6 Reasons NOT to Convert to a Roth

In past videos I've talked about the power of Roth conversions, but in today's video I'm going to cover the 6 reasons why converting your Roth might not be the best strategy for you!

In this video, we explore scenarios where Roth conversions could actually lead to having less money in retirement with a Roth conversion.

Don't miss out on these crucial insights to optimize your tax minimization strategies.

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*ABOUT ME*

I’ve always been passionate about personal finance, investing, real estate, and helping people find the freedom to live their life with purpose. But when my dad died in 2015, I tried to help my Mom find an advisor to sort out her finances. Instead of a helping hand, I found an industry of financial advisors dominated by glorified salespeople working on commission — pushing products that were not in my mother’s best interest. Or advisors with minimums that shut-out all but the ultra wealthy. Disappointed with the options, I took matters into my own hands and launched Foundry Financial, a wealth management firm with transparent pricing that specializes in helping provide clarity around money — so you have the confidence to make smart decisions.My goal is to help a million people retire without worry!

📅 *THE BASICS OF RETIREMENT PLANNING*

Retirement planning has several steps, with the end goal of having enough money to quit working and do whatever you want. Our goal is to help people master retirement and retire without worry.

Step 1: Know when to start retirement planning. When should you start retirement planning? The earlier you start planning, the more time your money has to grow. That said, it’s never too late to start retirement planning. Even if you haven’t so much as considered retirement, don’t feel like your ship has sailed. Every dollar you can save now will be much appreciated later. Strategically investing could mean you won't be playing catch-up for long.

Step 2: Figure out how much money you need to retire, The amount of money you need to retire is a function of your current income and expenses, and how you think those expenses will change in retirement.

Step 3: Prioritize your financial goals. Retirement is probably not your only savings goal. Lots of people have financial goals they feel are more pressing, such as paying down credit card or student loan debt or building up an emergency fund.Generally, you should aim to save for retirement at the same time you're building your emergency fund — especially if you have an employer retirement plan that matches any portion of your contributions.

Step 4: Choose the best retirement plan for youA cornerstone of retirement planning is determining not only how much to save, but also asset allocation. It can make a massive difference in your retirement plan.

Step 5: Select your retirement investments. Retirement accounts provide access to a range of investments, including stocks, bonds and mutual funds. Determining the right mix of investments depends on how long you have until you need the money and how comfortable you are with risk. It’s often helpful to talk with an adviser to discover the right mix of stocks and bonds.

❣ *SPONSORED* No, this video was not sponsored.

⚠️ "DISCLAIMER:⚠️This is not financial or investment advice. This Channel is meant for EDUCATIONAL AND ENTERTAINMENT PURPOSE only. None of this is meant to be construed as investment advice, it's for entertainment purposes only. #retirementplanning #retirement #passiveincome

[foundryfinancial]

Does this video change your decision on whether to do a Roth conversion?

[Victor_Romero]

The key is to convert little by little if you have time on your side. I am doing a few thousand at the time. I have no idea the tax rates by the time I retire. So, I have some in traditional 401k and some in a Roth account, and converting as I go.

[miketracy]

It works best for those who do it gradually, have increasing retirement income, and live in states with no income tax.

[vernshird]

7. You'll be getting a sizable pension, your spouse will still be a high earner, and the conversion puts you in a higher bracket. My solution is to draw on the pre-tax and delay SS until my spouse retires.

[Beckylouis-cc]

My life changed too when I started doing this and putting money in stocks. The first few years it as really great, but this year I haven't felt like my portfolio is doing well. I have lost more than $40, 000 from my portfolio the past four months, and it's now very worrisome.

[kinggeek]

You need a video specifically for high income earners (32% and above brackets) and roth conversions (pros and cons)

[davJanko]

It took you perhaps 35+ years to get to this size of a nest egg. Can anyone guarantee I will get outsize returns after I convert? No. I will leave it be and let the person after me worry about taxes. I worried my whole life. Now is the time to enjoy

[marcodepalma]

Even if you pay the taxes out of available taxable accounts…shouldn’t the time value of money matter here? In other words, should the tax payments with/without Roth conversions over lifetime be compared on a present value basis? If I pay taxes now, that PV $ is more expensive than PV $ paying later. The off setting factor is, of course, portfolio growth (tax free or not). So, maybe, the only thing that matters is effective net worth (ie. Netting out IRA rolling tax liability)…since that’s cash flow based…and shouldn’t there be PV overlay on that too in terms of spend power? E.g if I pay PV$1M in taxes in the relative now (ROTH conv period) vs PV$1M in relative taxes later (RMD period) then is, really is about when my net worth is better off…that might not be until my 80s…this becomes a life expectancy question. Anyway, the more I think about this the more complex the equation gets

[TT-]

I converted a few years back and paid a hefty tax bill. Now my ROTH is growing tax free! I think it depends on each person's situation. I'm glad I did it!

[kellanhills]

I enjoy your channel. Always have managed my portfolio myself. I’ve made some stupid mistakes but also have persistently saved and worked hard so hopefully that makes up for it. I enjoy learning about money and retirement scenarios. I get a lot from channels like yours. You have an easy fun way of presentation.

If there are a few things I have learned it is don’t try to swing for the fences. It’s ok if you want to do this in small ways but it can crush your overall returns if you try to pick the next Amazon too often and with too large amount of your portfolio. And even IF you DO pick the next Amazon remember you gonna have to hold it for a substantial period of time through fearful pullbacks which rarely anybody can stomach. I have picked several stocks that started out in the sub dollar and went parabolic. People don’t realize it’s extremely difficult to know how much to invest and when to add and when to sell. You can loose loads of money if you get any one of these wrong.

Also don’t look at your portfolio too often. Maybe once a month. Have a good plan and ride it out.

Also beyond a certain point money doesn’t provide any more level of happiness. Money can give choices.

[keithmachado-ppfv]

On Reason #2, whether you pay the tax from other funds or the IRA funds makes no difference if you are over 59 1/2. In both cases, you are using funds you could otherwise invest for growth.

[donaldclayton]

Charitable contributions....totally agree. Very good reason. Reasons 3/4 very good.❤ Need to look at where you live now and where you are going to live.

[rodrigok]

I was hoping to prolong taking social security and convert small portions for 4 or 5 years… like 60k a year to grow the Roth portion and then stop when I start drawing social security. Am hoping to convert at a much lower rate - like 10 - 12 percent. I wouldn’t do large portions… just trying to reduce amount of RMD’s later in retirement. If I can get even a small portion moved over in 5 years, think it’ll be worth it in the long run.

[ArabellaBeatrice-]

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.

[Emily-leop]

Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account.

[SriKalHasti]

Thank you, made things add clarity to my long standing overthinking of this Roth Conversion confisions for a long time!

[skylark]

The government should run a completely free, first rate financial advisement for all citizens especially since they deliberately omitted these “tricks” from our high school curriculum. Thanks for your sound advice. It’s very appreciated

[MrRfries]

I think you missed a big reason. If you have no children to leave the money to or choose not to leave money to kids for whatever reason. RMD's are only in issue if you are trying to preserve big wealth for the next generation. All of these calculators are using the mean path, what if you are on the unlucky path RMD's won't be an issue as the amounts will be small. If you are on the lucky path and have so much money you are in a 34%+ bracket, Awesome!! Pay the tax and count yourself lucky. I think burning all of that money to pay taxes early for something that may be an "issue" later might cause an issue by lowering your balance compounding the sequence of return risk.

[keithmachado-ppfv]

Reason #1 baby. Not paying a nickel until I have to. There are no longevity or growth guarantees and who knows what could change in the future for rules. I will take my chances.

[mikespangler]

Reason 6. The ACA adds an effective 8.5% marginal rate to the taxes due. 22% becomes 30.5%. Ouch. It wrecks the effectiveness of a conversion really well.