How Long Until Your Roth Conversion Actually Pays Off in Retirement?

WORK WITH ME👇🏼

✅ See how we can help you get more out of early retirement

In the video, I explain when the best time to take a Roth conversion and other factors to look for before you decide how much to convert.

⚠️ "DISCLAIMER:⚠️

All content is not to be received as financial advice and each individual should consult with their dedicated financial planner, tax preparer, estate attorney, etc. before making any financial decisions.

All contents provided by This Channel is meant for EDUCATIONAL AND ENTERTAINMENT PURPOSE only.

This does not constitute an investment recommendation. Investing involves risk. Past performance is no guarantee of future results. Consult your financial advisor for what is appropriate for you.

⚠️ "Scammer" Warning ➡ PLEASE READ! ⚠️ Be careful of scammers. In the comments section, I will NEVER ask you to contact me, offer any investment products, recommend a stock broker, or anything similar. Some scam bot commenters 'ask' for investment help, and later, other comment bots reply with "how great X idea/investment/person is" in the replies. These are scam threads. Do not fall for them

0:00 - Introduction
1:21 - Why even Consider a Roth Conversion?
3:26 - The Wrong way to view Roth Conversions
8:05 - When Can a Roth Conversion Payoff Sooner
10:00 - The Right way to view Roth Conversions
10:55 - Outro

[lindsaynewell]

Thanks Matt - this is useful insight. I'm waiting for a market dip to get some post-tax 401k money converted to Roth. I don't think I've ever seen anyone do a video about that - could you cover it sometime (including pro-rata and 5 year rules). Another useful video would be what to consider when thinking about temporarily boosting 401k contributions (pre-tax or Roth) during a downturn. What would make that a good or bad idea?

[johnscott]

In my case it paid off almost immediately. I did a conversion to make an emergency fund right before the end of the year. I was already retired and my wife was retiring as of December 31st so our employer health insurance was ending. We were able to find a policy under the ACA that with tax credits only cost us $2.30 per month. But a few months into the new year I totaled our truck. Completely my fault, just didn’t pay attention. Anyway, insurance company gave us a good chunk of money but to get a good replacement vehicle was going to cost about $7, 000 more than the check. If I had to take the money out of the traditional IRA it would have reduced our tax credits and we would have really been hurting. But by taking the money from the Roth at the bank it didn’t affect anything.

[Bondbeer]

With the exception of converting to Roth in the zero % tax bracket (standard deduction) in which case the breakeven is immediate, there are too many variables to calculate an exact break even date. It may seem that converting in the 12% and 22% bracket is a no brainer, especially if you expect to be in a higher bracket later when collecting SS and RMDs. Except no one who has anything invested in risk assets knows whether they will go up or down or how long they will live. To truly determine whether a conversion is beneficial may not be determined until 10 years after you die when your heirs drain the account. There is also a time value of money as well as risk mitigation by deferring and paying tax later in life when you have fewer years to fund.

[carlhyman]

We have significant pre tax Ira Balances, challenge is we do not have much $$ in brokerage acct, money there is for emergency and spending reasons, Roth conversions for us means paying the taxes on the conversions with the conversion itself, not sure if that's even worth it in the long run, have you seen this dilemma before?

[nunuvyurbiz]

3:41 That's true but time does matter in one respect, if you will change how it's invested along with doing the Roth conversion. For example, if as pre-tax funds it's invested in fixed income, but as Roth will be invested in stock, then doing the conversion sooner rather than later is better, because that will increase the time in the market.

[thMonkeyEffect]

Is there a rule of thumb to aspire at the age of 65 to have your $2M portfolio as a pre-tax and roth percentage to mitigate RMD consequences at 75? I was thinking if you started at 30% of that being Roth, you'd be in pretty good shape to manage the taxes and irmaa surcharge moving forward.

[stephtraveler]

Good stuff. So much to consider. Here's my thoughts.
Aren't there recent changes where your 401k will not have RMDs?
Also, with recent election, the tax reduction will likely continue. 22% and 24% brackets.... vs 25%.
Finally, Im not Medicare age yet but retired. Thus, I did conversion over the last few years so that I can live on the Roth money to keep my reported income low enough to get a $1000/mo subsidy on healthcare insurance.