It takes more than simple rules of thumb that focus on marginal income tax rates to decide whether a Roth conversion makes sense or not. Dana Anspach of Sensible Money describes three ways to evaluate whether a Roth conversion adds value to your financial plan or not….(read more)
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The elephant in the room… A roth conversion locks down your funds for 5 years.. and each Roth conversion has its own account and that new account starts the 5 year clock again… A roth conversion isn't for everyone… you might need that money in less than 5 years
Lots of great considerations discussed here!
“Next 4-5 years” until taxes go up is actually 3 years.
My pension will be about 100k a year I’ll never be in a low bracket even when I retire
My goal is to do roth max conversions and still stay in the 12% federal bracket.
You don't have to take rmds on a roth
I agree wholeheartedly with 98% of what Dana said in this video. There are MANY factors to consider in deciding when and how much to convert to a Roth. The 2% is disagree with is the "break even date" with a Roth conversion. That's because traditional IRA dollars do NOT equate to Roth dollars. $100K in a traditional IRA is only worth $76K in purchasing power when you're in a 24% tax bracket. In other words, $100K or an IRA = $76K of a Roth (24% tax bracket). If your tax rate is the same when the Roth conversion occurs as when you withdraw it in retirement, the break even date is day 1 (not 5 years or 12 years mentioned in the video).
Very interesting How can I contact your office thanks
If I have real estate & joint SS totaling $150K a year, but I have almost $2M tied up in our IRAs , does it make sense to convert as our tax rate is never really low?
I'm 61, single & retired. I have $911,000 (49%) in my Roth, $185,000 (10%) in my Taxable & $757,000 (41%) in my 401K. I'm going to do three more years of Roth conversions, which should get my Roth to 59% of my portfolio. My average conversion tax rate is 12%, while my avoided tax rate on Roth withdrawals will be 42%. Hopefully, I have planned this out correctly.
Great job dana for explaining information in a very undestanding
Analytical way continue the good work and thankyou.
Excellent content, excellent delivery. It is unfortunate that she misspeaks at about the 2:20 mark and declares the standard deduction is $25,100 for a single person (It was $12,550 for 2021, and is $12,950 for 2022, with over 65 additions of $1350 and $1400, respectively). Don't know why that is not edited. The rest of the video is great. Not enough is said about hitting or avoiding the IRMAA cliffs.
Social security taxation …..don’t incorporate all the answers …did this improve your bottom line ? Liquidation. value
Calculate over their lifetime total withdrawals needed for taxes …plan number of conversions till age 25 …
Could be 5 years till age 72
Having a decent amount in a Roth gives you options so you can stay in the sweet spot with social security, Medicare, Obama care and staying in a lower bracket. You can show less income in the years that are advantageous .
You did not talk about the impact of IRMAA on these higher incomes as a result of conversions.
Quality content, videos like this and insight from an expert really goes a long way.
If that client CPA is self employed, she could do SEP's to herself. In doing so, her business can deduct the SEP's as a normal business expense, thereby lowing her business profit. Her business pays her the SEP which is a traditional IRA, then at the end of the year, she can convert the SEP into a ROTH which doesn't affect her normal ROTH contribitions, and she only pays tax on the ROTH conversion on her 1040. She'd have to pay tax on that SEP money if it were reported as business income anyway, but she lowered her profit by creating that SEP expense. Then pay the tax on that SEP when she reports it as a conversion rather than profit on her business. It's like getting the ROTH for free. Why pay tax on profit when you can pay tax upon converting, and keeping that money from EVER being taxed again…in perpetuity.
When it comes to health care subsidies, the government already has it worked out that they consider all income in determining whether you really qualify for the subsidy or not…The ROTH conversions hurt when you are trying to qualify for health care subsidies, but ROTH is forever…the subsidies eventually fizzle out when you become eligible for medicare…then you look at all your ROTH conversions you've done in all past years and say thank goodness I converted…because you don't owe a dime on any of that for the rest of your life.
wait! Your a math person, so do the simple math. If you understand how to fill out a tax form and understand what the standard deduction is that offests income…what's the problem…just understand that anything over the standard deduction is taxable…simple math and understanding tax preparation is a no brainer. Bottom line, stay under the radar of the std. deduction…gezzzz lady… If by chance you have income a little over the std. deduction, don't cry over it. Thank God you can afford to pay the tax…as little as it is…it's a sign that you're a successful person.
So she is a “numbers person “ but won’t approach Zero Tax because the math is hard? Her work involves projections every day ! The truth is that approaching Zero Tax simplifies money management in retirement so much we don’t need to pay her thousands to do it.
One of the best benefits of Roth conversions (other than tax free growth) is the ability to have more control of your taxs.
Wow you did a great job of explaining the nuances of tax planning for Roth Conversions.
Fact is, though the 401k, IRA, name it are one of the safest retirement plans, they are not particularly good options. Better strategy; Live below your means, Invest 20-30% of your income into the stock market but of course, be well informed about where you want to put your money… I made my first million earlier this year from stocks alone with about 550k after I dissolved my 401k and added little cash (through the help of a pro though). Greatest decision I ever made.
Roth conversion is STUPID
tax law adds unnecessary complexity on top of the inherit complexity of life and investing
In 2026 taxes are scheduled to go back up. May be good idea to do conversions over the next few years.
6:00 I concur; the Federal income tax code is not a simple construct — thus, any plan that seeks to optimize a tax profile to a given taxpayer’s objectives must by extension also not be simple; I find a zero Federal income tax objective a viable plan, but it really demands a strategic plan that spans 3-4 decades
How can anyone possibly calculate the “optimum” conversion amount when we don’t know future returns, future tax rates, future inflation, future expenses and how long we’ll live? These are all numbers that must be plugged into any model, but it’s all unknown.
Great video,do the math is right answer. I can't stand people saying 100% ROTH for everyone
Excellent content. Excellent delivery.
How can I contact you in any ways for consultation?
What’s your formula? I do Roth conversions when the market is down, it more than breaks even in the same year.
Well done and thoughtful.
But then your SS gets taxed if one just gets their rmds to standard deduction amount?
I retired at 55 with no income at all after 2 year severance. Im 64 and have been taking the tax hit but only up to 12% converting to roth. This is the first year I have to take distributions so my conversions will be minimal as I stay within 12%. Market now is finally starting to correct. If it’s >20% I convert more.
Add. Glad you brought that up about tax rates changing in 2025. That’s the driver behind my conversions. Plus. I don’t want to pay taxes on SS which will be about 5700 with spousal benefit.
Dana you are very good at explaining this subject and retirement income in general.
Thank You very much
You also need the cash to pay the taxes.
Very helpful. Thank you!
I like the idea of color coding action plans into green, yellow or red. Simple and visual.