Don't Believe This COSTLY Tax Assumption | Crucial Roth Conversion Variable Explained
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- เผยแพร่เมื่อ 9 มิ.ย. 2024
- Are you accurately planning for one of the most crucial tax planning/Roth Conversion variables? ...Your Heirs. You can schedule an appointment with one of our Retirement Experts to look at your situation and help you plan for your future. Call us at (920) 544-0576 or go to www.safeguardinvest.com/contact.
Timestamps:
0:00 Taxes Don't Stop When You Pass Away
0:33 A Common Tax Problem for Retirees
2:03 A Frequent Roth Conversion Breakeven Question
2:54 Roth Conversion Calculation Error
4:12 The SECURE Act + Roth Conversions
6:47 Is it a good idea to pass on your IRAs?
8:22 Why should I care?
10:42 How to Pass on the Right Assets
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Good video, thank you. It also argues for making gifts to your heirs while you are still alive.
Excellent presentation! One of the best yet on the topic. I have been doing ROTH conversions for several years (66 yo) but now the IRMMA is costing me. We continue to work as we are both self employed and we love our work. We will not take our SS until we are 70 1/2. Our business pays part of our MEDICARE insurance (as per our CPA). Currently our retirement is >50% in ROTH but we will be unable to convert the IRAs and 401ks completely over to the ROTH accounts (which is my goal but tax rates are too high) Plan to make our children beneficiaries (either partial or full) of the IRAs and 401ks of each parent to avoid the widow's penalty. Have been investing since my early 20s. My mother taught me about the power of compound interest and doubling of assets. She passed last year at 94 yo. She taught me a "saving mentality" which most people do not get. Thank you so much for your cerebral and highly intelligent discussion. I have things pretty much under control, but you are doing a great service to many. Keep up the great work!
The latest you can take social security is 70.
Correct you maximize SS at 70 so there is no reason to delay further, however it is not required and you can still take it later if you mess up.
@@keithmachado-pp6fv What would the advantage be to taking it later? Thanks
I was responding to Larry who said the latest you can take it is 70. I was just pointing out that is the latest to get delayed credits so there is no benefit for further delay but you could still claim later
One other issue to consider with a married couple is the death of one spouse, the surviving spouse switches to single for tax purposes, and the RMD factor table also switches to single. So the tax rate basically doubles and the RMD amount also increases significantly. This pretty much removed a break even point, because you are ahead with the very first conversion. The only question in this scenario is how big is the conversion.
I believe it is called the widow's penalty because the surviving spouse files as a single filer and not under the joint tax rates. The way around it would be to make sure you have the maximum in a ROTH, and the children are the partial or full beneficiaries of the IRAs and 401k plans for each spousal account. The deceased ROTH would go to the surviving spouse.
True about the tax table, but incorrect about the RMD factor table. The surviving spouse would use the same table, but if she is younger (assuming husband dies first), the RMDs would be lower.
@@chrisg.b.2095 I think I am correct, look at publication 590-B. The following is a direct quote from that publication. "Surviving spouse. If you are the owner's surviving spouse and sole designated beneficiary, you will also use Table I for your required minimum distributions." Note this is a different table than Table III - Uniform Life Table. I am speaking from experience here as POA for my Mother-In-Law, her 403B account is definitely using Table I three years after her husband died.
Excellent information and production. Nicely done!!!
Excellent, yet again. Thank you.
Another excellent analysis and presentation in this video Eric. There are a lot of little details to consider that really make sense. Thank you for these videos I continue to learn a great deal. Larry Oman
Thanks this is great!
Loved the video🌞
Thanks for another informative and thought provoking video. I probably need to include this in my discussions with you guys, but also I probably should think about how my parents passing away and leaving me IRA funds should impact my strategy as well (i.e. need to think about my heirs and also my parents )
Wow, this video is what I have been doing now for 3 years, moving all my IRA/401K into Roth. I have a few more years to go, however, working well for me. The goal is at 72 is not to have any RMDs. Thank you for the video.
Wish you had also discussed estate tax here.
Link to video about unconventional tax strategies at the end missing.
Can you or have you made a video on inherited iras? My understanding is that the IRS has put out an interpretation that RMDs must be taken out each of the 10 years (non spouse). How are these RMDs calculated? Based on how old the decedent would have been? Or based on the individual inheriting (no tables for younger individuals)? The IRS page also discusses basis and deducting estate tax caused by RMD. Am I reading this correctly? How does this work?
Although Roth conversions can make sense, it is important to specify who,it is better for. You touched on it, but it is often unclear.
Clearly people that have large investment accounts will likely benefit.
But, this is often not true for those with smaller portfolios.
If I contributed almost all my money in the 30% brackets, but have a 1.5 million dollar IRA, then my RMD’s will only push me into the 25% bracket at the margin, and much of it will be at 15%. If before I get there I use my portfolio to delay SS, again I’m taking money at 12-15%, and it makes little sense to convert and push my marginal rate too high.
Also RMD’s of $40-60k are just not going to cause that much trouble other than increasing the portion of SS that gets taxed. IRMAA requires nearly $200k of income to cause trouble.
I commonly see people recommending, especially in the comments, to convert ALL money to Roths, even when portfolios are smaller, and when conversions push people to 24% and beyond. This may not be such a good strategy.
In the end the government is going to get some kind of cut. Trying to avoid all taxes isn’t realistic for the average person, and shouldn’t be allowed for the wealthy, but that is a whole other topic.
My intention is to spend down my tax deferred accounts during my lifetime, followed by my cash accounts, then brokerage accounts and ultimately cash value life insurance. The last 3 are all either tax free or my heirs will get a step up in basis. These accounts are more than they could imagine and set them up for life. If I have an early death before I can withdraw all the funds, that will be gravy to them and they won’t be worried about the taxes.
Give your IRA to a charity and tell the tax man to pound dirt.
What was the point of opening the IRA then? That makes zero sense, and just to avoid fulfilling your obligation as an American citizen.
Suggestions for those who only want a plan, ie just run the monte carlo and give one time advice, not ongoing money management like you do.. where to go? Thanks
Great point. I’ve learned a lot from your videos. Thank You. But one area of the Roth Conversion strategy I’m struggling with is how to calculate “break even” when conversion taxes are paid from taxable account assets. I understand there isn’t a break even when taxes are paid by the Traditional IRA using the communitive property of multiplication. But does that really apply when I pay taxes from taxable account. I’d really appreciate a deep dive into this. Thank you!
Median 401K is only 82K. I wouldn't about converting unless you have very large account. Break even is different for everyone.
How about pairing Roth conversion with tax reduction strategies such as short-term rental real estate bonus depreciation to offset tax liabilities 🤑 that’s what I found resonates with my clients😊
In my opinion doing a Roth conversion for heirs is silly. They did nothing to earn it and whatever they inherit is "found" money. Paying $75,000-$100,000 in taxes to get out of a potential tax liability when I'm 85 just doesn't make sense to me. What if I spend five years converting and turn my $1M nest egg into $800,00 then suffer through a 2022 and watch it turn into $600,000? If the plan was to withdraw 4% the resulting withdrawal rate is 6.66%.And RMD on $1M wouldn't get you into the 22% tax bracket until age 85. Most of us are dead by then.
Well said on all fronts. I recently inherited almost $1m from my dad mostly in tax deferred accounts. I had no idea he had any money and was certainly not expecting anything. I have never given any thought to the tax or said to myself I wish he would have put this in a non taxable account. This guy is one of the better ones on the internet by the way. Very clear and no biased.
I've seen a few of your videos which are very good. I've started looking at Roth conversions in a new light. Thanks! But what about the issue of using today's cash (value) for Roth conversions vs paying taxes with money that is worth less in the future due to inflation? Is that factored in anywhere? Thanks in advance!