Should you Convert your IRAs to ZERO? | Roth Conversions

If doing some Roth Conversions is good, does that mean doing larger Roth Conversions is better?

Should you convert all of your IRAs?

How aggressive should you be on a conversion in a given year?

These are common questions that we receive after many retirees find that Roth Conversions are necessary to optimize their retirement tax situation.

As with most tax planning, the answer is... "It depends."

In this video, we guide viewers through the key variables that determine how much you convert.

We talk through who will benefit from converting everything and who will be better off leaving some tax deferred accounts to fill in lower brackets later in retirement.

#RothConversion #RetirementIncomePlanning #MinimizeRMDs

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Always remember, "You Don't Need More Money; You Need a Better Plan"

[knitordi]

You always show the graphs and limits based on a married scenario. It would be helpful to show a single scenario for those of us who are widowed and single and have no secondary income of a spouse to cushion their situation. Living alone is stressful enough. Having to manage a financial future alone is very stressful.

[andersonlegacy]

Please include single or head of household scenarios not everyone has married filing jointly scenarios. Appreciate your content! ❤

[heathmurphy]

I may have missed it but you didn't mention anything about converting in a down market. If stock market dips down 20% and you convert, that eventual rise is essentially tax free.

[robertweiss]

Excellent video! I hope you consider discussing children (heirs) as a part of Roth Conversion planning in the future. For example, many families will have children in their 50s or 60s, near the peak of their earnings, when they inherit an IRA/401K. If they are high earners, they could pay 35% to 45% in Federal and State taxes on the distribution. So converting at a rate less than that may make sense for some and should be considered when creating a plan.

[fancher]

Well-presented. I’d appreciate a deeper discussion about conversions around the time when the first spouse passes. It would seem that the step increase in tax liability for single filers would easily drive a decision to convert ALL of any remaining Traditional IRA assets.

[MResearch]

Helpful information, particularly from a math perspective, but two factors not mentioned:

1) Ironically, the “Forced Income” issue, due to an inheritance - but not from your perspective, from your kids/heirs perspective. If you expect to leave a significant inheritance, often your kids are approaching peak income earning years. Do you want to be the cause of driving them into higher income tax brackets? Potentially sending more of your hard-earned money to the govt than necessary? Converting at least most of your 401K/IRA to a Roth IRA greatly minimizes this concern.

2) It is often likely one spouse will die several, even many years prior to the other. Therefore you have to look at the higher future tax rates of a surviving spouse filing individually. Furthermore, from a “soft” perspective, there can be significant emotional benefits to simplifying the tax situation for a less financially sophisticated surviving spouse - a Roth IRA can help with that.

[annamartino]

Thank you very much for this video. The Graphs seem to be mainly for a married couples. Could you please show the Tables and Graphs for Wealthy and not so Wealthy Singles in Retirement. Also, ideally show Tables by Income CUT OFF for each part of the Tax Torpedo which is a complicated concept (as one must be familiar with calculation of "Provisional" Income=1/2 of Social Security Income plus MAGI of ALL OTHER INCOME, and then be familiar with Taxed Income Step once "Provisional" Income is above the Social Security Base Income of $25k and below $34k for Singles then suddenly 50% of Social Security Income is Taxed, and then once "Provisional" Income is above $34k then suddenly 85% of Social Security Income is Taxed and once Must have a Table of Effective Marginal Tax Rates by Income Calculated to realize that Tax Torpedo Spike in Taxes is hitting mostly not the Super Wealthy but those who were hoping in Retirement to be on Ordinary Income and remaining in the same Tax Brackets and yet we'll designed for the Middle Class Retired the Tax Torpedo Spike is amazing as it ERASING WEALTH for most of us who didn't Plan on these Extra Torpedo Spike in Taxes being that Torpedo Taxes on Retired with Incomes even $1 above $34k and Paying Taxes of 48% in Torpedo Spike Zone which is exactly what they designed to do when they planned it. Keeping in mind that trying to convert Rollover to ROTH until 2026 is most likely optimal Strategy for most (especially extremely sick with expensive unaffordable unpaid by Medicare Meds and unpaid by Medicare Dental and Vision and Hearing, etc. so one must almost Plan to spend $2-3k on these Meds and unpaid Medical costs and it's maybe only option for them to stay in the LOWER Income brackets and possibly then qualify for Medication subsidies through MEDICARE Savings Program MSP run by states individually but only for those withdrawing from Rollover IRA and paying Taxes and not Roth IRA which has Zero Tax and Zero Impact on Eligibility for MSP). In this video it's clear that 48% Marginal Tax Rate in the Tax Torpedo Zone designed for ordinary Income which was supposed to be in the 22% Tax Brackets is REALLY STUNNING! Most were mistakenly only thinking about the spike to 25% Tax Brackets and only hypothetical Future Taxes rising as of 2026 after the Sunset of TJAC when discussing Rollover to Roth Conversions. Please do show in all of the same examples IRMAA Surcharges Analysis and loss of Medicaid Insurance for those on the lower Income flow spectrum and those who are sick ans don't realize that they can't afford basic expensive Heart Medications such as Brilinta ($1250 month) and Repatha ($1250 a month) not covered by MEDICARE Insurance and suddenly would like to apply in income based subsidy Programs for Health and Medications just to live another day in Retirement. It's a common thing to think it's only for Extremely Wealthy with nest Egg of $6 M and yet it turns out that once someone suddenly is retiring even earlier than age 65 because they are sick and then they have a different dilemma of how to not outlive Retirement Savings and afford to pay TAX TORPEDO of 48% Marginal Tax Rates with Provisional Incomes above $34k designed to ruin their Retirement Plan which most do without Tax Consideration unfortunately thinking Taxes in Retirement are like Taxes while working. Some people also have children and are trying to leave Roth IRA to Children and Grandchildren, as Rollover and 401k are taxed at 35-50% if you consider inheritance is received after age 40 at a prime earning time and now after the wonderful secure act 2.0 seem to be needed to be withdrawn within 10 years and Taxes in these inheritance Rollover and 401k during the 10 years are going to be 35-50% making all of us feeling betrayed as all our lives we were told to save and there were stretch for the lifetimes of the Beneficiaries pre-Tax inherited Rollover IRA which was not just Torpedoed but simply destroyed as a Balloon being deflated by those who desided to take it away from ordinary people just in time at the end of our life and dreaming about passing at least some of the inheritance to our heirs.

[jimlow]

At age 70-1/2 and above, you can donate directly from your IRA via a QCD. It doesn't hit your income line and satisfies your RMD. No need to convert and pay taxes on money you're planning to donate.

[dmoon]

2:00 Forward Looking Tax Planning — that plan should commence with one’s very first contribution to pre-tax / traditional plan. Every single pre-tax dollar must be assigned a role downrange, at what point (when) will it be withdrawn or Roth converted (or charitably donated, etc.) and what will one’s individual tax environment be at that point.

[danyarbrough]

Well done, Eric. This is a very helpful video.

[johnb]

just did our last conversion from our T-IRA's. Will have enough money left in our 401k's to cover from 56 to 67 and military retirement. SS kicks in and covers everything. military retirement will go to investment account and our Roth's continue to grow. NO RMD's :-)

[swimswim]

Can you do a "Foward looking tax plan" that delineates the essential components please? Thanks

[RamSamudrala]

I like the figure @ 1:25.

@ 4:00 it's not that simple as just 3%. It's always the opportunity cost of the taxes you'll have to pay right now instead of having it grow (either tax-free or even in a taxable). In order to convert a dollar at a 25% rate, you have to pay 25 cents in taxes. Where will this come from? What else could you have done with these funds? THIS is the vexing question in my view. I apologise if it gets addressed later and will edit my comment if that occurs.

[raybame]

I like your presentations. Fast, accurate, knowledgeable and very helpful. As an accountant/enrolled agent in bus for 47 years, I seen and practiced most of what I've seen in you videos. But, I've also learned and that is what I like. Liked and subbed. Thanks for your explanation of quite complex issues.

[wallace_n_gromit]

I am currently retired (federal govt) for 3 years age 59. Only needing my/wife's pension(s) and SPS (which will end at age 62), and QDI, to meet my needs. I don't plan on claiming my SS until I turn 67-70. I have a large Traditional TSP, a large personal account whose value is mostly LTCG's, and a relatively small ROTH IRA. After listening to various speakers and groups talking about F.I.R.E and Roth Conversions, Retirement planning, forward-looking Tax planning etc for several months now this year, I have to say that Safeguard Wealth Management presents this subject in a clear, concise (as can be with such a complicated subject), and (much more importantly) very comprehensive way much better than others that speak on this subject.

My only regret that that I knew nothing about such things until this year/ I wish I knew about this 3 years ago.

[mikefochtman]

Great informative video. I find myself in exactly this situation with 'forced income' filling up my lower tax brackets. Worse yet, since I'm single, the brackets shift 'left' on your graph such that I hit those higher brackets sooner. So I'm seriously considering even going into the higher brackets (and IRMAA) payments for the next 5 years. Turns out if I pay a lot of tax/IRMAA now, I can avoid higher taxes for many years after age 72.

So, as with a lot of planning, it depends if I live long enough. lol Pay high taxes on RMDs for 15-20 years, or pay taxes on conversions for just 5 years. Of course if I do the conversions and die at 73, I'll have paid the taxes and not ever enjoyed the lower taxes later.

[personaltravelandexplorati]

Can anyone suggest a ggod and free calculator for Roth conversion?

[Stocks]

Say at 70 you still have a balance of around 300k in your pretax IRA and then start SS, etc and don't need to tap that money - allowed to grow that money could be over 1m at the end of life which would steadily add to RMDs.
Still trying to understand the value of keeping assets in pretax if you can get it all converted

[jerrilayman]

You ROCK!!! Thank you for all this info. I've watched most of you videos in the last 2 days and it has helped me TREMENDOUSLY!

[kimappreciateslife]

Also need to consider ACA if retire before 65 & the look back for Medicare. Also if you sell your home you could have capital gains in today’s housing market