Late to the party. My wife and I are in our 70s I have been doing Roth conversions over the last few years scaled to minimize annual tax hit and to reduce RMD hit over the years. Something else to keep in mind for married couples is what happens when one spouse dies. RMD stay the same, Social Security is reduced and standard deduction is reduced. So taxes go up while income goes down.
Thank you for the valuable insights into managing assets in retirement. Years ago I decided to manage my own assets instead of hiring a professional. Can't say I was wrong, but have been on autopilot for the past couple of years when I should have been taking more advantage of conversions to avoid the MANY tax traps laid out to fleece the sheep. I'm back in the hunt. Incidently, I went to a fee only fiduciary, who compared their plan for my money to my plan and they admitted that my plan would likely out perform theirs, via 1000 Montecarlo trials. I'm fine with the risk of equities, but during my life I've seen so many instances where borrowers use governmental power to avoid paying off their debts, so my trust level in bonds is diminishing by the day.
Just be mindful that you won't avoid it if you have a good pension or any other taxable income. I draw my graph in a different way. I just add up to 85% of my Social security to the right of the graph to increase my taxable income. The lower I can get my taxable income, the lower the portion of social security that will be taxed. That said, I don't expect to have no taxable income in retirement. I also don't plan to wait until 70 to start taking social security.
The curse of a pension. If I was starting my career today, I would go hard into a Roth and brokerage and try to limit tax deferred accounts. But, I'm sure congress will change the rules over the next 40 years to make sure todays workers are taxed to death in retirement like we are.
You really want to move all your tax deferred money to tax free money, but you don't want to be foolish about it. You don't want to put yourself in a tax bracket unreasonably high so you want to be efficient about it. When you convert IRA to roth, you prefer to use your taxable savings which reduces taxable income from interest and non qualified dividends. Hopefully you can convert all your tax deferred before collecting Social Security or at least get you IRA balance so low that RMD's have minimal impact.
This video is 100% accurate, but as he said, it could be case by case. 1. My current marginal tax bracket is 22% and I expect about 12% (depending on who is our present 😜) after retirement in 15 years. So definitely I am maxing out tax deferred accounts first. No plan for Roth conversion at all. 2. I always thought I am ready to pay taxes for 85% of my social security benefits after retirement. So, I don’t need to be concerned about torpedo. I have many friends around me who are mostly in the same situation like me. 3. But, again, this video is 100% accurate. If your marginal tax rate after retirement is expected to be the same or higher than now, and there is any way you can minimize how much % of your social benefits are taxed (below 50% at most) after retirement, you should do everything to make your ss benefits not taxable. Pure and simple.
This curve (Marginal Rate Tax)is based upon a 4 dimensional equation. Dimensions are: Taxable Income, Non-Taxable Income, Long Term Capital Gains/qualified dividends, and Social Security. I don't have any non-taxable income but my parents would have. To report a solution in one dimensions, you have to hold three dimensions constant. The easy one is Non-Taxable Income. The other two are probably long term cap gains and Social Security. Since Marginal Tax Rate takes up the second dimension on the plot. So the plots have a lot of built in assumptions and you say that they are for specific situations.
I am waiting to take SS until 70. The main reason is to maximize the monthly payments and COLAs. Since at least 15% of SS is not taxed and zero in my state, in the 25% fed and 6% state bracket, my SS will be taxed at 21% vs 31% for a 10% savings. Thus I want the most as I can get of that money.
Unfortunately, what further complicates this Roth Conversation strategy are the ACA premium penalties as well as IRMAA penalties due to the higher taxable income created from these Roth Conversations.
@@redshiftmedia2485 Yes--specific to IRMAA, there's a 2 year look back rule so the income generated at age 63 is what will determine your IRMAA at age 65. So...if you do Roth conversions any time prior to age 63, you will not be impacted by the dreaded IRMAA cliff. Good luck with your Roth conversion strategy!
I've been watching several of your videos (along with other videos on Roth conversions). At the end, you stated that "You always want to keep some tax deferred income to fill up the standard deduction". OK - good to know.... I had planned on converting ALL of my roll-over IRAs. My wife and I do have 2 immediate annuities and 2 deferred annuities that were funded from IRAs - so we will always have some deferred income ---- about $32,000 per year when we draw on all four of them. SO - maybe I DO want to convert ALL of the tax deferred mutual funds ----- otherwise, these could add another $6900 in RMD (based on projected returns and a modest Roth conversion plan).
Hey Mr. J, Yes, your tax-deferred income from the annuities will fill that standard deduction depending on the amount so converting all of the extra tax-deferred may make sense.
Everyone should do their own tax returns so they can see were and why their money goes. If your not sure if your tax form calculations are correct, then hire the professional after you have given it a go. The first year that my RMD made my SS taxable, I was calculating the numbers on my tax return and that was the moment when the Torpedo hit me! It felt like a Real Torpedo! I knew then I had to do something to fix that.
Question for Safe Wealth Management. What does the Marginal Rate Tax curve look like when a couple makes a combined 75K in Social Security and have 55K in Long Term Cap Gains? The max rate I'm getting is 54% (no state tax). Wondering if my calculations are wrong.
If you take losses in your taxable portfolio that year, doesn’t it bring that GSA down, making that number stay under a better threshold? Thanks for your fine videos. They’re awesome. 👍
To simplify this, you are doing this conversion to not to have to pay tax on your SS. The bottom line is that the torpedo tax is the provisional income being high enough that you will have to pay up to 85% of whatever your tax bracket is. If your income in retirement such as annuities and pensions is greater than 50% of your social security then your provisional income will be greater than your SS, which in this case the ROTH conversion does not help here because you will always pay at the 85% rate.
Randy, this is not true. Please don’t take offense but we would recommend watching some of our Social Security tax videos to better understand how S.S. is taxed. Please let me know if you would like us to link to them.
If an unmarried retiree has pensions/annuities that exceed $50K and has not yet started collecting SS, is there any hope? It seems the provisional income will always be high enough that 85% of SS will always be taxed.
Correct. For many of us, especially single, we are not going to avoid the tax torpedo. Take a professional person making a good salary for a career. We will have nearly $50,000 in Social Security of which $25,000 goes to Provisional Income. All that is required to put us in the tax torpedo is $9,000 more and our standard deduction of $16,550. So we are in the tax torpedo if we have $25,550 in income beyond Social Security. This is equivalent to $75,550 in total income. And this assumes no money in Traditional IRA that would result in RMDs. Some of us have significant Traditional IRAs that we could not possibly put a dent in the balance with conversions to Roth IRA. If we attempted this, we would be converting in the 37% bracket. But nice to have first world problems.
I like you video because you always have examples. Would you agree after SSN taxable amount is calculated from the provisional income and is greater than 0.85 x SSN, you would never be subjected to a SSN Tax Torpedo, correct?. Since the maximum SSN taxable amount cannot be greater than 85% of SSN.
Thanks Allan! Great question but not quite. If your provisional income forces your Social Security to be fully taxable, you would be fully subject to the SS Tax Torpedo. Basically, the SS Tax Torpedo is created as your SS goes from 0% taxable to 85% taxable.
I know u guys don't like it but I think I will just have the taxes withheld at the time of conversion. I don't have alot of Cash to pay taxes and don't feel like jumping thru all the hoops? Just pay at the time and be done with it!
I was injured last Nov at work and have been on work comp payments all year as I've been going through surgeries to get me back to health. I was wondering if it would be wise to convert my 401 to Roth this year, since my worked income will be low 🤔 I don't have much in my 401: just 89k But maybe it's a good time??
When you say, "Roth conversions", are you referring to using Roth 401(k) instead of pre-tax 401(k) OR converting after-tax 401(k) to Roth 401(k) OR converting Roth 401(k) to Roth IRA?
You kinda make it sound like there's no point in holding and then later drawing from a 401/403 etc plan because you'd be vulnerable to this tax torpedo. Maybe I'm missing something here, but from the presentation, even low earning retirees (44-55K) could be subject to this even though that income level is squarely in the 12% tax bracket. We're all kinda screwed then unless we start converting those 401K's to Roth IRA's?
I certainly wouldn't say there is no point in holding and later drawing from tax-deferred but it will depend greatly on your situation. First, delaying and using up those assets to minimize RMDs is typically ideal. Roth Conversions can be utilized here as well. Second, if you don't have a pension in addition to S.S., you can still use a certain level of tax-deferred accounts to fill up lower brackets. Know that the S.S. torpedo will raise your marginal bracket by 50-85% but there is still room at low brackets. Use the standard deduction fully. Use the 10% bracket in most cases. Assess from there. If you can convert at 22% now to avoid 27.75% in retirement (15% bracket + 85% step up) then that makes a lot of sense. If you do have a large pension, then yes, it may make sense fully eliminate tax-deferred assets through withdrawals and conversions. Again, my overall message is that it can vary greatly based on the specifics of your situation.
Love your channel! I currently have about 700k in deferred accounts. I’m 59. My advisor says I’ll never be able to convert all of it over because of blowing up my taxes. I question that notion. I have 12 yrs to convert. Seems like plenty of time if I start this year. Should we cut back investing and build cash to pay taxes? Do you have any opinion?
Yes, but we would need to ask you additional questions in order to give more than a shoot from the hip answer. 12 years of conversion is more than enough time to wipe out that tax-deferred balance depending on your situation. If you'd like to talk further about your situation privately, reach out to our retirement tax experts at www.safeguardinvest.com/contact
At 6:00, you say "let's assume they are in the 22% bracket". This is ridiculous! Your example has them at $45,350 AGI. After standard deductions, they are paying ZERO (or nearly zero) taxes. The 22% tax bracket starts at $81K. The Tax Torpedo only applies to marginal tax rate for people pulling $100K+ from tax deferred accounts. And, are those people really going to worry about $187? Your Effective Tax is all that matters, and 'average" folks are not going to be effected by this. This is fear mongering to middle class retirees. I enjoy your presentation and examples, but the data needs to be REAL, not "let's assume...".
Doug, there is a lot to unpack here. 1. You are including a snippet of a quote and taking it wildly out of context. I say, "Let's use this example and say they are in the 22% bracket. I know if you work out this math this won't line up but just bear with me for this example..." I explicitly say the math won't line up. I'm piggy-backing off the previous example to show the concept for simplicity purposes. 2. Wrong, the Tax Torpedo applies to many retirees w/ varying situations. The important point is most retirees don't know they're subject to this double taxation effect. In fact, it will apply to more retirees as we move into the future. Provisional income tables don't adjust to inflation. Over time, more retirees will drift into the Tax Torpedo for this reason. You missed the point on the extra $187. It's not about the dollar amount, it's about the dollar amount relative to withdrawal. It's $187 on a $1,000 withdrawal (18.7% in additional taxes). If they took an extra $10,000 out that could be $1,870 in extra taxes. Is that meaningful? How is this fear-mongering? 3. "Effective tax rate is all that matters" - Again, wrong. In fact, it's exactly wrong in terms of tax planning. Marginal rates matter the most. Let me give you a conceptual example. Say you need $100,000 for income and the tax system is set up in a way where the first $80,000 of taxable income is tax-free and the next $20,000 is taxed at 50%. Your effective tax rate would be 10% if you pulled all from trad. IRAs. Wow, this sounds great! In reality, your marginal rate on the first $80k is 0% and on the last $20k is 50%. Tax planning wise, you'd want to avoid taking the last $20k from trad. IRAs and instead take from a Roth thus achieving a 0% marginal and effective rate. This is the entire point of tax planning. It's a constant assessment of current marginal rates and future marginal rates. The effective tax rate is simply a summary stat.
In addition, holding an AGI to below $44,000 in today’s world is ludicrous. Unless you intended to spend on nothing and eat macaroni everyday, most of us will be facing this %85 SS tax.
If you have a large sum of money in your IRA/401K and you are planning to leave some to your children do not convert this amount to a ROTH. The children will not have to pay taxes on the IRA/401k due to the step-up basis.
Randy, this incorrect. Your tax deferred accounts will have to be withdrawn within 10 years time due to the SECURE Act and it will be 100% taxable as the tax code stands
And it’s even worse…beneficiaries have to pay tax at earned income rates for all distributions, even though many of the $ they r taking out are capital gains on the original contributions. I really question the wisdom of tax-deferred contributions beyond a limited amount given these exorbitant marginal tax rates
@@rdderrick75 I’ve been questing and regretting it, too. But if you don’t defer, your gross wages are taxed away and there isn’t any money left to invest. So I guess the IRS lets us use “its” money to make more money, and we pay a ton of tax at the end.
Late to the party. My wife and I are in our 70s I have been doing Roth conversions over the last few years scaled to minimize annual tax hit and to reduce RMD hit over the years. Something else to keep in mind for married couples is what happens when one spouse dies. RMD stay the same, Social Security is reduced and standard deduction is reduced. So taxes go up while income goes down.
SS taxation of benefits is a rip-off. You already paid taxes on it when it was deducted from your income.
You're preaching to the choir here :)
It's a rip off to high income earners. Low income earners make a killing off of social security.
Thank you for the valuable insights into managing assets in retirement. Years ago I decided to manage my own assets instead of hiring a professional. Can't say I was wrong, but have been on autopilot for the past couple of years when I should have been taking more advantage of conversions to avoid the MANY tax traps laid out to fleece the sheep. I'm back in the hunt. Incidently, I went to a fee only fiduciary, who compared their plan for my money to my plan and they admitted that my plan would likely out perform theirs, via 1000 Montecarlo trials. I'm fine with the risk of equities, but during my life I've seen so many instances where borrowers use governmental power to avoid paying off their debts, so my trust level in bonds is diminishing by the day.
Just be mindful that you won't avoid it if you have a good pension or any other taxable income.
I draw my graph in a different way. I just add up to 85% of my Social security to the right of the graph to increase my taxable income. The lower I can get my taxable income, the lower the portion of social security that will be taxed. That said, I don't expect to have no taxable income in retirement. I also don't plan to wait until 70 to start taking social security.
The curse of a pension. If I was starting my career today, I would go hard into a Roth and brokerage and try to limit tax deferred accounts. But, I'm sure congress will change the rules over the next 40 years to make sure todays workers are taxed to death in retirement like we are.
You really want to move all your tax deferred money to tax free money, but you don't want to be foolish about it. You don't want to put yourself in a tax bracket unreasonably high so you want to be efficient about it. When you convert IRA to roth, you prefer to use your taxable savings which reduces taxable income from interest and non qualified dividends. Hopefully you can convert all your tax deferred before collecting Social Security or at least get you IRA balance so low that RMD's have minimal impact.
Correct, we agree on every front.
This video is 100% accurate, but as he said, it could be case by case.
1. My current marginal tax bracket is 22% and I expect about 12% (depending on who is our present 😜) after retirement in 15 years. So definitely I am maxing out tax deferred accounts first. No plan for Roth conversion at all.
2. I always thought I am ready to pay taxes for 85% of my social security benefits after retirement. So, I don’t need to be concerned about torpedo. I have many friends around me who are mostly in the same situation like me.
3. But, again, this video is 100% accurate. If your marginal tax rate after retirement is expected to be the same or higher than now, and there is any way you can minimize how much % of your social benefits are taxed (below 50% at most) after retirement, you should do everything to make your ss benefits not taxable. Pure and simple.
This curve (Marginal Rate Tax)is based upon a 4 dimensional equation. Dimensions are: Taxable Income, Non-Taxable Income, Long Term Capital Gains/qualified dividends, and Social Security. I don't have any non-taxable income but my parents would have. To report a solution in one dimensions, you have to hold three dimensions constant. The easy one is Non-Taxable Income. The other two are probably long term cap gains and Social Security. Since Marginal Tax Rate takes up the second dimension on the plot. So the plots have a lot of built in assumptions and you say that they are for specific situations.
This is why I want to do Roth conv at age 60 b4 taking soc security
I am waiting to take SS until 70. The main reason is to maximize the monthly payments and COLAs. Since at least 15% of SS is not taxed and zero in my state, in the 25% fed and 6% state bracket, my SS will be taxed at 21% vs 31% for a 10% savings. Thus I want the most as I can get of that money.
Unfortunately, what further complicates this Roth Conversation strategy are the ACA premium penalties as well as IRMAA penalties due to the higher taxable income created from these Roth Conversations.
Does that mean it's a good plan to start the Roth conversion on your 50s to minimize IRMAA
@@redshiftmedia2485 Yes--specific to IRMAA, there's a 2 year look back rule so the income generated at age 63 is what will determine your IRMAA at age 65. So...if you do Roth conversions any time prior to age 63, you will not be impacted by the dreaded IRMAA cliff. Good luck with your Roth conversion strategy!
I've been watching several of your videos (along with other videos on Roth conversions). At the end, you stated that "You always want to keep some tax deferred income to fill up the standard deduction". OK - good to know.... I had planned on converting ALL of my roll-over IRAs. My wife and I do have 2 immediate annuities and 2 deferred annuities that were funded from IRAs - so we will always have some deferred income ---- about $32,000 per year when we draw on all four of them. SO - maybe I DO want to convert ALL of the tax deferred mutual funds ----- otherwise, these could add another $6900 in RMD (based on projected returns and a modest Roth conversion plan).
Hey Mr. J,
Yes, your tax-deferred income from the annuities will fill that standard deduction depending on the amount so converting all of the extra tax-deferred may make sense.
@@SafeguardWealthManagement Thank you so much.
Everyone should do their own tax returns so they can see were and why their money goes. If your not sure if your tax form calculations are correct, then hire the professional after you have given it a go.
The first year that my RMD made my SS taxable, I was calculating the numbers on my tax return and that was the moment when the Torpedo hit me! It felt like a Real Torpedo! I knew then I had to do something to fix that.
Question for Safe Wealth Management. What does the Marginal Rate Tax curve look like when a couple makes a combined 75K in Social Security and have 55K in Long Term Cap Gains? The max rate I'm getting is 54% (no state tax). Wondering if my calculations are wrong.
Stop taxing SS unless income without SS is over 200k.
If you take losses in your taxable portfolio that year, doesn’t it bring that GSA down, making that number stay under a better threshold? Thanks for your fine videos. They’re awesome. 👍
To simplify this, you are doing this conversion to not to have to pay tax on your SS. The bottom line is that the torpedo tax is the provisional income being high enough that you will have to pay up to 85% of whatever your tax bracket is. If your income in retirement such as annuities and pensions is greater than 50% of your social security then your provisional income will be greater than your SS, which in this case the ROTH conversion does not help here because you will always pay at the 85% rate.
Randy, this is not true. Please don’t take offense but we would recommend watching some of our Social Security tax videos to better understand how S.S. is taxed. Please let me know if you would like us to link to them.
It’s not 85% rate, it’s that up to 85% of your SS benefit can be taxed.
If an unmarried retiree has pensions/annuities that exceed $50K and has not yet started collecting SS, is there any hope? It seems the provisional income will always be high enough that 85% of SS will always be taxed.
Correct. For many of us, especially single, we are not going to avoid the tax torpedo. Take a professional person making a good salary for a career. We will have nearly $50,000 in Social Security of which $25,000 goes to Provisional Income. All that is required to put us in the tax torpedo is $9,000 more and our standard deduction of $16,550. So we are in the tax torpedo if we have $25,550 in income beyond Social Security. This is equivalent to $75,550 in total income. And this assumes no money in Traditional IRA that would result in RMDs. Some of us have significant Traditional IRAs that we could not possibly put a dent in the balance with conversions to Roth IRA. If we attempted this, we would be converting in the 37% bracket. But nice to have first world problems.
I like you video because you always have examples. Would you agree after SSN taxable amount is calculated from the provisional income and is greater than 0.85 x SSN, you would never be subjected to a SSN Tax Torpedo, correct?. Since the maximum SSN taxable amount cannot be greater than 85% of SSN.
Thanks Allan! Great question but not quite. If your provisional income forces your Social Security to be fully taxable, you would be fully subject to the SS Tax Torpedo.
Basically, the SS Tax Torpedo is created as your SS goes from 0% taxable to 85% taxable.
I know u guys don't like it but I think I will just have the taxes withheld at the time of conversion. I don't have alot of Cash to pay taxes and don't feel like jumping thru all the hoops? Just pay at the time and be done with it!
I was injured last Nov at work and have been on work comp payments all year as I've been going through surgeries to get me back to health. I was wondering if it would be wise to convert my 401 to Roth this year, since my worked income will be low 🤔
I don't have much in my 401: just 89k
But maybe it's a good time??
When you say, "Roth conversions", are you referring to using Roth 401(k) instead of pre-tax 401(k) OR converting after-tax 401(k) to Roth 401(k) OR converting Roth 401(k) to Roth IRA?
Value add info as always.
Thanks David!
You kinda make it sound like there's no point in holding and then later drawing from a 401/403 etc plan because you'd be vulnerable to this tax torpedo. Maybe I'm missing something here, but from the presentation, even low earning retirees (44-55K) could be subject to this even though that income level is squarely in the 12% tax bracket. We're all kinda screwed then unless we start converting those 401K's to Roth IRA's?
I certainly wouldn't say there is no point in holding and later drawing from tax-deferred but it will depend greatly on your situation. First, delaying and using up those assets to minimize RMDs is typically ideal. Roth Conversions can be utilized here as well.
Second, if you don't have a pension in addition to S.S., you can still use a certain level of tax-deferred accounts to fill up lower brackets. Know that the S.S. torpedo will raise your marginal bracket by 50-85% but there is still room at low brackets. Use the standard deduction fully. Use the 10% bracket in most cases. Assess from there. If you can convert at 22% now to avoid 27.75% in retirement (15% bracket + 85% step up) then that makes a lot of sense.
If you do have a large pension, then yes, it may make sense fully eliminate tax-deferred assets through withdrawals and conversions.
Again, my overall message is that it can vary greatly based on the specifics of your situation.
@@SafeguardWealthManagement Thank-you for the thoughtful response. Subcribed. :)
@@henram36 Thanks for subscribing!
Love your channel! I currently have about 700k in deferred accounts. I’m 59. My advisor says I’ll never be able to convert all of it over because of blowing up my taxes. I question that notion. I have 12 yrs to convert. Seems like plenty of time if I start this year. Should we cut back investing and build cash to pay taxes? Do you have any opinion?
Yes, but we would need to ask you additional questions in order to give more than a shoot from the hip answer. 12 years of conversion is more than enough time to wipe out that tax-deferred balance depending on your situation.
If you'd like to talk further about your situation privately, reach out to our retirement tax experts at www.safeguardinvest.com/contact
Thanks for your reply. I will contact you soon!
At 6:00, you say "let's assume they are in the 22% bracket". This is ridiculous! Your example has them at $45,350 AGI. After standard deductions, they are paying ZERO (or nearly zero) taxes. The 22% tax bracket starts at $81K. The Tax Torpedo only applies to marginal tax rate for people pulling $100K+ from tax deferred accounts. And, are those people really going to worry about $187? Your Effective Tax is all that matters, and 'average" folks are not going to be effected by this. This is fear mongering to middle class retirees. I enjoy your presentation and examples, but the data needs to be REAL, not "let's assume...".
Doug, there is a lot to unpack here.
1. You are including a snippet of a quote and taking it wildly out of context.
I say, "Let's use this example and say they are in the 22% bracket. I know if you work out this math this won't line up but just bear with me for this example..." I explicitly say the math won't line up. I'm piggy-backing off the previous example to show the concept for simplicity purposes.
2. Wrong, the Tax Torpedo applies to many retirees w/ varying situations. The important point is most retirees don't know they're subject to this double taxation effect. In fact, it will apply to more retirees as we move into the future. Provisional income tables don't adjust to inflation. Over time, more retirees will drift into the Tax Torpedo for this reason.
You missed the point on the extra $187. It's not about the dollar amount, it's about the dollar amount relative to withdrawal. It's $187 on a $1,000 withdrawal (18.7% in additional taxes). If they took an extra $10,000 out that could be $1,870 in extra taxes. Is that meaningful?
How is this fear-mongering?
3. "Effective tax rate is all that matters" - Again, wrong. In fact, it's exactly wrong in terms of tax planning. Marginal rates matter the most.
Let me give you a conceptual example. Say you need $100,000 for income and the tax system is set up in a way where the first $80,000 of taxable income is tax-free and the next $20,000 is taxed at 50%. Your effective tax rate would be 10% if you pulled all from trad. IRAs. Wow, this sounds great!
In reality, your marginal rate on the first $80k is 0% and on the last $20k is 50%. Tax planning wise, you'd want to avoid taking the last $20k from trad. IRAs and instead take from a Roth thus achieving a 0% marginal and effective rate.
This is the entire point of tax planning. It's a constant assessment of current marginal rates and future marginal rates. The effective tax rate is simply a summary stat.
I agree, I’ll have to watch this video again but it appears the tax torpedo applies to a very small amount of the total.
In addition, holding an AGI to below $44,000 in today’s world is ludicrous. Unless you intended to spend on nothing and eat macaroni everyday, most of us will be facing this %85 SS tax.
If you have a large sum of money in your IRA/401K and you are planning to leave some to your children do not convert this amount to a ROTH. The children will not have to pay taxes on the IRA/401k due to the step-up basis.
Randy, this incorrect. Your tax deferred accounts will have to be withdrawn within 10 years time due to the SECURE Act and it will be 100% taxable as the tax code stands
Traditional IRA/401(k) is derived from wages that were never taxed and growth that was never taxed. The beneficiaries must pay the tax.
And it’s even worse…beneficiaries have to pay tax at earned income rates for all distributions, even though many of the $ they r taking out are capital gains on the original contributions.
I really question the wisdom of tax-deferred contributions beyond a limited amount given these exorbitant marginal tax rates
@@rdderrick75 I’ve been questing and regretting it, too. But if you don’t defer, your gross wages are taxed away and there isn’t any money left to invest. So I guess the IRS lets us use “its” money to make more money, and we pay a ton of tax at the end.
@@genxx2724 actually I just ran thru a bunch of calculations…I will likely be paying a marginal tax rate < half of when I was working!