So why would you convert to filling a tax bracket once you get past 15%? Tax rates are progressive so the optimum strategy to pay the least amount of taxes is to pay the lowest average effective tax rate over your retired lifetime. Clearly filling that 32% bracket was not optimal because they paid 0% taxes for the majority of their retired years. So they paid somewhere around a 25% effective tax rate their against qualified balance, when they likely could have paid less than 20% if they had optimized the conversion to the lowest average effective tax rate over their lifetime.
I read through the comments hoping someone would call this out. They will also lose out on the growth of the money they paid in that higher tax bracket. Terrible strategy, unless they like giving the government extra money I guess.
I was going to post the same thing. Why are we giving away free money? Let's not forget the standard deduction you can take every year. At the bare minimum you should be converting that. It's free.
At 4:36 why would you convert right away. Between 60 and 75 you can do conversions there. This way you fill up the 0-24% tax bracket instead paying a 32% tax bracket
I am not a fan of Roth conversions unless the following is ensured 1. I know I will live well past my RMD years 2. I know I will not move to a no tax state in retirement. 3. I know my investments will grow. 4. I know I will be in a higher tax bracket in retirement. Since no one can guarantee this, I will not covert. Other points. 1. When paying tax on converting you pay all up front in your top tax bracket or higher with todays dollars vs deferring and paying slowly over many years with inflation adjusted dollars, potentially taking advantage of the standard deduction and lower tax brackets (if minimizing your other income). 2. If you were to convert at the end of 2021 and paid tax on $100k and it lost 25% in 2022 when the stock and bond markets dropped you would need. 33% gain just to get back to what you already paid tax on. 3. Time value of money - both the standard deduction and tax brackets adjust for inflation. The year 1 RMD at age 75 on $1m IRA is only $40k. The tax rate on that if no other income other than SS will be zero based on expected inflation adjustments to the standard deduction. 4. You can use your money now to enjoy life instead of paying tax to convert. $1 today is worth more for what you can do with it vs when you are in yours 80’s and your health and/or mobility has declined.
You definitely have my sub. This content is next level. For me Eledator was the turning point. Please keep doing what you do and keep being you, love it.
Ah, I knew I left something out. Thanks for your input! I was planning on showing other tax rates for the conversion. The best was the 32% bracket, providing $3.5 million more tax adjusted dollars, but the 24/28% bracket was the second best with $1.7 million tax adjusted. What was really interesting was waiting for the dip in retirement and only converting during the dip at a 22/25% rate provided less money at the end of the plan.
@@Jazzwealth Thanks for the reply. I would be hesitant to do such a large/early Roth conversion strategy as all the assumptions you use greatly affect the numeric results. Personally, I look at various scenarios with various assumptions and take a more middle of the road approach. An educated guess is the best course of action imo.
Here is a scenario. Have the same Willby's but instead take out from 401k to the 25% bracket and put the rest not needed (over 72K plus health costs) in a Brokerage account for the years till SSN. This would reduce RMDs drastically and move money into Bucket 1 (brokerage acct) of a 3 bucket strategy over a period prior to SSN. What would that look like?
Good question and thanks for watching! Not sure if this works but here is what I got if it makes sense! If they took money from the 401k, they would want to go to the Roth since that will grow tax free! Since they still have a large brokerage, that will allow them to use that for the early years, then pull from the tax-deferred accounts and then the Roth. Doing the 25% bracket scenario provided less tax-adjusted dollars vs not converting at all.
Converting into the 33% bracket makes no sense. You can make over $1m and have an effective tax rate less than 30%. Focus on tax savings and tax brackets is not the way to decide. Only the tax % paid matters.
Converted everything to Roth in 2010 at age 47, went against all the advice of the educated planners. Had an incredible run for the last 14 years and growing tax free I might say. Don’t be afraid to go against conventional wisdom!
Thanks for watching! With a topic like this generally comes some questions, so let me know below!
So why would you convert to filling a tax bracket once you get past 15%? Tax rates are progressive so the optimum strategy to pay the least amount of taxes is to pay the lowest average effective tax rate over your retired lifetime. Clearly filling that 32% bracket was not optimal because they paid 0% taxes for the majority of their retired years. So they paid somewhere around a 25% effective tax rate their against qualified balance, when they likely could have paid less than 20% if they had optimized the conversion to the lowest average effective tax rate over their lifetime.
I read through the comments hoping someone would call this out. They will also lose out on the growth of the money they paid in that higher tax bracket. Terrible strategy, unless they like giving the government extra money I guess.
I was going to post the same thing. Why are we giving away free money? Let's not forget the standard deduction you can take every year. At the bare minimum you should be converting that. It's free.
At 4:36 why would you convert right away. Between 60 and 75 you can do conversions there. This way you fill up the 0-24% tax bracket instead paying a 32% tax bracket
Thank you for your research. I find your videos are well done. RIght now I'm keeping an eye on Eledator
They are well done and thank you! Keep an eye on her, she seems to be a scam!
Hi Eric, I am moving 100% of my IRAs into a Roth and do not expect any RMDs at age 73. Thank you for your help.
Awesome! No RMDs sounds great! Thanks for watching!
I am not a fan of Roth conversions unless the following is ensured
1. I know I will live well past my RMD years
2. I know I will not move to a no tax state in retirement.
3. I know my investments will grow.
4. I know I will be in a higher tax bracket in retirement.
Since no one can guarantee this, I will not covert. Other points.
1. When paying tax on converting you pay all up front in your top tax bracket or higher with todays dollars vs deferring and paying slowly over many years with inflation adjusted dollars, potentially taking advantage of the standard deduction and lower tax brackets (if minimizing your other income).
2. If you were to convert at the end of 2021 and paid tax on $100k and it lost 25% in 2022 when the stock and bond markets dropped you would need. 33% gain just to get back to what you already paid tax on.
3. Time value of money - both the standard deduction and tax brackets adjust for inflation. The year 1 RMD at age 75 on $1m IRA is only $40k. The tax rate on that if no other income other than SS will be zero based on expected inflation adjustments to the standard deduction.
4. You can use your money now to enjoy life instead of paying tax to convert. $1 today is worth more for what you can do with it vs when you are in yours 80’s and your health and/or mobility has declined.
$6092/month for health care seems high. 1:50
You definitely have my sub. This content is next level. For me Eledator was the turning point. Please keep doing what you do and keep being you, love it.
Thanks for the sub! Glad you think our content is NEXT LEVEL! Eledator is a scam but we appreciate the comment!
Thanks for the sub! 🙏 Glad you think our content is NEXT LEVEL!! Eledator is a scam but we appreciate the comment
Been tracking Revux's development. Impressed with the progress!
If you’re into presales, Revux is a must-have. Early birds get the biggest worms!
Presale investments have been my go-to, and Revux is my latest pick. Early birds catch the worm!
How about converting to the top of the 24% / 28% bracket instead ? Something tells me the 32% bracket is too front loaded.
Ah, I knew I left something out. Thanks for your input! I was planning on showing other tax rates for the conversion. The best was the 32% bracket, providing $3.5 million more tax adjusted dollars, but the 24/28% bracket was the second best with $1.7 million tax adjusted. What was really interesting was waiting for the dip in retirement and only converting during the dip at a 22/25% rate provided less money at the end of the plan.
@@Jazzwealth Thanks for the reply. I would be hesitant to do such a large/early Roth conversion strategy as all the assumptions you use greatly affect the numeric results. Personally, I look at various scenarios with various assumptions and take a more middle of the road approach. An educated guess is the best course of action imo.
My bull run picks: LINK, UNI, and SOL. Best presale? Hands down, Revux.
Here is a scenario. Have the same Willby's but instead take out from 401k to the 25% bracket and put the rest not needed (over 72K plus health costs) in a Brokerage account for the years till SSN. This would reduce RMDs drastically and move money into Bucket 1 (brokerage acct) of a 3 bucket strategy over a period prior to SSN. What would that look like?
Good question and thanks for watching! Not sure if this works but here is what I got if it makes sense! If they took money from the 401k, they would want to go to the Roth since that will grow tax free! Since they still have a large brokerage, that will allow them to use that for the early years, then pull from the tax-deferred accounts and then the Roth. Doing the 25% bracket scenario provided less tax-adjusted dollars vs not converting at all.
Converting into the 33% bracket makes no sense. You can make over $1m and have an effective tax rate less than 30%. Focus on tax savings and tax brackets is not the way to decide. Only the tax % paid matters.
Converted everything to Roth in 2010 at age 47, went against all the advice of the educated planners.
Had an incredible run for the last 14 years and growing tax free I might say. Don’t be afraid to go against conventional wisdom!
Good for you! Glad that's seemingly working well for you!
Thanks Eric good info
Thanks, Bruce! 😎
Revux's low presale price is a steal. Time to load up!
In the next bull run, keep an eye on DOT, VRA, and SOL, but don't overlook Revux's RVX