Good info here. Another example is when taxable account gains are tax efficient. None of the calculators take this into account. The gains in taxable account aren't taxed at marginal rate -- they are way lower, primarily due to low cap gains rates and unrealized gains. This means that the money that would be used to pay the tax for a conversion can grow in a tax efficient way but if used for conversion the tax is at a much higher marginal rate.
There was no mention of married couples and Roth strategies. Married couples really need to coordinate their retirement finances to maximize after tax income for them as a couple and more importantly for the surviving spouse after the death of one.
I have an episode coming out specifically on this in the future, but in the meantime this podcast by my partner should be what you’re looking for: th-cam.com/video/oEqhlPZjcIs/w-d-xo.htmlsi=uRgx02JUVX-YWqJA
Don’t do Roth conversion when… #1. If you will be in a low tax bracket in future #2. If RMD will not be an issue #3. You plan large charitable giving #4. Health might be an issue. You might not be here #5. Don’t want to be proactive….
One mistake Ari…when you made the video no one really knew if the tax code was going to change. It looks like it will be renewed or might even be lower. You are correct about your health and if you have concerns, serious concerns spend is much as you want while you can.
In the example of doing a roth conversion at a market low where the value in the roth was 1.1 mill, wouldn this single conversion require paying taxes in the highest tax bracket? i thought the strategy of doing roth conversions to minimize taxes was doing them gradually, keeping the conversion amount low and therefore your conversion tax bracket low.
Great video as always Ari!. For the scenario of taking advantage of a down market, What are your thoughts regarding when you have all/most of your bonds filling your pre-tax IRA (due to your asset allocation as well as asset location to control future RMDs)?. You know you still need to do more Roth conversions to lower RMDs but your IRA balance may remain relatively stable during the downturn since it is mostly bonds. Doing small conversions over many years (already am in early retirement) may also not be ideal due to trying to control current ACA subsidies, as well as deferred comp that will start distributing a few years from now. Thanks!
You better watch out Ari, all the other TH-cam financial planning guys are going to come after you. Doing a conversion before 2026 has to be done or you're going to pay way too much in taxes later on, no exceptions. Thanks for pointing out the exceptions.
With our national debt ceiling growing by leaps and bounds along with a very greedy congress, all of us will be in higher tax brackets. Also, RMD’s, depending on your IRA account balance, could also push you into a higher tax bracket and trigger IRAMMA and increase tax on your social security.
Should Biden’s current tax proposal become law Roth conversions will be forbidden in many cases, forcing everyone into big RMDs and possible IRMAA penalties.
Reason #6 your retirement contributions are 100% Roth IRA/Roth 401k. For now I only have to worry about my employer contributions being converted to Roth.
Good info here. Another example is when taxable account gains are tax efficient. None of the calculators take this into account. The gains in taxable account aren't taxed at marginal rate -- they are way lower, primarily due to low cap gains rates and unrealized gains. This means that the money that would be used to pay the tax for a conversion can grow in a tax efficient way but if used for conversion the tax is at a much higher marginal rate.
There was no mention of married couples and Roth strategies. Married couples really need to coordinate their retirement finances to maximize after tax income for them as a couple and more importantly for the surviving spouse after the death of one.
I have an episode coming out specifically on this in the future, but in the meantime this podcast by my partner should be what you’re looking for: th-cam.com/video/oEqhlPZjcIs/w-d-xo.htmlsi=uRgx02JUVX-YWqJA
Excellent information Ari. You have convinced me that I should be making Roth conversions with some of my workplace savings.
Don’t do Roth conversion when…
#1. If you will be in a low tax bracket in future
#2. If RMD will not be an issue
#3. You plan large charitable giving
#4. Health might be an issue. You might not be here
#5. Don’t want to be proactive….
One mistake Ari…when you made the video no one really knew if the tax code was going to change. It looks like it will be renewed or might even be lower. You are correct about your health and if you have concerns, serious concerns spend is much as you want while you can.
In the example of doing a roth conversion at a market low where the value in the roth was 1.1 mill, wouldn this single conversion require paying taxes in the highest tax bracket? i thought the strategy of doing roth conversions to minimize taxes was doing them gradually, keeping the conversion amount low and therefore your conversion tax bracket low.
Roth conversions can also factor into Legacy Planning depending on the situation and desires. It is factoring into my planning.
Great content and style Ari - thanks for sharing your knowledge!
Thank you!
Should I consider Roth conversions if I move to a no tax state like south Dakota?
There are still federal taxes so it’s worth considering.
Great video as always Ari!. For the scenario of taking advantage of a down market, What are your thoughts regarding when you have all/most of your bonds filling your pre-tax IRA (due to your asset allocation as well as asset location to control future RMDs)?. You know you still need to do more Roth conversions to lower RMDs but your IRA balance may remain relatively stable during the downturn since it is mostly bonds. Doing small conversions over many years (already am in early retirement) may also not be ideal due to trying to control current ACA subsidies, as well as deferred comp that will start distributing a few years from now. Thanks!
Thank you. This video may help: th-cam.com/video/WeDKlxfLCXw/w-d-xo.htmlsi=0EeOufPg1_Ko1ChB
You better watch out Ari, all the other TH-cam financial planning guys are going to come after you. Doing a conversion before 2026 has to be done or you're going to pay way too much in taxes later on, no exceptions. Thanks for pointing out the exceptions.
Ha! Thank you.
With our national debt ceiling growing by leaps and bounds along with a very greedy congress, all of us will be in higher tax brackets. Also, RMD’s, depending on your IRA account balance, could also push you into a higher tax bracket and trigger IRAMMA and increase tax on your social security.
Should Biden’s current tax proposal become law Roth conversions will be forbidden in many cases, forcing everyone into big RMDs and possible IRMAA penalties.
IRAMMA?
But if I have the Roth, that’s when RMDs aren’t an issue, correct?
Correct!
Financial celebrity death match. Ari vs. James.
Reason #6 your retirement contributions are 100% Roth IRA/Roth 401k. For now I only have to worry about my employer contributions being converted to Roth.
Kind of blullshitt