So if I'd have a ROTH IRA now with $150k for 15 years and I just retired at say 65 y.o..and later at 67 y.o I did a $50k ROTH conversion from my Traditional IRA..[I'll start collecting S.S. at 70] I also have and pay taxes from my checking acct or brokerage acct, would I have to wait 5yrs to 72 y.o. to withdraw that $50k penalty free?? ..or no since I already had a ROTH IRA for over 5 yrs and I'm over 59.5 y.o. Thanks
@@J-2024-v8i This is absolutely correct! I'm surprised how many experts do not understand this, or do not explain it properly. You are spot on correct when you say the 5-yr rule for Roth conversions goes away once you turn 59.5. Most people doing Roth conversions are already retired and older than 59.5 years old, so this should be emphasized in such videos.
For us a huge RMD starting at age 73 made Roth Conversions a no-brainer. We reduced our tax liaiblity by more than $500,000. Plus our heirs inherit the money tax-free.
@@METVWETVfor inherited traditional IRA, you will be taxed at your own income tax rate for the distribution. So his #2 argument does not make sense. Unless the parents had very little in traditional IRA, the kids with high income tax rate (if they make good money themselves) will get little from the inherited traditional IRA.
Literally every point you made are the reasons why I’m doing conversions. Thanks for affirming that I’m on the right track. This will be year three. The traditional IRA balance hasn’t changed much after the growth is added in but the ROTH balance sure is growing. Not planning on doing it all but probably 60/40 ROTH/traditional IRA. We will have to see how it goes.
If you can convert some and stay under the jump from 12% to 22% (Current tax rates) I think it makes sense. Just be smart and don't convert it 'all at once'
Great to listen to clear speaker that can talk at good tempo, also agree for me Roth only made sense by paying taxes outside of IRA cash and also convert early in retirement 58 and 59 in my case.
#1, I don't see that taxes are removed at withdrawal, it is in the program, but I don't think it is functioning. Here's an example, you can check the math and confirm it yourself. Let’s start with you earn 7% every year, the time frame is 10 years and your tax bracket is 20%. If you put $10,000 in to an IRA, in 10 years at 7% it grows to $19,671.51. Now you take it out with a tax at 20%, $19,671.51 - (20%) $3934.30 = $15,737.21 So, with an IRA you will be able to spend $15,737.21 Now, say you want to put $10,000 into a Roth/IRA, first we have to pay 20% tax and we have $8000 to put in the Roth/IRA, $8,000 at 7% for 10 years grows to $15,737.21, and you don’t owe taxes. NOTE: I paid the taxes out of the IRA. It is exactly the same amount. I think it’s called the Distributive Property of Math.
Totally agree with many points here which I discussed at length my own financial advisor. My earlier assumption to keep my expenses as low as possible, focus heavily on reduction of taxes led to the realization that I may not be around so long to recognize those savings and it was no way to live my life. Because my health is still great in my 60's, I'm front loading "experiences and adventure" over living as cheaply as possible. Have multiple 7 figure portfolio and haven't converted a dime yet. This decision already paid off in multiple ways for this widower who met his fiance while traveling through europe. Would have received no such benefit from any amount of roth conversions 😁
I converted most of my 401k to Roth over 3 years. Paid the tax out of conventional investments. Now in my 80s, I could not be happier. No taxable income. No mandatory distribution, which would be larger than our needs. No widow penalty facing my wife. I got hit with an IRRMA increase for a couple of years, but none now.
A mentally healthy and physically active person can enjoy retirement well into his nineties and beyond. Most people are hoping to reach that age, with good health, in retirement.
Many equity return models predict much lower returns the next 10-20 years- perhaps 5% annually or even lower. Don't these Roth decision models potentially grossly overestimate the anticipated accumulated Roth down the line? Does this have an impact on the Roth conversion decisions?
I take your point, and it's certainly worth bearing in mind, but the models that predict lower returns are just doing mean reversion. They aren't considering the possibility of much greater wealth creation due to the effect of AGI/ASI and very low cost energy as renewables and batteries continue to plummet in price. We're in such a volatile period of history that predicting returns over long time frames is pretty difficult.
Nice presentation! .. I would think the median retirement account holder drawing down the median RMD amount would be paying very little tax.. I would expect the standard deduction to increase every year.
I never hear discussion of the lost investment value of the money used to pay the tax on a conversion. Do these conversion calculators take that into account?
Thank You! I often make this point too!. If I have to pay 10k/year for 10 years and assuming I don't need that money for another 10 years that about Half a Million Dollars I won't have!
Get as much in a Roth as possible before starting SS benefits. After that, forget about it. There is a reason they call it tax diversification. It's a good reason, too. You can control your future taxability. This becomes most important for the surviving spouse. As we all know, each case is unique. No one size fits all.
Point number 1 is misleading. You can't compare having after-tax money to pay for Roth conversions to not having after-tax money to pay for Roth conversions. You have to start with the same starting point when comparing things. How did the money get to be available as after-tax to begin with? Also, once you are 59.5 years old and it has been at least 5 years since you first contributed to a Roth account, then the 5-year conversion rule no longer applies. Please see Figure 2-1 of IRS publication 590-B. From there you learn that your withdrawal is qualified. People get confused because of what follows in 590-B which has only to do with non-qualified distributions.
The Step up in Basis mentioned for a taxable brokerage account when one spouse dies only applies to community property states .. otherwise it is only a 50% step up in basis.. Two more reasons Not to convert : 1) you and your spouse are similar age and health.. so both die about the same time.. so no spouse stuck in the single tax bracket for a long time. 2) your heirs that will get the IRA monies are in a low tax bracket... they get 10 years to divest the account and can pay it over 10 years with a reasonable tax bill.
@incognitotorpedo42 I know I just let that hang there, but to flesh it out, There is no way to determine who will die when or how closely..... Statistics Not withstanding.
Wait. I thought the ROTH only eliminates federal taxes. Why would moving from CA to a non income tax state affect your federal tax analysis. It only affects your state tax analysis and I thought states don't recognize the ROTH ???
@@xporkrind No. Roth should eliminate tax where states tax deferred taxable accounts. Some states exempt all forms of retirement income regardless of Roth or Traditional in addition to those states that do not have an income tax.
Question: If I live in one of the tax free states, does that mean no state tax on Ira distribution?? If so, you can move out of and then into CA, for example after the ROTH conversation? Not sure if that is a good idea.
You don't talk about when it is a good idea to do Roth conversions. Like when you are retired but delaying SS and pension until age 70. Or you have a mega IRA and estimate your first RMD at $250k or more. Might be good to level out your income taxes each year until RMDs are required.
This video is about scenarios when it does not make sense to convert. Roth conversions are great in many scenarios that we discuss on other videos (as referenced in the intro to this video). Thanks for watching.
One left field thing that can happen over the next two decades is much lower taxes. How? Because of humanoid robot labor. If these things become able to take over a large portion of labor, goods and many services will fall in price much closer to the cost of making them. This is because paying a worker to make and transport these things no longer is needed, allowing price cuts. You may not have to pull as much money out of your IRA to live ok. As robotic labor takes over most manual, and some higher level, jobs the govt will start taxing the robot companies... and those companies that use the robots (which will be most or they will go out of business) heavily. Eventually these companies may pay the lion's share of taxes as the govt eases individual taxes and may even pay citizens a basic income as many jobs will have disappeared. So in this, actually likely, scenario taxes on individuals may crater in 20 years. Just a thought.
That's an interesting prediction but practically and historically regardless of innovation and because of inflation, the cost of living and overall taxes do not go down. Automobiles are certainly not cheaper due to robotics. Any specific tax cuts are consumed by other tax increases. Ask any homeowner. Every major corporation in America notoriously pays as little tax as possible. They certainly aren't going to pay more of their share.
@ Think about what unlimited robot slave labor means. Labor that can build more of itself... it can mine the raw elements itself, extract metals from the ore itself, create the sheet materials itself, then use those to create more of itself. Think about what it means when a million robots can be easily created and tasked with constructing houses or a dam? When through they can be tasked with something entirely different almost instantly since they download skills like in the matrix movie. If nothing to do they can stay in shipping containers like sardines All societies that had access to such cheap labor... abhorrently it was other humans.... rose to great heights and technology. The Greeks, the Romans, etc through the ages. The difference is that this robotic labor is not human and is even cheaper... and can be easily made in huge numbers in a very short time.
In this robotopia, everyone is still going to need some income, but they won't have jobs. There will need to be something like Universal Basic Income, and that will be VERY expensive. That money will have to come from somewhere, and all those tax-advantaged assets that we have will be a very juicy target. I don't recommend planning on significantly lower rates any time soon, if ever.
@ Two things to consider: 1) Goods and transport should fall a lot in price without margin sacrifice if robotic labor is making almost everything. Goods should eventually get to just over Cost of Goods Sold (COGS) plus any margin and transport. Transport, once automated, should go way down as the major cost in shipping is truck driver salaries. Housing in particular should get much cheaper as new houses and renovations will be done with cheap robotic labor. Same with food production...etc etc. So the cost of living itself should go way down.... this will reduce the amount of living wage needed. 2) Quality of goods should go higher even as those goods get cheaper as mentioned above. Companies usually make cheaper and/or less quality versions of goods in order to take market share. They do this by using worse materials to make a good from or by setting quotas for workers that cause workers to do less than top quality work..... possibly skipping steps in assembly and manufacture. However when goods get so inexpensive to make, due to robot labor, that they are close to the cost of raw material, quality will go up. This is because the savings a company could make by making the product less quality would be minuscule. The consumer could pay a few pennys more and get the top quality item. This will drive low quality goods out of the market. Robots bring the same exact quality to each job every time with no deviation worth mentioning. Regardless of quotas. This ensures a standard quality that human assembly cannot match.
Here is one example of what you miss, and is applicable to 60% of households: joint filing becomes single filing for virtually all of these. Scenario: Two spouses with two pensions with survivor options, two sets of savings accounts that will be one set. Point is, only one SS is lost from the income. Simple math says to get the monies into Roth by filling the current joint tax bracket every year. All TH-cam Roth "lectures" miss to understand this.
I see a lot of cherry-picked data to support these reasons. If you convert to Roth over time, instead of in one lump sum, and you're able to keep your combined household income (for a married couple, filing jointly) to $127,000/yr or less, then you never pay more than 12% in taxes on the money being converted to Roth. That means you avoided 22% or higher rates while you were working and can "lock in" a 12% tax rate on the amount you contributed. For most people, meaning those who aren't in the top 1 to 2 percent of retirees, they can ensure that they never pay more than a 12% rate on their tax-deferred investments, and zero taxes on all subsequent growth, by converting to Roth. You scenarios are correct, but they're largely unrealistic for all but the very wealthiest of retirees. In other words...you're not helping.
Agree that targeting the 12% bracket(or 15%) makes sense. At worst you break even. On the other hand even at 12% you need time to get a benefit(and substantial growth). For us in Florida Roth is less productive, and our effective tax rates are quite low. We have Roth and HSA money through contributions and some conversions, but are not seeing advantages to substantial further Roth conversion above 12% Instead spending down pretax while waiting for Soc Sec should limit RMDs substantially. Projections for us show no advantage, unless we have long oversized growth in our pretax, in that case I won’t care much about paying a little extra. Once full Social Security kicks in, portfolio needs are small, again limiting tax issues. I’m not one who believes taxes always go up. In fact we are consistently seeing the opposite over our last 8 years. We even were able to access major ACA credits in our transition from working to Medicare. It makes no sense to convert at 22% for us!
Intro of video references another video (link in description) about series of beneficial Roth conversions. This video is about scenarios where it may not make sense to convert. Thanks for watching.
@ - I'm also trying to be mindful of my heirs, since they are likely to inherit at a time in their life where any additional money coming in will be taxed at a higher rate.
@onedegreeadvisors I agree with you... One of the many things that I've noticed is that people get very angry if there are any videos that use high savings amounts and or high incomes. Easier to lash out than to amass that much wealth I suppose.
@@METVWETV I'm not sure why you would categorize this as lashing out. The information presented in this video does not apply to at least 95% of folks who are retiring. I guess it's fair to say that financial advisors aim their content at 1-2%, since that's where they stand to make the most money from AUM.
At 4:55, note that the 5-yr rule for Roth conversions goes away once you turn 59.5 (the other 5-yr rule since you first funded a Roth still applies)
Good clarification. There is a link to a summary of the Roth 5-year rules in the description. Thanks for watching!
So if I'd have a ROTH IRA now with $150k for 15 years and I just retired at say 65 y.o..and later at 67 y.o I did a $50k ROTH conversion from my Traditional IRA..[I'll start collecting S.S. at 70] I also have and pay taxes from my checking acct or brokerage acct, would I have to wait 5yrs to 72 y.o. to withdraw that $50k penalty free?? ..or no since I already had a ROTH IRA for over 5 yrs and I'm over 59.5 y.o. Thanks
@ Yes, you would be able to take it out tax free and penalty free without having to wait 5 years.
@@J-2024-v8i This is absolutely correct! I'm surprised how many experts do not understand this, or do not explain it properly. You are spot on correct when you say the 5-yr rule for Roth conversions goes away once you turn 59.5. Most people doing Roth conversions are already retired and older than 59.5 years old, so this should be emphasized in such videos.
For us a huge RMD starting at age 73 made Roth Conversions a no-brainer. We reduced our tax liaiblity by more than $500,000. Plus our heirs inherit the money tax-free.
Great. Thanks for watching!
Hopefully you factored in that your heirs can get a large amount with a step-up in cost basis, as mentioned in this video.
@@ttb1513
But they cannot defer the compounding growth tax free for 10 years
@@METVWETVfor inherited traditional IRA, you will be taxed at your own income tax rate for the distribution. So his #2 argument does not make sense. Unless the parents had very little in traditional IRA, the kids with high income tax rate (if they make good money themselves) will get little from the inherited traditional IRA.
Literally every point you made are the reasons why I’m doing conversions.
Thanks for affirming that I’m on the right track.
This will be year three. The traditional IRA balance hasn’t changed much after the growth is added in but the ROTH balance sure is growing.
Not planning on doing it all but probably 60/40 ROTH/traditional IRA. We will have to see how it goes.
wonderful!
If you can convert some and stay under the jump from 12% to 22% (Current tax rates) I think it makes sense. Just be smart and don't convert it 'all at once'
Ahh good points to consider. I do like all the value Roth IRA contributions have to offer in terms of controlling taxes.
Great to listen to clear speaker that can talk at good tempo, also agree for me Roth only made sense by paying taxes outside of IRA cash and also convert early in retirement 58 and 59 in my case.
Thanks for watching!
One of the best videos I have seen on this subject. Clear and concise.
Such great advice that many financial advisors I have interviewed don’t cover!
Thank you for watching!
So scenario 1 all revolves around the after-conversion growth rate, which I see is missing from your example.
#1, I don't see that taxes are removed at withdrawal, it is in the program, but I don't think it is functioning. Here's an example, you can check the math and confirm it yourself.
Let’s start with you earn 7% every year, the time frame is 10 years and your tax bracket is 20%.
If you put $10,000 in to an IRA, in 10 years at 7% it grows to $19,671.51. Now you take it out with a tax at 20%, $19,671.51 - (20%) $3934.30 = $15,737.21
So, with an IRA you will be able to spend $15,737.21
Now, say you want to put $10,000 into a Roth/IRA, first we have to pay 20% tax and we have $8000 to put in the Roth/IRA, $8,000 at 7% for 10 years grows to $15,737.21, and you don’t owe taxes. NOTE: I paid the taxes out of the IRA.
It is exactly the same amount. I think it’s called the Distributive Property of Math.
Totally agree with many points here which I discussed at length my own financial advisor. My earlier assumption to keep my expenses as low as possible, focus heavily on reduction of taxes led to the realization that I may not be around so long to recognize those savings and it was no way to live my life. Because my health is still great in my 60's, I'm front loading "experiences and adventure" over living as cheaply as possible.
Have multiple 7 figure portfolio and haven't converted a dime yet. This decision already paid off in multiple ways for this widower who met his fiance while traveling through europe. Would have received no such benefit from any amount of roth conversions 😁
One clarification is the net capital gains rate at higher income levels can be as high as 18.8% or 23.8%. Still better than 35% or 37%. 😊
Yes, chart shows the graduation of rates. Thanks for watching!
Many states have income tax too!
Good points but it takes some time to think through some of them. Good thing I can pause and replay the video when necessary.
I converted most of my 401k to Roth over 3 years. Paid the tax out of conventional investments. Now in my 80s, I could not be happier. No taxable income. No mandatory distribution, which would be larger than our needs. No widow penalty facing my wife. I got hit with an IRRMA increase for a couple of years, but none now.
Not in 80’s. What will you enjoy at 80+ even if you have 10 million in your bank account? 😂
@ Life can be very good at 80+, even without 10 million!
A mentally healthy and physically active person can enjoy retirement well into his nineties and beyond. Most people are hoping to reach that age, with good health, in retirement.
Excellent video. Well worth watching.
Many equity return models predict much lower returns the next 10-20 years- perhaps 5% annually or even lower.
Don't these Roth decision models potentially grossly overestimate the anticipated accumulated Roth down the line? Does this have an impact on the Roth conversion decisions?
🤔 Great point! .. I would think yes!
Yep,but all people can see is " no taxes"!
I take your point, and it's certainly worth bearing in mind, but the models that predict lower returns are just doing mean reversion. They aren't considering the possibility of much greater wealth creation due to the effect of AGI/ASI and very low cost energy as renewables and batteries continue to plummet in price. We're in such a volatile period of history that predicting returns over long time frames is pretty difficult.
@ what nonsense
Nice presentation! .. I would think the median retirement account holder drawing down the median RMD amount would be paying very little tax.. I would expect the standard deduction to increase every year.
Appreciate you watching!
QCDs are $105000 and are adjusted. Also Roth conversion if you exceed the estate tax limits don’t make sense- the Roth is fully taxable
Great breakdown...just subscribed!👏 👏
Great! Thank you for watching.
I never hear discussion of the lost investment value of the money used to pay the tax on a conversion. Do these conversion calculators take that into account?
Thank You!
I often make this point too!.
If I have to pay 10k/year for 10 years and assuming I don't need that money for another 10 years that about Half a Million Dollars I won't have!
Because it is pretty much a zero sum game assuming the tax rate stays the same and the same investment gain in both scenarios.
Great Video!
Thanks for watching, Michael!
Get as much in a Roth as possible before starting SS benefits. After that, forget about it. There is a reason they call it tax diversification. It's a good reason, too. You can control your future taxability. This becomes most important for the surviving spouse. As we all know, each case is unique. No one size fits all.
I disagree if filing jointly. Max tax bracket with conversions until one spouse goes away, and a survivor has to file as single.
@johnc4789 That works until you are SS.
Point number 1 is misleading. You can't compare having after-tax money to pay for Roth conversions to not having after-tax money to pay for Roth conversions. You have to start with the same starting point when comparing things. How did the money get to be available as after-tax to begin with? Also, once you are 59.5 years old and it has been at least 5 years since you first contributed to a Roth account, then the 5-year conversion rule no longer applies. Please see Figure 2-1 of IRS publication 590-B. From there you learn that your withdrawal is qualified. People get confused because of what follows in 590-B which has only to do with non-qualified distributions.
The Step up in Basis mentioned for a taxable brokerage account when one spouse dies only applies to community property states .. otherwise it is only a 50% step up in basis..
Two more reasons Not to convert : 1) you and your spouse are similar age and health.. so both die about the same time.. so no spouse stuck in the single tax bracket for a long time.
2) your heirs that will get the IRA monies are in a low tax bracket... they get 10 years to divest the account and can pay it over 10 years with a reasonable tax bill.
Similar age die close to one another????
@@METVWETV Sorta. Bear in mind that women live longer than men, statistically.
@incognitotorpedo42
I know I just let that hang there, but to flesh it out,
There is no way to determine who will die when or how closely.....
Statistics Not withstanding.
What is the speaker's name?
Wait. I thought the ROTH only eliminates federal taxes. Why would moving from CA to a non income tax state affect your federal tax analysis. It only affects your state tax analysis and I thought states don't recognize the ROTH ???
@@xporkrind No. Roth should eliminate tax where states tax deferred taxable accounts. Some states exempt all forms of retirement income regardless of Roth or Traditional in addition to those states that do not have an income tax.
Question: If I live in one of the tax free states, does that mean no state tax on Ira distribution?? If so, you can move out of and then into CA, for example after the ROTH conversation? Not sure if that is a good idea.
You don't talk about when it is a good idea to do Roth conversions. Like when you are retired but delaying SS and pension until age 70. Or you have a mega IRA and estimate your first RMD at $250k or more. Might be good to level out your income taxes each year until RMDs are required.
This video is about scenarios when it does not make sense to convert. Roth conversions are great in many scenarios that we discuss on other videos (as referenced in the intro to this video). Thanks for watching.
Great information. 👍 How many times have you been told you look like Geddy Lee with a hair cut ? 😎
One left field thing that can happen over the next two decades is much lower taxes.
How? Because of humanoid robot labor.
If these things become able to take over a large portion of labor, goods and many services will fall in price much closer to the cost of making them. This is because paying a worker to make and transport these things no longer is needed, allowing price cuts. You may not have to pull as much money out of your IRA to live ok.
As robotic labor takes over most manual, and some higher level, jobs the govt will start taxing the robot companies... and those companies that use the robots (which will be most or they will go out of business) heavily. Eventually these companies may pay the lion's share of taxes as the govt eases individual taxes and may even pay citizens a basic income as many jobs will have disappeared.
So in this, actually likely, scenario taxes on individuals may crater in 20 years. Just a thought.
My thought too.
That's an interesting prediction but practically and historically regardless of innovation and because of inflation, the cost of living and overall taxes do not go down.
Automobiles are certainly not cheaper due to robotics. Any specific tax cuts are consumed by other tax increases. Ask any homeowner. Every major corporation in America notoriously pays as little tax as possible. They certainly aren't going to pay more of their share.
@ Think about what unlimited robot slave labor means. Labor that can build more of itself... it can mine the raw elements itself, extract metals from the ore itself, create the sheet materials itself, then use those to create more of itself.
Think about what it means when a million robots can be easily created and tasked with constructing houses or a dam?
When through they can be tasked with something entirely different almost instantly since they download skills like in the matrix movie. If nothing to do they can stay in shipping containers like sardines
All societies that had access to such cheap labor... abhorrently it was other humans.... rose to great heights and technology. The Greeks, the Romans, etc through the ages. The difference is that this robotic labor is not human and is even cheaper... and can be easily made in huge numbers in a very short time.
In this robotopia, everyone is still going to need some income, but they won't have jobs. There will need to be something like Universal Basic Income, and that will be VERY expensive. That money will have to come from somewhere, and all those tax-advantaged assets that we have will be a very juicy target. I don't recommend planning on significantly lower rates any time soon, if ever.
@ Two things to consider:
1) Goods and transport should fall a lot in price without margin sacrifice if robotic labor is making almost everything. Goods should eventually get to just over Cost of Goods Sold (COGS) plus any margin and transport. Transport, once automated, should go way down as the major cost in shipping is truck driver salaries.
Housing in particular should get much cheaper as new houses and renovations will be done with cheap robotic labor. Same with food production...etc etc. So the cost of living itself should go way down.... this will reduce the amount of living wage needed.
2) Quality of goods should go higher even as those goods get cheaper as mentioned above. Companies usually make cheaper and/or less quality versions of goods in order to take market share. They do this by using worse materials to make a good from or by setting quotas for workers that cause workers to do less than top quality work..... possibly skipping steps in assembly and manufacture. However when goods get so inexpensive to make, due to robot labor, that they are close to the cost of raw material, quality will go up. This is because the savings a company could make by making the product less quality would be minuscule. The consumer could pay a few pennys more and get the top quality item. This will drive low quality goods out of the market. Robots bring the same exact quality to each job every time with no deviation worth mentioning. Regardless of quotas. This ensures a standard quality that human assembly cannot match.
WHO THINKS INCOME TAX RATES WILL NOT INCREASE SOON?
CONVERTING NOW AT 24% TAX RATES OR LOWER WILL BE BETTER THAN ABOVE 30%.
Who won the election? He and his Treasury cabinet nominee wants to cut taxes.
Many of these income examples on Roth conversion do not apply to most folks. Roth efficacy calculations are mere spitballing.
Here is one example of what you miss, and is applicable to 60% of households: joint filing becomes single filing for virtually all of these. Scenario: Two spouses with two pensions with survivor options, two sets of savings accounts that will be one set. Point is, only one SS is lost from the income. Simple math says to get the monies into Roth by filling the current joint tax bracket every year. All TH-cam Roth "lectures" miss to understand this.
I see a lot of cherry-picked data to support these reasons. If you convert to Roth over time, instead of in one lump sum, and you're able to keep your combined household income (for a married couple, filing jointly) to $127,000/yr or less, then you never pay more than 12% in taxes on the money being converted to Roth. That means you avoided 22% or higher rates while you were working and can "lock in" a 12% tax rate on the amount you contributed. For most people, meaning those who aren't in the top 1 to 2 percent of retirees, they can ensure that they never pay more than a 12% rate on their tax-deferred investments, and zero taxes on all subsequent growth, by converting to Roth. You scenarios are correct, but they're largely unrealistic for all but the very wealthiest of retirees. In other words...you're not helping.
Agree that targeting the 12% bracket(or 15%) makes sense. At worst you break even. On the other hand even at 12% you need time to get a benefit(and substantial growth). For us in Florida Roth is less productive, and our effective tax rates are quite low. We have Roth and HSA money through contributions and some conversions, but are not seeing advantages to substantial further Roth conversion above 12% Instead spending down pretax while waiting for Soc Sec should limit RMDs substantially. Projections for us show no advantage, unless we have long oversized growth in our pretax, in that case I won’t care much about paying a little extra. Once full Social Security kicks in, portfolio needs are small, again limiting tax issues.
I’m not one who believes taxes always go up. In fact we are consistently seeing the opposite over our last 8 years. We even were able to access major ACA credits in our transition from working to Medicare. It makes no sense to convert at 22% for us!
Intro of video references another video (link in description) about series of beneficial Roth conversions. This video is about scenarios where it may not make sense to convert. Thanks for watching.
@ - I'm also trying to be mindful of my heirs, since they are likely to inherit at a time in their life where any additional money coming in will be taxed at a higher rate.
@onedegreeadvisors
I agree with you...
One of the many things that I've noticed is that people get very angry if there are any videos that use high savings amounts and or high incomes.
Easier to lash out than to amass that much wealth I suppose.
@@METVWETV I'm not sure why you would categorize this as lashing out. The information presented in this video does not apply to at least 95% of folks who are retiring. I guess it's fair to say that financial advisors aim their content at 1-2%, since that's where they stand to make the most money from AUM.