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The Roth conversion has been a popular financial strategy for many individuals and families for years, allowing them to shift their retirement savings from traditional pre-tax accounts like 401(k)s and IRAs to tax-free Roth accounts. However, with proposed tax increases on the horizon, some experts are predicting the end of Roth conversions as we know them.
The Biden administration has proposed increasing tax rates on Americans making more than $400,000 per year, as well as raising the capital gains tax rate for those earning more than $1 million annually. Additionally, some legislators have proposed limiting or even eliminating the ability to convert traditional retirement accounts to Roth accounts.
If these proposals become law, it could drastically change the landscape of retirement planning for many Americans. The benefits of Roth conversions would be reduced, and some people may no longer see them as a viable strategy for their financial future.
Currently, the main advantage of a Roth conversion is the ability to pay taxes on the converted amount at today’s lower rates and avoid being taxed on the growth of the account in the future. However, if tax rates increase, that advantage is diminished. Some experts predict that if tax rates rise significantly, it may not make sense to convert traditional retirement accounts to Roth accounts at all.
Additionally, the proposed limits or elimination of Roth conversions would also have a significant impact. Many people have used Roth conversions as part of their estate planning strategies, and taking away that option could have unintended consequences. For instance, if someone has a large traditional IRA that they plan to leave to their heirs, converting a portion of it to a Roth account each year can help minimize the future tax burden on their beneficiaries. If Roth conversions are no longer an option, that strategy would no longer be available.
Despite the potential changes on the horizon, experts are still advising people to be proactive about their retirement planning. Reviewing current retirement accounts, maximizing contributions, and exploring other tax-advantaged options are still important steps to secure a comfortable financial future.
In conclusion, the end of Roth conversions as we know them may be approaching, but it’s essential to stay informed and adapt to any changes. While traditional retirement accounts may become less favorable, there are still ways to optimize your retirement savings and minimize future tax liabilities. Planning ahead and consulting with financial professionals can help ensure a smooth transition and a secure financial future.
Because of my pension I get hit by the tax bomb every year. I really don't care…enjoying life and the mailbox check !!
You are correct, Josh. Good show. Make your conversions, be a bit aggressive, but the only thing that seems certain is 2026.
Hello again, Sir!
Since Roth conversions have been discussed here, want to pass along an idea I had.
I convert $13,000 per year. All of it is in a mutual fund.
Its current share price is $37.25.
Its 52 week low is $34.07.
Its 52 week high is $41.19.
The average of the low & the high is $37.63, if I did the math correctly.
If the share price when I convert is below the average, I will do the conversion and nothing else.
If it is above the average, especially if it is far above the average, in addition to the conversion, I will also sell some (no tax implications there, since it will remain in the Rollover IRA). That way, I will have cash to do conversions if the share price ever decreases significantly when I have to start taking RMDs.
One of my best friends said to me many times, "No one ever went broke by taking stock (or mutual fund) profits."
Hoping this made sense, & you found it worth your time to read.
Cheers and All Best!
as long as I stay in the 24% bracket…Still if I do $100,000 a year, that is a big chunk in taxes. Maybe $50000/year over 6 years while leaving a decent amount in the traditional IRA bucket and if needed do auto minimum withdrawals when the time comes. Trying to create ~$8-10K a month in income through the Roth. Between that and SS (wife and I combined at FRA will have $6100/month). With no debt, I'm thinking we should be fine.
I was worried, but Mr. Biden says everything is fine. God Bless President Reagan.
Reverse mortgage? That surprised me, Josh.
Worry more about defaulting on the debt.
Pretty cynical. Well I mostly agree with your view. The elite do run the country. But only if the masses are not riled up. You can read in the Gospels about the religious and political leaders being worried about the mob. They know hungry people , fearful people are dangerous. I spent the last 5 years moving money from my regular IRA to my Roth IRA. Left enough in my regular IRA to do my giving with QCDs. Tax wise this for my case makes the most sense.
I look at converting every year but every dollar I convert will be at a 32% federal tax rate. Tough pill to swallow.
If they even think of doing that, you just pull your Roth out and put it in a taxable account. There is very little you can do if the Bolsheviks come for you, so don't worry about it.
Can you convert brokerage to Roth beyond the max allotment? in my case 7500 a year?
I think there is some level of freedom from having a good chunk of money in roths (if not all of your funds). I like your idea of paying taxes when you have the money to pay them. It may not be financially optimal (which can’t be known in advance anyway), but it’s still worth it. Paying off your mortgage might not be financially optimal either, but it reduces risk and reduces anxiety/fear.
Josh you are making Uncle Sam very happy.
Currently you can distribute over 115k from a pre tax account and have an effective tax of rate of 8%.
If you delay your social security and the reverse mortgage line of credit from age 62 to 70 you will be able to distribute over 115k annually for the 8 years at an 8% effective tax rate.
The total tax paid over the 8 years will be approx 75k.
VS
The approx 280k in taxes you are paying in the 24% tax bracket to Uncle Sam to have the privilege of being 100% in a Roth and brokerage accounts
I understand that tax laws will be changing
but there will always be a lower tax rate than 24/32%.
There was a plan to limit Roths to a maximum to two million. Any excess would have to be withdrawn and subject to income tax. But the proposal went nowhere.
People should be more concerned about their actual lives, you’ll get cancer, auto accidents or god knows what. Worrying about geo politics is a waste of time
Secure 2.0 wants more Roth contribution to get a boost on current tax income cause they messed up so badly fiscally as always. If only thing, they would encourage more Roth conversion than blocking it. Haha
I know this will sound stupid to a lot of people, but I don't care how much I pay in taxes. I just want the plan that leaves me the most. I'll gladly pay more taxes if my portfolio continues to grow exponentially.
I’m in year 3 of a 7 year Roth conversion plan to convert to the top of 24% each year. I don’t think they will end Roth tax benefits.
Democrats keep putting changes to Roth conversions in tax package bill (proposals). Mostly it revolves around conversion loopholes for the "wealthy". Left wing rags keep making big deals about this legislation every time, even though nothing ever comes of it, as a means to create an appearance of "taxing the rich" and furthering their "pay their fair share" agenda(s). It's not like this fear-mongering has no source. Bestbthing to do is just shut the boob tube off. It's not like you can try to avoid the fear-mongering by avoiding left wing media because the right wing media just points its rhetoric and condemnations at what the left wing is proposing and you bear witness to all the hype anyway. Just tune out. To counter Timothy Leary, Turn off, tune out, drop in. Don't worry, be happy.
Exactl. Government is addicted to ROTH conversions.
Roth conversions are a way of collecting taxes early. Government loves them. Issue is that with RMDs being pushed back to 75 and the interplay of the ACA subsidy, they may not make sense economically (save for giving your heirs a tax break)
All things being equal, taxes are going up in 2026 (trump tax cuts expire). I am filling up current tax bracket up through 2025. I expect taxes will go up, but we don't know how, how much, or on who. Can't plan for what you don't know.
I'll gladly pay more taxes as long as I get those sweet stock picks from my elected representatives before anyone else. 😉