I never was thinking my 401k money in retirement would be as high as it is now. Being single and retired makes me rethink Roth and start spending more money. Spending more money than I spent working is a strange feeling. You can see it on paper but it still feels like you are spending money you don't have. One thing being single you don't have that second set of eyes on the money. My planner was my second set of eyes.
I found this walk through practical, strategic, and in true James fashion - thought provoking towards what really matters during one's lifetime. Thank you for sharing this case study.
I loved seeing this analysis, James, even though our situation is nothing like hers. Watching you analyze and walk through different scenarios is very helpful. Lara, my condolences for your loss, but you are doing a good job of continuing your life.
Thanks for having a single person example. However, with $2.4MM in after tax and $2.1MM in Traditional, then it was a no-brainer that she would be okay and performing Roth conversions would be the best route. Laura, if you read this, then find a good contractor and improve your house to what you want now. Pay for it with your after-tax brokerage (generally tax free or minimally tax advantaged from long term capital gain tax) and never look back. You will thank yourself after it is done and never miss the money. A really informative analysis would be a look at market impacts over time for Roth conversions with someone who has mostly Traditional IRA and little after tax "cushion" (must rely on Traditional IRA withdrawals for living). Example, aggressively converting to Roth at the 24% bracket (or $193K IRMAA limit) for someone who would be definitely forced into significantly higher tax brackets (above 30% federal) when RMD's kick in IF the stock market is favorable (maybe averaging 15% annually) for 10-15 years. Contrast that with "wasted" Roth conversions IF the stock market is lackluster (maybe flat to 5% annually) for 10-15 years. It would be very interesting to contrast the "wasted" taxes paid early (lackluster market) vs. the avoided future tax liability (favorable market) by performing the annual Roth conversions.
Excellent video. You hit on many topics that I'm starting to deal with. Roth conversion timing is important and, for me, overlooked until recently. Afraid I'm a bit late to the party. There aren’t many examples that discuss pension income and how it narrows the conversion gap to the desired tax bracket. Thanks for the education.
I am definitely planning to do some Roth conversions in the future, although on a much smaller scale than this example. In any case, this type of single oriented content is very helpful. FYI: HSA cannot be used to pay insurance premiums, but you can used for all other healthcare costs.
A Roth conversion allows you to transfer funds from a traditional IRA or 401(k) into a Roth IRA, paying taxes now to potentially enjoy tax-free withdrawals later. This strategy can be particularly advantageous if you expect higher tax rates in retirement.
The estate tax exemption amount is linked to inflation. I'm not sure if the software sorted that out correctly, or if the software presumes a reversion to pre TJCA exemption amounts. And while estate tax planning is somewhat beyond the scope of this interview, the software should have asked about portability. Second, I think the starting conditions presumed no ACA subsidy. It would have been interesting to see the low AGI until Medicare. Laura now has access to the Right Capital software as part of the interview, so she can try out alternative scenarios.
A couple thoughts. I think Laura is overestimating health expenses/premiums at Medicare age. She’s currently budgeting $21K (age 60)but when on Medicare, even with IRMAA surcharges (if in 32% marginal bracket) she would likely pay no more than $1-1,200/month for healthcare premiums/expenses. That would be for Medicare parts A &B, plus a supplemental G plan and drug coverage. Much less than the current $21K she’s paying. Next, she’s got $2.4M in an after tax brokerage account with a similar balance in her 2 tax deferred accounts. Laura can easily max out the 32% tax bracket now (probably even go into the 35%) and do Roth conversions for the next 5-10 years, paying the taxes from her brokerage acct. In 2024, she would pay $55K in federal taxes after maxing out the 32% bracket. That’s just a bit more than 2% of her current brokerage account balance (and that account will continue to increase in value over time). If Laura plans to leave a legacy, the last thing she would want is to leave the recipient(s) with an ordinary income tax bill on a potential balance of $15M that must be withdrawn within 10 years. In my estimation, Laura has plenty of flexibility and can easily draw down her tax deferred accounts over the next several years. Good luck to her, and well done!
Have you done a talk about ways to pay the taxes on Roth conversion? When we retire, 😊I plan to be selling our house and use some of the profit to pay the taxes. But I'm concerned if it will be too much with capital gains from the sale of the home.
Trump’s election might affect some future planning. I suspect the current tax rates will NOT be allowed to expire at the end of 2025. And Trump has talked about eliminating the Affordable Care Act, although it’s so popular that it’s hard to say if he will succeed (or even try) or not. 🤔
I recently adjusted my Roth IRA to 50% in SCHD, 25% in SCHX, and 25% in SCHG. For my Roth 401k, I went with 70% in Vanguard's S&P 500 Index, 20% in the Vanguard Growth Index, and 10% in the Vanguard International Index. My goal is to grow my $350k to over $1 million within the next three years.
Thank you for featuring the single retiree scenario.
Please … please do more examples of singles. Thanks for doing this one!
I never was thinking my 401k money in retirement would be as high as it is now. Being single and retired makes me rethink Roth and start spending more money. Spending more money than I spent working is a strange feeling. You can see it on paper but it still feels like you are spending money you don't have.
One thing being single you don't have that second set of eyes on the money. My planner was my second set of eyes.
I found this walk through practical, strategic, and in true James fashion - thought provoking towards what really matters during one's lifetime. Thank you for sharing this case study.
I loved seeing this analysis, James, even though our situation is nothing like hers. Watching you analyze and walk through different scenarios is very helpful. Lara, my condolences for your loss, but you are doing a good job of continuing your life.
Thanks for having a single person example. However, with $2.4MM in after tax and $2.1MM in Traditional, then it was a no-brainer that she would be okay and performing Roth conversions would be the best route. Laura, if you read this, then find a good contractor and improve your house to what you want now. Pay for it with your after-tax brokerage (generally tax free or minimally tax advantaged from long term capital gain tax) and never look back. You will thank yourself after it is done and never miss the money.
A really informative analysis would be a look at market impacts over time for Roth conversions with someone who has mostly Traditional IRA and little after tax "cushion" (must rely on Traditional IRA withdrawals for living). Example, aggressively converting to Roth at the 24% bracket (or $193K IRMAA limit) for someone who would be definitely forced into significantly higher tax brackets (above 30% federal) when RMD's kick in IF the stock market is favorable (maybe averaging 15% annually) for 10-15 years. Contrast that with "wasted" Roth conversions IF the stock market is lackluster (maybe flat to 5% annually) for 10-15 years. It would be very interesting to contrast the "wasted" taxes paid early (lackluster market) vs. the avoided future tax liability (favorable market) by performing the annual Roth conversions.
Excellent video. You hit on many topics that I'm starting to deal with. Roth conversion timing is important and, for me, overlooked until recently. Afraid I'm a bit late to the party. There aren’t many examples that discuss pension income and how it narrows the conversion gap to the desired tax bracket. Thanks for the education.
Great job James. Well done and appreciate the format of the video. Thank you!
Very informative.
mmm.. most of us dont have that amount lol. can u do a scenario with say 1/2 a mill?
This lady’s got 4 1/2 million dollars as she’s deferring repairing things on her house? Oh my.
I am definitely planning to do some Roth conversions in the future, although on a much smaller scale than this example. In any case, this type of single oriented content is very helpful.
FYI: HSA cannot be used to pay insurance premiums, but you can used for all other healthcare costs.
A Roth conversion allows you to transfer funds from a traditional IRA or 401(k) into a Roth IRA, paying taxes now to potentially enjoy tax-free withdrawals later. This strategy can be particularly advantageous if you expect higher tax rates in retirement.
The estate tax exemption amount is linked to inflation. I'm not sure if the software sorted that out correctly, or if the software presumes a reversion to pre TJCA exemption amounts. And while estate tax planning is somewhat beyond the scope of this interview, the software should have asked about portability.
Second, I think the starting conditions presumed no ACA subsidy. It would have been interesting to see the low AGI until Medicare. Laura now has access to the Right Capital software as part of the interview, so she can try out alternative scenarios.
When planning, do you take into account the possibility in reduction of SS benefits (~75% of the benefit 2035ish)?
A couple thoughts. I think Laura is overestimating health expenses/premiums at Medicare age. She’s currently budgeting $21K (age 60)but when on Medicare, even with IRMAA surcharges (if in 32% marginal bracket) she would likely pay no more than $1-1,200/month for healthcare premiums/expenses. That would be for Medicare parts A &B, plus a supplemental G plan and drug coverage. Much less than the current $21K she’s paying.
Next, she’s got $2.4M in an after tax brokerage account with a similar balance in her 2 tax deferred accounts. Laura can easily max out the 32% tax bracket now (probably even go into the 35%) and do Roth conversions for the next 5-10 years, paying the taxes from her brokerage acct. In 2024, she would pay $55K in federal taxes after maxing out the 32% bracket. That’s just a bit more than 2% of her current brokerage account balance (and that account will continue to increase in value over time).
If Laura plans to leave a legacy, the last thing she would want is to leave the recipient(s) with an ordinary income tax bill on a potential balance of $15M that must be withdrawn within 10 years.
In my estimation, Laura has plenty of flexibility and can easily draw down her tax deferred accounts over the next several years. Good luck to her, and well done!
Have you done a talk about ways to pay the taxes on Roth conversion? When we retire, 😊I plan to be selling our house and use some of the profit to pay the taxes. But I'm concerned if it will be too much with capital gains from the sale of the home.
$30k per year in home improvements or one-time $30k?
QUESTION: Can my RMD withdrawal be rolled into my Roth as a conversion?
Wish I had her problem !
Many of us single retirees can only dream of a $5 million nest egg. I stopped watching when I saw that.
Who you gonna leave that money to? You live in a house falling apart and don’t want to spend any money fixing it? 😂😂😂😂😂 poor rich people
Trump’s election might affect some future planning. I suspect the current tax rates will NOT be allowed to expire at the end of 2025. And Trump has talked about eliminating the Affordable Care Act, although it’s so popular that it’s hard to say if he will succeed (or even try) or not. 🤔
I recently adjusted my Roth IRA to 50% in SCHD, 25% in SCHX, and 25% in SCHG. For my Roth 401k, I went with 70% in Vanguard's S&P 500 Index, 20% in the Vanguard Growth Index, and 10% in the Vanguard International Index. My goal is to grow my $350k to over $1 million within the next three years.
Please … please do more examples of singles. Thanks for doing this one!