actually earn $103,350 and remain in the 12% tax bracket.

[@zang9147]

Correct. Taxable income is the target number. Also, keep in mind your state's income taxes as well in calculating the entire tax effect.

[@weslawhon9361]

Great video. I like that you’re selling your company through your knowledge and skill set rather than a paid advertiser like other you tubers. I lost my job and got married this year so we should be in a pretty low tax bracket. I’m moving my retirement from my previous employer’s plan to Vanguard or Fidelity. What I can’t figure out is when and how to pay the taxes on the employer matched portion that’s in a traditional 401k once I roll it into a Roth IRA (don’t worry I have the monies to pay the taxes now).

[@carstars]

Great advice. Nearing retirement don't want to waste a dollar of those sweet spots. We have tax rates scheduled to increase upward in 2026. And staving off taxable income used for calculating the taxable portion of Social Security.

[@alanlajoie7307]

Mark, I hear if over 59 1/2 and you do chunking the first chunk you do starts the 5 year clock all other chunks uses the original chunk date Example Chunk in 50K April 2021 2nd chunk 1 Jan 2022 that chunks uses April 2021 for the five year rule correct?

[@nyfutbolfan]

Great question.

[@daveschmarder-US1950]

I've been working on this for several months. I'm 69yo, single, getting ss, have mutual fund distributions, and a little selling for tax gains. I use a website to enter my numbers for a tax estimation. I can do a nice Roth Conversion this year. I have the estimated distributions from my mutual funds, so all I do is wait until the distributions are actually made and then I know how much to convert. I stay all within the 12% bracket. I noticed something interesting while doing this. Since part of my SS is taxed, as I convert, about $200 per $1000 converted is tax, or about 20%. But after the 85% of the SS is taxable, the rate goes down to $120/$1000 income. That is a deal! I set the upper limit to the top of my tax bracket. State doesn't tax first $20k so I set my conversion max limit to $20k. I'm not an accountant, but my dad was one. Maybe that helps. :) Nice video!

[@kimsiewers]

Remember if your income is too high, "medicare premium" rises also; this is going to be conveniently taken out of your social security payment each month.

[@daveschmarder-US1950]

@@kimsiewers Yes, that is absolutely true, but in my case, I mentioned being in the 12% bracket, which is a very far ways away from the Medicare wealth penalty. In my case any of my calculations put me about $30k below that line. But what you said goes to show that there are many moving parts to this.

[@ianollmann9393]

These numbers should take into account the standard / itemized deductions and above the line deductions like HSA contributions, which provide up to another $36k of conversion headroom. You’ll also need to consider extra costs above $250k because of net investment tax and healthcare cost implications.

[@ItsAtheaRodriguez]

Thank you this is helpful. But why should one convert from IRA to a Roth?

[@MarkJKohler]

Athea, Great question! We would love to tell you why to convert to an Roth IRA. Please call our Self-Directed IRA company at 800-818-1322.

[@Dr.TJ1]

Because most people don't live on all that much less in retirement than they did when they were working. What this means is that all you are doing with a traditional IRA is deferring the tax you have to pay and you're not actually saving anything. With a Roth, all these increases in the stock market that we've seen lately are all tax free. There are other advantages to the Roth, such as no required minimum distributions at 72 and the heirs of your estate not having to pay tax on the Roth as they do with a traditional IRA. Heirs of a traditional IRA have to dispose of the IRA within 10 years, which could potentially give them big tax bills. Let's say you have $500,000 in a traditional IRA when you retire and you unfortunately die shortly after you retire (hope this scenario doesn't happen to anybody). Your heirs will have to start taking out a minimum of $50,000 every year (it could be more if the value of your IRA continues to grow) to dispose of the IRA, which is all taxable income to them and depending on their incomes, could be taxed at a high rate. Also, you can always withdraw contributions to a Roth if you need the money without paying the penalty. Do the Roth every time and you'll end up in a better place financially in the long run.

[@asterisk911]

I did a lot of backdoor Roth-ing for the past decade since it became a thing in 2010, but at this point (age 49) I'm just doing the deductible traditional IRA. (I make too much to be able to deduct, except for the fact that as an expat I don't have an IRS-approved workplace retirement account, nor does my wife. So each of us can deduct). My plan, when I retire, is to live in a property I own in Malaysia, so no rent or mortgage to pay; have very close to $0 taxable income because I have some CDs maturing each month that I can live on, and that's not income, and most of my "income" is inside Roth accounts (mine and my wife's); and so be able to convert somewhere around $20,000 per year from traditional to Roth IRAs, without even getting to the standard deduction. That turns that tax deferral of working-years earned income into tax-FREE working-years income. So the $12,000 we deducted for 2019 will, eventually become a PERMANENT tax-free $12,000 for 2019. Doing it this way, in one year of retirement I can turn nearly 2 years' worth of IRA deductions into permanent tax-free working earned income. But I'm not greedy; it doesn't have to be tax-FREE; I'll probably do conversions in retirement each year up to the point that I would exit the 10% tax bracket.

[@stacysays]

Great video!! Any updates for 2022?

[@ssnydess6787]

Thank you for giving single advice! A downloadable diagram with these values and curve would be super handy!

[@crispoulson8830]

Good overview. Should mention that “brackets” are steps. If I OVER convert, only a portion of that conversion falls into the higher bracket. i.e. if my conversion bumps my taxable income to $42k, I only pay 22% on the portion that is above the $40,125 bracket.

[@julhe8743]

Cris Pulson, if my salary is 32k and I’ll convert 10k. I have to pay the 20% on the 10K ??? or the 10 will be added to my 32k total 42k and then I’ll taxed on the 42k??? Thank you appreciate your help.

[@crispoulson8830]

@@julhe8743 You're right that the $10K gets added to your salary. In your $42K example, the first $9,875 would be taxed at 10%. The next dollars up to $40,125 would be taxed at 12%. The last $1,875 would get taxed at 22%. There are other pieces to the puzzle. I'll assume you're single and $32K is your gross pay (not your take home). The standard deduction is $12,400 making your taxable income $19,600. The $10K you pull out of your IRA (or 401k) to convert to a Roth is added to your taxable income making it $29,600. That would put ALL of your conversion money in the 12% bracket.

[@mohamadsadek5698]

I rolled over my 401K into a traditional IRA early last year. During the year I lost a large percentage of the balance. is there benefit to recharacterize? what are the pros and cons of making this conversion at this point? Thanks

[@natep7425]

Question: In 2020, I did a 401K conversion to a Roth IRA. I understand I need to pay taxes on the amount I moved over. I also did a backdoor ROTH IRA as well for $6K. My question is, do I pay taxes only on the 401K conversion to Roth IRA or do I need to pay taxes on both the 401K conversion as well as the backdoor ROTH IRA.

[@scottwebber652]

U need to mention about state

[@mikeflair6800]

If I am young person, go with traditional IRA. Saving those tax dollars today, and paying back those taxes 30 to 40 years from now, how much inflation will impact those payback numbers? ALWAYS go with TRADITIONAL.

[@EricMcDowellegm]

New sub! Love your vids, Mark. Thanks so much for what you do!

[@todd5963]

Can you do a video on tax savings owning rental property? Explain depreciation etc for people that have stable tenants. Thx!

[@MarkJKohler]

That could be a good topic for one of my KZbin live streams in the future. Follow me on social media to get notifications whenever I go LIVE :)

[@sammilee53]

Can someone clarify that when we talk about income, are we talking about GROSS i(Total) income or AGI/MAGI

[@billyrayband]

Your sweet spot point is right on, but you should clarify on income levels you mean taxable income. 38.7K is the top of the 12% sweet spot, so you want a taxable income of very close to 40K. Which generally means you have an AGI income of about 50K. Factor in all planned deductions for the incoming year to estimate your taxable income.

[@everettcalhoun8197]

That's exactly what I thought. I am converting a portion of my $51,000 withdrawal from my IRA to a Roth until 70 and calculated that I would remain in the 12% tax rate on my last dollars converted. The author could have found a simpler way to explain this.

[@zones4to11]

So does this mean you do not have to sell your stocks when you convert from your employee 401(k) to a Roth IRA?

[@retired4337]

I'm 71, retired and would like to convert a Tax Deferred Annuity (a government retirement plan) into a new self directed Roth. Does it make sense to first create a Trust and then the Roth, putting the Roth in the Trust. Can a new Trust have an existing Roth placed in the Trust?

[@ramonaltamirano1549]

Just got 3 books. The bundle..

[@stanr9535]

Your presentation is well intended, however, you should talk about "EFFECTIVE" Federal Tax Rates. You are leading people to believe that the entire conversion amount will be taxed at the the higher rates. You should also talk about the 5-year rule regarding these conversions and also the implications of doing this for a legacy account for your loved ones and how soon they will need to withdraw the funds.

[@anuhmull]

Great explanation! Been looking into this as a newbie and this video helped a lot, keep up the good work

[@davidstephens9594]

This may be a stupid question but if decide to convert 10K of my IRA to a ROTH, can I use my IRA money to pay the tax? Or do I have to pay that out of my non IRA money?

[@pump8686]

I was looking for this for awhile. Very informative and easy to understand with the graphs!

[@MarkJKohler]

Thanks!

[@philzail2532]

I've looked at this many a time recently. And it gives me heartburn, why? Because I'm looking at retirement right now and will be getting app. $2,600 a month and single. Now if I want to part time a job it'll directly interfere with the conversion. Also, I have app. $250,000 to convert. That's a lot of years. My view is this bracket was created at a rate to screw an average guy doing a little better. I don't see this as a sweet spot but just the opposite! I'm motivated enough to break out of that bracket easily. $9,000.00 ain't much but it's something!

[@manp1039]

two questions.. what if you put after tax money into a traditional IRA. Would that person be subject to double taxation risk when pulling out that money in the future? Also, it is my understanding that any income generated within the tranditional IRA is tax free when being pulled out at the age allowed. So in this case what benefit if there to have money in a ROTH IRA over a tradtional IRA?

[@IHeartTiffany17]

Can you do a backdoor roth ira contribution and do roth conversion from 401k and roth 401k?

[@TheRemyRomano]

Nice job!

[@robertjohnson4401]

Let's say you are in the 22% bracket and can do the Roth conversion to stay in that bracket. The problem is state tax. Add a 5% state tax and now you are in an effective 27% bracket. Not worth it. Waiting to retire and move to a state with no income tax. Then I can do some conversions at the 22% bracket. If I retire at 66, I can do yearly Roth conversions until age 69.

[@MarkJKohler]

Love it!! I like it. Everybody's situation is different. I'm glad your planning around this issue. Some people can't move to another state. Some people have such big IRAs, any chunking they can do and stay in a lower bracket is a good idea. I hope this was helpful.

[@HFJCHS123]

I too plan to move to income tax free state at retirement and convert to Roth before taking SS. But still chucking in the sweet spots to allow the earnings to grow tax free until retirement. Just wish I could move to income tax free state before retirement

[@dec1slh]

But your state tax is 5% regardless. So your effective bracket was 27% already. Not that I agree with your logic, just pointing out the facts.

[@robertjohnson4401]

@@dec1slh The fact is you didn't read my post. I said, I would move to a state with no state income tax.

[@dec1slh]

@@robertjohnson4401 gothcha

[@HighCountryRambler]

I moved cash from my savings account to my Roth, my Fidelity software shows a $7K restriction for 2019, and same for 2020. Is this the annual max to deposit into a Roth, and does that apply to a rollover from a IRA?

[@wernermueller9004]

The $7k, which includes the "catch-up" for those at or above age 50, is the max contribution for both 2019 and 2020

[@brandonr1371]

Once you hit the max you can only convert existing Traditional IRA $

[@1575murray]

There is no income restriction or limit on the amount that you convert from a traditional IRA or 401k to a Roth IRA however you cannot undo the conversion as was previously allowed. You have to pay income tax as regular income on the amount converted for the year in which the conversion takes place.

[@coinlady5456]

Excellent information 👌. Thanks Mark

[@straitjacketstudios]

If you are already maxed with your annual ROTH IRA contribution limits, how can you convert even more from your 401k without penalty?

[@ralphparker]

Can you couple the discussion of Roth conversion along with capital gains (Qualified and non Qualified) for instance, Say I make 35K per year regular income. I get 10K in dividends where about 70% are qualified. I sell some long term assets at a 30K profit. How much can I convert to Roth from IRA and still stay in the 12% bracket and if I convert too much can I mess up how the long term Cap gain and qualified dividends are taxed? (married filing jointly)

[@capecoddess3784]

And also how do you even know how much your dividends and capital gain income is going to be before December 31st, since most of them are distributed after December 31? Mine changes every year. How can you possibly know the total that you want to convert by December 31st without knowing your total income?

[@charlesbradford7233]

One problem, the government says that financial instruments, which are stocks, mutual funds, ira, are taxed at one rate 15%.

[@PassRush49]

As opposed to a regular IRA and 401(k), Roth IRA investments are tax free.

[@MarkJKohler]

I'd say your best bet is to watch some more videos on this topic, and/or visit my website at markjkohler.com/blog/ and find some articles I have written for this! If it is still unclear, give my assistant Rosalie a call at 435-586-9366 ext 2024 and she will point you in the right direction!

[@188jan]

Got Roll over IRA acct and I need to convert them to Roth IRA then move to my SIDRA account but still I got tax. Roll over is taxable when you convert them.

[@rafiqa1621]

dividing the conversion pymts for 10yrs helps keep you in lower tax bracket. when you pay that first pymt, does your conversion officially become a roth?

[@MarkJKohler]

Yes, the conversion is treated as a taxable distribution from your traditional IRA, because you're deemed to receive a payout from the traditional account with the money then going into the new Roth account.

[@rafiqa1621]

@@MarkJKohler thank you

[@cjgood]

I'm not in the playground! What should I do?? Help! No seriously. So if you reduce your taxable income from 22% to 12%, that Roth conversation will only be taxed at 12%? Btw just now realizing I missed the 12% bracket by 5K now after deductions and adjustments....

[@jorgerpenalopez9742]

From a tax stand point: why does converting "bumps you up" instead of bringing you down in tax brackets? I thought that taxes you pay will lower your taxable income 🤔

[@hopelesslysexy]

If you convert 10k, it raises your taxable income by 10k. You might pay $2,200 on that conversion depending on your tax bracket. Your taxable income is not reduced by $2,200. I believe you’re thinking of the idea that you can deduct state taxes from your federal taxes; however anytime you increase your taxable income you would only be deducting a small percentage of that from your taxable income (depending on your states tax rate) and so would never simultaneously increase income and reduce taxable income.

[@toothybj]

Should I really be concerned with the 24% tax bracket? If I convert more than $20k to a Roth IRA this year, i’ll be in serious danger of moving into the 24% tax bracket (but still far away from 32%). Should i even be concerned? I have about $55k in a Traditional that I want to move over to a Roth asap.

[@tobes911]

KZbin isn’t letting us click the bell icon. Go figure!

[@brianbarns8675]

What about the new rule for 2020 to spread the tax out over 3 years? Is this going to continue in 2021? Can you take losses against your rollover gains from a existing roth or other investment accounts? Anybody? Thanks

[@malihomjung]

Thank you so much.

[@elenabutova4229]

What is the best time to connect your company? When you are not too busy?

[@MarkJKohler]

Elena, my office is open from 8 AM to 5 PM MST, Mon-Fri. I might be booked a bit far out but I have a great team of associate tax attorneys who can all help you. Please give them a call 435-586-9366. Thanks.

[@elenabutova4229]

@@MarkJKohler , I thought you would tell me spring summer or fall, ahaha

[@florenceorpilla3993]

Hi Mark, new to your station. very informative! Can't wait to watch more. I'm 58 and single, managing a self directed IRA. Couple of questions in your being single scenario, 1. in your chart what happens if your income is between 40K-84K? Do you automatically jump to 22%? 2. Is it worthwhile to begin chunking to a Roth IRA over a 7 year period assuming i allow the Roth IRA to grow without dipping into it for about 10-15 years? 3. Can i use already taxed dollars to contribute to Roth IRA to the maximum allowed? I haven't been able to find info on it. Seems i only info being able to roll 401K/Traditional IRA into a Roth IRA but not already taxed dollars. Thanks for your help in advance.

[@straitjacketstudios]

Since you have to do your Roth conversions before the end of the calendar year, how do you determine which tax bracket you are going to be in prior to the end of the year?

[@RickMartinYouTube]

the brackets are published ahead of time - and you should be able to roughly estimate your taxable income/dividends/capital gains

[@jnjpascale1]

Dinkytown calculators has a great 1040 tax calculator. It will tell you your tax bracket and then look at a tax table to see how much more taxable income is left with the Roth conversion before you hit the next higher tax bracket.

[@straitjacketstudios]

@@jnjpascale1 These are great thanks!

[@MrNoBSgiven]

Excellent video. Sometimes, the most obvious things are the most difficult to notice. Thank you.

[@MarkJKohler]

You are welcome! Thanks for watching! I'm glad to see when my videos help.

[@andrewhurley7118]

You're really making it seem like tax brackets affect your entire income, and not just the portion of your income that falls into that bracket. That's gonna confuse a lot of people.

[@88888gerald]

dont forget the cost of medicare changes if you go over 85 k for a single person...which keeps me from moving over that amount yearly.

[@peteyfiske9107]

Or, $176k for married filing joint also increases Medicare premiums.

[@MomIDidMakeit]

I "inherited" a Traditional IRA and Roth IRA through a divorce settlement, does that mean I am responsible for taxes if I want to chunk the IRA to the ROTH

[@mo5570]

Hello again! I have a question regarding a ROTH and regular 401K Rollover Plan. Just found out the our "advisor" has been taking his 1% plus fee out of the regular IRA as well as the ROTH. I'm thinking that's kind of insane....to take money out of a tax free account when we actually want to convert money INTO the ROTH account. Please advise!

[@1575murray]

I am not surprised. Most advisors base their fees on the total amount under management (AUM) regardless of where those funds are invested. That includes regular taxable accounts as well as traditional and Roth IRA accounts.

[@Gobackto4chan]

As stated above your advisor is paid a fee to manage your assets regardless of what the tax code is, he’s not the IRS. You can still do your conversion as planned.

[@davidwarnke5990]

Switch it all to vanguard

[@dizzolve]

I got laid off last year. If I convert right now today, and don't get a job for the rest of THIS year that would put me in the lowest bracket right? Would this be a good time to convert with the virus knocking the market down right now

[@havefaith8276]

Bobby Vincent yes u can convert this year, the amount converted with then be considered part of your income for the tax year 2020 when u file in 2021. I want to do a conversion but not sure if I can include it.on my 2019 filing. He mentioned conversion has to be done by Dec which sounds like a conversion done in 2020 before the 2019 tax due date cannot be included in the 2019 filing.

[@robertjohnson4401]

Your scenario is the best time to convert. Convert the amount to put you up to the top of the 12% bracket.

[@reymore1060]

6000 yearly is the roth ira contribution allow maybe 7000 , so do we have to do those numbers at once or by 1000 , and how u go up if they don't allow u

[@dec1slh]

Those are the numbers for regular contributions, there is no limit for conversations

[@juangil7794]

I love the content on your KZbin channel. Question: I'm wondering whether the sweet spot for folks in the 24% tax bracket ends at $250K (range 170K to $250K). This is specifically for people who derive significant income from passive investments such as dividends, Interest, Capital Gains, etc. Any additional amount above $250K will add an additional 3.8% net investment tax to the tax bill. So, for every dollar above $250K you will paying a marginal tax rate of 27.8%. Would this change (narrow) your analysis on the sweet spot for married couples?

[@dancasey9660]

A different form of bracketology, how's your NCAA picks? As for the 12% bracket, you can have a combo of earnings and conversion totaling $103950 given that the standard deduction for 2019 married filing jointly is $24400. Someone retired who isn't collecting Social Security has a lot of room to convert if their expenses are low.

[@stuboyle666]

I'm calculating $103,350. $78,950 + $24,400

[@dancasey9660]

@@stuboyle666 Yep, was just going off the top of my head, must of got the numbers jumble by a few hundred $.

[@kevindavid3501]

Let's say you do the maximum contributions of $6,000 for the year, could you also convert traditional IRA money of let's say 10,000 over to an IRA in that same year??

[@brandonr1371]

Yeah you can convert an unlimited amount as long as it’s previously tax qualified money.

[@jfitzpatrick6108]

IMO, using a _real_ large, wall mounted white board where you could write large would be a welcomed improvement over tiny squiggles on a 22-inch pad. Also, using color markers to delineate inflection points would drive you're concepts home with greater visual impact.

[@MarkJKohler]

Thank you for the suggestions! Will definitely consider that in my future videos :)

[@pg1612]

With regards to Roth conversion : please tell me which tax bracket will be my income (Roth conversion) of $36,000 if I went ahead and take long term capital gain of $120k in the same year (not counting standard deduction) ,I am looking at the graph tables in your video and wanted clarification : 1) is it still 12 % for single filer or 2) the $35 k income is going to be in the 24% bracket while my LTCG is still at 15%

[@oneskydog4401]

Research capitol gains 3 brackets 0% 15% 20%. If your taxable income is below $37,400 capitol gains is 0%

[@zettaiahjussi1371]

Taxable income on $36k of ordinary income(OI) is $23.8k($12.2k std ded) and it's tax is $2.6k LTCG stacks on top of OI-std ded and the top of 0% LTCG bracket is $39.4k In other words, your first ($39.4-23.8k) =$15.6k of LTCG is taxed at 0% The remainder of your LTCG ($120-15.6k) =$104.4k is in the 15% bracket, tax =$15.66k Your total tax should be $2.6+15.66k =$18.3 plus any AMT/NIIT and minus any credits

[@ComplicatedLADYcom__Blog]

Zettai Ahjussi thank you for explaining this so clearly :-)

[@edwisneski6548]

Mark - If your income converts you to a higher bracket, it doesn't jump from 12% to 22%. It becomes an average that is greater than 12% and less than 22%.

[@MarkJKohler]

Great question! there is a lot to it! I'd say your best bet is to watch some more of my videos, go to markjkohler.com/blog/ and find an article I have written, and/or give my assistant Rosalie a call at 435-586-9366 ext 2024 and have her point you in the right direction.

[@davidwarnke5990]

‘ Tiered’ is a simpler way to describe it perhaps.

[@robertjohnson4401]

This is true if some of the converted money is in the 22% and some is in the 12% bracket. The point here is to convert only enough to not put your MAGI into the 22% bracket.

[@ryanriddell8376]

You may want to mention the ROTH income limits. If you covert up to the 321k number for married you'll be ineligible for a ROTH contribution that year. Then you'll have to do a non deductable traditional IRA and do a back door ROTH. That gets complicated in a hurry if you have deductable traditional IRA assets still (safe assumption if watching this video). You'd then need to do a prorata calculation to determine percentage of conversion that's taxable. But thanks for the video. I was assuming similar things and was nice to find validation.

[@manp1039]

and the limit on a traditional IRA is about 6k-7k depending on age per person? I am hearing about another IRA called a SEP IRA which does not have that 7k cap per year per person.

[@indiana-florida2479]

im looking everywhere for that video he did about how much you need to save per age to become a millionaire with roth ira. is it still on here

[@MarkJKohler]

Do you mean this one? kzbin.info/www/bejne/i2GZn3eJZtV7gcU

[@indiana-florida2479]

@@MarkJKohler yeah that's the one thank you. I like to watch that every once in awhile I love the video.

[@borojammin6509]

If you are 65 or over, don't forget to consider how IRMAA affects your Medicare premium when your ROTH conversion gooses your income.

[@MarkJKohler]

Great comment. Most of my clients are converting to Roths before 65, and if you are in the 'sweet spots' I'm talking about than SS and Medicare Premiums are completely irrelevant. But again....ALL sources of income, and your net taxable bracket and it's impact is what your accountant should be calculating for you. Thanks!

[@havefaith8276]

Hi Mark please help! Contributions: 2017 made in 2018, 2018 made in 2019, 2019 made in 2020, can a conversion of the entire traditional IRA be converted to a Roth to be included on 2019 return (since the due date has been extended)?

[@rob1andrews]

What about timeframes for age ranges, when is too late/not worth it?

[@hopelesslysexy]

After converting to a Roth you have to wait 5 years before withdrawing without being taxed. So within 5 years of retirement (59.5) would be pointless; i.e. after 54 don’t bother. I would argue that paying taxes in those last few years would be counter productive as there won’t be enough time for substantial growth, so probably not any older than 50.

[@nyfutbolfan]

@@hopelesslysexy Your reply makes some sense if a person MUST use the money within 5 years, but otherwise it’s a bit narrow minded. There is no single piece of advice that works for everybody. Each person should look at their own situation and try to plan it out into the future to see what may work best for them, while trying to make intelligent guesses at the future of tax policy at the same time. Each person or couple have their own unique savings, income and timeline.

[@danmcnaul]

Nicely done. You, however, should mention the "Standard Deductions" and how they make the calculations easier for most of us, and allow us to maximize our conversion amount each calendar year.

[@onlyinparadise4613]

Great video! Can someone clarify the standard deduction please? Will this person pay 12% or 22% tax? In the 40k example and converting 10k (50k taxable income = 22% bracket) do you take into consideration the standard deduction of $12,200? If so, then $50,000-$12,200 = $37,800 would place you into the 12% bracket. The Charles Schwab Roth conversion calculator does not account for the standard deduction.

[@margaretmarshall3645]

He is talking about federal tax brackets on taxable ordinary income, which is your income AFTER subtracting the standard deduction. So really, you can earn another $12,550 if you are single and not itemizing, or perhaps even more if you have enough deductions to itemize. You can also subtract any qualified dividends or long term capital gains when determining your federal income tax bracket, BUT keep in mind that you pay no tax on those only if your TOTAL taxable income (after subtracting the standard deduction but INCLUDING you long term capital gains and dividends) remain below $40,001 (for singles). The next break point on the long term capital gains rate (for singles) is when it goes from 15% to 20% at $441,451, so this is not a consideration when trying to use up the 22%-24% federal income tax bracket.

[@margaretmarshall3645]

Oh, and as Stephen Cullum pointed out in his comment, the other thing to consider if you are age 63 or over is the IRMAA surcharges on Medicare premiums (which starts at age 65 but based on your Adjusted Gross Income-with NO subtractions-2 years earlier). $88,000 is the first break point for singles in 2021, but it will be adjusted upward in future years with inflation. So in terms of one’s age, a sweet spot for large conversions to Roth is the years BEFORE turning 63, especially if retired, because you don’t have to consider Medicare premiums.

[@michellemercy2715]

Can you believe we live in a rich nation but we have to jump through hoops to live out our elderly years. Lol capitalism. I'm here because I have to be. Thousand a week in taxes is BS

[@steveblake4187]

People talking about Roth conversion seem to never account for the lost investment potential of the amount paid in taxes.

[@dec1slh]

Isn't that why alot of experts recommend paying the taxes from savings or brokerage funds

[@smiano4]

I have a question about cutting up the conversion amount and how that's taxed. You said in the video that a person can cut up the amount of money they want to convert so as to avoid being bumped up into a higher tax bracket. I don't know if it's a change in 2020 laws, but from what I've learned, if the entire account is not converted within a 60 day period, then the person has to pay a 10% penalty tax. In short, is it possible to only convert a portion of your Traditional into a Roth while still avoiding the 60+ day 10% penalty tax? And if you do this year over year, will you be charged a repeated 10% penalty tax if it's in a different tax year?

[@AskChevelle]

It sounds like you may be referring to the 60 day rule regarding an indirect rollover. Doing a Roth conversion would be done doing a direct conversion from a traditional IRA to the Roth would be done as a direct rollover without taking custody of the money. Hence the 60 day period doesn't apply. Hope that this helps. www.investopedia.com/ask/answers/08/distribution-traditional-ira.asp

[@carlfrederick8433]

Due to Covid and all future government needs for money to pay for this crisis I feel taxes will go up so sweet spot Roth conversions make even more sense. But I read in Forbes recently that rules regarding Roth withdrawals might possibly change in the future so that money when taken out of the Roth will be taxable. Do you think this is possible?

[@robevans2114]

What about the "five-year rule" Does it mean I can not take any money out of the ROTH for five years after the conversion?

[@MarkJKohler]

Hi, due to my busy schedule I recommend you contact my office at 602-899-9396. Sorry for the inconvenience.

[@sibaroochi]

It’s too late in the year to do a Roth conversion for me and have it count towards 2020. What if I was able to take out a disbursement (from a 403b) in the next remaining week and then deposit it into a Roth in January? Would that taxable event still count towards 2020?

[@gozillatrade5178]

I'm in a predicament. My wife and I contributed the max 7000 each in a Roth IRA early 2020, but during the year I've unexpectedly netted over 400K from stocks plus over 100K in regular wage income. I believe I would be ineligible to have invested in the Roths IRAs? What can or must I do?

[@MarkJKohler]

I replied to your same comment on another video but I wanted to make sure you saw it: Great question, hard to answer in a quick KZbin comment. Short answer is yes you can keep that Roth contribution, BUT it can be tricky. I would highly recommend getting in contact with my firm, it will save you tons of headache and time, and honestly more money than you will spend. Email my assistant [e-mail] and she will get you connected with someone who can help.

[@ISILENTNINJAI]

So if I am at 54k can I contribute more to my 401k to potentially put me under 40k. Than convert to a Roth in small chunks that wont put me past 40k

[@mo5570]

Actually, regarding question below....for incomes (married) of over $321K...then wheat?

[@knottinghamestates9250]

Can you make a conversion before April for the prior year.

[@MarkJKohler]

Glad your question was answered!

[@lexieshores3889]

I have been wrestling with this strategy for sometime. Two issues that are usually never addressed in these discussions are: 1) I am between ages 65 and 70 (before I take my RMD at age 70 1/2, the IRA conversion will likely increase my Medicare Part B premium due to an increase in my MAGI, and 2) I do not have excess cash available to pay the taxes on the conversion so I must sell some after-tax mutual funds and recognize a Capital Gain to raise the cash.

[@MarkJKohler]

Lexie, this is a great concern and question. It's hard in a video to take into account all of the potential tax considerations (think state tax too), but even collateral or indirect costs like Medicare Part B premiums or potential tax credits could phase out. What I was hoping to do was at lease highlight and identify the 'federal tax' brackets and phases to stay within before falling into a higher tax bracket. Everyone's situation can certainly be slightly different. Thanks for you patience and at least watching the videos of mine and commenting. mjk

[@Pops2]

6:48 focus. Find her sweet spot.

[@kat_sf]

Why convert if you are in a high rate bracket? Why not wait till you are retired and in the low income bracket to pay taxes? Unless you have so many income streams at retirement, and think your tax rate will be higher?

[@freddieh5539]

I've been grappling with this issue since I'm retired with SS, pension, and both Roth and traditional IRAs. You could owe more than you think in retirement taxes because SS is subject to taxation, depending on other income streams. It also matters whether you're married or single. Find a good tax person who's willing to run some simulations. That's the best way to make a decision.

[@stuboyle666]

You wouldn't want to. I was working from that premise my tax bracket in retirement would be lower but now I'm estimating for myself that when I turn age 70 my income will shoot way up because of social security and mandatory distributions from my traditional IRA. Now its all about doing Roth conversions to prevent that from happening. Also, I think there is a very good chance that tax rates will revert to what they were prior to the most recent tax cuts or even go higher.

[@kat_sf]

Without the tax analysis, I think it's not bad to shoot for a good mix - maybe 50%/50% in Roth/Traditional so that you have options when you want to withdraw. Or it seems like a good vehicle for passing on money to your kids, i.e. estate planning. Appreciate the responses.

[@stuboyle666]

@@kat_sf That might be a good plan. I was doing all traditional IRA when I was younger. Now I'm playing catch-up. I have over $1.2 million in traditional IRA's.

[@freddieh5539]

Here are some quick and dirty calculations to consider. At age 70 1/2 you're required to withdraw about 4% of your account balance. If you assume the market averages 8%, your account grows faster than withdrawals. RMDs don't catch up with the market average until age 88. If you're lucky enough to live til age 92, your RMD is 10%. On a large IRA balance, that will have a very bad effect on taxes owed. Which is why Josh recommends Roth conversions before you reach age 70 1/2. Then there's another level of complication added if you leave an IRA as an inheritance.

[@havefaith8276]

Mark help help help. Can I do a conversion in 2020 before the 2019 tax due date and include it in my 2019 filing?

[@crispoulson8830]

You can contribute to a Roth/IRA/401(k) up to April 15 "tax day" but not convert. Conversions need to happen by December 31 of the tax year.

[@MrSuresh0112]

Great video Mark! I have moved out of the country and still have funds in 401k. Essentially, I have $0 income in US. So, is it advisable to chunk and convert only so much funds to Roth IRA which is eligible for standard tax deductions (i.e. $12.2k for single & $24.4k for married) which will bring my taxes to almost $0? By the way, I am in my 20s and do not need those funds until I retire. Thanks!

[@MarkJKohler]

Couple quick thoughts. If you are a U.S. Citizen, you still have to look at your worldwide income and I don't know all of your facts, but you should bring this up with your U.S. Tax Adviser. I'm assuming you are STILL filing your U.S. Return anyway (which you are required to do as an Ex-pat)....just a little confused by your comment. But anyway, if you are in your 20s you ABSOLUTELY should be trying to convert your old 401k (now IRA), into a Roth.

[@MrSuresh0112]

@@MarkJKohler Thank you for your reply! Sorry I didn't put all the information in my question. I came to US on a student visa and was a non-resident alien back then. I moved back to my country couple of years ago. So, technically I am still a non-resident alien for US taxation. I am aware about the worldwide income thing (tax treaty between my country and US). Keeping the worldwide income aside, can I still chunk and convert my 401k funds to Roth so much so that I get the full converted amount (for that year) under standard deductions? So that, technically I would be liable for $0 tax (again for that year). Really looking forward for your response Mark! :-)

[@irisramirez2740]

I am also out of the country but, have about 12k rental income. Those that mean I can roll over some of my IRA?

[@achag9273]

Great video

[@MoneyandLifeTV]

Mark excellent video and fun topic. The key is good planning!

[@MarkJKohler]

Thanks!!

[@bizzfo]

You pay on gains not the balance. I know you know that but it’s not really explained. So if you had a gain of $1,000 in your traditional IRA then your income only goes up $1,000 not $100,000.

[@MK-rt4nb]

Any contribution you've made to a traditional IRA is on a tax-deferred basis, meaning you haven't paid tax on it yet, so it stands to reason that any withdrawal will be taxed as income, both the basis and the gains.