Smart discussion. But, I am in my seventies and sometimes keeping it simple and peace of mind is the best strategy. Plan some, of course . But if you have the money, pay your taxes and live your life.
Thanks Eric; thorough and complete analysis as usual. Side note - consider doing a video on actions to take 5,4,3,2,1 yrs to retirement. :) Keep up the great Friday video releases !
I second this, even though it's too late for me. But there are things I could have done. Maybe even include a 10-15 year action as well. - Starting age 50 or 55: Consider maxing out Mega Backdoor Roth if you aren't already, and if you can afford to. - Starting age 50 to 55 (or earlier): Minimize dividend-paying investments in your taxable account, and gradually transition out of them if necessary. Keep growth stocks in your taxable account, value stocks in your Roth (where feasible).
Thanks for confirming what I'm doing. Now that I'm retired, I'm on track to make Roth conversions of 100% of my tax deferred 457 plan before I start drawing Social Security at age 70. I have two half pensions and an annuity that will ensure that my tax bracket will never be lower than 22%. My major concern is staying on the south side of IRMAA.
Update: After mulling it over with my financial guy, I've decided to do one more year of Roth conversions, beating the potential expiration of the Tax and Jobs Act. I applied for Social Security benefits starting this month (I'm past FRA); therefore the money I was using to bridge to SS at age 70 will stay in my estate the benefit being that in the case of my demise before utilizing that money, my heirs will receive it (my increased SS benefit would do nothing for them). The remaining amount in my 457 plan will be QCD'd beginning at age 70.5 to avoid taxes on RMDs.
I’m 59 years old and ran a couple different tax planning and Investment growth projections thru age 90. I was surprised that math showed I should convert at the 32% bracket the next few years to convert 100% to Roth. I do have a pension and substantial taxable account. Before I ran detail projections I’d thought I’d just max out the 24% bracket. So this video makes me feel better about being more aggressive than I had otherwise thought.
@@5metoo I had my own spreadsheet but also paid Q3 Financial ( Craig Wear) to run an analysis also. Results weren’t identical but pointed for maxing out the 32 % bracket at least the next 2 years.
Thank you for this presentation on Roth conversions. This is the only presentation I have found that addresses Roth conversions if you are already in a significant tax bracket due to retirements and SS benefits. You helped address the question of "how much to convert" and the benefits associated with maximum conversions.
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
For the average person, the strategies are fairly demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time
Great video Eric. So one take away could be, only use a rule of thumb if your are willing to risk loosing the thumb ...🙂 Have a good weekend. Larry, Central Valley, Ca.
Thanks Eric, I really appreciate your video's. This one has caused me to rethink my approach. So what if your IRA balances are larger than your examples and converting to 32%, does not meanifully impact the balances or future RMD's. Would you raise the bar and convert at 35% or 37% over 7 to 10 years to get to zero?
Great points! Thanks. Could you please put axis titles on the x and y axes of the tax graph? It’s not clear what I’m looking at. No doubt I could figure it out with enough effort, but labels help.
I'm 62 and just retired. I have pensions so Roth Conversions it is. I'm using New Retirement software which told me that I would end up with greater wealth doing the conversions. Thanks for the confirmation.
Glad I found this video. We have the issue of 'forced' income from our brokerage accounts as well as concern about the decreased estate tax exemptions coming at us in 2026. We've converted a ton of traditional IRA to Roth over past 7 yrs but are also looking at needing to reduce an old annuity that hasn't been annuitized yet. We won't get hit with additional SS income till 2027 and RMDs begin in 2029. What factors to consider to help decide how/which order to spend down the annuity vs the IRA during those years. We are not opposed to using QCDs if necessary.
One key for those with substantial buckets is to stay under the IRMAA limits and Under the NII tax.. Large or all RMD conversions may save 10-20 years of paying both. Perhaps if one does convert all their IRA at age 65 in this strategy they should buy a 10 yr term life ins policy since dying early in retirement makes this a very bad idea. No mention of tax brackets of your children that would inherit an IRA.. for low income situations it may not be a big deal to have to distribute an IRA over 10 yrs.
I would like to hear more on the benefits of Capital Gains harvesting at 0% when there is no income (RMD's). My quick calcs suggest that single person with the $40k SSI & $15k of dividends per the example in the video can realize another $15k of CG and still pay only $200 in tax. Even better, CG's from selling stuff will always generate extra cash from the principal so that extra $15k CG sale could easily realize $20k. $40K SSI + $15K div + $20K stock sales = $75K almost tax free!!
Isn't the real question regarding tax rates a comparison of two scenarios. The first scenario is if you perform a 100% conversion of your IRA over multiple years you will have an effective tax rate over those converting years that will be higher but you will have a much lower effective tax rate in the future that will last forever. Compare that scenario with the effective tax rate today over those same years if you make NO Roth Conversions (the do nothing scenario) and the future effective tax rates in the years you must take your RMDls will be much higher compared to if you have no RMD's. The effective tax rate is always higher when you make the Roth Conversions but you are trading higher taxes over a small period of time (say 5-8 years) in order to receive the benefits of a much lower effective tax rate with no RMD's for the rest of your life. By performing the Roth Conversions earlier during retirement and avoid RMD's the benefits are a much lower effective tax rate that will last forever, You should avoid or lower any IRMA premium impacts, and you will decrease the taxability portion of your social security benefits.
Im 75 with 1 million IRA. I know this is all ballpark. When would the BE be on the tax savings in the future. I'm in the low brackets now. I dont have heirs.
Eric, thanks, love your videos - I've watched most of them and some several times. Really useful. In this video you mention scenario #2 - large taxable account. When you say "Full Conversion at 32% tax bracket" you mean using that whole bracket, correct? Not just up to the 32%? Looking at the values in the chart, I think it means use the whole 32% bracket.
So an annuity salesman didn’t care about anything other than selling their annuity. Well I am really shocked. However, I do sense the irony of a Canvas commercial while watching this video.
That is without a doubt. Scratch around a little and find the commission they are given for this insurance product. Ask yourself, why does the insurance company so highly value this sale?
In scenario 2, where LT capital gains stack on top of ordinary income: is this only LTCG, or do qualified dividends also stack on top of ordinary income??
i have a question, im living overseas (ie. much cheaper) over 62 and collecting social security as my total income , ive got about 50k in traditional ira and a small amount in a roth ira. The traditional ira has been an ongoing 401k for years and rolled into a traditional ira in about 2020. The roth was started in 2020 also. Ive analyzed my tax situation and have decided on doing a traditional ira conversion to my roth ira (half this year and half on jan 1 for next year) and i understand that the traditional ira will be taxed but im in a very low tax bracket. My question is if i needed to take a distribution before the 5 years on the traditional ira conversion portion of the roth ira , am i correct to assume i can withdraw the contributed part with no penalty (no 10% penalty or tax penalty) but i would be hit with penalties on the earnings portion (10% and/or tax penalties)?
I'm not a tax professional and you certainly should consult one. My understanding is that the conversion date doesn't matter. What matters is 5 years from when you originally opened the Roth.
with retirees pursuing such an aggressive conversion, wouldn't that expose them to IRMAA thresholds and the NIIT. i am 57 retired at 55 married filing jointly. living on my taxable accounts. 2022 first year without a W2, i converted $83K but should have converted additional 25.9k + 8.3K to account for deductions. for '23 i am planning on converting as close to 227K( less deductions should bring me to top of 22%, 190K) but i am keeping an eye on my MAGI so as to keep it at 250K less to avoid medicare surcharge tax of 3.8% on my LTCGs on amounts that may exceed the limit. taxes are paid out of taxable account and no pensions or annuities for me. are the aggressive roth converters described just taking the IRMAA and 18.8% LTCGs in stride?
One thought, people should be extremely careful about relying on deductions when trying to avoid IRMAAs. Not all deductions will reduce your MAGI. Remember MAGI is Modified Adjusted *Gross Income,* so it's calculated _before_ most deductions are taken (which then give you *Taxable Income* ). Mess that up and you could end up with a bigger IRMAA than expected. Best to look at your past tax returns and see which deductions are taken before AGI is calculated (such as capital losses), and which are taken later (most other deductions). In other words, mortgage interest and charitable deductions will NOT reduce your MAGI. Nor will the standard deduction.
@@captsorghum yes, magi is calculated differently for different applications. for NIIT tax you have to add back foreign tax exemptions to your agi. it looks like for irmaa you have to add back tax free interest to your agi.
@@Random-ld6wg Agreed. I was only concerned that the OP would be in for an unpleasant surprise in a couple of years when he finds out neither standard nor itemized deductions reduce MAGI, at least not for Medicare purposes.
any ideawhat this group charges ie one shot deal to gives omeone full opinion on roth conversions..........just curious.................would do this myself.................
Difficult to follow. In particular, the graphics are not easy to understand and the speaker takes no time explaining them. Coming from someone with a very good personal finances knowledge.
CA has progressive tax rates, but you are simply saying that you are currently in the 9.3% zone. The first question is: do you think you’ll be higher or lower on retirement? But honestly, I’d probably convert asap (while looking mostly at the federal factors) just so you have the peace of mind that future withdrawals are tax free.
You just need to run your hypothetical numbers both ways. Did you pay your taxes on the converted amount and/or increase your tax withholding? That might be a larger concern without knowing more about your situation.
You might be converting at a higher tax rate..... but, once converted, the money in ROTH can grow tax free. If it stayed in the IRA, you would be paying taxes on all of the future growth. But - that is just my opinion.
The longer the time horizon the more beneficial it would be. If your plan allows conversions before 59.5 (or do they all?) and you're not in a high income bracket I'd think it's a no brainer. But if you're in a high income bracket and/or high tax state, then I'm not sure. Some say as long as the time horizon is long enough it'll always work out.
@@5metoo I don't think time horizon matters for conversion, as explained in other videos on this channel. As I understand it, what matters is your marginal tax bracket now and what you expect your marginal tax bracket to be after you retire. But one advantage I can think of with converting at a young age, is that you have more years to spread out the conversion, so you can take your time and keep conversion income from spilling into higher tax brackets. Plus you will likely have a few low-income years along the way, where you can do additional tax-efficient conversions. So no need to be too aggressive about conversions when young.
@@captsorghum - Of course time horizon matters. Some people like myself plan to never use Roth money and pass it on to heirs. If I live as long as expected, it could be 30 years after conversion that I or spouse owns the Roths. That favors Roth conversions even if the tax math isn't as favorable as you'd prefer it to be if you'd need to use it in a few years.
@@5metoo Not really. If you intend to pass it onto heirs, only the current and expected future tax brackets of yourself and your heirs matter. There is no compounding advantage between conventional IRA and Roth, as there would be between taxable account and either IRA or Roth. Although the conversions themselves can influence your tax bracket. If you are talking about making gradual conversions over 30 years to avoid a huge bracket-raising conversion in the future, then it makes sense.
The graph is confusing. The best I can tell, it shows taxes on ordinary income not showing the $40,000 Social Security income. Add the $34K of taxable Social Security that the government includes for IRMAA calculation brings you to the IRMAA thresholds shown.
I guess that's where I'm at. I worked hard and have large buckets, and thankfully traditional IRA isn't my largest bucket. I don't need to split hairs on taxes when moving money around. It comes down to how much I'm willing to pay today to get more money in Roth accounts. Not that much different from deciding how much I want to pay for a car or anything else.
Here is a twist, I am 64 and receiving survivor benefit of 24K, when I turn 70 I will switch to my own SS at 52K, I have 500K in IRA, would I be better off converting to Roth before the bigger SS kicks in
If I were in your situation, I would convert up to the 22% bracket every year until age 70. Then your RMDs on whatever is left will be tiny, minimizing your taxes from that point forward...and you will have ample tax free assets in a Roth to spend yourself or leave to heirs.
from now untill you reach age 70 you will be able to withdrawal 25k from the ira .Your Income during this period will be 49k with a fed tax bill of $1900 (3.80 effective rate) of course the trump tax bill will expire in a couple years but i believe you will be fine due ro the fact that we will still have a standard deduction and a 10/12 tax bracket. And worst case' or best depending in how you look at it ' lets say your age 70 benefit is 60k (due to colas ) and your 500k appreciates to 750k ,by the time you are 73 The rmd on 750k will be approx 30k this 30k along with your 60k of s s will give you 90k of income with a fed tax bill of $4900 a reasonable effective tax rate of 4.80%. Hope this helps
@@denniss3980 With 24k of S.S you can at the minimum withdraw 14k and still end up with a zero fed tax bill ( you do not want to wast a standard deduction)
@@sergiosantana4658 Doesn't the $25K per year taken out after 9 years reduce the $500k [even with interest]in the IRA and does it still grow to $750K by 73?
These scenarios are showing some VERY large IRA balances. I know those exist, and the average balance is possibly high enough for this kind of math to be applicable, but the median balance is far too low for any of this to come into play. For normal folks, with an IRA/401k/457b balance of $1M or less, most of what you're talking about is theoretical, not applicable.
Contributions have limits that can be influenced by ones earned income amount, but conversions are not restricted. Conversions do require careful running the numbers to keep it the most beneficial.
![Megan Thee Stallion - Neva Play (feat. RM) [Official Video]](http://i.ytimg.com/vi/TpYTyAaTRts/mqdefault.jpg)
Smart discussion.
But, I am in my seventies and sometimes keeping it simple and peace of mind is the best strategy.
Plan some, of course . But if you have the money, pay your taxes and live your life.
Or use it as Long Term Care insurance where the expenses are deductible to offset...LTC expenses can be 50k-100K per year.
Thanks Eric; thorough and complete analysis as usual. Side note - consider doing a video on actions to take 5,4,3,2,1 yrs to retirement. :) Keep up the great Friday video releases !
I second this, even though it's too late for me. But there are things I could have done. Maybe even include a 10-15 year action as well.
- Starting age 50 or 55: Consider maxing out Mega Backdoor Roth if you aren't already, and if you can afford to.
- Starting age 50 to 55 (or earlier): Minimize dividend-paying investments in your taxable account, and gradually transition out of them if necessary. Keep growth stocks in your taxable account, value stocks in your Roth (where feasible).
Thanks for confirming what I'm doing. Now that I'm retired, I'm on track to make Roth conversions of 100% of my tax deferred 457 plan before I start drawing Social Security at age 70. I have two half pensions and an annuity that will ensure that my tax bracket will never be lower than 22%. My major concern is staying on the south side of IRMAA.
you are doing very well
Update: After mulling it over with my financial guy, I've decided to do one more year of Roth conversions, beating the potential expiration of the Tax and Jobs Act. I applied for Social Security benefits starting this month (I'm past FRA); therefore the money I was using to bridge to SS at age 70 will stay in my estate the benefit being that in the case of my demise before utilizing that money, my heirs will receive it (my increased SS benefit would do nothing for them). The remaining amount in my 457 plan will be QCD'd beginning at age 70.5 to avoid taxes on RMDs.
I’m 59 years old and ran a couple different tax planning and Investment growth projections thru age 90. I was surprised that math showed I should convert at the 32% bracket the next few years to convert 100% to Roth. I do have a pension and substantial taxable account. Before I ran detail projections I’d thought I’d just max out the 24% bracket. So this video makes me feel better about being more aggressive than I had otherwise thought.
Amazing how that works out, isn't it?
Did you use publicly available software or did you make your own spreadsheets?
@@5metoo I had my own spreadsheet but also paid Q3 Financial ( Craig Wear) to run an analysis also. Results weren’t identical but pointed for maxing out the 32 % bracket at least the next 2 years.
@@pcash4088 - Great resource. Thanks
@@swright5690I'm about 90% of the way to understanding scenario 2. It sounds like you might have some insight into the numbers?
Thank you for this presentation on Roth conversions. This is the only presentation I have found that addresses Roth conversions if you are already in a significant tax bracket due to retirements and SS benefits. You helped address the question of "how much to convert" and the benefits associated with maximum conversions.
so, how much to convert?
With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.
For the average person, the strategies are fairly demanding. In actuality, most professionals who have the necessary abilities and knowledge to complete such occupations do so successfully.
Having an investment adviser is the best way to go about the stock market right now, especially for near retirees, I've been in touch with a coach for awhile now mostly and I made over $800K within a short time
Please who is the consultant that assist you with your investment and if you don't mind, how do I get in touch with them?
My advisor's name is Natalie Lynn Fisk, and she has years of experience in the financial market. You can simply search her name on the web
Found her online page by searching her full name, I wrote her an email and scheduled a call, hopefully she responds.
Love the new studio, next I would consider hanging a couple of moving blankets in front of you to take care of most of the room echo.
Appreciate the comment. Looking into it!
Great video Eric. So one take away could be, only use a rule of thumb if your are willing to risk loosing the thumb ...🙂 Have a good weekend. Larry, Central Valley, Ca.
Thanks Eric, I really appreciate your video's. This one has caused me to rethink my approach. So what if your IRA balances are larger than your examples and converting to 32%, does not meanifully impact the balances or future RMD's. Would you raise the bar and convert at 35% or 37% over 7 to 10 years to get to zero?
Great points! Thanks. Could you please put axis titles on the x and y axes of the tax graph? It’s not clear what I’m looking at. No doubt I could figure it out with enough effort, but labels help.
I'm 62 and just retired. I have pensions so Roth Conversions it is. I'm using New Retirement software which told me that I would end up with greater wealth doing the conversions. Thanks for the confirmation.
Glad I found this video. We have the issue of 'forced' income from our brokerage accounts as well as concern about the decreased estate tax exemptions coming at us in 2026. We've converted a ton of traditional IRA to Roth over past 7 yrs but are also looking at needing to reduce an old annuity that hasn't been annuitized yet. We won't get hit with additional SS income till 2027 and RMDs begin in 2029. What factors to consider to help decide how/which order to spend down the annuity vs the IRA during those years. We are not opposed to using QCDs if necessary.
Great vid. Note: Spelling error on slide “#3 - Estate Tax Concerns” at approx 8 min.
One key for those with substantial buckets is to stay under the IRMAA limits and Under the NII tax.. Large or all RMD conversions may save 10-20 years of paying both.
Perhaps if one does convert all their IRA at age 65 in this strategy they should buy a 10 yr term life ins policy since dying early in retirement makes this a very bad idea.
No mention of tax brackets of your children that would inherit an IRA.. for low income situations it may not be a big deal to have to distribute an IRA over 10 yrs.
Great info!! Thanks so much!
I would like to hear more on the benefits of Capital Gains harvesting at 0% when there is no income (RMD's). My quick calcs suggest that single person with the $40k SSI & $15k of dividends per the example in the video can realize another $15k of CG and still pay only $200 in tax. Even better, CG's from selling stuff will always generate extra cash from the principal so that extra $15k CG sale could easily realize $20k. $40K SSI + $15K div + $20K stock sales = $75K almost tax free!!
Yep, that's what I'm doing for 2024.
Isn't the real question regarding tax rates a comparison of two scenarios. The first scenario is if you perform a 100% conversion of your IRA over multiple years you will have an effective tax rate over those converting years that will be higher but you will have a much lower effective tax rate in the future that will last forever. Compare that scenario with the effective tax rate today over those same years if you make NO Roth Conversions (the do nothing scenario) and the future effective tax rates in the years you must take your RMDls will be much higher compared to if you have no RMD's. The effective tax rate is always higher when you make the Roth Conversions but you are trading higher taxes over a small period of time (say 5-8 years) in order to receive the benefits of a much lower effective tax rate with no RMD's for the rest of your life. By performing the Roth Conversions earlier during retirement and avoid RMD's the benefits are a much lower effective tax rate that will last forever, You should avoid or lower any IRMA premium impacts, and you will decrease the taxability portion of your social security benefits.
Wow great examples, appreciate the content!
Im 75 with 1 million IRA. I know this is all ballpark. When would the BE be on the tax savings in the future. I'm in the low brackets now. I dont have heirs.
Eric, thanks, love your videos - I've watched most of them and some several times. Really useful. In this video you mention scenario #2 - large taxable account. When you say "Full Conversion at 32% tax bracket" you mean using that whole bracket, correct? Not just up to the 32%? Looking at the values in the chart, I think it means use the whole 32% bracket.
Correct, "Max the 32% Bracket"
So an annuity salesman didn’t care about anything other than selling their annuity. Well I am really shocked. However, I do sense the irony of a Canvas commercial while watching this video.
The annuity salesman probably cared about his commission, not his client.😢
That is without a doubt. Scratch around a little and find the commission they are given for this insurance product. Ask yourself, why does the insurance company so highly value this sale?
In scenario 2, where LT capital gains stack on top of ordinary income: is this only LTCG, or do qualified dividends also stack on top of ordinary income??
What if you take your Roth IRA too early what happens before retirement
Being a low spender and living a FI lifestyle allows me to easily do the Roth IRA ladder and pay 0% on those partial conversions each year.
Wow. Good man!
i have a question, im living overseas (ie. much cheaper) over 62 and collecting social security as my total income , ive got about 50k in traditional ira and a small amount in a roth ira. The traditional ira has been an ongoing 401k for years and rolled into a traditional ira in about 2020. The roth was started in 2020 also. Ive analyzed my tax situation and have decided on doing a traditional ira conversion to my roth ira (half this year and half on jan 1 for next year) and i understand that the traditional ira will be taxed but im in a very low tax bracket. My question is if i needed to take a distribution before the 5 years on the traditional ira conversion portion of the roth ira , am i correct to assume i can withdraw the contributed part with no penalty (no 10% penalty or tax penalty) but i would be hit with penalties on the earnings portion (10% and/or tax penalties)?
I'm not a tax professional and you certainly should consult one. My understanding is that the conversion date doesn't matter. What matters is 5 years from when you originally opened the Roth.
Thanks. What software are you using for the charts?
Just awesome!
I don’t know about anybody else, but after retirement, my income dropped drastically. I was actually am considered ‘low income’.
with retirees pursuing such an aggressive conversion, wouldn't that expose them to IRMAA thresholds and the NIIT. i am 57 retired at 55 married filing jointly. living on my taxable accounts. 2022 first year without a W2, i converted $83K but should have converted additional 25.9k + 8.3K to account for deductions. for '23 i am planning on converting as close to 227K( less deductions should bring me to top of 22%, 190K) but i am keeping an eye on my MAGI so as to keep it at 250K less to avoid medicare surcharge tax of 3.8% on my LTCGs on amounts that may exceed the limit. taxes are paid out of taxable account and no pensions or annuities for me.
are the aggressive roth converters described just taking the IRMAA and 18.8% LTCGs in stride?
One thought, people should be extremely careful about relying on deductions when trying to avoid IRMAAs. Not all deductions will reduce your MAGI. Remember MAGI is Modified Adjusted *Gross Income,* so it's calculated _before_ most deductions are taken (which then give you *Taxable Income* ). Mess that up and you could end up with a bigger IRMAA than expected.
Best to look at your past tax returns and see which deductions are taken before AGI is calculated (such as capital losses), and which are taken later (most other deductions).
In other words, mortgage interest and charitable deductions will NOT reduce your MAGI. Nor will the standard deduction.
@@captsorghum yes, magi is calculated differently for different applications. for NIIT tax you have to add back foreign tax exemptions to your agi. it looks like for irmaa you have to add back tax free interest to your agi.
@@Random-ld6wg Agreed. I was only concerned that the OP would be in for an unpleasant surprise in a couple of years when he finds out neither standard nor itemized deductions reduce MAGI, at least not for Medicare purposes.
any ideawhat this group charges ie one shot deal to gives omeone full opinion on roth conversions..........just curious.................would do this myself.................
Clearly, an enhanced spending plan makes sense....
Difficult to follow. In particular, the graphics are not easy to understand and the speaker takes no time explaining them.
Coming from someone with a very good personal finances knowledge.
Agree! First chart example is a couple, next one is single filer. I can't follow this!!
How does living in CA affect these Roth Conversion examples? 9.3% State tax.
CA has progressive tax rates, but you are simply saying that you are currently in the 9.3% zone.
The first question is: do you think you’ll be higher or lower on retirement? But honestly, I’d probably convert asap (while looking mostly at the federal factors) just so you have the peace of mind that future withdrawals are tax free.
I have an IRA I converted this year before got married. Next year, should I file taxes as married, filing jointly or married, filing separately?
You just need to run your hypothetical numbers both ways. Did you pay your taxes on the converted amount and/or increase your tax withholding? That might be a larger concern without knowing more about your situation.
RMD kicks in at age 73.
I'm 33 years old, is there any reason to do roth conversions at my age/early, then have the money grow tax free for longer?
You might be converting at a higher tax rate..... but, once converted, the money in ROTH can grow tax free. If it stayed in the IRA, you would be paying taxes on all of the future growth. But - that is just my opinion.
The longer the time horizon the more beneficial it would be. If your plan allows conversions before 59.5 (or do they all?) and you're not in a high income bracket I'd think it's a no brainer. But if you're in a high income bracket and/or high tax state, then I'm not sure. Some say as long as the time horizon is long enough it'll always work out.
@@5metoo I don't think time horizon matters for conversion, as explained in other videos on this channel. As I understand it, what matters is your marginal tax bracket now and what you expect your marginal tax bracket to be after you retire.
But one advantage I can think of with converting at a young age, is that you have more years to spread out the conversion, so you can take your time and keep conversion income from spilling into higher tax brackets. Plus you will likely have a few low-income years along the way, where you can do additional tax-efficient conversions. So no need to be too aggressive about conversions when young.
@@captsorghum - Of course time horizon matters. Some people like myself plan to never use Roth money and pass it on to heirs. If I live as long as expected, it could be 30 years after conversion that I or spouse owns the Roths. That favors Roth conversions even if the tax math isn't as favorable as you'd prefer it to be if you'd need to use it in a few years.
@@5metoo Not really. If you intend to pass it onto heirs, only the current and expected future tax brackets of yourself and your heirs matter. There is no compounding advantage between conventional IRA and Roth, as there would be between taxable account and either IRA or Roth.
Although the conversions themselves can influence your tax bracket. If you are talking about making gradual conversions over 30 years to avoid a huge bracket-raising conversion in the future, then it makes sense.
I don’t understand where your IRMAA lines are. I looked this up and singles can make almost $100,000 before having an IRMAA event.
The graph is confusing. The best I can tell, it shows taxes on ordinary income not showing the $40,000 Social Security income. Add the $34K of taxable Social Security that the government includes for IRMAA calculation brings you to the IRMAA thresholds shown.
I don't overthink this tax stuff. It's a rounding error compared to savings rate and CAGR of your investments.
I guess that's where I'm at. I worked hard and have large buckets, and thankfully traditional IRA isn't my largest bucket. I don't need to split hairs on taxes when moving money around. It comes down to how much I'm willing to pay today to get more money in Roth accounts. Not that much different from deciding how much I want to pay for a car or anything else.
Here is a twist, I am 64 and receiving survivor benefit of 24K, when I turn 70 I will switch to my own SS at 52K, I have 500K in IRA, would I be better off converting to Roth before the bigger SS kicks in
If I were in your situation, I would convert up to the 22% bracket every year until age 70. Then your RMDs on whatever is left will be tiny, minimizing your taxes from that point forward...and you will have ample tax free assets in a Roth to spend yourself or leave to heirs.
from now untill you reach age 70 you will be able to withdrawal 25k from the ira .Your Income during this period will be 49k with a fed tax bill of $1900 (3.80 effective rate) of course the trump tax bill will expire in a couple years but i believe you will be fine due ro the fact that we will still have a standard deduction and a 10/12 tax bracket.
And worst case' or best depending in how you look at it '
lets say your age 70 benefit is 60k (due to colas ) and your 500k appreciates to 750k ,by the time you are 73
The rmd on 750k will be approx 30k this 30k along with your 60k of s s will give you 90k of income with a fed tax bill of $4900 a reasonable effective tax rate of 4.80%.
Hope this helps
@@sergiosantana4658 so no real reason to do a Roth conversion, thanks for the advice, this helps
@@denniss3980 With 24k of S.S you can at the minimum withdraw 14k and still end up with a zero fed tax bill ( you do not want to wast a standard deduction)
@@sergiosantana4658 Doesn't the $25K per year taken out after 9 years reduce the $500k [even with interest]in the IRA and does it still grow to $750K by 73?
These scenarios are showing some VERY large IRA balances. I know those exist, and the average balance is possibly high enough for this kind of math to be applicable, but the median balance is far too low for any of this to come into play. For normal folks, with an IRA/401k/457b balance of $1M or less, most of what you're talking about is theoretical, not applicable.
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Make sure you tell people they can only convert $8,000 per person per year ONLY.
This is not true. There is no limit to the amount one can convert in a year.
Contributions have limits that can be influenced by ones earned income amount, but conversions are not restricted. Conversions do require careful running the numbers to keep it the most beneficial.