Great job of breaking down the pros and cons, and I especially appreciated the examples of how it can benefit you in retirement. I'm curious to know more about the specific factors that should be considered when deciding whether a Roth IRA conversion is right for an individual. Are there any particular tax brackets or income levels that make it more advantageous?
Good video. I agree 100% that higher taxes in the future or the widow tax are legitimate reasons to convert. That aside, I am not sure why the comparison to conversion is drawing down other assets. It seems to me it’s the opposite. Conversion causes withdrawal from other assets as you don’t want more taxable withdrawals. My plan is to withdraw now from the IRA and spend it instead of converting to Roth. That will let the other assets to grow, all of which will be tax free to my heirs. Since I don’t take any capital gains, my brokerage account is similar to a Roth with the added benefit of being able to harvest losses. As for IRMAA, unless you have a lot of income other than RMDs and SS, IRMAA is not going to be an issue unless your IRA is $5m. In fact there is a higher chance that the conversion will put you into IRMAA than an RMD. As for tax on SS, given it is not indexed for inflation and half of SS (which increases annually for inflation) is included in the calculation, it will be almost impossible for most people to avoid paying tax on SS. Conversions are not likely to help most people avoid tax on SS. Good point on dividends but that is something you can minimize if you don’t want to pay the 15%. Personally I am ok paying 15% but zero is better of course if you can make it work.
Terrific video. Your videos have contributed greatly to my retirement planning. We are into the 4th year of our retirement. Two more years and I will have eliminated (roth conversions and drawing income) my IRA. Virtually tax free income for the rest of our retirement. 😊. Implementing the bucket strategy, we also have a #1 bucket in FIA that is linked to the S&P 100% participation with a 12% Cap. This can provide more than 10 years of income in the event of a stock market downturn. This provides a lot of comfort when you know that your baseline expenses are secure. The rest of our investments are 40% in growth equities which provides for future growth to protect us from the longevity risks which I believe are much greater than most people realize. Keep up the great work! RSB in NC
Interesting you mentioned longevity risk. That is a big reason I am not converting. Here is the thought process. Tax rates will be similar later but could go up if rates are higher overall. However RMDs start small at age 75 and don’t really ramp up until the mid 80’s. At that age paying more in tax or a market decline won’t be devastating as there are fewer years needed to fund. If converting aggressively between ages 60 and 65 when you may need to fund 25+ years is more risky as a big market correction after paying tax would have a much bigger impact.
Great job of breaking down the pros and cons, and I especially appreciated the examples of how it can benefit you in retirement. I'm curious to know more about the specific factors that should be considered when deciding whether a Roth IRA conversion is right for an individual. Are there any particular tax brackets or income levels that make it more advantageous?
Good video. I agree 100% that higher taxes in the future or the widow tax are legitimate reasons to convert. That aside, I am not sure why the comparison to conversion is drawing down other assets. It seems to me it’s the opposite. Conversion causes withdrawal from other assets as you don’t want more taxable withdrawals. My plan is to withdraw now from the IRA and spend it instead of converting to Roth. That will let the other assets to grow, all of which will be tax free to my heirs. Since I don’t take any capital gains, my brokerage account is similar to a Roth with the added benefit of being able to harvest losses. As for IRMAA, unless you have a lot of income other than RMDs and SS, IRMAA is not going to be an issue unless your IRA is $5m. In fact there is a higher chance that the conversion will put you into IRMAA than an RMD. As for tax on SS, given it is not indexed for inflation and half of SS (which increases annually for inflation) is included in the calculation, it will be almost impossible for most people to avoid paying tax on SS. Conversions are not likely to help most people avoid tax on SS. Good point on dividends but that is something you can minimize if you don’t want to pay the 15%. Personally I am ok paying 15% but zero is better of course if you can make it work.
Great breakdown
Thanks so much!
Terrific video. Your videos have contributed greatly to my retirement planning. We are into the 4th year of our retirement. Two more years and I will have eliminated (roth conversions and drawing income) my IRA. Virtually tax free income for the rest of our retirement. 😊.
Implementing the bucket strategy, we also have a #1 bucket in FIA that is linked to the S&P 100% participation with a 12% Cap. This can provide more than 10 years of income in the event of a stock market downturn. This provides a lot of comfort when you know that your baseline expenses are secure. The rest of our investments are 40% in growth equities which provides for future growth to protect us from the longevity risks which I believe are much greater than most people realize.
Keep up the great work!
RSB in NC
@user-mm8jv3tn2l we are seriously so happy to hear that! Congrats on your retirement, thank you for watching!
Interesting you mentioned longevity risk. That is a big reason I am not converting. Here is the thought process. Tax rates will be similar later but could go up if rates are higher overall. However RMDs start small at age 75 and don’t really ramp up until the mid 80’s. At that age paying more in tax or a market decline won’t be devastating as there are fewer years needed to fund. If converting aggressively between ages 60 and 65 when you may need to fund 25+ years is more risky as a big market correction after paying tax would have a much bigger impact.
Excellent thank you
You're welcome, @missouri6014! Thanks for watching.