At What Point Should I Consider Making Roth Conversions

Roth Conversions can be a great tax strategy to implement, but when should you do it? When is it best for your individual situation?

Timestamps:

00:00 - Intro
0:56 - IRA v. Roth IRA
1:48 - What is a Roth Conversion?
2:16 - When Should I Do a Roth Conversion?
3:12 - 3 Times To Do a Roth Conversion
4:34 - Roth Conversion Example
5:51 - 2020 Stock Market Example
6:28 - Save Money On Taxes!
6:54 - Subscribe!

_ _

For more resources and content, check us out here!

[jpdriver]

Thank you for the simple explanation. I will never have a "perfect" time due to pensions, but I see a window from 60-67 that I can do a percentage each year while staying below the next higher tax bracket.

[claudiobarbosa]

great explainer- straight to the point, simple and clear!! i did NOT have to pause video after each point to digest info.

[kulhuk]

MAGI amount is also important to consider for Medicare premiums.

[GustavoBoschi-vv]

Another point of consideration. If you plan on moving to a no state tax you may want to consider waiting until you move to start your
roth conversion.

[gregorymcmahan]

Jim,
Great presentation. BTW, you forgot to add that, whatever conversion strategy (low tax brackets generally, low personal tax bracket due to lower income in tax year or market rout), you need to have the funds set aside separately to pay the taxes due on the conversion.
Keep up the good work!

[nimajnebrm]

Great video. Very succinct explanation in a mere 7 minutes!

[slimpickens]

Great video, I never really considered trying to time a Roth Conversion during a big stock market downturn. Convert during the downturn and let the Roth account grow tax free.

[arzelaascoli]

I think another benefit is the ability to withdraw the Roth-converted money earlier than age 59.5 (5 years from the conversion if I remember right). In other words, more liquidity.

[rohitagl]

great explanations. First 2 mins of the video answered my question. :)

[TP-bcpt]

This was a really great explanation! Thank you 🙏🏽

[stevenobrien]

Excellent presentation. Roth conversions and laddering are great when using them yearly for FIRE.👍

[Jack]

Your point on converting when the market has tanked is crucial. Lets say somebody put the max of $7500 in early 2023 into a traditional IRA. He invested it in a hot stcok SCMI and it went up tenfold. Now worth $75000. If converted to ROTH the IRS wants taxes on $75000 whatever your tax rate is....if the stock stayed at 7500 for the year you pay your tax rate on only 7500. So much lower taxes on the same shares. Another way to lower your taxes outside of a 401K or IRA is to sell a stock at a loss...never good to lose money but you recoup something?😊

[tdaveniii]

Good presentation but the notion of doing conversions when the market is lower is just timing the market, which I'm guessing you advocate against. You can only tell in hindsight whether the market was lower.

[timothyohern]

I am always confused by the notion that we need to convert IRA to Roth IRA to reduce RMD’s and I get how that works, but if I start taking withdrawals right out of the gate would also have the effect of lowering RND’s and by taking funds out now it means I get to enjoy my savings vs saving for children or having a large Roth account and to old to enjoy those extra funds. Am I just missing something?

[JKLombardi-pf]

Thank you James. I'm 62 and strongly considering retirement in 3 years. I am not just considering a Roth Conversion, I am working towards making it happen this year. I am keenly aware of the sunset for the Tax Cuts & Jobs Act at the end of 2025, but I am trying to maximize my conversion this year (2024) because of the look back connected to Medicare and IRMAA that would be affected by conversions next year. While my current salary puts me in the 24% tax bracket this year, I am willing to top out that bracket but not go over it. It doesn't seem to make sense to jump higher than that when I can simply continue converting after I retire and my taxable income is less than it is now. I am curious though, considering that I do not currently have a Roth IRA, and my salary does not allow me to contribute to one, is my only option to get started a back-door conversion? Are there any options that would allow me to open a Roth IRA without immediately funding it, but having it ready to accept a conversion shortly thereafter, or by year's end?

[HB-yqgy]

Hello I'm retired 59 y/o wife wil retire end of this year 59.8 y/o New retirement suggestion 3 or 4 times to do Roth conversions into RMDs at 74 y/o eventhough sizeable IRAs, lifetime pension, wife with take SS 62 y/o. Also we need the income from the IRAs. I ran the 22%-24% tax brackets basically the same. Not enough taxable cash to pay sizeable roth conversions. Common sense tells us to start taking distributions ASAP at 60 y/o. Plus our children i believe will be in a lower tax bracket than us.

[sondersrn]

Can you do a Roth conversion with a 457 ?

[marcseigar]

Estate planning. Your heirs will inherit Roth accounts entirely tax free. However, the rules for inheritance of traditional IRAs can be a tax burden when your heirs are forced to take a distribution from it

[learninglessons]

Great video! Understand the theory but any software you can advise that calculates the optimal timing and amounts for Roth conversions? Thanks.

[davejoseph]

Yeah, it needs to be done at the right time, like when you are 25 years old.