I believe the retirement crisis will get even worse. Many struggle to save due to low wages, rising prices, and exorbitant rents. With homeownership becoming unattainable for middle-class Americans, they may not have a home to rely on for retirement either.
Got it! Buying stocks during a recession when prices are down could be a good move. You might get them at a lower price and sell later when they go up. Just do your homework and be aware of the risks before diving in!
@@LiamOlivia-4 That's awesome! Investing in stocks with a reliable trading system can lead to great outcomes. It's fantastic that you've been working with a financial advisor for a year now. Starting with less than $200K and being just $19,000 away from making half a million in profit is impressive! Keep up the good work!
@@FlorentGulliver MARGARET MOLLI ALVEY Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
@@zubairadamu2477 She appears to be well-educated and well-read. I ran a Google search for her name and came across her website; thank you for sharing.
Unfortunately, conversions from age 60 until 65 when they start Medicare will negatively impact the ACA health insurance premium credits significantly which will be extremely costly. This analysis, unfortunately, does not factor this significant expense in. Additionally, there are also negative and costly IRMAA impacts starting at age 63 that is also not factored in when performing these large conversations which are treated as ordinary income. Unfortunately, the IRS laws have us between a Rock and a hard place during these key conversion years.
Thanks for pointing this out - Roth conversions is only a part of the entire picture, complicating things. FWIW decided to try out PlanVision (no affiliation) in order to sort these expenses out for our situation.
Really annoyed that I did not look into Roth conversions starting age 55, to avoid triggering some of these thresholds. But it’s a good problem to have.
That's exactly what my wife and I are going to do. She's going to use the Rule of 55 and retire next year. We're really looking forward to our next phase of life.
Converting 100%of tax-deferred retirement savings appears to be inefficient. You aren't able to take advantage of any standard tax deductions where the tax would be zero.
Yes, this is the part that surprises me with the results. Converting to 100% tax free would give away the standard deduction for decades by paying 22% federal taxes on a conversion up front? I don't understand how the math works out that paying 22% in conversions is advantageous to having (currently $29K, but may be different in the future) of tax free income regardless of your future income. I guess because their SS already takes up their standard deduction?
I don’t think SS alone can be it. 85% of the maximum SS doesn’t put you into the 22% bracket. And even at that, there’s still the standard deduction and rolling up through the 10 and 12% brackets. It doesn’t make sense to me until I see the math.
It depends on the situation of each person. I have $3800/month social security and $1800/month pension. Enough for taking standard deduction. I will consider 12% conversion.
Good piece. I would like to know a bit more on how different market performance would affect the outcome. Two things in particular: 1. High inflation causing the markets to rocket up in overall value, and 2. Would the projections account for inflated value vs inflated distributions? If the currency inflates, we need to take out more than the projected amount... But our portfolio will hopefully inflate as well (assume some leve if staying invested in the market.l
Thanks for the example. I'm in agreement with some of the other comments that doing a 100% ROTH conversion probably isn't the best idea, despite what the model is showing. I also enjoyed watching your video to see how you're using your modeling tool. I have access to the same software through my advisor and am still picking up tricks and techniques on how to use it myself.
Thank you for acknowledging the TCJA sunset in 2025. Another channel won't discuss it (deletes posts with any mention) and promotes the idea that all Capital Gains can be forever tax-free based on the current tax breaks under TCJA. If those breaks aren't continued or adjusted upward for inflation and rising wages we could all end up paying more taxes on our pre-tax investment earnings in retirement.
This is very nice and simple explanation, thank you. Now, realistically their life expectancy is 82, and if I were them, I would plan to take SS at 70 as longevity insurance, incase they die at 110. Then it also gives bigger roll over window and avoids double tax on the SS - would love it if you could model that, currently it is what I am thinking if doing?
As stated in a couple of questions below. It would be interesting to see how the SS tax and Medicare penalties would add to these two scenarios. I have been advised that I should also look to converting all of my +$2.5M pretax to Roth over the next 5 years to get to a similar point that this 22% example shows. I.e. after age 70, which we are waiting to take SS, we would have only our SS as taxable income. Thoughts?
In an analysis like this, how much total taxes paid is a worthless number. This applies especially to Roth conversion cases. What I would optimize is ending value of after tax portfolio . I would derate the values of IRA by fed and state tax rates of the current bracket they are in. Your projections shows that topping out the 22% bracket each year leaves some lower taxed holes in the plan. What I would consider is maybe converting to about the 80 % of the 22% bracket to see if it fills in those holes. I would like to see how slipping the SS start date out to 70 affects the plan.
I totally agree - these financial planner folks seem fixated on filling a tax bracket when even their software shows that the optimum tax planning solution in this case would be somewhere between 12 and 22. At 12% the tax planning software showed their tax burden increasing over their retirement (which suggests a more optimum solution would be slightly higher so that the taxes paid per year was a flat line). Filling the 22% bracket overpaid in that they basically didn't pay taxes after age 70, so the optimum solution was below filling the 22%.
@@jerrylabat550I would think having a table with increments of assumed $10,000 per year conversions would be helpful to find the optimum point, and then realize that if you're +/- 5,000 on that value you are golden. Like start at that 12% fill value, then go up $10k per year and get the final portfolio value for each increment.
These “equal” results “experts” never factor in the truly large IRA accounts that will trip 1) Medicare IRMAA penalties year-after-year, and 2) the RMD’s being so large a taxpayer will be bumped into a higher tax bracket unwillingly. Roth. No ifs. No ands. No buts. Roth
For those of us without a degree in tax and finance, it would be more comprehensive to explain what is happening different between the different shape of line. Especially at 6:37. I watch content like this and it seems to intentionally complicate things to try to turn it into and advertisement.
So how does one fund the estimated tax payments on the conversion? Does this assume that one has enough cash in taxable accounts to pay that obligation? If not, does it make sense to dispose of taxable investments and pay the capital gains tax on those transactions? Doesn't that create an additional tax hit in order to convert the IRA accounts? If you haven't the cash, and don't wish to pay cap gains taxes on top of the income tax at the conversion, aren't you left with paying the estimated tax out of the original pre-tax IRA account?
Out of cash only the first few years, as they only had $180k in taxable. This scenario starts when they are 60, and would not work well for early retirement long before 59.5 if they deplete the taxable account before they can tap into their retirement accounts, unless they can use the rule of 55, as they don’t have much in taxable nor they have Roth assets to do a Roth conversion ladder.
Curtis- it seems to me that the main thrust of your analysis is to save taxes. I have 2 points to make. First, the government obviously controls those rates (whatever they are). So if you are changing your spending/withdrawing/lifestyle because of what the government wants, aren't you basically letting the government control you? Secondly, people who retire at 60 will be more active than people in their 70s, 80s, 90s. Why is it important to have so much money at those advanced ages? Time waits for no one. Also, I think it is silly to give your kids their inheritance when you one passes at an advanced age. If you die at 80, your kids would probably in their 50's and 60's and would already be established with their own lives i.e. they would already have a house, grown kids, etc. In other words, their utility of the money is much more when they are in their 30's when they need help with a house down payment, kid expenses, etc. So in conclusion, your strategy is spreadsheet and tax smart very but not very practical. A 90 year old with 3$mil will have more life regrets than a 90 year old who spent his money on nicer vacations (that cost more than 15k). I plan to give 18k per year to each of my kids as long as i am alive. They can fund their own retirement accounts (roth maybe) or their brokerage accounts on their own. In the long run, all the generations of the family (mine, theirs, and their kids) will be wealthier and will have to struggle less especially in their 30's when they need the most help.
Excellent points. My wife and I plan to distribute our wealth early in our kids lives. Example helping with down payments for a house and early investment in their kids education (if they have children).
How about converting up to 22% or even a bit higher % on years when markets and 401k are up a good percentage and no conversions on years markets are down significantly? Also may have to factor in no tax on social security (as it is being floated and very popular among constituents) if it ever passes.
Good video. A couple of comments. 1. If all they have is SS income they should not convert all, even in the 12% bracket if they can later pay 10% without making their SS taxable. 2. Focusing only on tax savings is not the right way to look at it. You can pay twice as much in tax dollars when deferring and still come out ahead. It’s all about the % paid not the dollars.
one item you do not address is what if both spouses do not live till 90 ... in my family tree my paternal grandparents died 6 months apart, maternal grandparents died 13 years apart and for my parents is 19 years and counting with my dad still alive ... i worry about a HUGE tax bomb to my wife if i die early and her tax rates are going to essentially double ... for that reason, i (higher earning spouse) plan on deferring SS to 70 and we will both spend down portfolio and do roth conversions till then ...
I believe the retirement crisis will get even worse. Many struggle to save due to low wages, rising prices, and exorbitant rents. With homeownership becoming unattainable for middle-class Americans, they may not have a home to rely on for retirement either.
Got it! Buying stocks during a recession when prices are down could be a good move. You might get them at a lower price and sell later when they go up. Just do your homework and be aware of the risks before diving in!
@@LiamOlivia-4 That's awesome! Investing in stocks with a reliable trading system can lead to great outcomes. It's fantastic that you've been working with a financial advisor for a year now. Starting with less than $200K and being just $19,000 away from making half a million in profit is impressive! Keep up the good work!
@@zubairadamu2477 Mind if I ask you to recommend this particular coach you using their service?
@@FlorentGulliver MARGARET MOLLI ALVEY Constable is the licensed fiduciary I use. Just research the name. You’d find necessary details to work with a correspondence to set up an appointment..
@@zubairadamu2477 She appears to be well-educated and well-read. I ran a Google search for her name and came across her website; thank you for sharing.
Peace of mind of not needing to think about changes in tax rates is worth conversation too.
Unfortunately, conversions from age 60 until 65 when they start Medicare will negatively impact the ACA health insurance premium credits significantly which will be extremely costly. This analysis, unfortunately, does not factor this significant expense in. Additionally, there are also negative and costly IRMAA impacts starting at age 63 that is also not factored in when performing these large conversations which are treated as ordinary income. Unfortunately, the IRS laws have us between a Rock and a hard place during these key conversion years.
Exactly! Thanks for pointing this out. This has been my quandary as well.
Thanks for pointing this out - Roth conversions is only a part of the entire picture, complicating things. FWIW decided to try out PlanVision (no affiliation) in order to sort these expenses out for our situation.
we are wrestling the aca/roth conversion ballance as well.
@@OchoVerde Misery like company...and I suspect I'm in good company if you're watching this 🙌🏻
Really annoyed that I did not look into Roth conversions starting age 55, to avoid triggering some of these thresholds. But it’s a good problem to have.
That's exactly what my wife and I are going to do. She's going to use the Rule of 55 and retire next year. We're really looking forward to our next phase of life.
Do it, best thing I’ve ever done, got out at 50 almost a decade ago, dodged the BS c0flu years.
TGIM Thank God It’s Monday
Converting 100%of tax-deferred retirement savings appears to be inefficient. You aren't able to take advantage of any standard tax deductions where the tax would be zero.
Thank you, beautifully said
Yes, this is the part that surprises me with the results. Converting to 100% tax free would give away the standard deduction for decades by paying 22% federal taxes on a conversion up front? I don't understand how the math works out that paying 22% in conversions is advantageous to having (currently $29K, but may be different in the future) of tax free income regardless of your future income. I guess because their SS already takes up their standard deduction?
@@kersting13pretty sure you nailed it, as is, social security counts as income and takes up most of that deduction as is.
I don’t think SS alone can be it. 85% of the maximum SS doesn’t put you into the 22% bracket. And even at that, there’s still the standard deduction and rolling up through the 10 and 12% brackets. It doesn’t make sense to me until I see the math.
It depends on the situation of each person. I have $3800/month social security and $1800/month pension. Enough for taking standard deduction. I will consider 12% conversion.
Good piece. I would like to know a bit more on how different market performance would affect the outcome. Two things in particular: 1. High inflation causing the markets to rocket up in overall value, and 2. Would the projections account for inflated value vs inflated distributions? If the currency inflates, we need to take out more than the projected amount... But our portfolio will hopefully inflate as well (assume some leve if staying invested in the market.l
Thanks for sharing. Many considerations as I approach retirement within the next two years.
Thanks for the example. I'm in agreement with some of the other comments that doing a 100% ROTH conversion probably isn't the best idea, despite what the model is showing.
I also enjoyed watching your video to see how you're using your modeling tool. I have access to the same software through my advisor and am still picking up tricks and techniques on how to use it myself.
Thank you for acknowledging the TCJA sunset in 2025. Another channel won't discuss it (deletes posts with any mention) and promotes the idea that all Capital Gains can be forever tax-free based on the current tax breaks under TCJA. If those breaks aren't continued or adjusted upward for inflation and rising wages we could all end up paying more taxes on our pre-tax investment earnings in retirement.
Enjoyed the video. Thanks Curtis.
This is very nice and simple explanation, thank you. Now, realistically their life expectancy is 82, and if I were them, I would plan to take SS at 70 as longevity insurance, incase they die at 110. Then it also gives bigger roll over window and avoids double tax on the SS - would love it if you could model that, currently it is what I am thinking if doing?
As stated in a couple of questions below. It would be interesting to see how the SS tax and Medicare penalties would add to these two scenarios. I have been advised that I should also look to converting all of my +$2.5M pretax to Roth over the next 5 years to get to a similar point that this 22% example shows. I.e. after age 70, which we are waiting to take SS, we would have only our SS as taxable income. Thoughts?
In an analysis like this, how much total taxes paid is a worthless number. This applies especially to Roth conversion cases. What I would optimize is ending value of after tax portfolio . I would derate the values of IRA by fed and state tax rates of the current bracket they are in. Your projections shows that topping out the 22% bracket each year leaves some lower taxed holes in the plan. What I would consider is maybe converting to about the 80 % of the 22% bracket to see if it fills in those holes. I would like to see how slipping the SS start date out to 70 affects the plan.
I totally agree - these financial planner folks seem fixated on filling a tax bracket when even their software shows that the optimum tax planning solution in this case would be somewhere between 12 and 22. At 12% the tax planning software showed their tax burden increasing over their retirement (which suggests a more optimum solution would be slightly higher so that the taxes paid per year was a flat line). Filling the 22% bracket overpaid in that they basically didn't pay taxes after age 70, so the optimum solution was below filling the 22%.
@@jerrylabat550I would think having a table with increments of assumed $10,000 per year conversions would be helpful to find the optimum point, and then realize that if you're +/- 5,000 on that value you are golden. Like start at that 12% fill value, then go up $10k per year and get the final portfolio value for each increment.
These “equal” results “experts” never factor in the truly large IRA accounts that will trip 1) Medicare IRMAA penalties year-after-year, and 2) the RMD’s being so large a taxpayer will be bumped into a higher tax bracket unwillingly.
Roth. No ifs. No ands. No buts. Roth
For those of us without a degree in tax and finance, it would be more comprehensive to explain what is happening different between the different shape of line. Especially at 6:37.
I watch content like this and it seems to intentionally complicate things to try to turn it into and advertisement.
So how does one fund the estimated tax payments on the conversion? Does this assume that one has enough cash in taxable accounts to pay that obligation? If not, does it make sense to dispose of taxable investments and pay the capital gains tax on those transactions? Doesn't that create an additional tax hit in order to convert the IRA accounts? If you haven't the cash, and don't wish to pay cap gains taxes on top of the income tax at the conversion, aren't you left with paying the estimated tax out of the original pre-tax IRA account?
Wasn’t able to tell. did they pay the conversion out of cash or out of the converted assets themselves?
Out of cash only the first few years, as they only had $180k in taxable. This scenario starts when they are 60, and would not work well for early retirement long before 59.5 if they deplete the taxable account before they can tap into their retirement accounts, unless they can use the rule of 55, as they don’t have much in taxable nor they have Roth assets to do a Roth conversion ladder.
Take the excess RMD and use it to pay the tax for the conversation.
Curtis- it seems to me that the main thrust of your analysis is to save taxes. I have 2 points to make. First, the government obviously controls those rates (whatever they are). So if you are changing your spending/withdrawing/lifestyle because of what the government wants, aren't you basically letting the government control you? Secondly, people who retire at 60 will be more active than people in their 70s, 80s, 90s. Why is it important to have so much money at those advanced ages? Time waits for no one. Also, I think it is silly to give your kids their inheritance when you one passes at an advanced age. If you die at 80, your kids would probably in their 50's and 60's and would already be established with their own lives i.e. they would already have a house, grown kids, etc. In other words, their utility of the money is much more when they are in their 30's when they need help with a house down payment, kid expenses, etc. So in conclusion, your strategy is spreadsheet and tax smart very but not very practical. A 90 year old with 3$mil will have more life regrets than a 90 year old who spent his money on nicer vacations (that cost more than 15k). I plan to give 18k per year to each of my kids as long as i am alive. They can fund their own retirement accounts (roth maybe) or their brokerage accounts on their own. In the long run, all the generations of the family (mine, theirs, and their kids) will be wealthier and will have to struggle less especially in their 30's when they need the most help.
Excellent points. My wife and I plan to distribute our wealth early in our kids lives. Example helping with down payments for a house and early investment in their kids education (if they have children).
How about converting up to 22% or even a bit higher % on years when markets and 401k are up a good percentage and no conversions on years markets are down significantly?
Also may have to factor in no tax on social security (as it is being floated and very popular among constituents) if it ever passes.
foolish to convert when aca money is on the table.
Uncle Sam wins!
Good video. A couple of comments.
1. If all they have is SS income they should not convert all, even in the 12% bracket if they can later pay 10% without making their SS taxable.
2. Focusing only on tax savings is not the right way to look at it. You can pay twice as much in tax dollars when deferring and still come out ahead. It’s all about the % paid not the dollars.
one item you do not address is what if both spouses do not live till 90 ... in my family tree my paternal grandparents died 6 months apart, maternal grandparents died 13 years apart and for my parents is 19 years and counting with my dad still alive ... i worry about a HUGE tax bomb to my wife if i die early and her tax rates are going to essentially double ... for that reason, i (higher earning spouse) plan on deferring SS to 70 and we will both spend down portfolio and do roth conversions till then ...