Roth IRA Conversion Pros and Cons in 2024

In this video, CERTIFIED FINANCIAL PLANNER™️ Professional Colin Exelby discusses the most powerful way to build tax-free wealth. There used to be an income cap. But, that tax law was changed back in 2010 to allow anyone the opportunity to convert. But… that
huge advantage may be slipping away.

As a reminder, if you have Traditional IRA assets, you took a tax deduction at some point in the
past and you will owe taxes on those funds at some point in the future… and Congress is
counting on it, salivating at the chance to grab a large portion of those assets.

As we learned in Part 4 of the series, A Roth IRA allows for tax-free growth, tax-free
distributions and tax-free transfer of the assets to your heirs.

In part 5 we are talking about conversions. A conversion is where you elect to move assets
from your traditional IRA to your Roth IRA, pay taxes now at the historically low tax rates and
then never be taxed again.

Stick with me and I’ll explain:
Why Roth conversions are so important to the zero percent tax bracket in retirement and why the clock is ticking on this tremendous strategy

Timestamps :

00:00 Introduction
01:57 Converting Traditional Retirement Accounts to ROTH Accounts
03:18 The Sweet Spot for Roth Conversions
04:07 Roth IRA Conversion In 2022
05:37 Roth IRA Distributions Don’t Count As Provisional Income
07:05 How Should You Pay the Tax on Roth Conversions
07:45 The Importance of the Roth 5-Year Rule
08:55 When Does a Roth Conversion NOT Make Sense?

★☆★ Part 1: How to Keep Your Social Security Tax-Free ★☆★

★☆★Part 2: Why Current Tax Rates Are So Attractive for Planning ★☆★

★☆★Part 3: How Much Should You Have in Your Retirement Accounts to Create a Tax-Free Income? ★☆★

★☆★Part 4: Why the Roth 401(k) and Roth IRA are so Important to a Successful Retirement Plan ★☆★

[About] Colin Exelby is a Certified Financial Planner Professional™ or CFP®. He owns the virtual financial advisory practice Celestial Wealth Management.

I provide financial planning for business owners and their families that makes sense.

Transformational change is made when you focus on the big picture. My goal is to help you think outside the box about your life, your money, and your health to be the best you can possibly be.

We strive to help you:
*Optimize Your Cash Flow
*Minimize Your Taxes
*Build Your Net Worth
*Create a Lasting Legacy

If this sounds like what you are looking for then hit the subscribe button right here and I'll see you in the comments!

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#rothconversion #financialfreedom #financialplanning

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[karlfenner]

I watch a TON of these kinds of videos, and have learned a lot from many channels, BUT I have to say... “YOU, Colin, are one of the best I have ever seen!”

[supersteve]

Great information. Sure a lot of moving parts. You have a way explaining things in an understandable way. It's hard to believe the Boston tea party was over a 1 1/2 % tax to the king, and now here we are in the mid 20 % range for most working.

[kerrykavanaugh]

What every financial advisors "forgets" to mention that by doing a Roth IRA conversion, cause you to fall into a AGI that causes you to getcaught in the IRMAA trap and now I have to pay an additional 412 dollars a month for my part B and part D medicare plans.

[stacyjohnson]

I FINALLY GET IT… Well explained thank you🤞🏾👌🏾

[johnscott]

Doing a Roth conversion CAN save you a lot of money. Since distributions from a Roth IRA don’t count at all for any government program, if an emergency comes up you can access the Roth and not affect your benefit. For example, my wife and I get our health insurance through the ACA. We get a large subsidy based on our projected income. But this year alone we have had several major expenses come up. By using money from a Roth conversion we did not affect our subsidy at all.

[kaceebui]

Thanks for this video! I have a question: When one retires, their income would be lower in the retired years (whether it is earlier than 65 or after 65), wouldn't it make sense to pay taxes on the IRAs then instead of converting now when the income is high from being employed?

[stephtraveler]

The mindset: Pay for Roth conversions WHILE you can afford it.... In many cases its while you are employed, regardless of the simple math that suggests the conversions might not be financially beneficial in the out years.... Buying (converting and paying taxes) when you can afford them will pay off when you can't afford to convert (buy) them.

[haroldm]

How might having a favorable guaranteed return on a traditional IRA factor into the benefit of doing Roth conversions where the returns on that over the long term are likely to be less and subject to market fluctuations?

[kuntheajohnson]

I'm retiring this July .I plan on rolling over my differed compensation from my employer to my Charles Schwab ira
I am 55yrs old. I want to then start converting the funds from my ira to my roth. Will I pay the 10% penalty? Also I do not have funds to pay the tax on the conversions. What would be the best option for me? Should I hold off from doing the conversions?

[coast_into_retirement]

Thanks for the video. Great information. I subscribed.

[carlosarias]

I have over 1million on a traditional IRA whereas my cost basis is 20% [the money I have saved over the years], and the other 80% is the accumulated capital gains + portfolio appreciation. My question/concerns are how to reduce my taxes as im 10 years from retirement... not sure if these gains can be offset against any stock loses, or will all be taxable as ordinary income. Im seriously thinking of moving from New York City to Florida to avoid city and state taxes. This IRA may balloon even further onto 2-3 million.... don't feel inclined Uncle Sam takes half of it away.

[johnyoung]

I have a mutual fund in my IRA that is down 80K is sounds like it would be wise to convert it in kind to my Roth, thinking that if it recovers the 80k it would be tax free? I’m over 60 so if I did this and decided to sell or trade the mutual fund for another fund without withdrawing from the Roth is that possible within the 5 year rule?

[lenaj]

What if I didn’t take a tax deduction on my IRA in the past, can I still convert my traditional IRA to Roth?

[ednasalinas]

If I convert a significant amount to Roth and the converted amount is "income" added to that year. I am self-employed and pay quarterly estimated tax. How do I avoid the penalty for missing the estimated tax too much (after the conversion)? Can I just go to the IRS site and pay more than the CPA-calculated estimated tax? Thanks for your input.

[lisbethsalander]

I am on Social Security but am less than 72 . Could I do the conversion from Traditional IRA to Roth IRA?

[ron]

As people were told originally that Social Security would not exceed 3%, is there not the same ability for the FED Gov't to lie about the tax free status on the ROTH accounts? I mean we know the SS rate is more than 6% for the employee and an equal amount for their employer (so more the 400% of what people were originally told would be the SS ceiling); PLUS people are being told that by 2035 (oddly enough the year I would retire) the amount paid out to recipients will only be 75% of what each person is entitled to. I have seen info on-line that says that the government has raided what amounts to the entire SS nest egg. At the same time the Congressional benefits have not been raided nor have they been diminished in any way. It makes it hard for me to believe in the golden promise that is ROTH (though I would like to). As I have a projected 457b & Traditional IRA value that should be about $380k and a pension that looks like it will pay out based on a value of another $480k to $600k I may have more than 100% of my current wages to live on at 65 y.o. at this amount, I do not expect the Married filing jointly rate will be much different then the current rate. I am looking to place between 5 - 30% into ROTH just to avoid RMDs and to give a small lump sum that I can determine when is the best time to withdraw (needed for a car, a vacation, an unforeseen home repair). You may want to mention how a conversion to ROTH at retirement may allow more legacy options for your nest egg. Also, I noticed the 59.5 years old and thought you might want to do one for FIRE people that are reaching their early exit with a 457b and could be 5 or so years younger.

I think Congress is doing this anyone can convert to ROTH currently and after they milk the system as much as possible, I would look for them to tweak the agreement about taxing ROTH by probably a smaller percentage at first and then slippery slope to a higher amount.

[pizzame]

Social Security wasn't always taxed. If there is a large pot of money sitting around untaxed it's only a matter of time before the government will try to grab it.

[kingcontraian]

This aged nicely. This is one of those perfect times to invest in the market.

So if I have a low income who is also self employed and I want to take say $75k (from a settlement) put it in a traditional IRA And convert it into a Roth IRA.

What can I do to pay less taxes?

Self employed in 12% tax bracket before…if I can show my income below $41, 755 I can have my money I want to convert into a Roth IRA taxed at 12% instead of 22%

Any suggestions?

I’ve never used any tax professional so I wouldn’t even know who exactly to get.

[Marcelo-kycc]

If I max out my 401k can I still do a back door Ira? Thanks for the great video

[TravelingTheWorld]

If you are older than 59 1/2 and you do a Roth conversion. Does the 5 year rule apply for withdrawing funds?