Roth IRA Conversion EXPLAINED (Roth Conversion Strategies for tax free growth)

by | Sep 17, 2022 | Roth IRA | 46 comments

Roth IRA Conversion EXPLAINED (Roth Conversion Strategies for tax free growth)




Roth IRA Conversion explained ( Roth Conversion Strategies for tax free growth). WHY SHOULD YOU DO A ROTH CONVERSION? Roth Conversions can come in a few forms – converting 401k to Roth 401k, converting Traditional IRA to Roth IRA, or a 401k to Roth IRA…regardless of where you have your pre-tax funds now (Traditional IRA or 401k), this video will educate you on Roth Conversion strategies, Roth Conversion rules, WHY you should do a Roth Conversion, WHAT is a Roth Conversion, WHEN to do a Roth Conversion, HOW MUCH you should convert, Roth Conversion taxes you’ll have to pay…and we discuss the most important detail that people skip when trying to educate you about the Backdoor Roth IRA…The Aggregate Rule. Additionally, we go over a few 2021 roth conversion strategies and I discuss the roth conversion ladder strategy where I suggest to only convert enough pre-tax funds until you hit the next tax bracket – as opposed to the Roth Conversion Ladder Strategy where a few other people suggest converting $50,000 / year to build out your ‘ladder’ of distributions starting 5 years later.

Check out my other video where I explain the Backdoor Roth IRA & the Aggregate Rule (Pro Rata Rule):
—————
Support the channel – random referral links:

➡️ SHOP from my GreenCompass CBD STORE:

➡️ JOIN my GreenCompass CBD TEAM:

➡️ BLENDERS SUNGLASSES: Get $20 off your order of $50 or more:

➡️ Nice & affordable WATCH STRAPS from StrapsCo:

➡️ My MAGNETIC COLLAR STAYS on Amazon:

➡️ Apply for an American Express Card with this link. We can both get rewarded if you’re approved!

See also  The Two 5-Year Roth IRA Rules Explained | Here's How They Work

➡️ Hey! I’m using SoFi INVEST 📊 to buy and sell stocks (and pieces of stocks) with ZERO fees. Open an Active Investing account with $100 or more and you’ll get $25 in stock. Use my link:

➡️ STUDENT LOAN REFINANCE WITH SoFi:

➡️ 50% OFF QuickBooks Online Subscription for first 6 months:
—————
➡️ Share this video with a friend:
➡️ Subscribe for more videos:
—————
SCHEDULE A FINANCIAL COACHING CALL WITH ME!
🤝
—————
MY WEBSITE
👨‍💻
—————
OTHER VIDEOS YOU MAY LIKE
Tax Rates: Marginal vs Effective Tax Rates:
Tax Bracket Management:
401(k) – Roth 401k vs Pre-Tax 401k:
—————
0:00 – Intro
0:57 – WHY do a Roth Conversion
1:46 – Less TAX in Retirement
3:49 – WHAT is a Roth Conversion
4:35 – WHEN to do a Roth Conversion
6:22 – HOW much should you convert
7:58 – Aggregate Rule

ABOUT ME 👇

I’ve been involved in people’s financial decisions for 15+ years (7 yrs Real Estate experience & 8+ yrs as a former Financial Advisor)…I now bring the financial successes, mistakes, failures, and best financial habits/tips to you through these videos.

My mission is to bring Financial Awareness to the forefront of your daily decisions so you can: improve your quality of life, increase your net worth, and grow upon your financial literacy. My videos are a reflection of my real-world experience as a real estate investor, stock market investor, student of finance, entrepreneur, and of course…my experience as a Former Financial Advisor.

This channel allows me to share my passion for personal finance, stock market investing, real estate investing, and entrepreneurship. I produce content that I would want to watch, and because of that, I give 100% effort in every video that I make. I also believe in complete transparency and open communication with my audience.

See also  Roth IRA Accounts and the Process of Roth Conversions

Subscribe if you are interested in:
#BackdoorRothIRA
#RothConversions
#FinancialPlanning

DISCLAIMER: I am not a financial adviser or a certified public accountant. These videos are for educational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. I am merely sharing my opinion with no guarantee of gains or losses on investments.

AFFILIATE DISCLOSURE: Some of the links on this channel are affiliate links, meaning, at NO additional cost to you, I may earn a commission if you click through and make a purchase and/or subscribe. However, this does not impact my opinion….(read more)


LEARN MORE ABOUT: IRA Accounts

TRANSFER IRA TO GOLD: Gold IRA Account

TRANSFER IRA TO SILVER: Silver IRA Account

REVEALED: Best Gold Backed IRA


Truth about Gold
You May Also Like

46 Comments

  1. Vaggeto

    Thanks for this! I still had 1 clarifying question: Are you saying from a timing perspective that you can do a roth conversion for example in March, 2021, but still have it impact your 2020 taxable income? So if income was lower than normal in 2020, you could convert up until the next tax bracket in March of 2021, and still on pay tax on that conversion based on your 2020 tax brackets?

  2. Chris Choir

    You aren't really considering every aspect of the 80% retirement rule. For one, when you work you pay SS and you pay FICA and in some states you have to contribute to payed family leave and all kinds of other liberal nonsense deductions. When you retire you don't pay any of this.

  3. Splathub

    My wife is currently not working and we will file jointly. So we’re under the income limit for a Roth IRA contribution. She rolled over her 401k to an IRA account. I believe she already contribute to that ira as well. She has about 30k in that IRA. Can she just roll over the entire amount into her Roth IRA which she also has and just pay tax on the entire $30k or is she limited to the $6k Roth IRA yearly limit? Thanks

  4. ItzExCal

    What if i withheld 11% for the taxes when I did the conversion how does that work?

  5. Peter Martino

    Thank you! My previous employer had a SIMPLE IRA (with Vanguard) which I contributed to for many years and haven't touched. I'm now self-employed and my income is too high to directly contribute to a ROTH. Are you saying that I should convert the balance of my SIMPLE to a ROTH before contributing to a Traditional IRA and using the "backdoor" ROTH strategy moving forward? Thanks again!

  6. Marc Coventry

    Good video! I chose not to do conversions until after I retired and executed all my stock options while in the first few years of retirement as conversions would shove me into the higher tax brackets. Now that I’m beginning to do conversions, it’s not clear how the 5-year rule works after 59-1/2. (1) does each conversion start a 5-year clock with respects to withdrawing the money tax free and do all conversions made in the same year to squeak under a tax bracket count as one conversion in starting the clock? (2) how does the 5-year rule work on self-directed Roth IRA’s where one wishes to include real estate investments?

  7. Etanaru e

    I would really appreciate if you would be willing to answer my question. I am trying to understand why a traditional IRA is needed for the conversion process? I have googled online, watched other videos, and many folks keep saying you can convert from 401k to Roth IRA, but no mention of traditional IRA OR if the traditional IRA is mentioned no explanation of why one must convert to it before converting to a Roth IRA.

    Would really appreciate if anyone can link me to sources explaining this !

  8. Drew Hitchcock

    Man….no idea why he doesn't have Mel Abraham's book on his shelve….

  9. inter215

    Question: If I converted 9k from my pre tax IRA to my Roth every year for the last 5 years before I retire at age 70 and begin collecting social security (staying within the 12% tax bracket) – would that extra income raise my annual income in the eyes of social security so that the amount I receive from social security annually will be higher when I retire at 70 and begin collecting social security than it would have been if had not withdrawn that money and my annual income had been lower? Thanks for your excellent educational videos.

  10. Deepika Tadakhe

    Thanks for posting this video! I have a situation where I made a $12,000(for the years 2021 as well as 2022) non-deductible contribution to a traditional IRA, but waited a few weeks to make the transfer to my Roth IRA and have since earned $0.18 in dividend; therefore the total balance in my traditional IRA is now $12,000.18. At this point can I transfer the entire amount into my Roth IRA or can I only transfer $12,000? What are the options I have here? What should I do about the $0.18? If I can only transfer the $12,000 how does the pro-rata rule impact me for the small amount left? Appreciate any help!

  11. b001ean

    Thanks K.Scholl! Question – can you circumvent the aggregate rule by opening a new traditional IRA? My wife has about 35K in her traditional IRA, can she open a new Trad IRA account and deposit after tax money into it and later convert to Roth IRA?

  12. ERW

    good info!! only you went so fast at the end i couldn't understand. thanks though

  13. Alex M

    I did a Roth conversion in December 2021, can I pay the conversion taxes in April 2022 or do I need to pay earlier to avoid penalties? (I am retired and last year I didn’t owe anything in taxes)

  14. Joe Scavitto

    I just saw this video while researching IRA and Roth IRA's. Have you heard of the Ladder where after holding funds in a Traditional IRA for 5 years, in year 6 you are able to convert 28,500.00 per year to a Roth penalty free? Thanks,
    Joe

  15. Kevlar1892

    Finally a video that I think addresses my scenario. I’m 39 y/o and have a retirement acct which I fund with pre-tax money through my company’s 401k program. I want to start contributing to a separate Roth IRA acct and investing/realizing gains and dividends tax free but I’m restricted because of my salary. Doing this back door conversion with after-tax money from a Traditional IRA sounds like it’ll work for me even though I’m limited to $6k annually. Am I wrong?

  16. Lin Guan

    Thank you for making this video! Out of ignorance, I mistakenly converted my 401k to a traditional IRA instead of Roth when I left my job this year- is there a way to rectify this? Cheers!

  17. Janet McCants

    Okay wait! Can I convert my 401k Traditional into a Roth?

  18. Brian West

    The five year rule does not apply if you’re over fifty nine and one half IAW IRS rules. You can access the funds when you please. Look at IRS rules for Roth conversions. It’s all there. Cheers!

  19. Joe 54

    Great video!! What books of yours are in the back though?

  20. Allen

    Why does everyone always say "taxes will go up over time" as a universal truth when in actuality that hasn't been happening?

  21. Jim Hagen

    Thank you for sharing your knowledge with many of us who are trying to navigate this vast financial ocean on our own. I have watched many videos talking about the Roth Conversion strategy and trying to protect yourself from the higher costs in retirement that catch many people off guard. From higher taxes because of large RMD's on your tax deferred accounts, having more of your Social Security taxed because of a higher taxable income and paying more for your Medicare premiums because you have a higher taxable income. I am fully on the Roth bandwagon. I recently converted my Rollover IRA into my existing Roth IRA. My employer is switching over their 401k plan and the new provider will finally offer a Roth 401k option. I plan on switching all of my contributions to the Roth 401k. My question is, is there a downside to converting my old pre-tax 401k to my Roth IRA once I stop working? Is having all of my retirement accounts in Roth form a bad idea? Thanks again.

  22. Michel Fortier

    A lot of blabbing but not much meat…..

  23. apeel2008

    Thanks. Just liked and subscribed. I have a question regarding the Aggregate Rule. Does the rule only apply to 401k rollovers that occurred in the same year as the year that you are trying to do a conversion, or does it also apply to past roll-overs that I may have done 10 years ago? Also, is this the same as they ‘Pro-Rata’ rule that that I have heard about?

  24. D Fong

    Can someone clarify these ? I heard that the taxable income plus the Roth IRA conversion figure cannot be more than a cap figure for each tax filing status. IS it true ? Also when we talk about Income , are we talking about GROSS income or AGI/MAGI /

  25. Michael Henderson

    Years ago, out of ignorance, I put in after taxed money, from my paycheck into an IRA. (not a roth) As long as it is there, I would wind up being taxed twice when I take it out. is there any way to undo the mistake?

  26. Ram Zee

    Excellent video as always, thanks for the info. I’m a bit puzzled:
    I quit my job last year and started my own business, so this tax year my income won’t be as high as it was with my previous job. I have $20k on 401k. Do you think I should roll to a Roth ira or just leave my 401k as is for a couple yrs and then rollover. This yr I just want to contribute $6k…
    Thanks!!

  27. c ber

    Why would I do a Roth conversion while I’m still working and my income is high – I’ll certainly have to pay more tax. If I wait til I’m not working and have no earned income, then ok. Does that sound right? For example if I earn 250k/year, converting 250k would make my income 500k, so id get wolloped.

  28. Paul Jackson

    All I want to know is how the conversion works and what’s the cost. You’re throwing in so much complication.

  29. dheeraj chidambaranathan

    Hi,

    This video has been really amazing and easy to understand. Thank you for doing this. 🙂
    I have a couple of questions with regards to Roth 401k to Roth IRA conversion.

    1. Say, for example, I have my contributions to a Roth 401k and my employer match, as I understand, is still traditional 401k match. When I convert my Roth 401k to a Roth IRA, do both the contributions convert to the Roth IRA?
    2. Once I convert it to a Roth IRA, can I take part of that contribution and move that to another Roth IRA like the FIRE community example you mentioned where I take out only say, 40k or so falling in the 10-12% bracket? How many Roth IRAs can I open this way? Is there a limit?

    Thanks a lot! 🙂

  30. B Y

    Thanks for the detailed explanation

  31. Straitjacket Studios

    I don’t believe you can do a Roth conversion at tax time for the prior year. You have to do Roth conversions in the calendar year therefore you can’t wait until tax time to understand your taxable earnings for the prior year. Unless I’m incorrect

  32. Wdeemar Wdeemar

    I like the media to go with the excellent presentation. Unfortunately TSP does not allow traditional to Roth conversions.

  33. Gil Fermin

    hi, should i convert my 8 yr old New York Life variable annuity IRA into roth ira, or should i wait when the market is down ?
    here are its details:
    POLICY IN FORCE SINCE: 03/18/2013
    Ending accumulation value: $185,457.44
    Surrender charge applicable: $503.59
    Cash surrender value: $184,953.85

    Rate of Return summary
    Current quarter 9.23%
    Year to date 12.45%
    Past 12 months 42.66%

  34. Old man Silas

    Simply put. The government will always have their own ATM card connected to your money.

  35. Pat B

    Lot of superfluous talk… what valuable information there is, could have been conveyed in two minutes.

  36. sdaf

    What are the rules on rolled over old 401k into a new company's 401k?

    for example, I have $50k in pre-tax 401k in Company A.
    When I changed companies, I rolled those $50k into the new company's pre-tax 401k.
    When I convert my 401k to an IRA once I retire, is there anything I should be worried about? or will all different company's pre-tax 401k will be counted the same way?

  37. Sebastian

    I am interested in rolling over my traditional to a roth and then pay the resulting taxes from the roth monies a few months later. Is this possible? Example: I rollover $50,000 to the roth, and then withdraw $10,000 from the roth a few months later to pay the tax payment. I figured since i'm over 72 I won't have any penalties/restrictions to do this. My theory behind this strategy is that I expect the roth assets to grow significantly over the next 3 months so I'd like to keep as much in there until I have to pay the estimated tax payment by the sept. 15th deadline.

  38. Straitjacket Studios

    At 5:23. How do you handle your Roth conversion when you wait until tax time? Do you still have an option to convert as a part of the prior year since now you’re past December 31?

  39. Think Think

    Can I convert after tax 401k contribution into Roth IRA, without it counting towards my yearly $6,000 Roth IRA contribution limit?

  40. jean lewis

    What about come limits, maximum allowed conversion?

  41. Stevie

    Why does converting IRA money to a Roth effect my tax bracket? I know I pay taxes on the amount, but IRA money is not earned income.

  42. Alfonso Blanco

    Thanks for the graph in helping to understand a bit more. Recently, I heard the term net zero rollover or a variation of it that Trump passed. I tried to find out more about it on the web, but no luck. Is this a real thing or some fast double-talk?

  43. Liza Romero

    Hello! Can you please clarify— can I rollover my 401Ks/403b/457 to a traditional/roth IRA while I'm still working with the company? Or should I quit the job first before I am able to rollover them to the IRAs? Thank you!

  44. Andres Delgado

    I have a traditional ira with with 1300. Currently rolling over a 401k. Should I convert to Roth?

  45. Michael Scheftic

    I did not save enough!!!! Age 61 can retire end of year – Federal employee – TSP $140K with small portion Roth. Do I keep working, do I do Conversion, do I ????

  46. Pretend Gallery

    Hi. Where did you get that sweater? : )

U.S. National Debt

The current U.S. national debt:
$35,350,842,310,771

Source

ben stein recessions & depressions

Retirement Age Calculator

  Original Size