Another option to consider - spend more prior to social security kicking in. Their portfolio would support it and it would likely improve the quality of their life while they are healthy and more active.
This was an excellent video and discussion James. I am 75 and 13.5 yrs into retirement and have been doing Roth conversions for a few years now better balance my tax deferred and Roth account savings. My focus now is really on legacy planning and trying to make the transfer as tax friendly as possible to my kids. I would love to get access to the software but for my limited use and need for the academy, I just cant justify the expense. I wish there was a less costly way to do it. Thanks for all you do, I am a subscriber and never miss your videos. Larry, Central Valley, Ca.
We were in a similar situation, except had $200k in Roth and HSA. Actually slightly higher expenditures. Our taxes are LOW. Effective rate is less than 10%. Wife is drawing SS since 63. I’m planning on 70. We are spending only pretax portfolio money. For us by the time we take RMDs at 73 they will be lower than these folks unless growth is way over average. Remember that the projections on tax savings for Roth REQUIRE time to bear fruit. In other words if you die 3 years after a conversion you DON’T come out ahead. My point would be to wait on Social security for the high earner till 70, and thus withdraw more from pretax in the interim. This assumes we expect one member of the couple to live to 84. Then they have one large check forever that is also taxed less than portfolio withdrawals. This will open up more room for conversions/minimize the need for them.
There is a work around for charitable giving out of your pre-tax IRA before age 70. Take a lump sum distribution of the amount you were going to donate, and move it into a Donor Advised Fund. Then you will be able to itemize and deduct the donation in one year, and still give year over year. In this case, they would withdraw $48,000, put into the DAF, then donate $9,600 a year for five years, plus, the funds in the DAF can grow, so they may be able to donate even more to a cause they believe in.
Good information BUT very few couples live to 90 and one will generally pass first, leaving the other to live alone for years.... holding a serious TAX BILL now having to file "single." When this happens, the remaining spouse's tax rate goes WAY up! These conversions should have been happening YEARS ago, maximizing the 24% bracket.
Thanks , in a similar situation ,except retiring at 55 next year . Some of did not understand the huge benefits of Roth until late in the retirement planning,especially if you had after-tax options ( I assumed it was the same and it is not !) . Gonna rewatch again .
Can you do one for people in their 50s?Happy to provide our numbers as case study subjects. If I were the couple, I would draw more from the IRA accounts in the 60s so that there is less RMD to deal with later on.
James I really enjoy your show. One suggestion if I may... Could you speak a bit slower? Sometimes it is really difficult to catch especially talking about finances... After all most of your targeted audience are senior people, and some of us are just a bit slow.
This couple should have started Roth conversions several years back... on everything except their QCD. Retirement planning this close to retirement is very limiting on options.
James, thanks for the great information. One thing I never see accounted for is the compounded growth within the IRA that is lost when the taxes are paid from the withdrawal. You have to withdraw an even higher amount to do the conversion plus pay the taxes on the total withdrawal. I am curious to know if the conversion is not done, and so the amount that would have gone to pay taxes remains in the account to compound and grow, would that growth offset paying the higher tax rate later.
Great information, but in your hypothetical couple it did not mention any significant brokerage acct balances to pay for these Roth conversions, and a good video would be paying the taxes from the conversion itself and see if that is realistic to do, also I rarely notice any responses to our questions, so that's pretty disappointing honestly
Great overview!! I have a thought for a future series if it has not been done already, instead of drawing from a pre-tax portfolio or even a post tax portfolio of more mainstream investments like VOO, VTI etc. and utilizing something comparable to the 4% rule, perhaps evaluate an income based retirement strategy where the portfolio itself generates the cash flow, such as investments like covered call ETFs, BDCs, CEFs etc. (e.g. JEPQ, SPYI, QQQI, BXSL).
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Another option to consider - spend more prior to social security kicking in. Their portfolio would support it and it would likely improve the quality of their life while they are healthy and more active.
This was an excellent video and discussion James. I am 75 and 13.5 yrs into retirement and have been doing Roth conversions for a few years now better balance my tax deferred and Roth account savings. My focus now is really on legacy planning and trying to make the transfer as tax friendly as possible to my kids. I would love to get access to the software but for my limited use and need for the academy, I just cant justify the expense. I wish there was a less costly way to do it. Thanks for all you do, I am a subscriber and never miss your videos. Larry, Central Valley, Ca.
We were in a similar situation, except had $200k in Roth and HSA. Actually slightly higher expenditures. Our taxes are LOW. Effective rate is less than 10%.
Wife is drawing SS since 63. I’m planning on 70.
We are spending only pretax portfolio money. For us by the time we take RMDs at 73 they will be lower than these folks unless growth is way over average.
Remember that the projections on tax savings for Roth REQUIRE time to bear fruit. In other words if you die 3 years after a conversion you DON’T come out ahead.
My point would be to wait on Social security for the high earner till 70, and thus withdraw more from pretax in the interim. This assumes we expect one member of the couple to live to 84.
Then they have one large check forever that is also taxed less than portfolio withdrawals. This will open up more room for conversions/minimize the need for them.
There is a work around for charitable giving out of your pre-tax IRA before age 70.
Take a lump sum distribution of the amount you were going to donate, and move it into a Donor Advised Fund. Then you will be able to itemize and deduct the donation in one year, and still give year over year. In this case, they would withdraw $48,000, put into the DAF, then donate $9,600 a year for five years, plus, the funds in the DAF can grow, so they may be able to donate even more to a cause they believe in.
Good information BUT very few couples live to 90 and one will generally pass first, leaving the other to live alone for years.... holding a serious TAX BILL now having to file "single." When this happens, the remaining spouse's tax rate goes WAY up! These conversions should have been happening YEARS ago, maximizing the 24% bracket.
Thanks , in a similar situation ,except retiring at 55 next year . Some of did not understand the huge benefits of Roth until late in the retirement planning,especially if you had after-tax options ( I assumed it was the same and it is not !) . Gonna rewatch again .
Love these case studies!
Nice work James, keep it up!
Can you do one for people in their 50s?Happy to provide our numbers as case study subjects.
If I were the couple, I would draw more from the IRA accounts in the 60s so that there is less RMD to deal with later on.
Well done - thank you.
James I really enjoy your show. One suggestion if I may... Could you speak a bit slower? Sometimes it is really difficult to catch especially talking about finances... After all most of your targeted audience are senior people, and some of us are just a bit slow.
how much for a personal consultation or perhaps a case study ( I have a unique situation the may be useful to others as a case study)
Can Living Trusts be done without an estate attorney?
James, Why aren’t they spending more? Why leave all the money to high income children. Seems like the plan is to grow the portfolio.
This couple should have started Roth conversions several years back... on everything except their QCD. Retirement planning this close to retirement is very limiting on options.
Won’t they be hitting Roth contribution limits?
Thanks, as always!
James, thanks for the great information. One thing I never see accounted for is the compounded growth within the IRA that is lost when the taxes are paid from the withdrawal. You have to withdraw an even higher amount to do the conversion plus pay the taxes on the total withdrawal.
I am curious to know if the conversion is not done, and so the amount that would have gone to pay taxes remains in the account to compound and grow, would that growth offset paying the higher tax rate later.
Great information, but in your hypothetical couple it did not mention any significant brokerage acct balances to pay for these Roth conversions, and a good video would be paying the taxes from the conversion itself and see if that is realistic to do, also I rarely notice any responses to our questions, so that's pretty disappointing honestly
Great overview!! I have a thought for a future series if it has not been done already, instead of drawing from a pre-tax portfolio or even a post tax portfolio of more mainstream investments like VOO, VTI etc. and utilizing something comparable to the 4% rule, perhaps evaluate an income based retirement strategy where the portfolio itself generates the cash flow, such as investments like covered call ETFs, BDCs, CEFs etc. (e.g. JEPQ, SPYI, QQQI, BXSL).
I thought your children can inherent up to $13M tax free??
🤔 Every dollar you covert needs to have tax paid on it. The tax paid is gone forever all the gains on that tax paid are lost forever