IRS Publication 590-B page 32 is a flowchart that shows that if you are 59.5 or better and have EVER HAD A ROTH that was started 5 colander years or more ago, then all of the funds in all of your ROTHS are 100% qualified and there is no tax for withdrawal.
Premise Government is overspending; They will increase taxes; My Question what stops them from implementing a tax law to tax ROTH IRA after some withdrawal, after 100k every dollar taxed at 5% as an example? All accountants recommend paying minimum taxes in immediate timeframe and worry when tax law actually changes.
The main thing that keeps them from doing that is they are elected officials who like being elected officials and if they change rules that were previously tax free that would be career suicide. Other than that, nothing keeps the government from doing anything it wants to do.
it doesn't make sense to convert. You have to pay taxes. If they have S/S in the amount of $3,500 per month and they need $48,000 per year then they can make up the difference from the 401K without paying ANY tax. This goes on until RMD age which would be 75. This example doesn't make3 sense.
Then they will be in higher taxes from RMDs forward, if they do their planning right they could stop their conversions at a rate that is done essentially tax free so some conversions will make sense. The key is paying the lowest percentage whenever you can
Wouldn't it make sense to convert the 67,150 at 12% over each of the next few years rather than pay any tax at 22%? That would keep your effective tax rate much lower than the 15%.
Yes, it would make total sense if we knew taxes weren’t going to increase. The current tax code in place now is set to expire after the 2025 tax year so the unknown in this equation is how much time will we have the low brackets we have today. The government could change income taxes the next year or they could extend the current code longer. Based on our growing debt, it's our opinion that taxes will likely need to increase sooner rather than later but that is one of the factors to consider in this decision for sure
The professionals presently control the market since they not only have the essential business strategy but also have access to inside information that the general public is not aware of..
Why wouldn't delayed SS be on the table? Low income needs, plenty of assets. Use as much as possible of the 401k after you stop working, plus do the conversions like you are presenting.
Harold, as I mentioned in your other comment, it definitely would be on the table. For this example we are looking at one particular scenario that doesn’t mean it is the only way to do it but mainly using Social Security filing as a way to understand where long term income amounts would be.
The chart is 2023 tax brackets with standard deductions included. We do this because this is the way most people think about their income and it allows them to see what tax rate their top dollar of income would be at.
@ *tlar* it would be less confusing if chart clarified before $27,700 standard federal deduction or showed typical chart with added notation "after $27,700 standard federal deduction"
That is definitely a problem we look to plan around in these types of conversations. The problem is IRMAA is the penalty of choice today, who knows what things our government will cook up for us as time passes!
I rolled over my 401k fund from previous employer into my current employer. I’m under 59.5 years old. Can I convert the rolled over fund to Roth without penalty?
when they say roth accounts need to b in place for 5 years before they are considered tax free... they mean the actual account needs to b opened 5 years? or the funds u move need to b in place in a roth account for 5 years (my roth has been established for more than 5 years.... looking at converting 401k in a diff account to my current roth in a diff account diff company) im 48 years old
The funds converted under the age 59.5 have to be in place for 5 years, otherwise they would incur a 10% penalty. It applies to the funds that are converted each time. Not the age of the account itself
@@michaelangelo975That is not true. Form 590-B page 32 shows that if you have or at one time sterted a ROTH more than 5 calamder years ago and are 59.5 or better then ALL OF THE FUNDS IN EVERY ROTH YOU HAVE ARE QUALIFIED AND TAX FREE.
Jesus. The tax bill if you're not careful with that conversion woukd be dreadful. Fill out the tax bracket with the conversion if tgat's what you want to do.
Thanks for your comment! You're absolutely right. Taxes can be a major concern when converting to a Roth IRA or doing any kind of tax strategy like this. It's crucial to carefully calculate how much of your tax bracket you're filling with the conversion to avoid pushing yourself into a higher tax bracket. Ideally, you should convert just enough to maximize your current bracket, but not so much that it spikes your tax bill. It can be helpful to work with a tax professional to fine-tune the amount and make sure you're not getting hit with any surprises.
Thanks for the comment Earl! Sounds like you have a good idea of how you want to handle things but if you're ever unsure, we'd be happy to take a look at your situation with you and see if we can help. Let us know! Schedule here: bluetube.timetap.com
@@blueridgewealth I hear a lot of fear about tax rates being raised in the future but nobody has a crystal ball. Based on historical tax rates I believe the really high earners should convert to Roth ASAP. Everyone else in the lower brackets will probably be fine...also there's something to be said about using QCDs to fulfill RMDs. I believe a lot of charitable contributions will not happen if everything has been converted and there is no concern about RMDs in your 70s and beyond.
When they retire and take their SS and some from their 401K/IRA's for their retired salary of $50,000 per year they will pay very little in taxes. Even when they get to their RMD years, their taxes will not be a killer. If they had 2 million dollars in their 401k/IRA's then doing a Roth conversions will make sense but not for the example done on this video.
Interesting point! As you can see here, there are many factors to consider in order to answer this question specifically for anyone individually. If you’d like to schedule a phone call or zoom meeting to dig deeper into your personal information, we’d love to see how we can help. Schedule here: bluetube.timetap.com
As people were told originally that Social Security would not exceed 3%, is there not the same ability for the FED Gov't to lie about the tax free status on the ROTH accounts? I mean we know the SS rate is more than 6% for the employee and an equal amount for their employer (so more the 400% of what people were originally told would be the SS ceiling); PLUS people are being told that by 2035 (oddly enough the year I would retire) the amount paid out to recipients will only be 75% of what each person is entitled to. I have seen info on-line that says that the government has raided what amounts to the entire SS nest egg. At the same time the Congressional benefits have not been raided nor have they been diminished in any way. It makes it hard for me to believe in the golden promise that is ROTH (though I would like to). As I have a projected 457b & Traditional IRA value that should be about $380k and a pension that looks like it will pay out based on a value of another $480k to $600k I may have more than 100% of my current wages to live on at 65 y.o. at this amount, I do not expect the Married filing jointly rate will be much different then the current rate. I am looking to place between 5 - 30% into ROTH just to avoid RMDs and to give a small lump sum that I can determine when is the best time to withdraw (needed for a car, a vacation, an unforeseen home repair). You may want to mention how a conversion to ROTH at retirement may allow more legacy options for your nest egg. Also, I noticed the 59.5 years old and thought you might want to do one for FIRE people that are reaching their early exit with a 457b and could be 5 or so years younger.
Ron, the truest answer is the government is able to change the rules at any time. Permanent is Washington is only as long as that party has power. Saying this I believe the government would have a hard time changing the rules for things in the past. So if you contributed to a tax free account while it was tax free I think you would be fine. Could the government do away with Roth accounts for those that don’t have them and future contributions? Sure, and I think that option would be more likely. After all these are still elected individuals.
Remember though, most of the time, if government lowers taxes, revenues go up due to the stimulation. Republicans know th8s, democrats do not. So don't bet taxes will be higher as it's a guess at best.
Not enough to fix the current situation. We are at the lowest tax rates in 4 decades and we are adding to the debt at an alarming rate. Taxes must increase especially when we reach a decision point on SS in the early 2030’s
Taxes do not have to go up, imo. The government needs to stop all of the wasteful spending. Social security is not an entitlement as some politicians like to call it. If you have worked 35 years, you and your employer have paid into the system. Now, welfare is an entitlement that could be reduced or done away with, imo! Quit rewarding irresponsible behavior. After that first child, you should not receive more money for having two,three, or more kids. I'm all for helping veterans, truly disabled people, elderly, and even pets, but not these young people having babies, and not working to support them. I only had one child because that is all I could afford.
@@blueridgewealth Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $168,600 (in 2024), while the self-employed pay 12.4 percent. The payroll tax rates are set by law, and for OASI and DI, apply to earnings up to a certain amount. These dedicated payroll tax levels will likely change, but not necessarily pushing brackets up with it IMO.
IRS Publication 590-B page 32 is a flowchart that shows that if you are 59.5 or better and have EVER HAD A ROTH that was started 5 colander years or more ago, then all of the funds in all of your ROTHS are 100% qualified and there is no tax for withdrawal.
Very informative video. You earned my subscription.
Premise Government is overspending; They will increase taxes; My Question what stops them from implementing a tax law to tax ROTH IRA after some withdrawal, after 100k every dollar taxed at 5% as an example? All accountants recommend paying minimum taxes in immediate timeframe and worry when tax law actually changes.
The main thing that keeps them from doing that is they are elected officials who like being elected officials and if they change rules that were previously tax free that would be career suicide. Other than that, nothing keeps the government from doing anything it wants to do.
Good info. Enjoyed the video. Thanks for sharing
Thanks @loucinci3922! We're glad you found value in our video!
it doesn't make sense to convert. You have to pay taxes. If they have S/S in the amount of $3,500 per month and they need $48,000 per year then they can make up the difference from the 401K without paying ANY tax. This goes on until RMD age which would be 75.
This example doesn't make3 sense.
Then they will be in higher taxes from RMDs forward, if they do their planning right they could stop their conversions at a rate that is done essentially tax free so some conversions will make sense. The key is paying the lowest percentage whenever you can
Wouldn't it make sense to convert the 67,150 at 12% over each of the next few years rather than pay any tax at 22%? That would keep your effective tax rate much lower than the 15%.
Yes, it would make total sense if we knew taxes weren’t going to increase. The current tax code in place now is set to expire after the 2025 tax year so the unknown in this equation is how much time will we have the low brackets we have today. The government could change income taxes the next year or they could extend the current code longer. Based on our growing debt, it's our opinion that taxes will likely need to increase sooner rather than later but that is one of the factors to consider in this decision for sure
The professionals presently control the market since they not only have the essential business strategy but also have access to inside information that the general public is not aware of..
Why wouldn't delayed SS be on the table? Low income needs, plenty of assets. Use as much as possible of the 401k after you stop working, plus do the conversions like you are presenting.
Harold, as I mentioned in your other comment, it definitely would be on the table. For this example we are looking at one particular scenario that doesn’t mean it is the only way to do it but mainly using Social Security filing as a way to understand where long term income amounts would be.
At 13:13… where did you get your 2023 tax bracket?
The chart is 2023 tax brackets with standard deductions included. We do this because this is the way most people think about their income and it allows them to see what tax rate their top dollar of income would be at.
@ *tlar* it would be less confusing if chart clarified before $27,700 standard federal deduction or showed typical chart with added notation "after $27,700 standard federal deduction"
They tell us to save save save for retirement and then hit us with IRMAA!
That is definitely a problem we look to plan around in these types of conversations. The problem is IRMAA is the penalty of choice today, who knows what things our government will cook up for us as time passes!
Do you have any video for those filing Single with a similar scenario?
I rolled over my 401k fund from previous employer into my current employer. I’m under 59.5 years old. Can I convert the rolled over fund to Roth without penalty?
Depends on your plan and how you pay taxes on the conversion. If the plan allows and you have after tax dollars to pay the taxes then yes
when they say roth accounts need to b in place for 5 years before they are considered tax free... they mean the actual account needs to b opened 5 years? or the funds u move need to b in place in a roth account for 5 years (my roth has been established for more than 5 years.... looking at converting 401k in a diff account to my current roth in a diff account diff company) im 48 years old
The funds converted under the age 59.5 have to be in place for 5 years, otherwise they would incur a 10% penalty. It applies to the funds that are converted each time. Not the age of the account itself
If you have an existing Roth that is funded for 5+ years and you open a new Roth, the 5 year rule does not apply to the new Roth.
@@michaelangelo975That is not true. Form 590-B page 32 shows that if you have or at one time sterted a ROTH more than 5 calamder years ago and are 59.5 or better then ALL OF THE FUNDS IN EVERY ROTH YOU HAVE ARE QUALIFIED AND TAX FREE.
Jesus. The tax bill if you're not careful with that conversion woukd be dreadful. Fill out the tax bracket with the conversion if tgat's what you want to do.
Thanks for your comment! You're absolutely right. Taxes can be a major concern when converting to a Roth IRA or doing any kind of tax strategy like this. It's crucial to carefully calculate how much of your tax bracket you're filling with the conversion to avoid pushing yourself into a higher tax bracket. Ideally, you should convert just enough to maximize your current bracket, but not so much that it spikes your tax bill. It can be helpful to work with a tax professional to fine-tune the amount and make sure you're not getting hit with any surprises.
If I did I would do it little by little. If my income at retirement is going to be low. I wouldn't do it. I would just put it in a rollover IRA.
Thanks for the comment Earl! Sounds like you have a good idea of how you want to handle things but if you're ever unsure, we'd be happy to take a look at your situation with you and see if we can help. Let us know! Schedule here: bluetube.timetap.com
Their social security payment is $44,000 and income requirement is $48,000, so why not just take $4000 from the 401K to keep taxes low?
You could do that but even taking low amounts at higher rates in the future is worse than paying taxes at a lower percentage today
My 401K has over $900,000 dollars I want to hit $1,000,000 million dollars.
@@blueridgewealth I hear a lot of fear about tax rates being raised in the future but nobody has a crystal ball. Based on historical tax rates I believe the really high earners should convert to Roth ASAP. Everyone else in the lower brackets will probably be fine...also there's something to be said about using QCDs to fulfill RMDs. I believe a lot of charitable contributions will not happen if everything has been converted and there is no concern about RMDs in your 70s and beyond.
I think you spelled principal wrong
Yes, thank you. We have corrected it for every video we’ve done in the past 9 months.
When they retire and take their SS and some from their 401K/IRA's for their retired salary of $50,000 per year they will pay very little in taxes. Even when they get to their RMD years, their taxes will not be a killer. If they had 2 million dollars in their 401k/IRA's then doing a Roth conversions will make sense but not for the example done on this video.
Interesting point! As you can see here, there are many factors to consider in order to answer this question specifically for anyone individually. If you’d like to schedule a phone call or zoom meeting to dig deeper into your personal information, we’d love to see how we can help. Schedule here: bluetube.timetap.com
As people were told originally that Social Security would not exceed 3%, is there not the same ability for the FED Gov't to lie about the tax free status on the ROTH accounts? I mean we know the SS rate is more than 6% for the employee and an equal amount for their employer (so more the 400% of what people were originally told would be the SS ceiling); PLUS people are being told that by 2035 (oddly enough the year I would retire) the amount paid out to recipients will only be 75% of what each person is entitled to. I have seen info on-line that says that the government has raided what amounts to the entire SS nest egg. At the same time the Congressional benefits have not been raided nor have they been diminished in any way. It makes it hard for me to believe in the golden promise that is ROTH (though I would like to). As I have a projected 457b & Traditional IRA value that should be about $380k and a pension that looks like it will pay out based on a value of another $480k to $600k I may have more than 100% of my current wages to live on at 65 y.o. at this amount, I do not expect the Married filing jointly rate will be much different then the current rate. I am looking to place between 5 - 30% into ROTH just to avoid RMDs and to give a small lump sum that I can determine when is the best time to withdraw (needed for a car, a vacation, an unforeseen home repair). You may want to mention how a conversion to ROTH at retirement may allow more legacy options for your nest egg. Also, I noticed the 59.5 years old and thought you might want to do one for FIRE people that are reaching their early exit with a 457b and could be 5 or so years younger.
Ron, the truest answer is the government is able to change the rules at any time. Permanent is Washington is only as long as that party has power. Saying this I believe the government would have a hard time changing the rules for things in the past. So if you contributed to a tax free account while it was tax free I think you would be fine. Could the government do away with Roth accounts for those that don’t have them and future contributions? Sure, and I think that option would be more likely. After all these are still elected individuals.
Xxx xx 8:19 8:20
ah they need to do as much as they can before age 63 tax yr, so they wont get hit with IRMAA at 65 and look poor on paper 👍
John, that is true and then be aware of the tax impact as they move forward to avoid increases to their medicare
YES! And get moving before you reach 63 and IRMAA kicks in AND the tax rates go up in 2026. There I just saved you ten minutes.
There’s a little more to it than that, thanks for watching
@@blueridgewealth Sorry man. I meant no disrespect. Wonderful video. I just hope that guy gets it and get moving before it’s too late.
Remember though, most of the time, if government lowers taxes, revenues go up due to the stimulation. Republicans know th8s, democrats do not. So don't bet taxes will be higher as it's a guess at best.
Not enough to fix the current situation. We are at the lowest tax rates in 4 decades and we are adding to the debt at an alarming rate. Taxes must increase especially when we reach a decision point on SS in the early 2030’s
Taxes do not have to go up, imo. The government needs to stop all of the wasteful spending. Social security is not an entitlement as some politicians like to call it. If you have worked 35 years, you and your employer have paid into the system. Now, welfare is an entitlement that could be reduced or done away with, imo! Quit rewarding irresponsible behavior. After that first child, you should not receive more money for having two,three, or more kids. I'm all for helping veterans, truly disabled people, elderly, and even pets, but not these young people having babies, and not working to support them. I only had one child because that is all I could afford.
@@blueridgewealth Social Security is financed through a dedicated payroll tax. Employers and employees each pay 6.2 percent of wages up to the taxable maximum of $168,600 (in 2024), while the self-employed pay 12.4 percent. The payroll tax rates are set by law, and for OASI and DI, apply to earnings up to a certain amount. These dedicated payroll tax levels will likely change, but not necessarily pushing brackets up with it IMO.