9 Reasons NOT to Convert to a Roth in Retirement

➡ PLEASE READ! ⚠️ Be careful of scammers. In the COMMENTS section, We will NEVER offer any investment products, recommend a stock broker, or anything similar. Some scam bot commenters coordinate a “conversation,” including “asking” for investment help, and reply with "how great X idea/investment/person is" in the replies. These are scam threads. Do not fall for them."

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.

0:00 - Introduction
0:32 - Scenario #1
1:48 - Scenario #2
2:43 - Scenario #3
3:28 - Scenario #4
4:38 - Scenario #5
5:30 - Scenario #6
6:13 - Scenario #7
6:51 - Scenario #8
7:24 - Scenario #9
8:22 - Conclusion

[lances]

One of the best videos I have seen on this subject. Clear and concise.

[RetrieverTrainingAlone]

For us a huge RMD starting at age 73 made Roth Conversions a no-brainer. We reduced our tax liaiblity by more than $500, 000. Plus our heirs inherit the money tax-free.

[FailureatRetirement]

Literally every point you made are the reasons why I’m doing conversions.
Thanks for affirming that I’m on the right track.
This will be year three. The traditional IRA balance hasn’t changed much after the growth is added in but the ROTH balance sure is growing.
Not planning on doing it all but probably 60/40 ROTH/traditional IRA. We will have to see how it goes.

[legoboy]

Great to listen to clear speaker that can talk at good tempo, also agree for me Roth only made sense by paying taxes outside of IRA cash and also convert early in retirement 58 and 59 in my case.

[J--vi]

At 4:55, note that the 5-yr rule for Roth conversions goes away once you turn 59.5 (the other 5-yr rule since you first funded a Roth still applies)

[pleujcw]

Such great advice that many financial advisors I have interviewed don’t cover!

[steveblake]

I never hear discussion of the lost investment value of the money used to pay the tax on a conversion. Do these conversion calculators take that into account?

[cometcal]

Good points but it takes some time to think through some of them. Good thing I can pause and replay the video when necessary.

[masterstacker]

Excellent video. Well worth watching.

[July..]

Nice presentation! .. I would think the median retirement account holder drawing down the median RMD amount would be paying very little tax.. I would expect the standard deduction to increase every year.

[PorscheSpeedster-kznc]

One clarification is the net capital gains rate at higher income levels can be as high as 18.8% or 23.8%. Still better than 35% or 37%. 😊

[pware]

The Step up in Basis mentioned for a taxable brokerage account when one spouse dies only applies to community property states .. otherwise it is only a 50% step up in basis..
Two more reasons Not to convert : 1) you and your spouse are similar age and health.. so both die about the same time.. so no spouse stuck in the single tax bracket for a long time.
2) your heirs that will get the IRA monies are in a low tax bracket... they get 10 years to divest the account and can pay it over 10 years with a reasonable tax bill.

[standlikearock]

Question: If I live in one of the tax free states, does that mean no state tax on Ira distribution?? If so, you can move out of and then into CA, for example after the ROTH conversation? Not sure if that is a good idea.

[xporkrind]

Wait. I thought the ROTH only eliminates federal taxes. Why would moving from CA to a non income tax state affect your federal tax analysis. It only affects your state tax analysis and I thought states don't recognize the ROTH ???

[keysersoze]

Many of these income examples on Roth conversion do not apply to most folks. Roth efficacy calculations are mere spitballing.

[jasonbroom]

I see a lot of cherry-picked data to support these reasons. If you convert to Roth over time, instead of in one lump sum, and you're able to keep your combined household income (for a married couple, filing jointly) to $127, 000/yr or less, then you never pay more than 12% in taxes on the money being converted to Roth. That means you avoided 22% or higher rates while you were working and can "lock in" a 12% tax rate on the amount you contributed. For most people, meaning those who aren't in the top 1 to 2 percent of retirees, they can ensure that they never pay more than a 12% rate on their tax-deferred investments, and zero taxes on all subsequent growth, by converting to Roth. You scenarios are correct, but they're largely unrealistic for all but the very wealthiest of retirees. In other words...you're not helping.

[Clarkus]

Point number 1 is misleading. You can't compare having after-tax money to pay for Roth conversions to not having after-tax money to pay for Roth conversions. You have to start with the same starting point when comparing things. How did the money get to be available as after-tax to begin with? Also, once you are 59.5 years old and it has been at least 5 years since you first contributed to a Roth account, then the 5-year conversion rule no longer applies. Please see Figure 2-1 of IRS publication 590-B. From there you learn that your withdrawal is qualified. People get confused because of what follows in 590-B which has only to do with non-qualified distributions.

[jonscrivner]

Get as much in a Roth as possible before starting SS benefits. After that, forget about it. There is a reason they call it tax diversification. It's a good reason, too. You can control your future taxability. This becomes most important for the surviving spouse. As we all know, each case is unique. No one size fits all.

[nickmcconnell]

One left field thing that can happen over the next two decades is much lower taxes.
How? Because of humanoid robot labor.
If these things become able to take over a large portion of labor, goods and many services will fall in price much closer to the cost of making them. This is because paying a worker to make and transport these things no longer is needed, allowing price cuts. You may not have to pull as much money out of your IRA to live ok.
As robotic labor takes over most manual, and some higher level, jobs the govt will start taxing the robot companies... and those companies that use the robots (which will be most or they will go out of business) heavily. Eventually these companies may pay the lion's share of taxes as the govt eases individual taxes and may even pay citizens a basic income as many jobs will have disappeared.
So in this, actually likely, scenario taxes on individuals may crater in 20 years. Just a thought.

[carlosgarcia]

Great information. 👍 How many times have you been told you look like Geddy Lee with a hair cut ? 😎