Why You SHOULDN'T Want a Tax-Free Retirement

Timestamps:
0:00 Why You Shouldn't Want a Tax-Free Retirement
0:17 What it Takes To Have a Tax-Free Retirement
2:03 What Should Your Tax Planning Goal Be?
3:33 Important Variable in the U.S. Tax System
6:05 Managing Taxes Each Year While Working
7:57 Case Study: A Tax-Free Retirement Costs Nearly $700,000

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

[hownwen]

Our plan is to live off cash for 4 years while doing roth conversions. Making sure we stay in a low tax bracket. Then Collect on ss and recalculate

[peterl]

Public debt/GDP ratio in the US is closing in on 130% (higher than the WWII peak). Tax rates (for all brackets) are going higher in the future. My retirement will happen in that future. I choose to pay the tax now and Roth convert while I have the cash flow to afford it. If I'm wrong and this is the biggest planning mistake I make, well, I can live with it. Thank you for such an informative video!

[hardlygamaliel]

One thing that isn't mentioned nearly often enough is that at least half of us will wind up single at some point in our retirement due to the simple fact that at some point our spouse will die. When that happens you're in for a VERY nasty tax surprise - you are now paying taxes as single. Brackets are cut in half, and the various penalty thresholds are also cut in half. Social Security alone can push you into the 22% tax bracket.

[kzalaska]

Another thing to consider is legacy. My goal is to have the right amount of traditional funds to fill up the 12% bracket and then at 73 have the balance low enough that RMD's don't push me up a bracket. I have about 2/3's of my investments in ROTH, I'll use some of it to pad my income and the rest will be a tax free inheritance for my daughters.

[davidfolts]

Don't jump over a dollar to pick up a nickel. Thanks, Safeguard Wealth Management!

[Cody-yoxb]

Eric, it would be interesting to hear some thoughts on intergenerational tax planning strategies.

[rickbrodston]

Thanks for doing a review of this. I am exactly in that state now. Keep up the good work.

[wingmank]

Another positive of roth is we dont know what taxes will be in the future. But yes its good to have options

[scottH]

One thing you're not considering for tax-free is military disability and that can be up to $4, 000 a month

[johnb]

heck yeah. I retired last yr under Rule 55, all my money is in Roth and taxable accounts. Once i reach 65, I appear to be "broke on paper" in regards to IRMAA and will be in the lowest bracket for medicare.

[bobbyz]

If you making good money and can afford it, nothing beats contributing to both the PreTax and the Roth accounts to the max.

[djee]

Maybe when I'm in retirement I'll have the free time to decipher those graphs

[gorgthesalty]

I am in the same tax bracket whether i do everything roth or pre-tax. Same percentage. And even if i managed to somehow drop to a lower tax bracket, it is only a few percent. But with roth, i will avoid minimum required distribution and having to plan rollovers in the future.

However, with pre-tax i could potentially pay less tax on just that saved money in the future.

Food for thought.

[davidh]

Great video! Spot on! One more reason not to convert 100% to a tax-free account is if one is inclined to donate money to charities. Qualified Charitable Donations (QCDs) are a great way to do this if you are over 70 1/2. You are able to move that money directly from your tax deferred bucket to the charity and not pay taxes or RMDs on that money. Paying taxes on the money via conversions, getting to 100% tax-free and then donating the tax-free money to the charity does not make good financial sense. You point that out very well in your other videos. Keep it up!

[annoyed]

Also consider that IRMAA is an additional tax on income so Roth conversions might help alleviate the tax tier for IRMAA

[ld]

Great discussion Eric! Thank you. Larry, Central Valley. Ca

[kannermw]

Best time to do Roth conversions is in a down market or with investments that are at a low point with a compelling belief they are under-valued and will rebound. Convert more at much lower cost in terms of taxes and get all future capital gains tax-free. Also hedging against future increases in capital gans tax rates. Plus wage tax cuts from TCJA end December 2025. After expiration the rates increase by 3-4% for each income group. That may not sound like much but it is $3, 000 per $100K in income. Better to convert now as long as it doesnt drive you up into next tax bracket.

[BillMaass]

A reminder for those targeting the 12% bracket which will likely be the 15% bracket in 2026. If you are collecting social security in that year, you are effectively paying a higher tax rate as you may be causing non-taxable social security to become up to 85% taxable. In other words, converting to Roth at 22-24% rates before collecting social security is roughly the same as 185% of 12-15% while collecting social security later in life.

[tyuzgbv]

As a single individual with a 401k about 450k, why couldn't I just convert 11, 600 of that per year into a Roth, does guaranteeing that I would never pay more than 10%

[Just_forfun]

When you convert 401K, 403B type plans to Roth IRA, I think you lose ERISA protection from judgements and bankruptcy; however if you convert to Roth 401k or 403B I believe you retain the protection, because its within the same plan, check your plan advisors and CPAs to be sure. Laws should be changed to extend the ERISA protection for any type of retirement money converted to a Roth IRA, even for pension lumpsum money that is converted to Roth.