Interesting case study but at 8:50 why is converting to 24% bracket considered “better” than 22% bracket? Only saves $3k in lifetime taxes but results in $300k less net legacy - seems like converting to 22% bracket is a better trade off and 24% is a good example of doing “too much” conversion. OK - I watched to the end and Alex touches on it at 12:12.
You seemed to be focusing on how much you save in taxes. That is the wrong focus. There is a mathematical reason that this is true. But you want to optimize is the after tax spendable assets. That may be what is represented by the "Total Net Legacy" column. The mathematical reason is that if you convert to Roth early and you pay say 10 % in taxes you would pay less in taxes that if you convert later: [P*(1-TR)]* (1+GR)^n= [P * (1 + GR)^n ]* (1 - TR) but the taxes you pay after waiting is a whole lot more. Basically, the IRS's share grew along with your share. What you want to do with Roth conversions is to manage the tax rate to lower values and is where the savings comes in. Basically, it is the progressive tax rates that help make Roth conversions worthwhile.
I didn't hear much about the tax-free growth that you get from converting to Roth - maybe it was in the math somewhere, but it may be even more of a benefit in the long run (compared to avoiding big tax bills on RMDs)
And they can't touch the roll over for 5 years, and maybe impacts IRMA, what do they live on for the 5 years and where does the money come from to pay the taxes? Can you explain further please ?
Interesting case study but at 8:50 why is converting to 24% bracket considered “better” than 22% bracket? Only saves $3k in lifetime taxes but results in $300k less net legacy - seems like converting to 22% bracket is a better trade off and 24% is a good example of doing “too much” conversion. OK - I watched to the end and Alex touches on it at 12:12.
You seemed to be focusing on how much you save in taxes. That is the wrong focus. There is a mathematical reason that this is true. But you want to optimize is the after tax spendable assets. That may be what is represented by the "Total Net Legacy" column. The mathematical reason is that if you convert to Roth early and you pay say 10 % in taxes you would pay less in taxes that if you convert later: [P*(1-TR)]* (1+GR)^n= [P * (1 + GR)^n ]* (1 - TR) but the taxes you pay after waiting is a whole lot more. Basically, the IRS's share grew along with your share. What you want to do with Roth conversions is to manage the tax rate to lower values and is where the savings comes in. Basically, it is the progressive tax rates that help make Roth conversions worthwhile.
IRS won't see a cent of your charitable distribution, and neither will you.
Thanks, what about doing a bigger conversion after a significant down turn? Say 35% Bear?
I didn't hear much about the tax-free growth that you get from converting to Roth - maybe it was in the math somewhere, but it may be even more of a benefit in the long run (compared to avoiding big tax bills on RMDs)
And they can't touch the roll over for 5 years, and maybe impacts IRMA, what do they live on for the 5 years and where does the money come from to pay the taxes? Can you explain further please ?
Agreed, if you pay taxes from your cash, the money could be better invested and more profit than the tax you would have paid
Who cares about charitable donation? SMH
Your pastor wants to upgrade from a prop plane to a private jet. Start tithing now.