MAKE SURE you leave a good pre tax balance so you can withdraw and fill up low brackets. Married couple can withdraw $125k at 12%. Makes no sense to convert and pay 35%… if you’re working in NY, doing Roth and then retire in FL, you paid NY tax for no reason. Also add in QCD. There is no ALWAYS, you need to plan…
Yes. I would also add that it's extremely important for folks whose income is in the range where their social security benefits are being taxed to know what their effective tax rate is going to be. The simple version is that when your income reaches a level where they pull in 85% of your social security benefit for every extra dollar you make, you have to multiply your tax rate by 1.85 to see what your effective incremental tax rate is. So the 10% bracket becomes effectively 18.5% and the 22% bracket becomes effectively 40.7%. Many people who assume their tax rate is going to be lower in retirement because their income is significantly lower will be shocked when the see the effect of the social security taxes. I'm planning Roth conversions over the next couple of years to take advantage of the rates before the Trump tax cuts expire. That said, you do want to leave some money in tax deferred if you want to do qualified charitable giving, or to fill out low tax brackets. Definitely do some financial planning with scenarios to figure out what the optimum mix is between Roth, tax deferred, and brokerage accounts. The answer is much more individualistic than many people think.
@@JoeFromSomewhere2303 as the old saying goes, Plan for the worst but hope for the best. So you need to plan for Social Security as if it will always be there when the time comes. IMHO, Social Security is unlikely to go anywhere, anytime soon.
Your point about NY State is exactly the point I was going to make. People who preach at the alter of Roth don't take into account people who live in a high tax state (and NY is one of the highest) and plan to move to a state with lower taxes after retirement. Those folks are most likely to pay FAR LESS taxes if they don't have their Roth IRA deposits taxed by NY State beforehand.
Although I agree with the overall premise of not wanting an IRA which just compounds your tax liability, you are missing one key component. You have to run an analysis in which the savings you make due to the tax deferral on the front end is invested alongside in a taxable brokerage account. Although the government is giving you a loan when you make an IRA deduction... that loan is invested compounding your capital. Your entire argument relies on the individual not investing the savings from the tax deduction they get today.
Rather than put the savings into a taxable account, they could go into a Roth 401k. It's been said that people ought to save 15% of their salary for retirement. At least capture the employer match and the rest could go into a Roth 401k.
They're speaking from the pov of high earners. When I was making okay money but had student loans, etc. I couldn't afford to pay extra so the same 15k ended up in a roth as it would pre401k. With Pre401 you get more money into the market sooner (more time in the market) and you still have a paycheck amount that you can live off of. If you get raises, promotions, etc. then you can up the Roth amount more.
Yep. I agree, but when I ask others who have deferred retirement accounts what they're doing with the tax savings most say they don't know. I ask them are you using the tax savings to pay off your mortgage, high interest loans, invest in college for the kids or increasing you tax deferral contributions by the tax savings? At that point they realize that they missed out on utilizing that tax savings and some are at or near retirement.
So, here are a couple little tidbits I didn’t hear in this discussion. 1. Roth conversions/donations, etc not only are not ever taxed by the original owner, but also never again by beneficiaries and 2. By using some long term tax planning, IRA’s can be converted to Roth little by little still allowing you to stay in the lower tax brackets and avoiding the Medicare penalty (IRMAA),
My wife and I are 401k heavy. We make a very good income and for that reason max out our tax deferred accounts to minimize our annual taxes but after listening to this I’m not sure if that is a good strategy. We just started a backdoor roth IRA each this year and max out each account at the beginning of the year which is a total of 14k. We also have a taxable brokerage account. Would you recommend that we decrease our 401k contributions? What would be the alternative? I know that owning real estate could be a solution but we do not want to be landlords. Would REITs provide the same tax advantage as owning actual properties? Great show by the way. Thank you.
Buy farmland. Other than property taxes hardly any expenses if any. Hire a land mgr at 5% and they find the farmer and you sign a lease and done. It’s fabulous.
Congrats on making money and saving so well. You didn't say how old you are or whether you want to leave money for family or causes. So it's impossible to say what you should do without more info. A good advisor can do the math after getting the info. You definitely have a solvable problem though!
@@davearey4922Hi Dave! Yes, I did hear Ben's response, and it made sense in the context of hedge fund managers using it as a crutch. I also say you were asking where I was. Thanks! See you Tuesday.
@@garysolberg1923…it was a great idea at the time but as much as it was great, they’s no strategy that remains great when the conditions it was created for changes. Truth is taxes are projected to change and as such it’s a tax deal to take at the moment to convert to a Roth
@@garysolberg1923What do you mean Gary? You mean because of tax ramifications? (Roth) All I know if, is that if it wasn't for 401K, and saving and investing aggressively, I would still be working in a job I hated.
The all Roth stuff is inaccurate or at least misguided for decent sized groups of Americans . Useful for mass market application, yes. It’s a rare product that can be very good for both lower income/asset people and much much higher income/asset people, albeit for different reasons. But all Roth all the time mantra and the reasons said to support it miss a decent amount of people that can benefit tremendously from smart use of traditional 401k/ira accounts. These are mostly hyper savers debt adverse people on moderate incomes as well as high income people with expected periods of low taxable income. These groups can and should use Roth conversions to reap the tax arbitrage available to them. I get the appeal of all Roth all the time to mass market media outlets but for a show that has a good amount of individualized content and advice, this should be discussed as part of a Roth bent conversation.
I believe a "taxable brokerage account" is just a good if not better as it has no age restrictions. Also, long term capital gains tax rates are very advantages. 0%- 15% 20%. Again, depending on your income situation, a married couple might have a 0% tax rate on the first 115K in long term capital gains/qualified dividends. Also, if you make the decision to convert IRA's to Roth you will pay that income tax today. But you are assuming that the government will not implement a "new tax" in the future to get you again. They won't call it an income tax but something else. Like national sales tax, Value tax etc... As this won't be an "income tax" those Roth accounts may be subject to that "new tax". So be careful assuming a Roth won't be taxed again!
Best combination is a taxable brokerage and a Roth IRA: Withdraw brokerage gains up to fill the 0% bracket and withdraw the balance of your annual expenses from the Roth.
I am not sure. Starting at a young age, and being able to 'defer tax' for 40 years compounds to HUGE financial benefit over the life of an individual. I am 70 years old right now, and pay the 'lowest effective tax rate' that I have ever paid. In my case, looking back, there is no question that regular IRA worked out best, by a large margin, for me. My experience contradicts this message.
can i ask...why is your tax bill lower in retirement (age. 70?) then when you were working? Is it the Trump tax cuts? You still pay a mortgage? The ability to take the gross amount and put it in the market for longer is appealing especially when I was young and broke and need my paycheck.
I started a Roth IRA and Roth 401k back when I joined the workforce. Now I am 41 and have $650k in Roth accounts which account for 86% of my retirement assets. I plan to Roth convert all of my traditional retirement assets between the ages of 60 and 70 before I take social security at 70. During those years I will be retired and living off of long term capital gains and qualified dividends from my brokerage account. (And possibly a seven figure inherited Roth IRA depending on when that happens.) Uncle Sam is getting plenty of money from me now in the 22% bracket but he will be getting almost nothing from me when I am old and rich. I don't think congress thought about the long term consequences of young people starting Roth accounts at 22 and going all in on Roth for their entire careers. People like me in the "Roth from the start" crowd haven't hit retirement age yet, but that day is coming.
There are a lot of apples-to-oranges framing devices being used, and many of the claims (like "lower tax bracket in retirement never happens") are demonstrably inaccurate. The broad theme that people don't understand that tax-deferred exposes you to future income tax also seems to be detached from reality: if anything, the opposite fallacy (favoring Roth by calculating total nominal tax expenditures rather than calculating how much you'll have available to spend at the end) seems considerably more common in my experience. When he said "most people who take RMDs take it because they had to", I giggled, and also had to resist the urge to bang my head into the desk. Yep, that's what RMD stands for! Roth accounts are extremely useful vehicles, and I do think tons of people should use them, but this episode does not make a good argument. It is deceptive and/or focused on a narrower audience than it presents to be.
Totally, totally agree. The nearly-militant insistence that people can’t possibly be in a lower marginal rate at retirement is ludicrous. (The fact that his argument about this being the “lowest tax time period ever” is entirely based on the highest marginal rate - literally the rate for the absolute wealthiest people by annual income, and is entirely inapplicable to those in mid or even upper middle incomes.) He also conveniently ignores all the career turns and changes that can put one into lower income situations - taking sabbaticals, stopping work to care for family, retiring early or switching to half-time jobs - that present opportunities to strategically convert to Roth at the appropriate time, and would require a pretax pot of retirement savings to do those conversions. Upfront Roth is never an all-or-nothing, and he would do clients better by not giving ultimatums.
This ignores his number one reason stated explicitly; Your investments grow tax free! Our medicare costs $2,500 a month for two healthy 65 year olds and my tax rates under Trumps horrible tax plan in 2025 will be higher than while we were working. He took out all the deductions. I wish I had sold half my real estate and put every dime into Roth IRA's despite the limited deposits of 7-8K a year. I tell my kids and every young person max out your Roth every single year except for those rare occasions where a traditional IRA will drop your tax bracket. I've spent years looking at this. My kids will be screwed in retirement and tax free income is the only solution for average earners. None of this applies to the wealthy (say 10 million plus in liquid assets).
@@Aortadetroit No, it does not ignore his number-one reason. Growth is *also* tax-free in pre-tax traditional. Both account types pay zero in capital gains, and both pay income tax once: either when the money is originally made at your job (Roth) or when it's withdrawn (pre-tax Traditional). If you're only looking at Tradition in terms of current bracket, you're missing half the picture.
@@HaloTupolev You don't understand the investment Sir. If you pay taxes on distributions (traditional) your money did not grow "tax-free." It grew tax deferred AND it can raise your tax bracket! Exclamation mark because that is everything.. In my bracket that means massive increase in taxes overall.
@@Aortadetroit I don't understand why you're bringing up "your bracket." That doesn't have anything to do with my point. I'm not arguing that there aren't any people who whom a maximum-Roth strategy is preferable: obviously there are. I can't see your financial statements, but I don't have any reason to think that it's a poor strategy for you, and I'm not arguing for or against you personally using Roth or Traditional.
If you pay $3k in taxes on $10k, and put the remaining $7k into a Roth, and it grows by 10x to $70k, the original $3k in taxes has also effectively grown to a $30k difference in money available to spend. So even though the taxes were only "$3000", the real cost of those taxes has grown into the same $30,000 that a $100k Traditional account would get slammed with if it ended up getting taxed at the same 30% rate. In both of those cases, the *real* impact of the taxes on your financial result is $30,000. And in both cases, this is due to income tax on an investment that has grown, with no taxation directly imposed on that capital growth.
Semantically, I don't necessarily think it's illogical to perceive the taxes on tax-deferred investments as "tax on growth." That's a matter of the English language, not of finances. But if you do this, I *do* think it's illogical to not also regard the implicit growth-on-loss in a Roth as being essentially the same thing.
A Roth is tax free but not free. You give up significant tax breaks when you contribute to a Roth. As it relates to conversion, it does not benefit everyone. Unless your tax rate is higher when you (or your heirs) ultimately pay the tax there is no benefit to convert. Converting in the 35% or 37% bracket is just plain stupid. As far as being critical for investing in pre tax, some of us didn’t have a Roth IRA option and even if we did we were in high tax brackets when working so we are where we are. Thank goodness the market did well and we are lucky to have a high balance in the tax deferred account. It sure beats not saving at all which is an issue for many. It goes beyond the tax rate though. There are many risks/assumptions for the conversion argument, any of which don’t go as planned can change the equation, including: 1. State taxes. If you pay to convert to Roth in a high tax state but move to a zero tax state you need to take that into account. 2. Time Value of money. When you convert, you pay all the tax at once in your highest tax bracket with todays dollars compared to RMDs that are paid very slowly over many years with tomorrow’s inflation adjusted dollars not all in your highest bracket. 3. You may not live long enough or be healthy enough to enjoy your money. With RMDs not starting until 75 and only at 4% in year 1, your payback in a conversion could take years you don’t make it to. 4. Investment gains are assumed but not guaranteed. Had you converted $100k at the end of 2021 and paid $25k in tax and your account dropped 25% to $75k when the market and bonds both dropped in 2022, you would need a 33% increase just to get your account back to the balance you already paid tax on. 5. Tax Brackets and the standard deduction are adjusted for inflation. It will take much more income in the future to be in the same tax bracket as today. 6. If you don’t need the RMD, a brokerage account allows you to defer gains indefinitely, harvest losses , and your heirs get a step up in basis and don’t have to empty the account in 10 years. Bottom line is it is not one size fits all. Ultimately the tax gets paid by you or your heirs. Paying more or less tax is not the right way to measure success. I can show an example where you pay twice as much tax and come out ahead. It comes down to what gives you the largest after tax net worth, which cannot be quantified until 10 years after you die.
What they are not talking about is that there is always a chance the government changes the rules about the roth or any account. They change the rules for certain accounts all the time. If we continue to get deeper in debt anything is on the table
If they do that they would most likely grandfather existing ROTHs in otherwise people will lose their shit because they never got the Tax deduction. Most likely scenario is they drastically raise taxes in general and also print more money since that’s their go to
@@andichrist2000 Probably...but let me ask you what percentage of the population do you think has money in a roth? Not a lot of votes there no matter how many people lose their shit.
I dont really get the point here, first you max out your roth which has pretty low annual contributions limits, then you can decide to do a pre-tax 401k/IRA ? What am I missing here?
Order of contributions for retirement: 1) If your 401K or Roth 401K has a match from your employer, contribute up to the amount of the match. For instance, if your employer matches the first 4% of your contributions, then contribute 4%. Don't miss the opportunity to get free money from your employer. If your employer is matching dollar for dollar on 4%, you make 100% immediately when you contribute. 2) Once you have done #1 and have sufficient funds available, contribute to your own Roth IRA to the limit: Tax Year 2024 - $7,000 if you're under age 50 / $8,000 if you're age 50 or older. 3) If you maxed out #2 and are able to contribute more for retirement, bump up the % contributions to your 401K or Roth 401K.
49 y/o with 1.5 M in an IRA and 400k in a Roth IRA. Is it worth doing Roth IRA conversions if I currently live in the people’s republic of California but plan on retiring in Las Vegas where there’s no state income taxes. CA state income tax for me is around 10%. Thanks again for your thoughts
Wait until you’re out of California and sell any real estate in California, vote in Nevada, find doctors in Nevada and change all accounts to a Nevada address. California may still come after you since you had a deduction in California. You need to be able to show you’ve cut all ties to the state.
@@acparks1 Yes, it is but now you never have to worry about paying taxes on it in the future at a time when you could be on a higher tax bracket….its really a smart tax deal to take
I have an answer. When you reach the RMD stage. Withdraw what you must, and donate it to a tax free charity. That's not taxable to you nor the charity. And you both benefit. (Assuming you can afford to.) IMHO better to do that than to withdraw and pay taxes - if you can afford to/don't need to.
Good info-get a CALPERS pension or tell your kids-sure you pay taxes for life-w COLA -never have to worry about money-same w OT (always good even with higher taxes)
I know this is late but just watching- I am cash poor -no brokerage acct. I’m retired turning 65 next year and starting SS and Medicare. I’ve heard that I should not convert my Trad IRA to Roth without the cash to pay the taxes. Any more input? I do have a small pension.
@@TheBeagle1956 the 457 has an “extra” catch up provision (unlike 401k). You can put $46k a year in it for 3 years if you’re over 50. The other years (over 50) you can contribute the $30500k like a 401k. Not to many people know about it and the experts don’t either.
Why I dont make Roth contributions (for now): 1) married filing sep for income based student loan repayment reasons 2) highest state and local tax bracket in a very high tax jurisdiction (it's not the high taxes that bother me, it's how poorly/ineffectively it's spent) 3) optionality to convert to Roth at advantaged times/in advantaged jurisdictions 4) already have plenty of Roth funds from when 1 & 2 didn't apply 5) will probably oversave/overinvest/underspend to such a degree that I won't ever be concerned with my tax bill; I expect I'll be more concerned with figuring out dinner reservations.
Well in theory the growth is tax free. The initial contribution of Roth is after tax. Traditional is pre tax. But in theory Roth the growth is never taxed. While brokerage accounts is after tax money and theft tax capital gains.
I disagree with the statement that a brockerage account is better than a traditional 401K. My employer does not offer a roth 401k option. The traditional 401K can be rolled to an IRA at retirement, then converted to a roth account. You cant do that with a brockerage account. Would have been great if Ed offered strategies for people who dont have a roth option from their employer.
I like regular brokerage account. I have freedom. Don’t need to wait till 59 1/2 and if I sell my winning stock, the LTCG is 15% for me. I can report losses if things are not doing well.
Brokerage acct for the win! 1. There is no contribution limits, so fill it up as much as you can while you are bringing in money. 2. There is no age limit or RMD's for when you can take the money out so take it as you need it, at 50, at 95, it's YOUR money to take out. 3. You have the freedom to invest in pretty much whatever you want to without being limited to certain funds through your employer, like with a 401k. 4. While it isn't as "tax efficient" like a roth for cap gains, you only pay tax on capital gains when you sell stocks, not the total amount you pull from the account, and you can offset it with stock losses when it comes tax time too.
I think it’s too late for me to convert to a Roth IRA. I have a 401(k) with 180,000. I just retired and I need to start taking monthly deductions to live on. I was wondering what you all think.
Roth IRA accts are tax free because you paid the tax before you converted or you invested your cash from your savings account to which you’ve already paid tax on. In other words, we pay tax only once for all transactions.
I would argue an HSA, when properly invested, is better than a Roth IRA. No tax when you put it in or take it out (assuming you have qualified medical expenses).
For the love of God don't hold 100% of your retirement in Roth-treatment accounts. Unless you are going to for some reason have a higher tax rate in retirement
No one knows what the tax rates will be in the future , but if you convert and pay the taxes out of the converted monies you’re compounding a lessor amount . When I run the numbers there’s really not much of a difference. Unless you have 13.6 million for a single individual or 27 million for a couple there’s no federal tax due on the estate . Taking your RMD and then convert any money you don’t feel you’ll ever need into a Roth seems to me to be the way to go
When you put money into an traditional IRA, you get a tax deduction and its growth is tax deferred. If you took the tax deduction, when withdrawn, it will be taxed as ordinary income. There is no tax deduction for a Roth conversion. Just the opposite, you will have to pay taxes to convert to a Roth IRA.
Homeboy forgets the fact that it’s extremely rare for an employer to match roth contributions in employer plan (where majority of americans are saving for retirement) im a fan of roth my also missing out on that employer march for 10-30 years at an employer is something to consider….
Yep. Seldom gets talked about. Discussions like this always ignore the limits and make it sound like anyone can do Roth. Heck, none of these three at that table can do Roth due to income limits.
Anyone can do a Roth IRA. If you’re over the income limit and don’t have an existing traditional IRA, open both traditional and Roth IRAs. Contribute to a traditional IRA and immediately move it into a Roth IRA. It’s called a Backdoor Roth Contribution. Perfectly legal. No deduction is taken for the traditional IRA contribution, so it’s converted to a Roth with no gain or taxes owed.
It is very easy to buy in on trending stocks but the problem is knowing when to sell or hold, which is why a coach is important. I've been in touch with one for about a year now and although I was initially skeptical about it, I will say l've made more progress within a year generating 6figure profit.
Roll over is one way but the best strategy is to diversify your retirement into different tax buckets. I’d say have a IRA especially if your employer is matching, then the excess contributions (pay tax on them) into a Roth or equivalent deferred annuity and I can definitely assist with that
financial blah blah blah. so happy to be a WNK--widower, no kids. cashed out 5 years ago. realized i had more than enuf to see me to the end. ss will be government annuity gravy when i start it in 2 years. all insurances paid up and headed to off grid raw land in late summer. leaving colo after 35 years where the potholes are bigger than ever and my prop taxes are closing in on 4 k. this red state has gone blue and i am headed to 2A TN.
Look into an IUL. Be careful though. An IUL must be designed in such a way the costs of Insurance aren’t eroding your money and the Tax Free growth. Let’s say, the most you can save a month is $1000. Make sure to see that guideline premium reads close to $12k. If Target is $12k. The person who wrote the policy has written himself a fat commission check. (Not everyone qualifies for these btw)
This advice is only applicable to people who are already in the highest tax bracket. Otherwise it would be stupid to convert a huge sum all in one year and subject it to much higher tax rates than it would be if you were spreading it out over decades at much lower rates.
It’s applicable to everybody who has a traditional IRA and wants to convert to a Roth. You convert based on your current income tax bracket and try to avoid the next highest bracket. For people who are in a high tax bracket, they will probably want to wait until after they retire and are in a lower tax bracket, then start converting.
Aren’t you missing the fact that, depending on your investing horizon, the GROWTH of the investment is what you’re trying to avoid paying taxes on? If your money doubles every 7-years in an investment account you’re allowing the snowball to get bigger and bigger, then you’re allowing the entire snowball to become taxable income vs a Roth which is never taxable, nor never counted as income (which is HUGE since so many other benefits are driven by income status allowing you to qualify for healthcare subsidies, etc. )
@CrabbyE8 No. If you take out a huge amount and subject it to the highest rates at federal and state tax rates, you could be starting your investment with 50 to 60 percent of the amount you took out. The discussion isn't Roth vs regular account, it's Roth vs. Traditional IRA, so taxes are deferred until you take it out. If you take it out at 10 to 15% tax rate which a lot of people are at in retirement and the investment kept growing all that time instead of resetting at the much lower amount that you had after you paid taxes on the conversion, you have a much larger pool of money to draw on to pay taxes with. If your tax rate is lower now than it was when you were in your peak earnings years, you're better off. This video assumes you're already in the highest tax bracket when you convert and are still in the highest tax bracket in retirement. If you're in a lower bracket in retirement, the math doesn't work.
@@craigsimons4930 Agreed. But the assumptions drive the situation. What if your < 42 years old? If you have the $ to pay the tax, then that nut inside that IRA grows tax free for the rest of your life. There’s a break even there at some point, so that’s the math you must now. Also, if you’re making
@@CrabbyE8Everyone's situation is different, but my statement still stands. If your young, you may not have much to convert anyway, but the assumption that applies to most people is that they can't afford to convert a million dollar IRA to a Roth and also have $400k plus hanging around to cover the taxes on it. If they did, they are probably doing well enough to already be in the highest bracket.
I retired 22 years ago at 45. I never understood people worrying about the problem of having $4 million at 75 but owing taxes. I didn't have a pile of money. Investing doesn't interest me. I didn't retire so I could become a financial analyst. Stock market crashes, don't care. Stock market boom, don't care. So no IRA, Roth, stocks, bonds. I funded retirement doing things I liked doing. Invented a couple products. Wrote some software. Designed and created a few gardens. By mostly slow flipped my house. Buy a dump, slowly fix it up, sell after at least 2 years., repeat. Working on house #4 now. Planning to sell 2025 and move to SE Asia. $250k cap gain is tax free. Made my income $0 so no need to file income tax forms. Get free healthcare (Medicaid) and free smartphone (LifeLine).
What the financial advisors in this video are saying is that they believe that they believe tax brackets will rise in the future, therefore they recommend people lock in the lower tax bracket today by investing in a Roth account. IMO, the financial advisors completely ignore the financial situation of most Americans, currently earning wages that puts them in the 12% tax bracket. These people might have earnings that put them in the 10% tax bracket after retiring, meaning that it would be cheaper for them to pay for the resultant taxes after they retire. Even worse, converting their IRA to a ROTH today might push them from the 12% tax bracket into the 22% tax bracket - causing them to unnecessarily pay for thousands of dollars more in taxes than they should have. FOR THE AVERAGE AMERICAN (who will be earning substantially less after he or she retires than when working), A CONVENTIONAL IRA MAKES MORE SENSE THAN A ROTH ACCOUNT.
Just remember: there was a day (not too long ago):that Roth didn’t exist. Certainly within the financial lifetimes of us baby boomers. So, we had no other option but IRA’s and when we wanted to embrace the “new, better” deal we paid dearly to do so.
Okay now I'm confused first you say Roth IRA is the best account ever to have then you say Roth IRA is a horrible idea because it's compounding debt? I'm lost
So many fallacies. It's not the way math works! Invest 9k in a Roth with 10% returns per year after tax with a 10% tax bracket equals the the same as $10k invested in an IRA with 10% returns and 10% tax. The end result is the same. Let me repeat....IT"S THE SAME. Then the other host assumes that when you take money out of an IRA because of RMDs that you have to spend it....there is no such rule. It can be invested in a brokerage. Now, IRMAA - valid point. Tax Rates going up - valid point. Not mentioned that I remember exactly making the point is that having all or near all Roth accounts can make your SS tax free possibly. With that said...I am doing some Roth conversions along the way. I am 61 years old.
The only certainties are death and taxes. Rest assured the tax rules will change and tax rates increasing as the federal government spends like drunken sailors. As for boomers, those who had 401ks were not eligible to contribute to a Roth. So they have RMDs starting at 73. They'll pay tax on the distributions each year and reinvest the rest generating future dividends or interest and building unrealized gains. If they need money to live on they'll go for dividend stocks, REITs, MLPs, and interest income. Again the only certainties are death and taxes. Nobody knows the future. Life at age 73 and beyond boils down to physical health and mental acuity. Every day with both of these intact are gifts beyond measure. Shrouds don't have pockets and hearses don't have luggage racks.
@@Liledgy100 The Roth IRA five-year rule says you cannot withdraw earnings tax-free until at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether 59 ½ or 105 years old per Bankrate......
Ed says, "Oh, that's a problem," when Jill provides an example of a 50-year old with a $2M IRA and it grows to $4M at Age 75. Sorry, but with that kind of money, taxes are not going to keep me up at night.
Math like Ed says: Keep IRA as is, using your $2M growing to $4M, is 2X current value. If tax rate goes to 50%, $4M - taxes = $2M. Covert to Roth at 25% effective tax rate leaves $1.5 M. $1.5M x 2X current value is $3M. Like he says, it’s all a bet on future tax rates. Do you think it’s unlikely that tax rates on the people with a multimillion dollar portfolio won’t go to 40-50-60%?
If you own a car that's paid off and you sell it the govt wants a tax? GTFO. Buying a depreciating asset along with paying the tax and interest at purchase (assuming you didn't pay cash)
@@TheBeagle1956 Rollover funds from an inherited traditional into a new traditional IRA in their name and treat the inherited funds as their own. Then they have till age 80 to withdraw it tax free (standard deduction) yearly.
That’s incorrect. Inherited IRAs cannot be rolled into a traditional IRA. They have ten years to withdraw all funds from the inherited IRA and pay tax on the withdrawals. The funds can be withdrawn over the ten year period or all at once, but taxes have to be paid in the year of withdrawal.
I’m sorry… your argument is that if you are 75 and you have 4M and you have to pay tax on 160k worth of distributions? I feel like so much of Jill’s advice forgets the average life span of people.
Congress is full of greedy millionaires. They wouldn't vote in favor of something that compromises their own personal gain. And, to make a Roth no longer tax free would result in our savings being taxed twice. I'm pretty sure they'd make a lot of stupid mistakes before making this one.
Agree. But if the title of this video was greatest asset to own, it would be a house. If you have a paid up home, you won 80% of the financial battle. It also gives emotional security. Also renting is like being a slave. You earn for some one else.
@@somchai9033Yes, but if it's paid for you save some of that money for future repairs, and yearly taxes, homeowners insurance can save you from major repairs as it did with my new sewer line 7k and stay away from crazy HOA'S mine is just 80.00 yearly .
Sir, with all due respect (and none that's not), you are overestimating the 'danger' of the compounding interest that accrues to consumer credit cards. Allow me to introduce you to a little-known concept that has evidently escaped your notice: _the Bankruptcy Act of 1867_ You're welcome! 😁
Misleading information. Traditional IRAs also grows tax-free and the money is yours. Certainly there are tax consequences when you take it out. Roth's are not tax-free, you pay taxes up front. The taxes on long- term capitol gains are 0 to 20 percent, my marginal rate is currently 24%, so the Roth is a loser. A Roth has a place in retirement, but it is not nearly the slam dunk this makes it.
Traditional IRAs grow tax deferred, which means that you have tax liability on it. So, if not withdrawn, what is in the TIRA that is growing, is just creating a higher tax liability. What good is the TIRA if you cannot withdraw from it, eventually? Just because there is no tax on it now since the tax is being deferred, does not mean it is tax free. And, in a TIRA, its growth is not categorized as long term capital gains. It will be taxed as ordinary income when withdrawn.
When you put money into a traditional IRA, you get a tax deduction and its growth is tax deferred. If you took the tax deduction, when withdrawn, it will be taxed as ordinary income. There is no tax deduction for a Roth conversion. Just the opposite, you will have to pay taxes to convert to a Roth IRA.
Love Ed. Please have him on more. Thank you!
MAKE SURE you leave a good pre tax balance so you can withdraw and fill up low brackets. Married couple can withdraw $125k at 12%. Makes no sense to convert and pay 35%… if you’re working in NY, doing Roth and then retire in FL, you paid NY tax for no reason. Also add in QCD. There is no ALWAYS, you need to plan…
Yes. I would also add that it's extremely important for folks whose income is in the range where their social security benefits are being taxed to know what their effective tax rate is going to be. The simple version is that when your income reaches a level where they pull in 85% of your social security benefit for every extra dollar you make, you have to multiply your tax rate by 1.85 to see what your effective incremental tax rate is. So the 10% bracket becomes effectively 18.5% and the 22% bracket becomes effectively 40.7%. Many people who assume their tax rate is going to be lower in retirement because their income is significantly lower will be shocked when the see the effect of the social security taxes.
I'm planning Roth conversions over the next couple of years to take advantage of the rates before the Trump tax cuts expire.
That said, you do want to leave some money in tax deferred if you want to do qualified charitable giving, or to fill out low tax brackets. Definitely do some financial planning with scenarios to figure out what the optimum mix is between Roth, tax deferred, and brokerage accounts. The answer is much more individualistic than many people think.
Or assume you will get no social security and then your taxes are exactly the same?
@@JoeFromSomewhere2303 as the old saying goes, Plan for the worst but hope for the best. So you need to plan for Social Security as if it will always be there when the time comes. IMHO, Social Security is unlikely to go anywhere, anytime soon.
Your point about NY State is exactly the point I was going to make. People who preach at the alter of Roth don't take into account people who live in a high tax state (and NY is one of the highest) and plan to move to a state with lower taxes after retirement. Those folks are most likely to pay FAR LESS taxes if they don't have their Roth IRA deposits taxed by NY State beforehand.
@@kevinstorm6009 You still must pay federal taxes, which are much higher than state taxes (in any state).
Although I agree with the overall premise of not wanting an IRA which just compounds your tax liability, you are missing one key component. You have to run an analysis in which the savings you make due to the tax deferral on the front end is invested alongside in a taxable brokerage account. Although the government is giving you a loan when you make an IRA deduction... that loan is invested compounding your capital. Your entire argument relies on the individual not investing the savings from the tax deduction they get today.
They did such a terrible job explaining this. I’m not sure if it’s ignorance or what but this was pretty bad for “professionals”
Amen. Money in my account earning more revenue , and compounding for decades wins my vote.
Rather than put the savings into a taxable account, they could go into a Roth 401k.
It's been said that people ought to save 15% of their salary for retirement. At least capture the employer match and the rest could go into a Roth 401k.
They're speaking from the pov of high earners. When I was making okay money but had student loans, etc. I couldn't afford to pay extra so the same 15k ended up in a roth as it would pre401k. With Pre401 you get more money into the market sooner (more time in the market) and you still have a paycheck amount that you can live off of. If you get raises, promotions, etc. then you can up the Roth amount more.
Yep. I agree, but when I ask others who have deferred retirement accounts what they're doing with the tax savings most say they don't know. I ask them are you using the tax savings to pay off your mortgage, high interest loans, invest in college for the kids or increasing you tax deferral contributions by the tax savings? At that point they realize that they missed out on utilizing that tax savings and some are at or near retirement.
New to the channel, I’m liking this… is this CPA a normal guest? I could listen to this guy all day
Thumb up ! Salute to Jill. Jill says it is for rich people. As long as you give it all away, you don't worry about tax or income.
So, here are a couple little tidbits I didn’t hear in this discussion. 1. Roth conversions/donations, etc not only are not ever taxed by the original owner, but also never again by beneficiaries and 2. By using some long term tax planning, IRA’s can be converted to Roth little by little still allowing you to stay in the lower tax brackets and avoiding the Medicare penalty (IRMAA),
My wife and I are 401k heavy. We make a very good income and for that reason max out our tax deferred accounts to minimize our annual taxes but after listening to this I’m not sure if that is a good strategy. We just started a backdoor roth IRA each this year and max out each account at the beginning of the year which is a total of 14k. We also have a taxable brokerage account. Would you recommend that we decrease our 401k contributions? What would be the alternative? I know that owning real estate could be a solution but we do not want to be landlords. Would REITs provide the same tax advantage as owning actual properties? Great show by the way. Thank you.
Buy farmland. Other than property taxes hardly any expenses if any. Hire a land mgr at 5% and they find the farmer and you sign a lease and done. It’s fabulous.
Congrats on making money and saving so well. You didn't say how old you are or whether you want to leave money for family or causes. So it's impossible to say what you should do without more info. A good advisor can do the math after getting the info. You definitely have a solvable problem though!
Best video on Roth, ever!
Great saying by Ed: Your IRA is an IOU to the IRS. There is no tax free money. You either pay it before you save it or after you saved it.
Cliff - Ben answered your question on why he doesn't life risk adjusted returns on the most recent Ask The Compound. Show. Hope you give it a listen.
@@davearey4922Hi Dave! Yes, I did hear Ben's response, and it made sense in the context of hedge fund managers using it as a crutch. I also say you were asking where I was. Thanks! See you Tuesday.
It's interesting to see how the 401K isn't look at the same as when it was originally introduced.
@@garysolberg1923…it was a great idea at the time but as much as it was great, they’s no strategy that remains great when the conditions it was created for changes.
Truth is taxes are projected to change and as such it’s a tax deal to take at the moment to convert to a Roth
@@garysolberg1923What do you mean Gary? You mean because of tax ramifications? (Roth) All I know if, is that if it wasn't for 401K, and saving and investing aggressively, I would still be working in a job I hated.
Did I hear correctly he would do Roth conversions even when at 37% tax bracket?
The all Roth stuff is inaccurate or at least misguided for decent sized groups of Americans . Useful for mass market application, yes. It’s a rare product that can be very good for both lower income/asset people and much much higher income/asset people, albeit for different reasons. But all Roth all the time mantra and the reasons said to support it miss a decent amount of people that can benefit tremendously from smart use of traditional 401k/ira accounts. These are mostly hyper savers debt adverse people on moderate incomes as well as high income people with expected periods of low taxable income. These groups can and should use Roth conversions to reap the tax arbitrage available to them. I get the appeal of all Roth all the time to mass market media outlets but for a show that has a good amount of individualized content and advice, this should be discussed as part of a Roth bent conversation.
I believe a "taxable brokerage account" is just a good if not better as it has no age restrictions. Also, long term capital gains tax rates are very advantages. 0%- 15% 20%. Again, depending on your income situation, a married couple might have a 0% tax rate on the first 115K in long term capital gains/qualified dividends.
Also, if you make the decision to convert IRA's to Roth you will pay that income tax today. But you are assuming that the government will not implement a "new tax" in the future to get you again. They won't call it an income tax but something else. Like national sales tax, Value tax etc... As this won't be an "income tax" those Roth accounts may be subject to that "new tax". So be careful assuming a Roth won't be taxed again!
Best combination is a taxable brokerage and a Roth IRA: Withdraw brokerage gains up to fill the 0% bracket and withdraw the balance of your annual expenses from the Roth.
@@_emh Yep but don't forget SS. My plan is Brokerage Account, Roth IRA, Rental Income and SS. My 4 legged stool.
The biggest problem with our clients? They have too much money!
I am not sure. Starting at a young age, and being able to 'defer tax' for 40 years compounds to HUGE financial benefit over the life of an individual. I am 70 years old right now, and pay the 'lowest effective tax rate' that I have ever paid. In my case, looking back, there is no question that regular IRA worked out best, by a large margin, for me. My experience contradicts this message.
I’m 54 on the same plan as u, I believe in the end it work best.
can i ask...why is your tax bill lower in retirement (age. 70?) then when you were working? Is it the Trump tax cuts? You still pay a mortgage?
The ability to take the gross amount and put it in the market for longer is appealing especially when I was young and broke and need my paycheck.
I started a Roth IRA and Roth 401k back when I joined the workforce. Now I am 41 and have $650k in Roth accounts which account for 86% of my retirement assets. I plan to Roth convert all of my traditional retirement assets between the ages of 60 and 70 before I take social security at 70. During those years I will be retired and living off of long term capital gains and qualified dividends from my brokerage account. (And possibly a seven figure inherited Roth IRA depending on when that happens.) Uncle Sam is getting plenty of money from me now in the 22% bracket but he will be getting almost nothing from me when I am old and rich.
I don't think congress thought about the long term consequences of young people starting Roth accounts at 22 and going all in on Roth for their entire careers. People like me in the "Roth from the start" crowd haven't hit retirement age yet, but that day is coming.
There are a lot of apples-to-oranges framing devices being used, and many of the claims (like "lower tax bracket in retirement never happens") are demonstrably inaccurate. The broad theme that people don't understand that tax-deferred exposes you to future income tax also seems to be detached from reality: if anything, the opposite fallacy (favoring Roth by calculating total nominal tax expenditures rather than calculating how much you'll have available to spend at the end) seems considerably more common in my experience.
When he said "most people who take RMDs take it because they had to", I giggled, and also had to resist the urge to bang my head into the desk. Yep, that's what RMD stands for!
Roth accounts are extremely useful vehicles, and I do think tons of people should use them, but this episode does not make a good argument. It is deceptive and/or focused on a narrower audience than it presents to be.
Totally, totally agree. The nearly-militant insistence that people can’t possibly be in a lower marginal rate at retirement is ludicrous. (The fact that his argument about this being the “lowest tax time period ever” is entirely based on the highest marginal rate - literally the rate for the absolute wealthiest people by annual income, and is entirely inapplicable to those in mid or even upper middle incomes.)
He also conveniently ignores all the career turns and changes that can put one into lower income situations - taking sabbaticals, stopping work to care for family, retiring early or switching to half-time jobs - that present opportunities to strategically convert to Roth at the appropriate time, and would require a pretax pot of retirement savings to do those conversions.
Upfront Roth is never an all-or-nothing, and he would do clients better by not giving ultimatums.
This ignores his number one reason stated explicitly; Your investments grow tax free! Our medicare costs $2,500 a month for two healthy 65 year olds and my tax rates under Trumps horrible tax plan in 2025 will be higher than while we were working. He took out all the deductions. I wish I had sold half my real estate and put every dime into Roth IRA's despite the limited deposits of 7-8K a year. I tell my kids and every young person max out your Roth every single year except for those rare occasions where a traditional IRA will drop your tax bracket. I've spent years looking at this. My kids will be screwed in retirement and tax free income is the only solution for average earners. None of this applies to the wealthy (say 10 million plus in liquid assets).
@@Aortadetroit No, it does not ignore his number-one reason. Growth is *also* tax-free in pre-tax traditional. Both account types pay zero in capital gains, and both pay income tax once: either when the money is originally made at your job (Roth) or when it's withdrawn (pre-tax Traditional). If you're only looking at Tradition in terms of current bracket, you're missing half the picture.
@@HaloTupolev You don't understand the investment Sir. If you pay taxes on distributions (traditional) your money did not grow "tax-free." It grew tax deferred AND it can raise your tax bracket! Exclamation mark because that is everything.. In my bracket that means massive increase in taxes overall.
@@Aortadetroit I don't understand why you're bringing up "your bracket." That doesn't have anything to do with my point. I'm not arguing that there aren't any people who whom a maximum-Roth strategy is preferable: obviously there are. I can't see your financial statements, but I don't have any reason to think that it's a poor strategy for you, and I'm not arguing for or against you personally using Roth or Traditional.
If you pay $3k in taxes on $10k, and put the remaining $7k into a Roth, and it grows by 10x to $70k, the original $3k in taxes has also effectively grown to a $30k difference in money available to spend. So even though the taxes were only "$3000", the real cost of those taxes has grown into the same $30,000 that a $100k Traditional account would get slammed with if it ended up getting taxed at the same 30% rate. In both of those cases, the *real* impact of the taxes on your financial result is $30,000. And in both cases, this is due to income tax on an investment that has grown, with no taxation directly imposed on that capital growth.
Semantically, I don't necessarily think it's illogical to perceive the taxes on tax-deferred investments as "tax on growth." That's a matter of the English language, not of finances. But if you do this, I *do* think it's illogical to not also regard the implicit growth-on-loss in a Roth as being essentially the same thing.
A Roth is tax free but not free. You give up significant tax breaks when you contribute to a Roth. As it relates to conversion, it does not benefit everyone. Unless your tax rate is higher when you (or your heirs) ultimately pay the tax there is no benefit to convert. Converting in the 35% or 37% bracket is just plain stupid. As far as being critical for investing in pre tax, some of us didn’t have a Roth IRA option and even if we did we were in high tax brackets when working so we are where we are. Thank goodness the market did well and we are lucky to have a high balance in the tax deferred account. It sure beats not saving at all which is an issue for many. It goes beyond the tax rate though. There are many risks/assumptions for the conversion argument, any of which don’t go as planned can change the equation, including:
1. State taxes. If you pay to convert to Roth in a high tax state but move to a zero tax state you need to take that into account.
2. Time Value of money. When you convert, you pay all the tax at once in your highest tax bracket with todays dollars compared to RMDs that are paid very slowly over many years with tomorrow’s inflation adjusted dollars not all in your highest bracket.
3. You may not live long enough or be healthy enough to enjoy your money. With RMDs not starting until 75 and only at 4% in year 1, your payback in a conversion could take years you don’t make it to.
4. Investment gains are assumed but not guaranteed. Had you converted $100k at the end of 2021 and paid $25k in tax and your account dropped 25% to $75k when the market and bonds both dropped in 2022, you would need a 33% increase just to get your account back to the balance you already paid tax on.
5. Tax Brackets and the standard deduction are adjusted for inflation. It will take much more income in the future to be in the same tax bracket as today.
6. If you don’t need the RMD, a brokerage account allows you to defer gains indefinitely, harvest losses , and your heirs get a step up in basis and don’t have to empty the account in 10 years.
Bottom line is it is not one size fits all. Ultimately the tax gets paid by you or your heirs. Paying more or less tax is not the right way to measure success. I can show an example where you pay twice as much tax and come out ahead. It comes down to what gives you the largest after tax net worth, which cannot be quantified until 10 years after you die.
What they are not talking about is that there is always a chance the government changes the rules about the roth or any account. They change the rules for certain accounts all the time. If we continue to get deeper in debt anything is on the table
they do bring that up
Can you time stamp it for me? I missed it@@crohmer
If they do that they would most likely grandfather existing ROTHs in otherwise people will lose their shit because they never got the Tax deduction. Most likely scenario is they drastically raise taxes in general and also print more money since that’s their go to
@@andichrist2000 Probably...but let me ask you what percentage of the population do you think has money in a roth? Not a lot of votes there no matter how many people lose their shit.
There have been proposals to eliminate or partially eliminate the income tax with a consumption/value added tax.
I dont really get the point here, first you max out your roth which has pretty low annual contributions limits, then you can decide to do a pre-tax 401k/IRA ? What am I missing here?
You may have the option to use a Roth 401k, not just a Roth IRA.
Order of contributions for retirement:
1) If your 401K or Roth 401K has a match from your employer, contribute up to the amount of the match. For instance, if your employer matches the first 4% of your contributions, then contribute 4%. Don't miss the opportunity to get free money from your employer. If your employer is matching dollar for dollar on 4%, you make 100% immediately when you contribute.
2) Once you have done #1 and have sufficient funds available, contribute to your own Roth IRA to the limit:
Tax Year 2024 - $7,000 if you're under age 50 / $8,000 if you're age 50 or older.
3) If you maxed out #2 and are able to contribute more for retirement, bump up the % contributions to your 401K or Roth 401K.
49 y/o with 1.5 M in an IRA and 400k in a Roth IRA. Is it worth doing Roth IRA conversions if I currently live in the people’s republic of California but plan on retiring in Las Vegas where there’s no state income taxes. CA state income tax for me is around 10%. Thanks again for your thoughts
Wait until you’re out of California and sell any real estate in California, vote in Nevada, find doctors in Nevada and change all accounts to a Nevada address. California may still come after you since you had a deduction in California. You need to be able to show you’ve cut all ties to the state.
At 79 married with a annuity is it a positive to go to a roth worth the added tax . We do not need the rmd.
OMG! The light just came on. I just got ROTH religion.
Loved the GR reference
Roths are great but you still will pay your share of taxes up front on payroll funds. Personally I have both, a traditional 401k and a Roth Ira.
Right. This guy talks forever about tax free but ignores the fact that the money you put into a Roth is already taxed money.
@@acparks1 Yes, it is but now you never have to worry about paying taxes on it in the future at a time when you could be on a higher tax bracket….its really a smart tax deal to take
I have no issue paying taxes on the seeds of my harvest if all future gains compound tax free with no RMD.
@@CWO-J I totally agree
@@acparks1 To be fair he talks up the tax free growth.
I have an answer. When you reach the RMD stage. Withdraw what you must, and donate it to a tax free charity. That's not taxable to you nor the charity. And you both benefit. (Assuming you can afford to.) IMHO better to do that than to withdraw and pay taxes - if you can afford to/don't need to.
How can u convert an IRA to Roth if the maximum is only 7500 per year?
The 7,500 maximum is what you can contribute per year. You can convert much more than that each year, pretty sure there's no limit for conversions.
Back door Roth-and you pay regular tax rate on conversion
Remember....you can't touch it for 5 years after the conversion.
Good info-get a CALPERS pension or tell your kids-sure you pay taxes for life-w COLA -never have to worry about money-same w OT (always good even with higher taxes)
I know this is late but just watching- I am cash poor -no brokerage acct. I’m retired turning 65 next year and starting SS and Medicare. I’ve heard that I should not convert my Trad IRA to Roth without the cash to pay the taxes. Any more input? I do have a small pension.
I can't understand how he can be so confident in his assertions.
Allow me to help you understand why he is so confident: it's called _facts._
@@ChiIeboy Elaborate.
Which assertions in particular shouldn’t he be confident in?
Ed Slott is the guru of IRAs (both Roth and Traditional). When it comes to IRAs, you should believe him.
@@RS-lw9cd Ah, the old "appeal to authority" fallacy. Are there no other gurus with differing opinions?
but isnt there a limit on the roth contribution ?
Yep
@@DiFinni so what is he on about?
Yes, but not on conversions. Also, Roth 401k has same contribution limit as regular 401k.
@@TheBeagle1956 the 457 has an “extra” catch up provision (unlike 401k). You can put $46k a year in it for 3 years if you’re over 50. The other years (over 50) you can contribute the $30500k like a 401k. Not to many people know about it and the experts don’t either.
Why I dont make Roth contributions (for now):
1) married filing sep for income based student loan repayment reasons
2) highest state and local tax bracket in a very high tax jurisdiction (it's not the high taxes that bother me, it's how poorly/ineffectively it's spent)
3) optionality to convert to Roth at advantaged times/in advantaged jurisdictions
4) already have plenty of Roth funds from when 1 & 2 didn't apply
5) will probably oversave/overinvest/underspend to such a degree that I won't ever be concerned with my tax bill; I expect I'll be more concerned with figuring out dinner reservations.
How about after you retire. How does it work for you
Better to use a taxable brokerage account than a traditional IRA.
Why??
@@lifesajourney101 Capital gains is lower for some people and you take it out when you want and you get to tax harvest.
@@cliftonconnor9389 and if you have higher capital gains than most?
Well in theory the growth is tax free. The initial contribution of Roth is after tax. Traditional is pre tax. But in theory Roth the growth is never taxed. While brokerage accounts is after tax money and theft tax capital gains.
Im not so sure how legitimate we should consider Peter Thiel's $6B Roth IRA... That was still pretty scammy and nobody else could have done it
Okay I'm confused. I'm 51 years old I have only 15,000 in a 401k how do I convert to Roth?
Could the Congress need the same deal as 2010 again? To pay off some government debt.
I disagree with the statement that a brockerage account is better than a traditional 401K. My employer does not offer a roth 401k option. The traditional 401K can be rolled to an IRA at retirement, then converted to a roth account. You cant do that with a brockerage account. Would have been great if Ed offered strategies for people who dont have a roth option from their employer.
I like regular brokerage account. I have freedom.
Don’t need to wait till 59 1/2 and if I sell my winning stock, the LTCG is 15% for me. I can report losses if things are not doing well.
Brokerage acct for the win! 1. There is no contribution limits, so fill it up as much as you can while you are bringing in money. 2. There is no age limit or RMD's for when you can take the money out so take it as you need it, at 50, at 95, it's YOUR money to take out. 3. You have the freedom to invest in pretty much whatever you want to without being limited to certain funds through your employer, like with a 401k. 4. While it isn't as "tax efficient" like a roth for cap gains, you only pay tax on capital gains when you sell stocks, not the total amount you pull from the account, and you can offset it with stock losses when it comes tax time too.
I think it’s too late for me to convert to a Roth IRA. I have a 401(k) with 180,000. I just retired and I need to start taking monthly deductions to live on. I was wondering what you all think.
If I have $500k in my IRA and $500k in my Brokerage account, can I convert $100k to my ROTH and pay the tax by selling some of my Brokerage acct?
Roth IRA accts are tax free because you paid the tax before you converted or you invested your cash from your savings account to which you’ve already paid tax on. In other words, we pay tax only once for all transactions.
What is a ROTH 401k?
From your job.
I would argue an HSA, when properly invested, is better than a Roth IRA. No tax when you put it in or take it out (assuming you have qualified medical expenses).
Thank you. I’m 38…just change my 401k to contribute completely into Roth! Will look into converting my other 401k accts to Roth later!
For the love of God don't hold 100% of your retirement in Roth-treatment accounts. Unless you are going to for some reason have a higher tax rate in retirement
No one knows what the tax rates will be in the future , but if you convert and pay the taxes out of the converted monies you’re compounding a lessor amount . When I run the numbers there’s really not much of a difference. Unless you have 13.6 million for a single individual or 27 million for a couple there’s no federal tax due on the estate . Taking your RMD and then convert any money you don’t feel you’ll ever need into a Roth seems to me to be the way to go
Im 67 can i get a roth or is it to late?
You have to be working or your spouse.
Joey doesn't share food.
Can you deduct taxes on a ira to a roth conversion?
When you put money into an traditional IRA, you get a tax deduction and its growth is tax deferred. If you took the tax deduction, when withdrawn, it will be taxed as ordinary income. There is no tax deduction for a Roth conversion. Just the opposite, you will have to pay taxes to convert to a Roth IRA.
But the rothIRA only allows me to save 7k per year for my retirement. And i need to catch-up and my 401k allows me to putaway much more per year.
You do a Roth conversion on the regular 491k
Homeboy forgets the fact that it’s extremely rare for an employer to match roth contributions in employer plan (where majority of americans are saving for retirement) im a fan of roth my also missing out on that employer march for 10-30 years at an employer is something to consider….
Many companies match but it goes into a regular 401k account not your Roth.
Why is putting your house in a revocable trust not advisable? Jill made mention of that.
@@summerwind55 Trusts have a higher tax rate. Look it up.
My company in 2025 is matching in Roth dollars.
What about the income max? A lot of us can’t even touch the Roth. Plus it has limits
Yep. Seldom gets talked about. Discussions like this always ignore the limits and make it sound like anyone can do Roth. Heck, none of these three at that table can do Roth due to income limits.
I did Roth 401k .. and make 400k salary.
Anyone can do a Roth IRA. If you’re over the income limit and don’t have an existing traditional IRA, open both traditional and Roth IRAs. Contribute to a traditional IRA and immediately move it into a Roth IRA. It’s called a Backdoor Roth Contribution. Perfectly legal. No deduction is taken for the traditional IRA contribution, so it’s converted to a Roth with no gain or taxes owed.
@@TheBeagle1956so it has to be new Traditional IRA, not an existing one? Thanks!
@TheBeagle1956 Aren't Roth contributions taxed upon entry, so when you withdraw, it is tax-free?
I'm under pressure to grow my reserve that currently holds about $800k. I'm down by 20% already following the crash and I fear I could lose more.
It is very easy to buy in on trending stocks but the problem is knowing when to sell or hold, which is why a coach is important. I've been in touch with one for about a year now and although I was initially skeptical about it, I will say l've made more progress within a year generating 6figure profit.
That's truly remarkable. I hope you don't mind pointing me towards their direction.
She's 'Melissa Jean Talingdan ' The best I've seen so far. Simply do your diligence.
Out of curiosity I looked up Melissa on the web and I have to say her Credentials are really Amazing.
They totally lied to us that we would be in alter tax rate. Or they really had no idea what would happen in the future.
How do you convert to Roth?
Roll over is one way but the best strategy is to diversify your retirement into different tax buckets.
I’d say have a IRA especially if your employer is matching, then the excess contributions (pay tax on them) into a Roth or equivalent deferred annuity and I can definitely assist with that
Whoops. I should have viewed further. That's a QCD. I do that every year.
financial blah blah blah.
so happy to be a WNK--widower, no kids.
cashed out 5 years ago. realized i had more than
enuf to see me to the end. ss will be government
annuity gravy when i start it in 2 years. all
insurances paid up and headed to off grid raw
land in late summer. leaving colo after 35 years
where the potholes are bigger than ever and my
prop taxes are closing in on 4 k. this red state has
gone blue and i am headed to 2A TN.
The Roth is so much better than every other retirement account
Mint.
Sadly I have neither one. Life is what happens when you're making other plans. 😢😮
Look into an IUL. Be careful though. An IUL must be designed in such a way the costs of Insurance aren’t eroding your money and the Tax Free growth. Let’s say, the most you can save a month is $1000. Make sure to see that guideline premium reads close to $12k. If Target is $12k. The person who wrote the policy has written himself a fat commission check.
(Not everyone qualifies for these btw)
This advice is only applicable to people who are already in the highest tax bracket. Otherwise it would be stupid to convert a huge sum all in one year and subject it to much higher tax rates than it would be if you were spreading it out over decades at much lower rates.
It’s applicable to everybody who has a traditional IRA and wants to convert to a Roth. You convert based on your current income tax bracket and try to avoid the next highest bracket. For people who are in a high tax bracket, they will probably want to wait until after they retire and are in a lower tax bracket, then start converting.
Aren’t you missing the fact that, depending on your investing horizon, the GROWTH of the investment is what you’re trying to avoid paying taxes on?
If your money doubles every 7-years in an investment account you’re allowing the snowball to get bigger and bigger, then you’re allowing the entire snowball to become taxable income vs a Roth which is never taxable, nor never counted as income (which is HUGE since so many other benefits are driven by income status allowing you to qualify for healthcare subsidies, etc. )
@CrabbyE8 No. If you take out a huge amount and subject it to the highest rates at federal and state tax rates, you could be starting your investment with 50 to 60 percent of the amount you took out. The discussion isn't Roth vs regular account, it's Roth vs. Traditional IRA, so taxes are deferred until you take it out. If you take it out at 10 to 15% tax rate which a lot of people are at in retirement and the investment kept growing all that time instead of resetting at the much lower amount that you had after you paid taxes on the conversion, you have a much larger pool of money to draw on to pay taxes with. If your tax rate is lower now than it was when you were in your peak earnings years, you're better off. This video assumes you're already in the highest tax bracket when you convert and are still in the highest tax bracket in retirement. If you're in a lower bracket in retirement, the math doesn't work.
@@craigsimons4930 Agreed. But the assumptions drive the situation. What if your < 42 years old? If you have the $ to pay the tax, then that nut inside that IRA grows tax free for the rest of your life. There’s a break even there at some point, so that’s the math you must now. Also, if you’re making
@@CrabbyE8Everyone's situation is different, but my statement still stands. If your young, you may not have much to convert anyway, but the assumption that applies to most people is that they can't afford to convert a million dollar IRA to a Roth and also have $400k plus hanging around to cover the taxes on it. If they did, they are probably doing well enough to already be in the highest bracket.
I retired 22 years ago at 45. I never understood people worrying about the problem of having $4 million at 75 but owing taxes.
I didn't have a pile of money. Investing doesn't interest me. I didn't retire so I could become a financial analyst. Stock market crashes, don't care. Stock market boom, don't care. So no IRA, Roth, stocks, bonds.
I funded retirement doing things I liked doing. Invented a couple products. Wrote some software. Designed and created a few gardens. By mostly slow flipped my house. Buy a dump, slowly fix it up, sell after at least 2 years., repeat. Working on house #4 now. Planning to sell 2025 and move to SE Asia. $250k cap gain is tax free. Made my income $0 so no need to file income tax forms. Get free healthcare (Medicaid) and free smartphone (LifeLine).
And aren’t you just so special…
Medicare doesn't work in se asia so get insurance .
But the exchange rate is doubled for USD .
It is not tax free, Ed. You pay either now or later, but definitely pay.
It's post tax savings...
What the financial advisors in this video are saying is that they believe that they believe tax brackets will rise in the future, therefore they recommend people lock in the lower tax bracket today by investing in a Roth account.
IMO, the financial advisors completely ignore the financial situation of most Americans, currently earning wages that puts them in the 12% tax bracket. These people might have earnings that put them in the 10% tax bracket after retiring, meaning that it would be cheaper for them to pay for the resultant taxes after they retire. Even worse, converting their IRA to a ROTH today might push them from the 12% tax bracket into the 22% tax bracket - causing them to unnecessarily pay for thousands of dollars more in taxes than they should have.
FOR THE AVERAGE AMERICAN (who will be earning substantially less after he or she retires than when working), A CONVENTIONAL IRA MAKES MORE SENSE THAN A ROTH ACCOUNT.
401k or Regular Brokage?
Just remember: there was a day (not too long ago):that Roth didn’t exist. Certainly within the financial lifetimes of us baby boomers. So, we had no other option but IRA’s and when we wanted to embrace the “new, better” deal we paid dearly to do so.
Okay now I'm confused first you say Roth IRA is the best account ever to have then you say Roth IRA is a horrible idea because it's compounding debt? I'm lost
So many fallacies. It's not the way math works! Invest 9k in a Roth with 10% returns per year after tax with a 10% tax bracket equals the the same as $10k invested in an IRA with 10% returns and 10% tax. The end result is the same. Let me repeat....IT"S THE SAME. Then the other host assumes that when you take money out of an IRA because of RMDs that you have to spend it....there is no such rule. It can be invested in a brokerage. Now, IRMAA - valid point. Tax Rates going up - valid point. Not mentioned that I remember exactly making the point is that having all or near all Roth accounts can make your SS tax free possibly. With that said...I am doing some Roth conversions along the way. I am 61 years old.
The only certainties are death and taxes. Rest assured the tax rules will change and tax rates increasing as the federal government spends like drunken sailors. As for boomers, those who had 401ks were not eligible to contribute to a Roth. So they have RMDs starting at 73. They'll pay tax on the distributions each year and reinvest the rest generating future dividends or interest and building unrealized gains. If they need money to live on they'll go for dividend stocks, REITs, MLPs, and interest income. Again the only certainties are death and taxes. Nobody knows the future. Life at age 73 and beyond boils down to physical health and mental acuity. Every day with both of these intact are gifts beyond measure. Shrouds don't have pockets and hearses don't have luggage racks.
What is considered rich today? Amount of savings?
Don't forget the Roth Ira 5-year rule if you are older
Doesn’t apply if your over 59 1/2
@@Liledgy100 The Roth IRA five-year rule says you cannot withdraw earnings tax-free until at least five years since you first contributed to a Roth IRA account.
This five-year rule applies to everyone who contributes to a Roth IRA, whether 59 ½ or 105 years old per Bankrate......
Ed says, "Oh, that's a problem," when Jill provides an example of a 50-year old with a $2M IRA and it grows to $4M at Age 75. Sorry, but with that kind of money, taxes are not going to keep me up at night.
$3M is better than $2M
Math like Ed says:
Keep IRA as is, using your $2M growing to $4M, is 2X current value.
If tax rate goes to 50%, $4M - taxes = $2M.
Covert to Roth at 25% effective tax rate leaves $1.5 M.
$1.5M x 2X current value is $3M.
Like he says, it’s all a bet on future tax rates. Do you think it’s unlikely that tax rates on the people with a multimillion dollar portfolio won’t go to 40-50-60%?
If you own a car that's paid off and you sell it the govt wants a tax? GTFO. Buying a depreciating asset along with paying the tax and interest at purchase (assuming you didn't pay cash)
it wouldnt be worth it if I had to live in new york...
This guy would be 110 years old and STILL not withdraw from his ROTH to avoid paying taxes. Looks 95 already.
Poor Max looks bored. There is no space for him to interject.
If you inherit a Roth, plan a sabbatical for year 9/10 and have fun!
I'm betting on RMDs to be 80 yrs old in 20 yrs. That way, my traditional IRA will be taxed free as part of my estate.
Your heirs will pay the tax.
@@TheBeagle1956 Sadly, my estate won't be over 13M.
Inherited Traditional IRAs still pay tax on withdrawals. There is no step up basis.
@@TheBeagle1956 Rollover funds from an inherited traditional into a new traditional IRA in their name and treat the inherited funds as their own. Then they have till age 80 to withdraw it tax free (standard deduction) yearly.
That’s incorrect. Inherited IRAs cannot be rolled into a traditional IRA. They have ten years to withdraw all funds from the inherited IRA and pay tax on the withdrawals. The funds can be withdrawn over the ten year period or all at once, but taxes have to be paid in the year of withdrawal.
I don't share money with the government if I can help it either,.
I’m sorry… your argument is that if you are 75 and you have 4M and you have to pay tax on 160k worth of distributions? I feel like so much of Jill’s advice forgets the average life span of people.
what happens if your 63. . . .convert my 1mil to a roth? Thanks, Jeff
One swipe of the pen by congress and it won’t be tax free
Congress is full of greedy millionaires. They wouldn't vote in favor of something that compromises their own personal gain. And, to make a Roth no longer tax free would result in our savings being taxed twice. I'm pretty sure they'd make a lot of stupid mistakes before making this one.
just do roth kids
invest tax savings from IRA deduction to make math work
Don't invest and die with from higher inflation
U saying you don't want to make money bc you don't want to pay taxes????
Agree. But if the title of this video was greatest asset to own, it would be a house. If you have a paid up home, you won 80% of the financial battle. It also gives emotional security. Also renting is like being a slave. You earn for some one else.
Home can be a money pit in the USA: property tax, HOA, insurance etc..
@@somchai9033Yes, but if it's paid for you save some of that money for future repairs, and yearly taxes, homeowners insurance can save you from major repairs as it did with my new sewer line 7k and stay away from crazy HOA'S mine is just 80.00 yearly .
@@somchai9033renting is a money pit as well. I own my home outright & my piece of mind is immeasurable.
Sir, with all due respect (and none that's not), you are overestimating the 'danger' of the compounding interest that accrues to consumer credit cards. Allow me to introduce you to a little-known concept that has evidently escaped your notice: _the Bankruptcy Act of 1867_
You're welcome! 😁
Absolutely terrible video
Misleading information. Traditional IRAs also grows tax-free and the money is yours. Certainly there are tax consequences when you take it out. Roth's are not tax-free, you pay taxes up front. The taxes on long- term capitol gains are 0 to 20 percent, my marginal rate is currently 24%, so the Roth is a loser. A Roth has a place in retirement, but it is not nearly the slam dunk this makes it.
Traditional IRAs grow tax deferred, which means that you have tax liability on it. So, if not withdrawn, what is in the TIRA that is growing, is just creating a higher tax liability. What good is the TIRA if you cannot withdraw from it, eventually? Just because there is no tax on it now since the tax is being deferred, does not mean it is tax free. And, in a TIRA, its growth is not categorized as long term capital gains. It will be taxed as ordinary income when withdrawn.
All signs point to cap gains tax rates going up significantly. There has been talk of even doubling current rates
total BS show
Can you deduct taxes on a ira to a roth conversion?
When you put money into a traditional IRA, you get a tax deduction and its growth is tax deferred. If you took the tax deduction, when withdrawn, it will be taxed as ordinary income. There is no tax deduction for a Roth conversion. Just the opposite, you will have to pay taxes to convert to a Roth IRA.