Assume your taxes go up by about 3%, Or just assume you lose 3% of your take home pay. If married filing jointly, that amount will be larger since the brackets won't double for two people.
For the past 8 years I've been maximizing the form 8880 retirement saver's credit and using the additional headroom to make sizeable Roth conversions completely tax free. I've got 4 more years until the credit is ruined in 2027 when the Secure Act 2.0 changes the credit to a half baked scheme that the details haven't even been fully worked out on. FJB.
If you are worried about your legacy to your kid/grandkids, you should pay attention at the BIG differences in how an IRA inheritance works, depending on whether it is a Roth or plain IRA.
Great job: In some cases, does it make sense to consider not only the projected Tax Bracket of the surviving/last spouse, but the taxes the heirs might pay beyond that? For example the tax impact of leaving a Roth is less than a traditional IRA.
Reason 5? You expect that you will need a substantial amount of cash in the next 5-10 years and therefore do not wish to make a large payment to Uncle Sam in the form of taxes from a Roth conversion. This could be cash needed to help children with a down payment, or to fund a new home or second home, or to be available for unexpected nursing home care. You may wish to move to a desirable area where the real estate costs are far greater than the value of your current home ... etc.
number one reason TO do a conversion.........who ever is in the 10 percent tax bracket? 2026 when taxes rates WILL go up they have gone up 2 percent from 2022 to 2023
QCD discussion is an important option for many, ‘glad you included it. I thought of this when I turned 72. With no mortgage, I use the Standard Deduction. With the QCD, I basically save the tax-rate of when I made the Traditional IRA contribution.
Good review! For us the goal is to substantially spend down the portfolio by age 85, and live on SS and some QLAC’s after. That strategy maximizes SS and minimizes RMD’s and uses the portfolio to delay Social Security payments, leading to about $7000 per month in SS income(today’s dollars). This will cover all base income needs. To protect a single spouse who would “only” get $4500 in SS income, we have some longevity annuities and a small portion of portfolio that will remain 100% in high risk assets(stocks and Bitcoin), as well as a reverse line of credit and a rental property. So no worries about money, only have to “worry” about health(have LTC insurance) and how much to spend on travel. Don’t really lose sleep over taxes, and so far our tax rates are minuscule compared to our working years, obviously will convert in teen brackets when it makes sense, but received $18k in tax credits(ACA and savers credit) this year that would have evaporated with Roth conversions.
Thanks good honest points most financial guru on YT hype the Roth conversion. Plus I have a nice pension 59 y/o retired wife same age she will take SS at 62 y/o due to breast cancer. Sizable 1.5 m IRA plan to spend down close to zero.
Maybe I am nuts but here is my plan. Take as much as I can to stay in the 12% bracket while the current rates remain. I will then decide how much I want to replinish my cash and put the rest in a Roth IRA. Rigjt now that puts me at a 5 % withdrawal rate but some of that is going back into investments. Am I nuts?
You are not nuts. This past week, I floated that plan to a tax expert and a very experienced investment officer, and both of them were 100% for doing it. Go for it!
I use NewRetirement to model my Roth conversions. I can model all the different scenarios you've listed to see what the outcome will be. I'm not sure if it makes the decision a lot easier because each model has a fair number of assumptions. It does at least give you an idea of what the outcome could be. I do appreciate this video compared to all the high pressure videos that show the Roth conversion as the absolute solution for everyone. I especially appreciate that you dont ignore the fact that Roth withdrawals are "tax free" without acknowledging that you did pay taxes on the money going in and you do have less growth commensurate with the taxes paid initially.
Im sorry..I couldnt listen even though it might be true...I already did roth conversions because of low income and knowing my taxes would be a lot higher than if I didnt....not your fault but I knew what I was doing...
It's not completely known what your tax bracket will be 10 or more years down the road. It's also an oversimplification and not always the best choice to pay the lowest tax. You may be working and in a higher tax bracket now, but you can afford to pay the tax. You may not be able to work 5 or more years down the road and you be glad you did the Roth conversion so 100% of the money is yours.
I've completed a total of 4 IRA to Roth conversions in my late 40's and I believe that is all I will ever do. I mostly did it because earlier in my career, it was not possible for me to contribute after-tax dollars to my 401k. Also, I was only allowed to contribute a small amount to my brokerage account Roth each year. The additional tax I had to pay for those conversions was 30% of the total amount of money that I moved. That is a lot of money, but I see it like this: If that converted money gains 30% (plus inflation), it completely pays for the conversion taxes. My Roth account has gained 32% since my very first conversion and RMDs won't be a requirement for me for another 20 years.
@KayKay0314 "My Roth account has gained 32% since my very first conversion and RMDs won't be a requirement for me for another 20 years." Congrats on increasing your ROTH account by 32% since your first conversion. You gave no time line, so this growth could be average, or even under average, for all we know. You do know there are NO RMD's on a ROTH, right? I'm guessing you are referring to the balance you still have in your tax deferred account. I retired at age 68 in June 2020. I converted my Traditional IRA to a ROTH IRA at that time. By earning premium income, from selling cash secured puts on the available cash, and selling covered calls on the dividend stocks in my ROTH account, I earned enough income to reimburse myself for the tax cost of conversion, within 6 months. I doubled my account in a little over 2 years. ALL that income, and share price appreciation, above my starting balance, is tax free, when I eventually decide to start withdrawals. I don't need to be a tax expert to know I am way ahead by doing the conversion. In my humble opinion, I WANT to be in a higher tax bracket in retirement. NOT because the tax rate is higher, but because my investment INCOME has raised me to a higher bracket. The key to whether conversion is financially worth it or not, is knowing whether you can make an above average ROI, or not. When you retire, or even if you are already in retirement, do you want to pay increasing RMD's as your account grows in a Trad IRA? OR do you want to choose how much you want to withdraw each year, based on your expenses, from a TAX FREE ROTH IRA, and not have to pay an arbitrary 4% of your account balance RMD, and pay TAXES on those withdrawals from a TRAD IRA? If you are an above average investor, your gains WILL eventually cause your RMD's to reach a higher tax bracket. I had a small Trad. IRA, so I converted all of it in the same year. If you have a large TRAD IRA, you can convert a portion every year, until all of it is converted to a ROTH. Convert just enough each year, so you still remain in your current tax bracket. Just my 2 cents worth.
@@thomasd5488 My first IRA to Roth conversion was in 2017 and the last one was in 2020. Even if that amount of growth is under average, there is nothing I can do about it now. I still have a lot of money in my traditional IRA account, which I plan to use as an income source when I reach age 60.
Format is fine. When there is something important or I don't understand, I rewind to listen again. It is the content that's most important. 🙏 For your work.
I have TSLA in my Roth & HSA, but have even more shares in my traditional IRA. Wish I had NVDA in my Roth instead of my Traditional IRA. It’s doing better than TSLA.
James, the great unknown is what the future tax brackets will be. With mounting national debt, do we really believe the tax brackets will go down rather than up?
What matters most is the tax bracket you will be in based on your income sources. Tax brackets as a whole could go up and you could still theoretically be in a lower tax bracket at that point depending on your taxable income.
![[UNCUT] “บอสณวัฒน์” ลากไส้!! ใครหนุนหลัง "แม่ตั๊ก ป๋าเบียร์" I คนดังนั่งเคลียร์ I 30 ก.ย. 67](http://i.ytimg.com/vi/QlD7mU2KKRk/mqdefault.jpg)
Where is the video? I dislike this format. It strikes me as lazy.
You didn’t take into account being under 65 and losing your ACA subsidies if you do a Roth conversion.
Bingo. Also…if on Medicare…a conversion could raise Medicare premiums via IRMA
I’m retired in my 50’s & on Obamacare. So conversations are very minimal for me.
The Trump tax cuts expire in 2025. How should we project future tax liability ?
Vote against the Dems.
Tax brackets go up. Unless super intelligent space aliens take over first.
@@craigscott7315 DESTROYING our democracy to help the rich save on taxes. ? WHY?
Assume your taxes go up by about 3%, Or just assume you lose 3% of your take home pay. If married filing jointly, that amount will be larger since the brackets won't double for two people.
For the past 8 years I've been maximizing the form 8880 retirement saver's credit and using the additional headroom to make sizeable Roth conversions completely tax free. I've got 4 more years until the credit is ruined in 2027 when the Secure Act 2.0 changes the credit to a half baked scheme that the details haven't even been fully worked out on. FJB.
The main reason why I’d do Roth Conversion is for my kid who can inherit the money tax free.
If you are worried about your legacy to your kid/grandkids, you should pay attention at the BIG differences in how an IRA inheritance works, depending on whether it is a Roth or plain IRA.
Yes! I am surprised he didn’t stress this.
Great job: In some cases, does it make sense to consider not only the projected Tax Bracket of the surviving/last spouse, but the taxes the heirs might pay beyond that? For example the tax impact of leaving a Roth is less than a traditional IRA.
Good info, but Graphics & Charts would have made it SO much easier to visualize & follow.
Reason 5? You expect that you will need a substantial amount of cash in the next 5-10 years and therefore do not wish to make a large payment to Uncle Sam in the form of taxes from a Roth conversion. This could be cash needed to help children with a down payment, or to fund a new home or second home, or to be available for unexpected nursing home care. You may wish to move to a desirable area where the real estate costs are far greater than the value of your current home ... etc.
Good reason!
We may stop traveling in our 80's but we may need assisted living, which can get very pricey. Not knowing makes planning difficult. Your suggestions?
number one reason TO do a conversion.........who ever is in the 10 percent tax bracket? 2026 when taxes rates WILL go up they have gone up 2 percent from 2022 to 2023
Thank you for the scenarios. It really makes me think if the Roth Conversion is worth it.
QCD discussion is an important option for many, ‘glad you included it. I thought of this when I turned 72. With no mortgage, I use the Standard Deduction. With the QCD, I basically save the tax-rate of when I made the Traditional IRA contribution.
Good review!
For us the goal is to substantially spend down the portfolio by age 85, and live on SS and some QLAC’s after. That strategy maximizes SS and minimizes RMD’s and uses the portfolio to delay Social Security payments, leading to about $7000 per month in SS income(today’s dollars). This will cover all base income needs. To protect a single spouse who would “only” get $4500 in SS income, we have some longevity annuities and a small portion of portfolio that will remain 100% in high risk assets(stocks and Bitcoin), as well as a reverse line of credit and a rental property. So no worries about money, only have to “worry” about health(have LTC insurance) and how much to spend on travel. Don’t really lose sleep over taxes, and so far our tax rates are minuscule compared to our working years, obviously will convert in teen brackets when it makes sense, but received $18k in tax credits(ACA and savers credit) this year that would have evaporated with Roth conversions.
So much ramble... not pointed discussion, disappointing
This was a very good video! Packed with tons of information and useful examples! Thanks for sharing.
Thanks good honest points most financial guru on YT hype the Roth conversion. Plus I have a nice pension 59 y/o retired wife same age she will take SS at 62 y/o due to breast cancer. Sizable 1.5 m IRA plan to spend down close to zero.
Maybe I am nuts but here is my plan. Take as much as I can to stay in the 12% bracket while the current rates remain. I will then decide how much I want to replinish my cash and put the rest in a Roth IRA. Rigjt now that puts me at a 5 % withdrawal rate but some of that is going back into investments. Am I nuts?
You are not nuts. This past week, I floated that plan to a tax expert and a very experienced investment officer, and both of them were 100% for doing it. Go for it!
Does it make sense for someone in their late 70's to do a Roth conversion?
Roth’s have a limit on withdrawals for Five Years….if you need that money….hope you live long enough.
You can still use the principle of the Roth as a tax-free emergency fund. The intended use of the Roth IRA is as important as the owner's age.
Wow! Learned a lot from this pod cast. Wish James had an office here in florida.
So happy to learn rmd might be 4% at 75 and increase to 8% at 95. Learning this was hugely helpful , thanks !
Also consider changes to tax brackets in 2025. If your income will be pretty steady, better to convert now and take advantage of lower rates.
More guidance for the median would be great 👍
I use NewRetirement to model my Roth conversions. I can model all the different scenarios you've listed to see what the outcome will be. I'm not sure if it makes the decision a lot easier because each model has a fair number of assumptions. It does at least give you an idea of what the outcome could be. I do appreciate this video compared to all the high pressure videos that show the Roth conversion as the absolute solution for everyone. I especially appreciate that you dont ignore the fact that Roth withdrawals are "tax free" without acknowledging that you did pay taxes on the money going in and you do have less growth commensurate with the taxes paid initially.
Yes newbie learning new Retirement gotta join the free club.
Im sorry..I couldnt listen even though it might be true...I already did roth conversions because of low income and knowing my taxes would be a lot higher than if I didnt....not your fault but I knew what I was doing...
It's not completely known what your tax bracket will be 10 or more years down the road. It's also an oversimplification and not always the best choice to pay the lowest tax. You may be working and in a higher tax bracket now, but you can afford to pay the tax. You may not be able to work 5 or more years down the road and you be glad you did the Roth conversion so 100% of the money is yours.
Using acronyms frequently, doesn’t help listeners understand what you’re sharing in your videos.
I've completed a total of 4 IRA to Roth conversions in my late 40's and I believe that is all I will ever do. I mostly did it because earlier in my career, it was not possible for me to contribute after-tax dollars to my 401k. Also, I was only allowed to contribute a small amount to my brokerage account Roth each year. The additional tax I had to pay for those conversions was 30% of the total amount of money that I moved. That is a lot of money, but I see it like this: If that converted money gains 30% (plus inflation), it completely pays for the conversion taxes. My Roth account has gained 32% since my very first conversion and RMDs won't be a requirement for me for another 20 years.
@KayKay0314
"My Roth account has gained 32% since my very first conversion and RMDs won't be a requirement for me for another 20 years."
Congrats on increasing your ROTH account by 32% since your first conversion.
You gave no time line, so this growth could be average, or even under average, for all we know.
You do know there are NO RMD's on a ROTH, right? I'm guessing you are referring to the balance you still have in your tax deferred account.
I retired at age 68 in June 2020. I converted my Traditional IRA to a ROTH IRA at that time. By earning premium income, from selling cash secured puts on the available cash, and selling covered calls on the dividend stocks in my ROTH account, I earned enough income to reimburse myself for the tax cost of conversion, within 6 months.
I doubled my account in a little over 2 years.
ALL that income, and share price appreciation, above my starting balance, is tax free, when I eventually decide to start withdrawals.
I don't need to be a tax expert to know I am way ahead by doing the conversion.
In my humble opinion, I WANT to be in a higher tax bracket in retirement.
NOT because the tax rate is higher, but because my investment INCOME has raised me to a higher bracket.
The key to whether conversion is financially worth it or not, is knowing whether you can make an above average ROI, or not.
When you retire, or even if you are already in retirement, do you want to pay increasing RMD's as your account grows in a Trad IRA?
OR do you want to choose how much you want to withdraw each year, based on your expenses, from a TAX FREE ROTH IRA, and not have to pay an arbitrary 4% of your account balance RMD, and pay TAXES on those withdrawals from a TRAD IRA?
If you are an above average investor, your gains WILL eventually cause your RMD's to reach a higher tax bracket.
I had a small Trad. IRA, so I converted all of it in the same year.
If you have a large TRAD IRA, you can convert a portion every year, until all of it is converted to a ROTH.
Convert just enough each year, so you still remain in your current tax bracket.
Just my 2 cents worth.
@@thomasd5488 My first IRA to Roth conversion was in 2017 and the last one was in 2020. Even if that amount of growth is under average, there is nothing I can do about it now. I still have a lot of money in my traditional IRA account, which I plan to use as an income source when I reach age 60.
Format is fine. When there is something important or I don't understand, I rewind to listen again. It is the content that's most important. 🙏 For your work.
What’s up with the moving audio circle? Annoying and distracting
To me it’s always make sense to do Roth due to growth and compounding effect of investments. It’s not like your money never grow.
Roth all Tesla stock. 🚀🚀
I have TSLA in my Roth & HSA, but have even more shares in my traditional IRA. Wish I had NVDA in my Roth instead of my Traditional IRA. It’s doing better than TSLA.
Just finding out about Roth Conversions at 70 yrs old, am I to late to start??
James, the great unknown is what the future tax brackets will be. With mounting national debt, do we really believe the tax brackets will go down rather than up?
What matters most is the tax bracket you will be in based on your income sources. Tax brackets as a whole could go up and you could still theoretically be in a lower tax bracket at that point depending on your taxable income.
Assuming the government does not change things, in 2026, tax bracket percentages will revert back to what they were in 2017.
First
Is there a prize?
Very, very helpful. Thank you!
You're welcome!
Great podcast!