Covert that IRA to a CD or Money Market as fast as you can!!!

The tax bracket you are using is wrong. You would need to tax all the money you transfer and the income they are already living on. That would bring it 178k. Also that would grow every year based on cost of living increases too. That would be a 22% tax not 20. And if you think the taxes would go back to the previous one. Then they would only have a 25% tax. With this couple having 2 million and moving only 100k wouldn’t even cover the growth every year. And if the normal growth doubles every seven years. The RMD’s on that money would be less than 200k at the time they took effect. So why not just wait till 73 and pay the tax on that money. And not to mention they won’t be able to use that money moved over for 5 years. If it’s the first Roth they opened. I for the life of me don’t understand why financial advisors don’t advise their clients to put their money into a Roth in the first place. The tax savings is much better if you just paid as you go. They could have all that money tax free with stress of moving it and what the government was going to do with tax rates.

Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.

And SS is impacted.

Love that you used a whiteboard to explain, great level of detail.

I am in a similar situation and I am not converting. My argument is as follows. I have some forced investment income and my wife still works so we are at the top of the 22% bracket so any tax on conversions will be at 24% federal and 5% state. I plan moving to Florida in retirement which has no tax so even in the 28% tax bracket during RMDs I will come out ahead. My plan is to spend the next decade reallocating my non IRA income to cash value life insurance, stocks that I won’t sell and municipal bonds so and start withdrawing from taxable accounts to live on while delaying SS. By the time RMDs kick in at age 75 my only income will be SS and RMDs. The year one RMD on $5 million is only $200k, which added to my SS will be enough to live on and will increase each year. Taking advantage of the standard deduction and lower tax brackets, both which are adjusted annually for inflation, I will pay much less average tax % compared to the 29% when converting.

For Roth conversions, how do you factor in for the (most likely/eventual) widow/widower tax increases when filing as single ?

I just did $5.7 million conversion all at once. 59.5 yo. Best thing ever. Now I just take the gains and started gifting. No rmd. Kids inherit tax free. Now I need to plan to avoid estate taxes. I still have $700 k inherited Ira I must deplete in seven years. Also have $4 million in stocks, taxable. I have all of my stocks in nvidia. Growing too fast! I just live off pension. I’m fine.

It's recommended to save at least 15% of your income in a 401k. You can use online calculators to estimate how much you should save based on your age and income. Saving at least 15% of your income in a 401(k) can help ensure that you have enough money to retire comfortably. By saving this much, you can take advantage of compound interest and potentially grow your retirement savings over time.

For the 2023 tax rate, if a married couple makes $127,150, they will pay 12% for the first $117,150 and 22% for the excess $10,000?

After retirement, with the IRS tax rate table staying the same as now, what will be the kind of reasons why my tax rates would go up? Say until I am 73 years old (when the RMD in IRA kicks in), and after 73.

Looks like the biggest tax difference between an employment (active) income and the retired (passive) income is the lack of payroll taxes (social security and medicare taxes) for the latter. For the same $150k total income, the retired folks will keep $11,475 more from the lack of the payroll tax (6.2% SS Tax + 1.45% Medicare tax = 7.65%).

Your comparison between with and without Roth conversion on taxes is the most plain and clear presentation I've seen on RU-vid. Taking taxes straight out of the Roth conversion principal is the right way as you did. However, one important question: suppose you converted it while you were still working. Then, is this Roth conversion considered part of your active income? Or does the IRS treat this as passive income, separate from your income from employment? If not, then the Roth conversion shouldn't be done while still employed?

Lol! You're 63 !!! You have 20 years left if you're lucky ...240 months ....2mil divided by 240 is 8333 per month ...if thats not enough for you then you're the problem

How are people so stupid as to do this. Dude should have started a brokerage 1m bucks ago. Stupid

How are people so stupid as to do this. Dude should have started a brokerage 1m bucks ago. Stupid

Pretty good video. So the influence from the income on cost to medical part B is a small influence? Why wouldn’t you pick a tax max rate, say 22%, take the max to convert and substitute cash in as a filler and put of SS to age 67? I think a spreadsheet is needed to show the numbers.

Whiteboard was helpful, but it felt that you swayed away from your example. Client has taxable money to pay taxes for conversion, and did not need the money at age 72, so converted assets had time to grow. Much better reason to do the conversion. Problem is that converting 300k from a $2m portfolio doesn’t really lower RMDs all that much, once market grows…but not a bad problem to have.

Trump says you have no business retiring at 63!Work till ya drop!

Good explanation! I'm looking at making the maximum conversions annually avoiding the medicare bump. I think balancing monies between roth and pre tax reduces RMD's, gives greater accessibility to cash without an instant tax hit. I don't think it's an all or none situation for conversion. I'm praying that our tax code doesn't doesn't take a giant step into the dark ages. :)

Great info but no one seems to talk about what happens if I don’t live that long? What will be the best for my kids, or whoever I leave my money to?

IRS Publication 590-B page 32 is a flowchart that shows that if you are 59.5 or better and have EVER HAD A ROTH that was started 5 colander years or more ago, then all of the funds in all of your ROTHS are 100% qualified and there is no tax for withdrawal.

IRS Form 590-B Page 32 has a flowchart that shows that if either one of the couple aged 59-1/2 or better has ever contributed to any ROTH more than 5 ocalander years ago, then the entire ROTH conversion is qualified and even the gains can be withdrawn without tax. About 30% of the online sources claim that EACH conversion starts its own 5-year clock. This is not true once the taxpayer reaches 59-1/2.

How about other spouse cost of giving up Obamacare. Silver plan lost 12,000k in the conversion. Real cost takes you into 26-27 % effective tax rate.

But 1 assumption incorrect at start. Pretax accounts and Roth accounts not invested in same way. Pretax is less risky assets and Roth more risk. Depending on market growth or loss accounts will not be the same. You can’t assume growth. You can’t assume future tax brackets. Wait until 2026 tax brackets are revealed before fully converting in 2025. Multiple conversions seems best in 2025. Brackets may be higher and tighter in 2026 so conversions would be more aggressive targeting higher full brackets into 24% in 2025.

That would be a simple answer NO.

Have you considered Tax brackets baseline is also increasing due to the inflation? We may stay at the same tax bracket with the income increase from RDM.

Jesus. The tax bill if you're not careful with that conversion woukd be dreadful. Fill out the tax bracket with the conversion if tgat's what you want to do.

There is no guarantee that the over-spending cash-strapped US government won’t introduce tax on Roth IRA. Say, not on the principal (which would be wealth tax) but on the gains. I’m sure they can come up with some “fairness” excuse to finance yet another war or to pay for the open borders and welfare paradise for illegal migrants. I think the political consideration is far more important than any financial consideration based on how things stand TODAY, because TOMORROW we can wake up to the Orwellian nightmare.

I'm 54 and my wife and I are VERY worried about our future, gas and food prices rising daily. We have had our savings dwindle with the cost of living into the stratosphere, and we are finding it impossible to replace them. We can get by, but can't seem to get ahead. My condolences to anyone retiring in this crisis, 30 years nonstop just for a crooked system to take all you worked for.

you better do a rollover Roth IRA also to make sure your assets are protected from any future lawsuits. Moving money regardless of tax favor it is also important to protect yourself from liabilities. would like to point out the fact that In 1981 if you made above 700k you were more than well off and I don't know what complaints in life you really are having? But that's another conversation,

It would be interesting to know what the median balance in retirement accounts both Roth and traditional is in 2024? Next it would be interesting to know what the median withdrawal amount that was taken from those accounts last year? I would think that withdrawal amounts are not very large and would have small tax liability. The average 401k balance in 2022 was $112,572 dollars that tells me the median would be much lower. If you took the average and applied the 4% rule on withdrawal you would be taking out just over $4,500 dollars annually. Even if you doubled the average you’re still looking at under $10,000 in withdrawals… 🤔🤔🤔

Some articles say only the original Roth IRA account has to have been 5 years or older for withdrawals of earnings by a beneficiary to be tax free. But some seem to indicate the Inherited Roth IRA account the beneficiary opens to hold the money has to be 5 years old. The Roth IRA I inherited was more than 5 years old at time of passing. However my brokerage managing the inherited Roth IRA entered a "T" for box 7 on my 1099-R and not a "Q" for qualified distribution which added the full taxes on it. Do I have to pay any taxes on distributions from the Inherited Roth IRA account holding the money or do I have to wait 5 years myself also? Why do you think the brokerage entered "T" instead of "Q"?

I'm in a similar boat, thinking about retirement and what to do with my savings. It's such a crucial decision, especially considering tax implications and long-term growth. Speaking of which, have you guys heard about platforms like My Digital Money? They're changing the game when it comes to retirement planning, offering ways to invest in cryptocurrencies within your IRA.

If you making money, what is the problem of paying more taxes? More Taxes help your neighbors, poor, and others.

I’m being bombarded by Financial Salesmen to convert my 401k to Roth. I am not a believer that our tax code will significantly change for those of us not in the top quartile, so I ignore all these folks with their funny math. You did a great job here to explain all the considerations for this approach . . . . and now I will look at it a little bit harder to make sure I’m comfortable with my position going forward. Your balanced approach is the best version I’ve seen to truly consider Roth conversion.

It’s a matter of control. With rmd will force you into ss tax torpedo, capital gain taxes and irmaa issues. Even less control if taxes increase or if spouse dies. Conversion allows control . QCD allow control. Delayed ss allows control.

Do yourself a favor: NO! I reviewed hundreds of these during my career and very, very few made sense. Too many variables. What state will you live in? What will the market do? How long will you live? All these will change your answer. Although I didn’t need to, I could make the answer “no” by changing a variable that the taxpayer couldn’t answer. Only in a zero percent bracket would it work. News Flash: The Government will never give you a free lunch.

The IRMAA penalty you reference is per person. Thus, the penalty charge is per person.

401K nitpicky.... It's actually the year you turn 55 for 401K access. Indeed, you could leave that Jan. 1st and not turn 55 until Dec. 31st and still be able to access without 10% penalty as long as you did retire from the 401k company in question.

Great talking 👍.Hopefully, Roth rule stays the same forever!

Always have a non taxable account along with your 401k or IRA etc. In fact, I have more saved in my regular account for these reasons stated. I think I will end up way ahead when I retire.

I need to look at the poorer version. I am 64 with 175,000 in my 401(k). I will have to draw about 800 a month to live on. I don’t know if I should roll to a IRA.

Since they have 500K in the bank. Why not pay the Roth conversion tax amount form the bank account bucket so the full amount of the 401K taken out can go into the ROTH account?

it doesn't make sense to convert. You have to pay taxes. If they have S/S in the amount of $3,500 per month and they need $48,000 per year then they can make up the difference from the 401K without paying ANY tax. This goes on until RMD age which would be 75. This example doesn't make3 sense.

Thank you for explanations of QCD. I totally understand it this time.

Why are you using 10% when you withdraw $200,000 from the 401k after it doubles? Our federal tax rate is much higher if you withdraw the $200,000 at once. Why just double the money show the growth of 15 years and 20 years instead of just doubling once. The answer becomes much more obvious.

RMD's have now been dropped on Roth 401k's as of 2024, so that would make the conversion more beneficial