Very refreshing to hear a balanced view compared to others with the conversion hammer seeing everything as a mail. I agree with everything said on this video with only one comment regarding paying more tax with one or the other strategy. You can pay more tax DOLLARS by deferring and still come out ahead if the tax rate is lower and the only reason for paying more tax dollars is the account has grown. You may not know which gives you the highest after tax net worth until 10 years after you die when your heirs empty the account. I have decided not to convert for the following reason. I Retired this year and in top of 22% bracket but under IRMAA. I want to take advantage of the next 7 years before SS to spend down some of my taxable account as well as reposition the balance to municipal bonds, stocks, and cash value LI to free up space to then start to withdraw from tax deferred accounts to live on along with SS, taking advantage of the standard deduction and low tax brackets. I also intend to move to a tax free state which further boosts the benefit of not converting. Once RMDs kick in at 75 I will have a bit lower balance (depending on market performance vs the withdrawals) and the standard deduction and tax brackets would have had 12 years of inflation adjustments which further helps. Then I can pay tax slowly over many years in future inflation adjusted dollars. I do acknowledge the widow trap changes the dynamic some but I am challenged to make a decision based solely on that factor.
Problem is that for each year in the future you run numbers the less correct those numbers will be. Adding the fact that half the inputs are pure guesses (even by a CPA), you may be as accurate just running a spreadsheet on your own. How long will i live, what will the market rate be year over year, what will tax rates be, what if i invest the cash from the taxes i would pay. Almost every inout past next year is a guess. I can be wrong for free no matter how complicated we make the process seem. Been running my own numbers for the past 30 years and looking back i have been pretty spot on. Giving someone 30,000 a year to make guesses, I can make myself just doesn't make sense.
I would love to see a case shown of someone that is not sick etc, but never should convert simply because their taxes are low their entire remaining life, so no reason to convert. Another words, they're in the 12% bracket or lower forever by taking their IRA withdrawals and their social security. Of course you could always partially convert in that case if there is any room in a year at a 10% or 0% rate.
That applies to a significant number of people with limited size IRAs. I am guessing the reason for the lack of podcasts on this condition is the fact that those people don't actually need wealth management. Checkout Numbers Crunch Nerds videos on the subject - you will be able to set up your own spreadsheets or purchase his (very cheaply) to better make your own decisions. What I have come to realize watching these various presentations is there will be situations where you may still want to convert. My personal goal in retirement is to minimize what I give back to Uncle Sam (preferably zero tax) yet maintain an enjoyable retirement while I still can. This is the first year that my self-employed income will almost all go to retirement accounts and that I will be able to move a significant amount of pre-tax funds to Roth. I will execute the same plan in 2025 and then make adjustments based on the changes to the tax code in 2026. I am hoping the 10% and 12% brackets are maintained in 2026 and beyond but I am not counting on it. The funds I move to Roth will be used for expenditures in a year that would move me to a higher tax bracket - vacations, new vehicles and gold / crypto (I don't have a lot of faith in the government's ability to continue the manipulation of fiat currency). Good luck.
Financial management and Roth conversions aren't as hard/complicated as financial planners would like you to believe. Buy or use free financial planning software and do it yourself.
My 457 says I can withdraw and keep working at 59 1/2. Would it make sense to take out $2000. A month from 457. Then put back in $2000. A month back in but into the Roth 457?
A problem with conversions I ran across I ran I've never seen mentioned in these presentations to WAIT AS LONG AS POSSIBLE IN THE YEAR to convert. In 2019 i started converting my IRA account with the goal of holding my tax rate @ 12% making the contribution in October. Unfortunately, i had 2 December income "windfalls" pushing my rates close to the 24% bracket increasing my total tax liability over $8000 . Having learned that lesson, in 2023 I benefited from an inverse situation. Costs from a Christmas plumbing surprise at a rental property reduced my income to a point where even with my SS, which i only began taking in the last 3 months of the year, left me with a Zero fed income tax rate, since i had no conversions left to make. The net result, over the 4 yrs 2019-2023, was a average tax rate of 11.5%. Had i not missed on the first year, it likely could have been between 8 & 10%.
Very refreshing to hear a balanced view compared to others with the conversion hammer seeing everything as a mail. I agree with everything said on this video with only one comment regarding paying more tax with one or the other strategy. You can pay more tax DOLLARS by deferring and still come out ahead if the tax rate is lower and the only reason for paying more tax dollars is the account has grown. You may not know which gives you the highest after tax net worth until 10 years after you die when your heirs empty the account. I have decided not to convert for the following reason.
I Retired this year and in top of 22% bracket but under IRMAA. I want to take advantage of the next 7 years before SS to spend down some of my taxable account as well as reposition the balance to municipal bonds, stocks, and cash value LI to free up space to then start to withdraw from tax deferred accounts to live on along with SS, taking advantage of the standard deduction and low tax brackets. I also intend to move to a tax free state which further boosts the benefit of not converting. Once RMDs kick in at 75 I will have a bit lower balance (depending on market performance vs the withdrawals) and the standard deduction and tax brackets would have had 12 years of inflation adjustments which further helps. Then I can pay tax slowly over many years in future inflation adjusted dollars. I do acknowledge the widow trap changes the dynamic some but I am challenged to make a decision based solely on that factor.
Great info
Problem is that for each year in the future you run numbers the less correct those numbers will be. Adding the fact that half the inputs are pure guesses (even by a CPA), you may be as accurate just running a spreadsheet on your own. How long will i live, what will the market rate be year over year, what will tax rates be, what if i invest the cash from the taxes i would pay. Almost every inout past next year is a guess. I can be wrong for free no matter how complicated we make the process seem. Been running my own numbers for the past 30 years and looking back i have been pretty spot on. Giving someone 30,000 a year to make guesses, I can make myself just doesn't make sense.
Another reason not to convert prior to age 65 is if your health care is through the ACA.
I would love to see a case shown of someone that is not sick etc, but never should convert simply because their taxes are low their entire remaining life, so no reason to convert. Another words, they're in the 12% bracket or lower forever by taking their IRA withdrawals and their social security. Of course you could always partially convert in that case if there is any room in a year at a 10% or 0% rate.
the RMDs changes the discussion completely...a couple million in your IRAs and your RMD is huge
That applies to a significant number of people with limited size IRAs. I am guessing the reason for the lack of podcasts on this condition is the fact that those people don't actually need wealth management. Checkout Numbers Crunch Nerds videos on the subject - you will be able to set up your own spreadsheets or purchase his (very cheaply) to better make your own decisions. What I have come to realize watching these various presentations is there will be situations where you may still want to convert. My personal goal in retirement is to minimize what I give back to Uncle Sam (preferably zero tax) yet maintain an enjoyable retirement while I still can. This is the first year that my self-employed income will almost all go to retirement accounts and that I will be able to move a significant amount of pre-tax funds to Roth. I will execute the same plan in 2025 and then make adjustments based on the changes to the tax code in 2026. I am hoping the 10% and 12% brackets are maintained in 2026 and beyond but I am not counting on it. The funds I move to Roth will be used for expenditures in a year that would move me to a higher tax bracket - vacations, new vehicles and gold / crypto (I don't have a lot of faith in the government's ability to continue the manipulation of fiat currency). Good luck.
Financial management and Roth conversions aren't as hard/complicated as financial planners would like you to believe. Buy or use free financial planning software and do it yourself.
My 457 says I can withdraw and keep working at 59 1/2. Would it make sense to take out $2000. A month from 457. Then put back in $2000. A month back in but into the Roth 457?
A problem with conversions I ran across I ran I've never seen mentioned in these presentations to WAIT AS LONG AS POSSIBLE IN THE YEAR to convert.
In 2019 i started converting my IRA account with the goal of holding my tax rate @ 12% making the contribution in October. Unfortunately, i had 2 December income "windfalls" pushing my rates close to the 24% bracket increasing my total tax liability over $8000 .
Having learned that lesson, in 2023 I benefited from an inverse situation. Costs from a Christmas plumbing surprise at a rental property reduced my income to a point where even with my SS, which i only began taking in the last 3 months of the year, left me with a Zero fed income tax rate, since i had no conversions left to make.
The net result, over the 4 yrs 2019-2023, was a average tax rate of 11.5%. Had i not missed on the first year, it likely could have been between 8 & 10%.