That’s a good question. My friend did a conversion a few years back, and while he’s happy about the tax-free growth now, the upfront taxes hit pretty hard. He said if you’re not careful, it can eat into your retirement income more than you’d expect, especially if you don’t time it right
I’ve seen that, too. My biggest worry is being hit by tax bracket creep, where moving money to a Roth all at once bumps you into a higher tax bracket. That could really impact spending, especially with things being tight lately. But there’s also a flip side-future tax rates could go up, and then you’d wish you’d done it sooner.
Yeah, that’s the gamble. Nobody knows what tax rates will look like down the road, but with current debates over national debt and funding, taxes are likely to go up. Joseph Nick Cahill, the advisor I’ve been following, says that Roth conversions can be smart, but timing and amounts are key. He helped me map it out in a way that wouldn’t trigger extra taxes or Medicare surcharges
And don’t forget required minimum distributions (RMDs). A lot of people don’t realize that Roth IRAs don’t have RMDs, but traditional IRAs do. If you wait too long to convert, you might end up being forced to withdraw more than you want later on, and that could affect your retirement spending
I hear you. Joseph Nick Cahill actually mentioned that to me when I was looking into it. He suggested spreading conversions over a few years to avoid a big tax hit all at once. Plus, it lets you stay in control, so you don’t risk unexpected expenses that could hurt your peace of mind
Thanks again Eric. This definitely provides more perspective and it addresses an obvious conflict of objectives that never gets mentioned. How do you kick up your GoGo years while optimizing forward tax planning by paying tens of thousands in taxes on Roth conversions? With a pension that will cover about half of our desired base level spending, and a 12 year age gap (which dampens any spending smile) it tees up a tough choice.
Very good video and discussion Eric. I got started on my Roth conversions late due to my ignorance about them. I've been doing them for a few years now and will through next year. I'll reevaluate at that time, once we know the final outcome of the TCJA sunset and if it will be extended, which doesn't seem likely. I'm in camp #1 and my main focus of conversions, is for legacy planning for my kids. Larry, Central Valley, Ca.
another difficult to quantify benefit of Roth conversions is the Flexibility factor. ie. if you convert aggressively, and then buy a second home, you can effectively recycle the cash from the first home to drop your income and execute additional aggressive Roth conversions by living on the cash. just be sure to live in the house for at least 2 years before selling.
I did that via a cash-out refinanced mortgage. Worked quite well. I've tried to convince others of this option, but had zero success. I'm glad to see someone else is an aggressive risk taker. Although, I see our approach as low risk. Good job!
We have a pension and combined with SS our spending needs will be met. The withdrawals we make go for extras like travel. We anticipate leaving a substantial portion of our funds to our son, so we are doing some aggressive Roth Conversions and expect to be done by the time we have to take RMDs in 6 years. We will also benefit from paying less IRMAA in our lifetime and put us in a better position should one of us live much longer than the other. I should have learned about IRMAA ,RMDs, SS taxation, etc. years ago, then we would have had more time to convert the funds.
Excellent educational videos. thank you. an additional dynamic is factoring ACA Tax Credits for age 50-64 retirees. i struggle optimizing the the tax credit amount with income and roth conversions that are in play. increasing MAGI creates an implied tax increase through higher medical premiums. being more aggressive leads to a zero ACA tax credit and +$17K / year in medical premiums.
Thank you. No doubt more difficult to factor in ACA tax credits. What we do is turn the subsidy dollars lost into a marginal tax rate and then continue with the same rate vs. rate logic. For instance, if $10k of extra income causes you to lose a $1,000 subsidy, that is a 10% tax 'add on' on top of whatever other taxes you are paying on that $10k. As you add all of the marginal rates together, are you comfortable paying that rate relative to future rates assuming no conversion? Often earning the subsidy wins out to some extent but its obviously contextual to the person's situation.
Really helpful video. Would love to see one covering the question as to whether Roth conversions can RAISE retirement spending. If I have a 'Die with Zero' approach and my modeling projects that doing Roth conversions will save me, say, $1 million in taxes during my lifetime, can I actually plug that $1 million back into my spending plan and start spending the savings now in the early and active years of my retirement (in addition to my base case spending)? If so, how would I calculate what that additional spending looks like? Thanks.
The purpose of Roth conversions is to minimize taxes. If we minimize taxes, then we get to spend that savings on ourselves, rather than sending it to Uncle Sam. So, YES, Roth conversions can RAISE retirement spending. I have a large retirement spreadsheet that includes all my future tax return numbers, account balances, conversions, spending amounts, etc. etc. I back into my Spending amounts. The main number I focus on is my Spending amount, for the year following my completion of Roth conversions, which for me is 2027. I'm in year 10 of 13 planned Roth conversions (average of $50,000/year). My spreadsheet calculates my 2028 and future years spending by an inflation factor. My primary goals are to maximize my 2027 Spending number (currently at $341,000), and to bring my savings balance to $0, by age 95. I'm 63 and single. My current spending is $73,000/yr. So, 'yes', I'll need to significantly increase my spending, which I have an evolving plan for.
@@larryjones9773 This is very helpful. I am also aiming for a final $0 balance at age 95, but I am currently 52 and recently retired. I am planning to start Roth conversions next year and continue through my 50's (low and slow), so my challenge is can I spend the projected Roth conversion savings while I am still doing Roth conversions? If my conversions are projected to eventually save me $X, can I take some portion of $X now, as additional spending? I am just wondering how people in a similar position calculate how much of that tax savings bounty they can/should take in early retirement rather than just waiting for them to materialize decades later. Thanks.
@@SuffersFoolsGladly We can take the savings now, but that will mean a lower Roth conversion amount, or a higher conversion tax rate. Taking the savings now is probably a fine option. If I had done that, I wouldn't have the challenge of trying to figure out how I'm going to spend $341,000/year, once my conversions are done. My average Roth conversion rate will end up being 11%. I live in Texas, thus, there's no state income tax. I also had an influx of cash that I was able to use for living expenses, which allowed me to do large Roth conversions. This influx of cash was an inheritance and I also did a cash-out refinanced mortgage. Friends thought I was crazy to pull a bunch of cash out of my home. But, it has been quite successful. My loan rate was 3.75% (2019). I invested this cash in the S&P 500, thus my return has far exceeded 3.75%.
@@SuffersFoolsGladly it is a tough calculation as it depends on how much cash or high basis you have in a brokerage account to use for spending until you reach 59.5 or if the purpose of your Roth conversions is to do a ladder for spending during that gap. It will also depend on how you will spend for health insurance since, if you use ACA, you have 13 years to go keeping income low to have subsidies, or front load some of those conversions the first few years and then take the subsidies for the rest, assuming you have enough cash on hand to pay the tax and ACA without subsidies now, and then enough to keep you going with small or no Roth conversions. You old need to run different scenarios, based on your current balances on the different accounts you can tap into currently and your expected expenses including your options for health insurance.
@@J-2024-v8i thanks. So I probably should have clarified that I have enough to cover all of my retirement expenses through 75 when I need to start RMD’s. This is purely a question as to addition, discretionary spending that may be generated by the tax arbitrage resulting from a (hopefully) successful Roth conversion strategy.
Your videos are the best!!! Can you do a video of having a side job in retirement? Reffing sports is popular with Federal employees as a side job while working. Then when retired, they keep reffing. Quite a few volleyball refs are in their mid 70s and still going strong with reffing. I ref volleyball and lacrosse. Opportunities with off season leagues to ref year round.
i am on my 3rd year of retirement without a w2. i am nearly done with my roth conversions for '24 going up the 24% bracket. so far converted 404K and including the previous 2 yrs have converted 690K. current 4th quarter taxes on the conversions so far is 40.7 K and will be paid in January but up to 3rd quarter all taxes have been paid. fortunately in spite of paying a lot in taxes from my taxable brokerage for the conversions over the 3 yrs, the net worth has gone up quite a bit since the year i started conversions. roth assets are now up to 63% ( had a roth401k last 10 yrs working) and trad ira/401K is down to 37% of retirement assets. will go up to 24% again next year and then back off to the lower 3 brackets after. will not convert all just to keep rmds manageable and will start tapping tax deferreds at 63. i am 58 now.
All of you content creator's have STOP with Millions in IRA's! Most people do now have anything like that. Make the numbers at lest 10 to 20 times lower so the information will be more useful and believable.
@@wswiii3663 i am not a content creator except for my rare shooting and biking videos that are not monetized. that being said there are points in my post, some in between the lines, that is applicable to most. - start early if you are going to do it to spread the conversions, i.e first year without a W2 or a period where there is no forced income yet. the earlier you do it then you don't have to convert to 3rd or 4th lowest bracket, maybe just 1st or 2nd. i am just anticipating an expiration of the trump tax cuts in 2026. - if you can do it several years before irmaa look back (63) then you can convert higher amounts without having to worry about it - if you pay conversion taxes out of taxable, it doesn't necessarily mean that your portfolio is hamstringed as you can possibly have continued growth in your assets in spite of paying a lot in taxes earlier. even with your taxable brokerage showing no growth to offset tax payments, you are replacing higher marginal rates(22-24% in my example) with the conversion by utilizing your taxable brokerage at lower ltcgs(15-18.8%). -for most people apart from legacy or spouse survivor tax status benefits , the most important consideration are rmds and so the goal of conversions is not to convert all but just to keep rmds at a manageable level so tapping your tax deferred earlier can accomplish that goal as well without as much in conversions.
@@Random-ld6wg can I ask how much you've been paying for health insurance? I chased an ACA subsidy the first few years of my retirement. Now I'm regretting not doing conversions instead. The lost time means I'll be subject to IRMAA lookbacks if I start implementing significant conversions over the next several years. RMDs will also force my Medicare/supplemental costs higher. Lose either way. Was a great saver, but never educated myself on what to do to minimize future tax consequences.
Thanks for the info. Sounds like you had enough cash accumulated for your expenses and health insurance for your first few years of early retirement, to avoid having any other significant reportable income. A $404k Roth conversion in 2024 within the 24% bracket means that you only have about $9k of any other reportable income, assuming you are MFJ (404+9=$413k, - $29k standard deduction = $384k taxable, which is the top of the 2024 24% bracket).
@@OHDANB for me and my wife and a 20y/o son i pay for private health insurance with a bluecross HDHP $1175/month. this allows me to contribute to an HSA. i briefly thought about ACA at the start of my retirement but the income limitation is too constraining and back then i was worried about a subsidy cliff so decided against it. then thought maybe, i'll do it every other yr by liquidating living expenses and doing conversions one yr with private health insurance then only draw enough alternating yrs to qualify for ACA but worried ( likely wrongly) that switching back and forth can cause issues with care so i never went that route. open enrollment always makes me take a deep breath as i don't know what the new rates will be but i guess that's the same for every insurance.
My dad has a small pension. Combine that with RMDs (which for the past 10+ years he does not need or care to spend) and he and mom pay tax on 80% of their social security. I wish I had understood their situation 20 years ago and I would have encouraged Roth conversion. Now that would push them up into a higher tax bracket, and very unlikely to ever be worthwhile even with the idea of an inherited Roth vs traditional. Oh well. Live and learn, until it doesn't matter any more.
What are your thoughts on paying taxes on Roth conversions from existing Roth acct balance vs. as additional withholding from conversion funds? 22 or 24% marginal tax bracket. My thinking - If I’m expecting 10% growth in the Roth account, I am only losing 12 or 14% (net of 22 or 24% - 10%) vs. the full 22 or 24% from withholding. Am I correct? This strategy moves money to Roth at lower overall tax rate. Yes, at the cost of distributing the taxed amount from the Roth acct, but that is tax free. Would appreciate your thoughts.
It is essentially the same. Run an example with numbers assuming you only have $24k in Roth contributions: Converting $100k all at a marginal 24% would incur $24k tax that you pay from the Roth. This would leave $100k in the Roth after paying the taxes and may take about 2.5 years with a 10% return to get to $124k. If instead you convert $100k and withhold $24k, you will still start with $100k in the Roth since you already had the initial $24k, so it will take you the same 2.5 years to get to $124k all things being equal. If you already have a significant amount in your Roth then it would just feel better to pay from the Roth, since the full Roth will recover the tax much faster, but this will be due to the amount you already had in Roth, and not due to this one time conversion. If you can pay the tax from outside funds/cash from a taxable account it is better, since it would be similar to contributing those funds to the Roth to make the conversion whole. If from cash, there is no additional tax liability, and if from LTCGs there would be a 15-18.8% additional liability only on the gains.
Excellent presentation, I have a question, 63 y/o retiree, no kids or heirs, not worried about a legacy , I collect SS and a pension, home paid off , 12 % bracket, 900 K in a IRA , Am I missing something, ? Im not interested in doing a Roth conversion. now does it make sense for me..
Probably depends on your expenses and how aggressively your IRA is invested. With 100% stocks in the IRA it could potentially grow to $2M+ by the time you reach RMD age, assuming you are not withdrawing from it if SS and pension are enough for your expenses. This would put your RMDs to start at about $80-100k the first year and growing each year. If you add your SS and pension, you will most likely be well above the 12% tax bracket at that time. If your IRA is mostly bonds, then probably you don’t need to convert.
If you predict you'll be in the 22%/25% tax bracket in the future, then maxing out your 12% tax bracket would make sense, for you. Unfortunately, there's no simple way to know if you'll be in the 22%/25% tax bracket in the future, as it depends on your rate of return, age of death, etc.
Thanks Eric for the great explanation!. Question: In the bar graph with the example with and without conversion, you show that “interest income” is stacked above the basis but under the Roth conversion. I thought that interest income (such as from bonds or MM) is stacked ABOVE the Roth conversion, and therefore a large Roth conversion can push that interest income into the NIIT tax zone of the marginal ordinary income bracket + 3.8% NIIT. Is what you are showing correct in that interest income actually stacks BELOW Roth conversion income and therefore cannot be pushed up by the Roth conversion into a higher ordinary income bracket and NIIT? Thanks.
you are correct. it stacks ABOVE the roth conversions. so if you have no other income except for passive income and your conversions result in a MAGI of 250K . then any passive income will trigger the NIIT, so 18.8% rather than 15% . this year taking advantage of presumably the last 2 yrs of the current rates i am converting beyond 250K so all liquidations for living expenses as well as paying conversion taxes and qualified dividends from my taxable brokerage are effectively taxed at 18.8%. I compute the final figure for the NIIT during my 4th quarter estimated tax payment. prior to that i still just pay 15% for ltcgs and dividends even if the NIIT threshold was reached. much simpler to do it that way.
@@Random-ld6wg Thanks! I played some numbers in TT and you are correct. Interest income stacks on top of Roth conversions. So, if your only income is say $29,200 (same as 2024 standard deduction for MFJ), it would normally be taxed at 0%. If you do a $250k Roth conversion, this will push that interest up to the 24% bracket + 3.8% NIIT, for a total of 27.8% tax on the $29,200 ($8,117.60), not including the tax on the Roth conversion. Therefore, the effect of the conversion on interest income that would otherwise not be taxed is even greater than that on LTCGs (27.8% or above for interest, compared to 18.8% or 23.8% for LTCGs). So, the graph showing that interest income stacks below Roth conversion income was incorrect.
7:23......This is a great idea and something the govt should consider letting people do. We could wipe half the deficit away if we let people use this loophole RIGHT NOW. Let everyone do a one-time conversion at 5% or 10%......I have been saying this for years. It would be a great way to wipe the slate clean and start fresh.
But, that would be an ENORMOUS reduction in future income for the U.S. government. The U.S. government is able to borrow at a very low interest rate. I doubt Congress would approve of this idea.
@@larryjones9773 Ask yourself why congress allows the Roth conversion to continue on the books? They want your money sooner rather than later. Congress is just like your everyday American...they would rather have 1 hamburger today than 2 hamburgers next week.
@@WesternReaper84 Congress already lets us do Roth conversions. The AGI limit was repealed permanently in 2010. What's the incentive for Congress to offer a bargain conversion rate? A 5% conversion rate would be ENORMOUSLY costly. I'm in year 10 of 13 planned Roth conversions. My average conversion rate will be 11%, but most people are converting at much higher rates. Why offer a bargain conversion rate when people are already converting like crazy?
What about a 60 y/o early retiree with a Die with Zero goal, who is on an ACA healthcare plan? Doing sizeable ROTH conversions now will increase my MAGI and disqualify any ACA healthcare premium subsidies. I struggle trying to figure out if paying 22% Federal and 3.75% state taxes, plus full price for health insurance premiums, ($13,000 annually for 2024), is a good strategy.
I’m in the same situation. To decide on this I consider these three factors where all need to apply to make the Roth conversion and forego the ACA subsidy worth it: 1) Does modeling the conversion show that my balance at the end of my plan is much higher than the subsidies I would have gotten without the conversion? and, 2) Do I have enough assets in my taxable account to pay for the conversion AND still have a big enough cash/stable cushion to cover my expenses for 2-5 years (depending on your comfort level) in the event of a long bear market to avoid sequence of return risk?, and 3) Do I already have some Roth assets available in case I need to pull some additional funds outside of normal expenses without increasing my tax liability? If you respond with yes to all three, a conversion(s) might be worth it. Of course, before all of this, you first need to see in your plan if not converting would push you into higher tax brackets in the future once you account for SS, RMDs, inheritances, or other income sources.
I'm retiring in January and experiencing a very similar situation. We're choosing to COBRA insurance in 2025 and do Roth conversions up to 22-24%. Then 4 years of ACA insurance with very low Roth conversions until Medicare kicks in. Just trying to eliminate any tax traps we might experience down the road. Also, if one of us dies early, the other will be in much better shape from a tax perspective. Avoiding tax traps is a high priority for us as we desire a stress-free retirement.
Is it true that you can retire at 59 & 1/2 and be able to get all of your 401k and not have to pay the 20%+ tax or any penalties 🤔 I've been very curious about this one!
After 55 you don’t pay penalties if it comes out of a 401k, but not all plans allow for partial distributions, in which case you can do only a total distribution or rollover. The employer will always withhold a minimum of 20% for any distributions paid out “to you” regardless of your age, but you will not owe the extra 10% penalty on or after the year you turn 55. The employer will not withhold the 20% tax (unless you ask them to) if the distribution is a “direct” rollover to an IRA (not taxable) or a Roth IRA (taxable, which you will have to pay).
There is a longevity risk and inflation issue often ignored by those touting conversions. When you convert and pay tax up front a market decline following the conversion will have more significant impact than it will later in life if you defer. That is because paying the tax when RMDs kick in you have less years needed to fund. Also if we have high inflation the tax brackets and standard deduction will adjust meaning when you defer you can have more income before bumping into higher brackets.
I don’t believe that you are correct. If you convert or not, the impact of a market decline will have the same net effect. Ditto with inflation. But you may have to do a spreadsheet to see this.
Your are correct that a market decline TODAY has the same impact but that is not what my post said. I said a market decline today if you convert will have a more drastic impact than one later during RMDs if you defer. I don’t need a spreadsheet. Here is the math. You are 60 and have $1m traditional IRA and nothing else except SS to last 30 years. You convert to Roth and pay 30% combined fed and state tax leaving you with $700k tax free and the market drops by 50% so now you have $350k plus growth to last you 30 years if you live to 90. Compare that with $1m deferred that grows for 15 years before RMDs kick in then late in life loses 50%. Still not good (mostly for your heirs) but less impact as the remaining balance, although taxable, will need to fund many fewer years.
As far as inflation, yes that impacts both equally as far as dilution of dollar value but my point was related to the fact that the standard deduction and tax brackets adjust each year so RMDs will not push you into higher tax brackets as quickly as they would if inflation is lower and thus taxes will be less. Since Roth are not taxable, inflation is not relevant from a tax perspective.
@@keithmachado-pp6fv Why are you comparing a Roth account that loses 50% immediately after conversion to a deferred account that loses 50% late in life? The two scenarios are not comparable.
I retired last year at 62 and did my first conversion this year. I'm trying to convert my 401k so I won't have RMDs in the future. The market is doing so well that my balance is almost back where it was when I did the conversion. Yes, it's good because I'm making money but it's also going to take longer to finish my conversions and my IRMAA costs will be high for years. Should I do larger conversions to get it over with or keep doing what I'm doing?
Let the math tell you what to do: if your conversion tax rate is lower than your future avoided tax rate on Roth withdrawals, then you should convert. Otherwise, don't convert. The decision is simple to explain. The difficult part is estimating the future tax rates avoided on Roth withdrawals.
It sounds like your 401k is mostly in stocks since you are recovering the converted amount so fast. In such a case, you may consider shifting your bond allocation (if any) to the 401k. Otherwise tryo convert more in a down market,!
For context, I retired at 48. I did my first Roth conversion at 54 and my last conversion will be in 2027, at 66, for a total of 13 years of conversions. Doing it over an extended period allowed me to convert at an average tax rate of 11%. I live in Texas, which doesn't have a state income tax, so that helped me convert at a low rate.
@@larryjones9773 Thanks. Would be helpful to understand how you decided at what amount in your IRA you would stop converting, unless your plan was to convert the full balance in your IRA over those 13 years?. Also, is the average tax rate of 11% just for the converted amount each year or is it for all your income for that year?. Finally, did you keep your IRA mostly in bonds/MM/cash to slow down its growth while you are converting? Thanks.
I would suggest a discussion about routing your '401k withdrawals' through your Roth and leave what you don't spend as a 'roth conversion'. Almost all discussions about roth conversions is I have so much that I am afraid of it. Say I need 40K a year for spending out of 401k but if route 100k through my roth every year, what I don't spend stays. "Extra Withdrawals through you Roth". The roth becomes a substitute for your 'emergency fund' and your taxes are predictable.
I'm in year 10 of 13 planned Roth conversions. However, after that, I'll continue to do Roth conversions, with the goal of driving my 401K to $0, by age 95. I do 90% of my planned conversions in early January, and the remainder in December, once I have my final tax numbers. I convert most in January, in order to STOP the tax clock, ASAP. As you suggest, I'll spend from my Roth account. Retirees don't need an emergency fund. Our emergency fund is our retirement accounts.
@@ausgra17 I'm trying to get my 401K balance down to $0 by age 95. Converting in early January helps me achieve this important goal. I'm actually paying taxes decades early, not just 10-11 months. Paying taxes early is a key component of Roth conversions. Minimizing taxes is the goal of Roth conversions. If the stock market is up 30% for a year, and I converted in early January, then I avoid taxes on all of that 30% growth.
Can you PLEASE PLEASE PLEASE do a video on someone who has everything in a 401(k) that doesn't do Roth conversions!!! Sure, I wish I had also started a Roth when I started saving 27 years ago (or whenever the Roth came out) Everything on TH-cam seems to indicate that having just a 401(k) is bad and get ready to lose over half that money (yeah, I get the tax implications) But there has to be some sort of solution to minimize the huge hit you are going to take a retirement time (without conversions). I am looking at retirement in the next 7 years (62) but my child will be 11yo so she'll collect 50% of my PIA till 19y 2m. My wife (14 years younger) will collect 50% of my PIA till she turns 16. It just seems everything I watch says I'm "doomed" because my retirement is all in a 401(k) (will have about 1.8-2.2m depending on how things go in the next 7 years) :-) Thanks
A few thoughts: Open a Roth IRA now and make either a direct contribution (or Backdoor Roth IRA contribution if your income is too high) so that you get the 5 year clock started on your first Roth IRA, which will be needed in the future for tax free withdrawal of earnings. If your current employer’s 401k has a Roth option start contributing to Roth, and also consider some partial in-plan Roth conversions that won’t push you to a too high tax bracket (24% max currently gives you space up to about $400k MAGI). Yes, you will pay more taxes now but will help with RMDs later and, if you retire at 62, you will have Roth money or cash to keep your income low if you need ACA subsidies for health insurance or to avoid IRMAA surcharges on Medicare after 65. If your current 401k does not have a Roth option, but you rolled into it a previous employer’s 401k, those are considered rollover funds which you may be able to rollover/convert to your external Roth IRA in partial distributions each year until you retire, or you can do a full rollover of those funds to a Trad IRA (this is not taxable) and then partially convert from it each year. However, note that if you roll it over to a Trad IRA, you will not be able to do Backdoor Roth IRA contributions due to the pro-rata rule, which applies when you have a Trad IRA. If your current 401k allows for after-tax contributions (non-Roth) you may be able to Rollover them to your Roth IRA tax-free, or almost tax-free if these have been sitting there for a while and have some earnings (look up how to do a Mega Backdoor Roth). Hope this helps.
Thank you. would you make a similar video for people with a decent pension. I will have a good pension ( filling the 10% bracket and then some. Does this greatly change my paln? I am planning on converting most of my trad holdings, but more information is always better!
The idea is appealing, but I keep wondering-does it really save you on spending in the long run, or just shift things around?
That’s a good question. My friend did a conversion a few years back, and while he’s happy about the tax-free growth now, the upfront taxes hit pretty hard. He said if you’re not careful, it can eat into your retirement income more than you’d expect, especially if you don’t time it right
I’ve seen that, too. My biggest worry is being hit by tax bracket creep, where moving money to a Roth all at once bumps you into a higher tax bracket. That could really impact spending, especially with things being tight lately. But there’s also a flip side-future tax rates could go up, and then you’d wish you’d done it sooner.
Yeah, that’s the gamble. Nobody knows what tax rates will look like down the road, but with current debates over national debt and funding, taxes are likely to go up. Joseph Nick Cahill, the advisor I’ve been following, says that Roth conversions can be smart, but timing and amounts are key. He helped me map it out in a way that wouldn’t trigger extra taxes or Medicare surcharges
And don’t forget required minimum distributions (RMDs). A lot of people don’t realize that Roth IRAs don’t have RMDs, but traditional IRAs do. If you wait too long to convert, you might end up being forced to withdraw more than you want later on, and that could affect your retirement spending
I hear you. Joseph Nick Cahill actually mentioned that to me when I was looking into it. He suggested spreading conversions over a few years to avoid a big tax hit all at once. Plus, it lets you stay in control, so you don’t risk unexpected expenses that could hurt your peace of mind
Yes, the conceptual explanation is helpful. Keep it up. Thanks.
Fantastic info Eric; so complicated. Thanks for using realish case examples because they generally represent real situattions !
Your video was so good that I saved it to my playlist of best retirement explanations so thank you
Thanks again Eric. This definitely provides more perspective and it addresses an obvious conflict of objectives that never gets mentioned. How do you kick up your GoGo years while optimizing forward tax planning by paying tens of thousands in taxes on Roth conversions? With a pension that will cover about half of our desired base level spending, and a 12 year age gap (which dampens any spending smile) it tees up a tough choice.
Very good video and discussion Eric. I got started on my Roth conversions late due to my ignorance about them. I've been doing them for a few years now and will through next year. I'll reevaluate at that time, once we know the final outcome of the TCJA sunset and if it will be extended, which doesn't seem likely. I'm in camp #1 and my main focus of conversions, is for legacy planning for my kids. Larry, Central Valley, Ca.
another difficult to quantify benefit of Roth conversions is the Flexibility factor. ie. if you convert aggressively, and then buy a second home, you can effectively recycle the cash from the first home to drop your income and execute additional aggressive Roth conversions by living on the cash. just be sure to live in the house for at least 2 years before selling.
I did that via a cash-out refinanced mortgage. Worked quite well. I've tried to convince others of this option, but had zero success. I'm glad to see someone else is an aggressive risk taker. Although, I see our approach as low risk. Good job!
We have a pension and combined with SS our spending needs will be met. The withdrawals we make go for extras like travel. We anticipate leaving a substantial portion of our funds to our son, so we are doing some aggressive Roth Conversions and expect to be done by the time we have to take RMDs in 6 years. We will also benefit from paying less IRMAA in our lifetime and put us in a better position should one of us live much longer than the other.
I should have learned about IRMAA ,RMDs, SS taxation, etc. years ago, then we would have had more time to convert the funds.
Excellent educational videos. thank you. an additional dynamic is factoring ACA Tax Credits for age 50-64 retirees. i struggle optimizing the the tax credit amount with income and roth conversions that are in play. increasing MAGI creates an implied tax increase through higher medical premiums. being more aggressive leads to a zero ACA tax credit and +$17K / year in medical premiums.
Thank you. No doubt more difficult to factor in ACA tax credits. What we do is turn the subsidy dollars lost into a marginal tax rate and then continue with the same rate vs. rate logic.
For instance, if $10k of extra income causes you to lose a $1,000 subsidy, that is a 10% tax 'add on' on top of whatever other taxes you are paying on that $10k. As you add all of the marginal rates together, are you comfortable paying that rate relative to future rates assuming no conversion?
Often earning the subsidy wins out to some extent but its obviously contextual to the person's situation.
Is there a simulation software that incorporates ACA subsidy impact?
Really helpful video. Would love to see one covering the question as to whether Roth conversions can RAISE retirement spending. If I have a 'Die with Zero' approach and my modeling projects that doing Roth conversions will save me, say, $1 million in taxes during my lifetime, can I actually plug that $1 million back into my spending plan and start spending the savings now in the early and active years of my retirement (in addition to my base case spending)? If so, how would I calculate what that additional spending looks like? Thanks.
The purpose of Roth conversions is to minimize taxes. If we minimize taxes, then we get to spend that savings on ourselves, rather than sending it to Uncle Sam. So, YES, Roth conversions can RAISE retirement spending.
I have a large retirement spreadsheet that includes all my future tax return numbers, account balances, conversions, spending amounts, etc. etc. I back into my Spending amounts. The main number I focus on is my Spending amount, for the year following my completion of Roth conversions, which for me is 2027. I'm in year 10 of 13 planned Roth conversions (average of $50,000/year). My spreadsheet calculates my 2028 and future years spending by an inflation factor.
My primary goals are to maximize my 2027 Spending number (currently at $341,000), and to bring my savings balance to $0, by age 95. I'm 63 and single. My current spending is $73,000/yr. So, 'yes', I'll need to significantly increase my spending, which I have an evolving plan for.
@@larryjones9773 This is very helpful. I am also aiming for a final $0 balance at age 95, but I am currently 52 and recently retired. I am planning to start Roth conversions next year and continue through my 50's (low and slow), so my challenge is can I spend the projected Roth conversion savings while I am still doing Roth conversions? If my conversions are projected to eventually save me $X, can I take some portion of $X now, as additional spending? I am just wondering how people in a similar position calculate how much of that tax savings bounty they can/should take in early retirement rather than just waiting for them to materialize decades later. Thanks.
@@SuffersFoolsGladly We can take the savings now, but that will mean a lower Roth conversion amount, or a higher conversion tax rate. Taking the savings now is probably a fine option. If I had done that, I wouldn't have the challenge of trying to figure out how I'm going to spend $341,000/year, once my conversions are done.
My average Roth conversion rate will end up being 11%. I live in Texas, thus, there's no state income tax. I also had an influx of cash that I was able to use for living expenses, which allowed me to do large Roth conversions. This influx of cash was an inheritance and I also did a cash-out refinanced mortgage.
Friends thought I was crazy to pull a bunch of cash out of my home. But, it has been quite successful. My loan rate was 3.75% (2019). I invested this cash in the S&P 500, thus my return has far exceeded 3.75%.
@@SuffersFoolsGladly it is a tough calculation as it depends on how much cash or high basis you have in a brokerage account to use for spending until you reach 59.5 or if the purpose of your Roth conversions is to do a ladder for spending during that gap. It will also depend on how you will spend for health insurance since, if you use ACA, you have 13 years to go keeping income low to have subsidies, or front load some of those conversions the first few years and then take the subsidies for the rest, assuming you have enough cash on hand to pay the tax and ACA without subsidies now, and then enough to keep you going with small or no Roth conversions.
You old need to run different scenarios, based on your current balances on the different accounts you can tap into currently and your expected expenses including your options for health insurance.
@@J-2024-v8i thanks. So I probably should have clarified that I have enough to cover all of my retirement expenses through 75 when I need to start RMD’s. This is purely a question as to addition, discretionary spending that may be generated by the tax arbitrage resulting from a (hopefully) successful Roth conversion strategy.
Your videos are the best!!! Can you do a video of having a side job in retirement? Reffing sports is popular with Federal employees as a side job while working. Then when retired, they keep reffing. Quite a few volleyball refs are in their mid 70s and still going strong with reffing. I ref volleyball and lacrosse. Opportunities with off season leagues to ref year round.
i am on my 3rd year of retirement without a w2. i am nearly done with my roth conversions for '24 going up the 24% bracket. so far converted 404K and including the previous 2 yrs have converted 690K. current 4th quarter taxes on the conversions so far is 40.7 K and will be paid in January but up to 3rd quarter all taxes have been paid. fortunately in spite of paying a lot in taxes from my taxable brokerage for the conversions over the 3 yrs, the net worth has gone up quite a bit since the year i started conversions. roth assets are now up to 63% ( had a roth401k last 10 yrs working) and trad ira/401K is down to 37% of retirement assets. will go up to 24% again next year and then back off to the lower 3 brackets after. will not convert all just to keep rmds manageable and will start tapping tax deferreds at 63. i am 58 now.
All of you content creator's have STOP with Millions in IRA's! Most people do now have anything like that. Make the numbers at lest 10 to 20 times lower so the information will be more useful and believable.
@@wswiii3663 i am not a content creator except for my rare shooting and biking videos that are not monetized. that being said there are points in my post, some in between the lines, that is applicable to most.
- start early if you are going to do it to spread the conversions, i.e first year without a W2 or a period where there is no forced income yet. the earlier you do it then you don't have to convert to 3rd or 4th lowest bracket, maybe just 1st or 2nd. i am just anticipating an expiration of the trump tax cuts in 2026.
- if you can do it several years before irmaa look back (63) then you can convert higher amounts without having to worry about it
- if you pay conversion taxes out of taxable, it doesn't necessarily mean that your portfolio is hamstringed as you can possibly have continued growth in your assets in spite of paying a lot in taxes earlier. even with your taxable brokerage showing no growth to offset tax payments, you are replacing higher marginal rates(22-24% in my example) with the conversion by utilizing your taxable brokerage at lower ltcgs(15-18.8%).
-for most people apart from legacy or spouse survivor tax status benefits , the most important consideration are rmds and so the goal of conversions is not to convert all but just to keep rmds at a manageable level so tapping your tax deferred earlier can accomplish that goal as well without as much in conversions.
@@Random-ld6wg can I ask how much you've been paying for health insurance? I chased an ACA subsidy the first few years of my retirement. Now I'm regretting not doing conversions instead. The lost time means I'll be subject to IRMAA lookbacks if I start implementing significant conversions over the next several years. RMDs will also force my Medicare/supplemental costs higher. Lose either way. Was a great saver, but never educated myself on what to do to minimize future tax consequences.
Thanks for the info. Sounds like you had enough cash accumulated for your expenses and health insurance for your first few years of early retirement, to avoid having any other significant reportable income. A $404k Roth conversion in 2024 within the 24% bracket means that you only have about $9k of any other reportable income, assuming you are MFJ (404+9=$413k, - $29k standard deduction = $384k taxable, which is the top of the 2024 24% bracket).
@@OHDANB for me and my wife and a 20y/o son i pay for private health insurance with a bluecross HDHP $1175/month. this allows me to contribute to an HSA. i briefly thought about ACA at the start of my retirement but the income limitation is too constraining and back then i was worried about a subsidy cliff so decided against it. then thought maybe, i'll do it every other yr by liquidating living expenses and doing conversions one yr with private health insurance then only draw enough alternating yrs to qualify for ACA but worried ( likely wrongly) that switching back and forth can cause issues with care so i never went that route. open enrollment always makes me take a deep breath as i don't know what the new rates will be but i guess that's the same for every insurance.
My dad has a small pension. Combine that with RMDs (which for the past 10+ years he does not need or care to spend) and he and mom pay tax on 80% of their social security. I wish I had understood their situation 20 years ago and I would have encouraged Roth conversion. Now that would push them up into a higher tax bracket, and very unlikely to ever be worthwhile even with the idea of an inherited Roth vs traditional. Oh well. Live and learn, until it doesn't matter any more.
What are your thoughts on paying taxes on Roth conversions from existing Roth acct balance vs. as additional withholding from conversion funds? 22 or 24% marginal tax bracket.
My thinking - If I’m expecting 10% growth in the Roth account, I am only losing 12 or 14% (net of 22 or 24% - 10%) vs. the full 22 or 24% from withholding. Am I correct?
This strategy moves money to Roth at lower overall tax rate. Yes, at the cost of distributing the taxed amount from the Roth acct, but that is tax free.
Would appreciate your thoughts.
It is essentially the same. Run an example with numbers assuming you only have $24k in Roth contributions:
Converting $100k all at a marginal 24% would incur $24k tax that you pay from the Roth. This would leave $100k in the Roth after paying the taxes and may take about 2.5 years with a 10% return to get to $124k.
If instead you convert $100k and withhold $24k, you will still start with $100k in the Roth since you already had the initial $24k, so it will take you the same 2.5 years to get to $124k all things being equal.
If you already have a significant amount in your Roth then it would just feel better to pay from the Roth, since the full Roth will recover the tax much faster, but this will be due to the amount you already had in Roth, and not due to this one time conversion.
If you can pay the tax from outside funds/cash from a taxable account it is better, since it would be similar to contributing those funds to the Roth to make the conversion whole. If from cash, there is no additional tax liability, and if from LTCGs there would be a 15-18.8% additional liability only on the gains.
The other commenter is correct. Paying from a conversion vs. paying from a Roth is tax equivalent.
Excellent presentation, I have a question, 63 y/o retiree, no kids or heirs, not worried about a legacy , I collect SS and a pension, home paid off , 12 % bracket, 900 K in a IRA , Am I missing something, ? Im not interested in doing a Roth conversion. now does it make sense for me..
Probably depends on your expenses and how aggressively your IRA is invested. With 100% stocks in the IRA it could potentially grow to $2M+ by the time you reach RMD age, assuming you are not withdrawing from it if SS and pension are enough for your expenses. This would put your RMDs to start at about $80-100k the first year and growing each year. If you add your SS and pension, you will most likely be well above the 12% tax bracket at that time. If your IRA is mostly bonds, then probably you don’t need to convert.
If you predict you'll be in the 22%/25% tax bracket in the future, then maxing out your 12% tax bracket would make sense, for you. Unfortunately, there's no simple way to know if you'll be in the 22%/25% tax bracket in the future, as it depends on your rate of return, age of death, etc.
Thanks Eric for the great explanation!. Question: In the bar graph with the example with and without conversion, you show that “interest income” is stacked above the basis but under the Roth conversion. I thought that interest income (such as from bonds or MM) is stacked ABOVE the Roth conversion, and therefore a large Roth conversion can push that interest income into the NIIT tax zone of the marginal ordinary income bracket + 3.8% NIIT. Is what you are showing correct in that interest income actually stacks BELOW Roth conversion income and therefore cannot be pushed up by the Roth conversion into a higher ordinary income bracket and NIIT? Thanks.
you are correct. it stacks ABOVE the roth conversions. so if you have no other income except for passive income and your conversions result in a MAGI of 250K . then any passive income will trigger the NIIT, so 18.8% rather than 15% . this year taking advantage of presumably the last 2 yrs of the current rates i am converting beyond 250K so all liquidations for living expenses as well as paying conversion taxes and qualified dividends from my taxable brokerage are effectively taxed at 18.8%. I compute the final figure for the NIIT during my 4th quarter estimated tax payment. prior to that i still just pay 15% for ltcgs and dividends even if the NIIT threshold was reached. much simpler to do it that way.
@@Random-ld6wg Thanks! I played some numbers in TT and you are correct. Interest income stacks on top of Roth conversions. So, if your only income is say $29,200 (same as 2024 standard deduction for MFJ), it would normally be taxed at 0%. If you do a $250k Roth conversion, this will push that interest up to the 24% bracket + 3.8% NIIT, for a total of 27.8% tax on the $29,200 ($8,117.60), not including the tax on the Roth conversion. Therefore, the effect of the conversion on interest income that would otherwise not be taxed is even greater than that on LTCGs (27.8% or above for interest, compared to 18.8% or 23.8% for LTCGs).
So, the graph showing that interest income stacks below Roth conversion income was incorrect.
7:23......This is a great idea and something the govt should consider letting people do. We could wipe half the deficit away if we let people use this loophole RIGHT NOW. Let everyone do a one-time conversion at 5% or 10%......I have been saying this for years. It would be a great way to wipe the slate clean and start fresh.
But, that would be an ENORMOUS reduction in future income for the U.S. government. The U.S. government is able to borrow at a very low interest rate. I doubt Congress would approve of this idea.
@@larryjones9773
Let's be honest, it's past time we reduce their spending anyways. If you don't think so, then you are part of the problem.
@@larryjones9773 Ask yourself why congress allows the Roth conversion to continue on the books? They want your money sooner rather than later. Congress is just like your everyday American...they would rather have 1 hamburger today than 2 hamburgers next week.
@@WesternReaper84 Congress already lets us do Roth conversions. The AGI limit was repealed permanently in 2010. What's the incentive for Congress to offer a bargain conversion rate? A 5% conversion rate would be ENORMOUSLY costly. I'm in year 10 of 13 planned Roth conversions. My average conversion rate will be 11%, but most people are converting at much higher rates. Why offer a bargain conversion rate when people are already converting like crazy?
What about a 60 y/o early retiree with a Die with Zero goal, who is on an ACA healthcare plan? Doing sizeable ROTH conversions now will increase my MAGI and disqualify any ACA healthcare premium subsidies. I struggle trying to figure out if paying 22% Federal and 3.75% state taxes, plus full price for health insurance premiums, ($13,000 annually for 2024), is a good strategy.
I’m in the same situation. To decide on this I consider these three factors where all need to apply to make the Roth conversion and forego the ACA subsidy worth it:
1) Does modeling the conversion show that my balance at the end of my plan is much higher than the subsidies I would have gotten without the conversion? and,
2) Do I have enough assets in my taxable account to pay for the conversion AND still have a big enough cash/stable cushion to cover my expenses for 2-5 years (depending on your comfort level) in the event of a long bear market to avoid sequence of return risk?, and
3) Do I already have some Roth assets available in case I need to pull some additional funds outside of normal expenses without increasing my tax liability?
If you respond with yes to all three, a conversion(s) might be worth it. Of course, before all of this, you first need to see in your plan if not converting would push you into higher tax brackets in the future once you account for SS, RMDs, inheritances, or other income sources.
I'm retiring in January and experiencing a very similar situation. We're choosing to COBRA insurance in 2025 and do Roth conversions up to 22-24%. Then 4 years of ACA insurance with very low Roth conversions until Medicare kicks in. Just trying to eliminate any tax traps we might experience down the road. Also, if one of us dies early, the other will be in much better shape from a tax perspective. Avoiding tax traps is a high priority for us as we desire a stress-free retirement.
Is it true that you can retire at 59 & 1/2 and be able to get all of your 401k and not have to pay the 20%+ tax or any penalties 🤔 I've been very curious about this one!
55
After 55 you don’t pay penalties if it comes out of a 401k, but not all plans allow for partial distributions, in which case you can do only a total distribution or rollover. The employer will always withhold a minimum of 20% for any distributions paid out “to you” regardless of your age, but you will not owe the extra 10% penalty on or after the year you turn 55. The employer will not withhold the 20% tax (unless you ask them to) if the distribution is a “direct” rollover to an IRA (not taxable) or a Roth IRA (taxable, which you will have to pay).
There is a longevity risk and inflation issue often ignored by those touting conversions. When you convert and pay tax up front a market decline following the conversion will have more significant impact than it will later in life if you defer. That is because paying the tax when RMDs kick in you have less years needed to fund. Also if we have high inflation the tax brackets and standard deduction will adjust meaning when you defer you can have more income before bumping into higher brackets.
what do you think the tax rates would be after 2025?
I don’t believe that you are correct. If you convert or not, the impact of a market decline will have the same net effect. Ditto with inflation. But you may have to do a spreadsheet to see this.
Your are correct that a market decline TODAY has the same impact but that is not what my post said. I said a market decline today if you convert will have a more drastic impact than one later during RMDs if you defer. I don’t need a spreadsheet. Here is the math. You are 60 and have $1m traditional IRA and nothing else except SS to last 30 years. You convert to Roth and pay 30% combined fed and state tax leaving you with $700k tax free and the market drops by 50% so now you have $350k plus growth to last you 30 years if you live to 90. Compare that with $1m deferred that grows for 15 years before RMDs kick in then late in life loses 50%. Still not good (mostly for your heirs) but less impact as the remaining balance, although taxable, will need to fund many fewer years.
As far as inflation, yes that impacts both equally as far as dilution of dollar value but my point was related to the fact that the standard deduction and tax brackets adjust each year so RMDs will not push you into higher tax brackets as quickly as they would if inflation is lower and thus taxes will be less. Since Roth are not taxable, inflation is not relevant from a tax perspective.
@@keithmachado-pp6fv Why are you comparing a Roth account that loses 50% immediately after conversion to a deferred account that loses 50% late in life? The two scenarios are not comparable.
I retired last year at 62 and did my first conversion this year. I'm trying to convert my 401k so I won't have RMDs in the future. The market is doing so well that my balance is almost back where it was when I did the conversion. Yes, it's good because I'm making money but it's also going to take longer to finish my conversions and my IRMAA costs will be high for years. Should I do larger conversions to get it over with or keep doing what I'm doing?
Let the math tell you what to do: if your conversion tax rate is lower than your future avoided tax rate on Roth withdrawals, then you should convert. Otherwise, don't convert. The decision is simple to explain. The difficult part is estimating the future tax rates avoided on Roth withdrawals.
It sounds like your 401k is mostly in stocks since you are recovering the converted amount so fast. In such a case, you may consider shifting your bond allocation (if any) to the 401k. Otherwise tryo convert more in a down market,!
For context, I retired at 48. I did my first Roth conversion at 54 and my last conversion will be in 2027, at 66, for a total of 13 years of conversions. Doing it over an extended period allowed me to convert at an average tax rate of 11%. I live in Texas, which doesn't have a state income tax, so that helped me convert at a low rate.
@@larryjones9773 Thanks. I've been considering that.
@@larryjones9773 Thanks. Would be helpful to understand how you decided at what amount in your IRA you would stop converting, unless your plan was to convert the full balance in your IRA over those 13 years?. Also, is the average tax rate of 11% just for the converted amount each year or is it for all your income for that year?. Finally, did you keep your IRA mostly in bonds/MM/cash to slow down its growth while you are converting? Thanks.
I would suggest a discussion about routing your '401k withdrawals' through your Roth and leave what you don't spend as a 'roth conversion'. Almost all discussions about roth conversions is I have so much that I am afraid of it. Say I need 40K a year for spending out of 401k but if route 100k through my roth every year, what I don't spend stays. "Extra Withdrawals through you Roth". The roth becomes a substitute for your 'emergency fund' and your taxes are predictable.
I'm in year 10 of 13 planned Roth conversions. However, after that, I'll continue to do Roth conversions, with the goal of driving my 401K to $0, by age 95. I do 90% of my planned conversions in early January, and the remainder in December, once I have my final tax numbers. I convert most in January, in order to STOP the tax clock, ASAP.
As you suggest, I'll spend from my Roth account. Retirees don't need an emergency fund. Our emergency fund is our retirement accounts.
@@larryjones9773 You do Roth conversions in January? So you prepay taxes by 10-11 months? Not a good tax strategy friend.
@@ausgra17 I'm trying to get my 401K balance down to $0 by age 95. Converting in early January helps me achieve this important goal.
I'm actually paying taxes decades early, not just 10-11 months. Paying taxes early is a key component of Roth conversions.
Minimizing taxes is the goal of Roth conversions. If the stock market is up 30% for a year, and I converted in early January, then I avoid taxes on all of that 30% growth.
Can you PLEASE PLEASE PLEASE do a video on someone who has everything in a 401(k) that doesn't do Roth conversions!!! Sure, I wish I had also started a Roth when I started saving 27 years ago (or whenever the Roth came out) Everything on TH-cam seems to indicate that having just a 401(k) is bad and get ready to lose over half that money (yeah, I get the tax implications) But there has to be some sort of solution to minimize the huge hit you are going to take a retirement time (without conversions). I am looking at retirement in the next 7 years (62) but my child will be 11yo so she'll collect 50% of my PIA till 19y 2m. My wife (14 years younger) will collect 50% of my PIA till she turns 16. It just seems everything I watch says I'm "doomed" because my retirement is all in a 401(k) (will have about 1.8-2.2m depending on how things go in the next 7 years) :-) Thanks
A few thoughts:
Open a Roth IRA now and make either a direct contribution (or Backdoor Roth IRA contribution if your income is too high) so that you get the 5 year clock started on your first Roth IRA, which will be needed in the future for tax free withdrawal of earnings.
If your current employer’s 401k has a Roth option start contributing to Roth, and also consider some partial in-plan Roth conversions that won’t push you to a too high tax bracket (24% max currently gives you space up to about $400k MAGI). Yes, you will pay more taxes now but will help with RMDs later and, if you retire at 62, you will have Roth money or cash to keep your income low if you need ACA subsidies for health insurance or to avoid IRMAA surcharges on Medicare after 65.
If your current 401k does not have a Roth option, but you rolled into it a previous employer’s 401k, those are considered rollover funds which you may be able to rollover/convert to your external Roth IRA in partial distributions each year until you retire, or you can do a full rollover of those funds to a Trad IRA (this is not taxable) and then partially convert from it each year. However, note that if you roll it over to a Trad IRA, you will not be able to do Backdoor Roth IRA contributions due to the pro-rata rule, which applies when you have a Trad IRA.
If your current 401k allows for after-tax contributions (non-Roth) you may be able to Rollover them to your Roth IRA tax-free, or almost tax-free if these have been sitting there for a while and have some earnings (look up how to do a Mega Backdoor Roth).
Hope this helps.
Thank you. would you make a similar video for people with a decent pension. I will have a good pension ( filling the 10% bracket and then some. Does this greatly change my paln? I am planning on converting most of my trad holdings, but more information is always better!