Thank you very kindly, The Retirement Nerds! Roth conversions require careful deliberation and consideration. However, they provide an undeniable measure of certainty and control for your future financial self. You want to increase your optionality and degrees of choice freedom regarding taxes when you are retired.
I think one of the best strategies is if you plan to retire early, go all in on traditional and then during the years you take no income in early retirement, convert your accounts to Roth to be at the lowest tax rate you would have if you are today in that 22% and above tax rate. Such a good strategy to minimize taxes for those years while enjoying early retirement before any social security kicks in.
2 other reasons: 1) Tax free inheritance to heirs. 2) Decrease huge increased tax bracket with RMD kicks in at age 73. We chose Roth conversion in retirement for the above reasons. Social security tax was low due to the Windfall Elimination Provision.
If your employer offers an after tax 401a plan, then you can ask the plan administrator to do an in-service distribution (as frequently as you want) to transfer funds from the 401a to your own Roth IRA. You would only be subject to tax on any gains in the 401a that you transfer over, but now you will be able to invest in anything offered by your broker, rather than the limited selection of the 401a plan. This is one possible back door Roth strategy.
@MarySNRoxanne hi Mary. Thank you for watching. Not sure how far you were able to watch. We outlined at the beginning that we have about 2.5 hours across 3 other videos that cover the "why" around Conversions. This one is focused on the "how." Here are those videos if you want more detail: ruclips.net/video/VHHNYdpVwrU/видео.html ruclips.net/video/-U_su7Ak7QE/видео.html ruclips.net/video/ZetbFdEqi2A/видео.html Hope that helps!
Thanks so much Zacc I learned a lot and you saved me when you mentioned ACA subsidies. I forgot all about that and it's a big number for us (>$10k/yr). We're 58 & 59, so I need to get this figured out. I have an advisor who I will lean on for help but I like to have full understanding too. Thanks again you guys!
Great video. Be careful on going from 12% to 22% bracket if the majority of your income is from qualified dividends and capital gains which will go from zero to 15% in addition to the ordinary income going to 22%.
Some companies also allow After Tax contributions to be "in plan" converted into that plan's Roth 401(k). Mine does, so my MBDR stays all inside the 401(k) plan instead of the After Tax converting to a Roth IRA.
Thanks for the how-to Zaac and Erik! I saw your torpedo/tornado video when you first released it and immediately stopped my 401k contrbitions and changed to Roth (I'm in my 60s and don't plan to be working long enough to be vested).
I’ve always thought I would rather pay a little more in taxes now while I’m working and young. And then have my more limited income be tax free when I retire.
It should be noted that if you do the roth conversion in a down market and you pay the tax out of the converted dollars there will be no advantage to doing the conversion in the down market. Example You convert 150k - 25% tax =$112500 and than the market crashes by 30% =$78750 VS 150k -30%market crash=$105000-25%tax=$78750 As you can see you end up with the same amount regardless if the conversion was done before a market crash or after a market crash.
There are some good reasons for not converting *all* of your IRA money to Roths. It's best to have money with different tax statuses. For example, if you or your spouse need expensive medical care at some point, much of that cost could be deducted from your taxes, so you could withdraw a lot of IRA money and not pay much in taxes. If all you have is Roth money, you lose out on that deduction.
53:00 Aggressive plan I used: I pulled $250,000 from my home via a cash-out refinanced mortgage. This helped me get an 11% average tax rate on my planned 13 years of Roth conversions (4 years to go). I also received an inheritance the same year. For these 13 years, I withdrew $0 from my retirement accounts, in order to maximize my conversions. In 2028, I'll start withdrawing from my Roth IRA and 401K (up to the top of the 12/15% tax bracket; not a dollar over or under. I did my conversions in Texas (no state income tax), and I'll be moving to California (high state income tax) in 2027. This allowed me to convert at a low rate, and will allow me to nearly avoid California income taxes, altogether. I see too many people using non-aggressive plans and therefore, not maximizing their potential with Roth conversions. i.e. people are paying too high of a tax rate on their conversions.
As for what time of the year is best for conversion, it really only matters the first year. I do mine at the end of the year, when I know more accurately what my total income is and exactly how much I can convert. If I do it in December every year, consider I am doing it a month before the new year. More important is to convert before 63 so IRMAA is not even in the picture.
Non-Roth IRA withdrawal impact on IRMAA is a serious consideration. You may be better off to take the hit upfront with few years of big conversions prior to social security, so later you tamp down your income and IRMAA charges over the long hall. It stings like hell up front, but when you do the math and look at the IRMAA benefits, not only the rates, but the additional flexibility you have when not being impacted by RMDs you come out ahead. Do the math.
If you have a substantial pre-tax 401K/IRA, you should take money out of those accounts up to your desired tax bracket limit as soon as you retire to limit the effect of RMD that start at age 73. You don't have to spend it all. Reinvest what you want post-tax or convert to a Roth.
❤ the videos. Waited w baited breath for the "wrinkle" afterthought you guys wanted to address: (Or hopefully you'll address soon!) Which is the IRA inside the insurance product. We've looked for this topic on RUclips many times in you're the first we've heard mention it. Would love a video from you guys that addresses that 😁🙏
Being in the 12% US federal tax bracket my retirement contributions are 100% Roth IRA/ Roth 401k. I only have to worry about converting my employer match to Roth when I retire or leave the company. Also I have an inherited taxable brokerage account because of being in the 12% tax bracket my qualified dividends are taxed at 0%.
I have done 3 conversions of small amounts but I Live in California and am not going to retire here and am in about 9% state tax range so I stopped. Also, I have gotten conflicting info on the aggregation rule.
Another consideration is leaving money to your children. If they are working, making good money and only have 10 years to convert that pre-taxed gift, you may actually want to consider closer to 100% of your traditional funds. If you think odds are good that tax rates will increase over your lifetime, what are the odds they will be higher over the course of your's and your children's lifetime. Also, if you only have one child, they will have to deal with converting the entire amount.
Great video, Erik. I do have a question on Roth conversions if you can pass this along to Zacc. If you have an existing Roth IRA that is more than 5 years old -- meaning that all of the earnings money in it is forever tax free -- when you convert money in from a Rollover IRA, does the earnings on that new money have to age 5 years before it is considered tax free like the original 5 year old+ earnings?
@@striperkid My Roth IRA is with Vanguard as well and I rolled into it in 2019 from my 401(k) Plan. I called Vanguard and asked them about the 5 year rule. The rep there said that it goes by year and not by date so anything contributed/rolled into the Roth IRA in 2019 has now met its 5 year age and can be withdrawn tax free. My question is any subsequent Roth conversion money put into the existing Roth IRA -- does that money need to age as well? I THINK if you're over age 59 1/2 that the age rule doesn't apply but I'm not sure hence my question to Erik.
11:38 I guess an ultra-niche case would be if someone were really concerned about reclaiming the federal liability protection if they moved to one of the few states that has poor protection on IRAs
Zac emphasizes the basic idea that one should compare tax rates now Vs later as the critical decision point in deciding whether to Roth. Fine, but what tax rate ? Marginal tax bracket ? Blended tax brackets in which the Roth-able funds fall ? Effective tax rate across all involved tax brackets ?
Marginal. The effective or average will lead you to decisions that may or may not produce the most spendable $ in retirement. If you make $200k today and you are thinking of converting $50k, all that matters is the marginal cost of the $50k. Now, keep in mind that rate might be different than your marginal rate. Your marginal rate is the one charged on the very last dollar of income. Your marginal cost of the conversion is the average rate of the entire $50k conversion. Then you compare that to the expected cost of getting $50k out of a traditional IRA in retirement. Maybe you have $100k of income at that time. So it is the marginal tax cost of going from $100k to $150k. (Not the marginal rate on the last dollar from $149,999 to $150,000)
@@zaccarycall Thank you Zacc ! I just recently internalized the difference between 'marginal rate' and 'marginal cost.' BIG difference ! Over time the $50k grows with compounding. I presume we calculate the marginal cost to withdrawal the compounded amount ? If correct, then I have to answer *when* I withdrawal. This gets complicated
What about conversions for people who retired before 60 and are now paying for health insurance through and exchange? This is another kind of tax tornado although it does affect a smaller group of people.
Great talk! Thanks! I do have one small bone to pick! I understand that when you have stocks in the IRA account (that is being converted to Roth) that you don't have to sell those stocks but can be moved to Roth using 'in-kind' conversion. Did you guys talk about that or did I miss it?
Great video! One question. I opened Roth 401k 6 years ago and Roth IRA 3 years ago. I am 60. If I roll the Roth 401K into the Roth IRA is withdrawing all the monies in the Roth IRA completely tax and penalty free? Or do need to wait 2 more years? Thanks!
Excellent presentation, Question, Im 63 y/o retiree , no kids or heirs , own my home, dont care about a legacy , plan on spending down my account, in in the 12 % bracket , I collect SS and a Pension, I have 900 K in a IRA , am I missing something, I DONT think a Roth conversion is for me ?
You only have to convert to cash if they don’t have the same fund in the new custodian. If I have 500 shares of NVDA, I keep 500 shares. If I have 200 shares of QQQ, I keep 200 shares of QQQ.
@@hogroamer260 Fidelity makes me sell, transfer and repurchase, as well. I now try to request my conversion on a day when the stock market is up, in hopes that it will be down the next day, when I repurchase within my Roth. I've had better success with this option, as I was getting real tired of buying back in at a higher price, and therefore losing $.
I'm thinking about converting some of my IRA to Roth, but have a few concerns. I sometimes read about the need to pay estimated taxes rather than waiting to 1040 time, and the risk of penalties. On the other hand, if I immediately withhold 10%, I calculated I could get nearly 50% of that back due to the currently very generous senior std deduction (assuming a strategically selected conversion amount). My concern there would be whether the IRS would ding me on some rule that prohibits too much withholding. Ha! I wouldn't be surprised if both directions (too little/much) are covered by obscure rules.
What matters to me is property tax. My assessed value just shot up 28%. I need to qualify for a senior freeze property tax exemption. Income tax has nothing to do with it.
It's not a distribution if the funds never leave retirement accounts- if it's an institution to institution transfer and the money never touched your hands then you're in the clear
If I did a backdoor Roth for two years (6,500 year 1, then 7,000 year 2), but then in year 2 I had to take out 13,500 for an emergency. I heard you can’t redeposit the monies back in year 2 unless it’s within 60 days. Is this true? Also I heard there’s no penalties for taking out my contributions, is this right? Or will there be penalties?
I'm self employed and would ask if you would consider touching on SEP IRA's if only because the contribution limit is 25% of your income up to the $69k limit per year and I don't know what my ROTH options are (if any..)
The diagram at 1:15 doesn't adequately show how the traditional path will grow faster over time because it started with more invested. That part of it is not the same.
Compounding growth is *proportional*. The same index fund would give the same capital CAGR no matter how much money starts in it. Go ahead and test out what $10k growing at 7% per year turns into after 10 years, and see if it's about 2x what you started with. Then test what $7.5k growing at 7% per year turns into after 10 years, and see if it's also about 2x what you started with.
It did show that. The traditional account grew by $10k while the Roth account grew by $7.5k in their example. Scaled up or down, that's a 25% difference What it doesn't show is that you're paying effective tax rates on the traditional account and marginal rates on the Roth. So maybe 22% on the Roth and maybe only 13% on the traditional. Hee-uge difference Even when you're "paying the same tax rate" on withdrawals, the traditional fills all of the lower tax brackets first before hitting that "same tax rate" as the Roth. Professionals miss this constantly and it kills me
@@rayzerot this depends on your situation. Having taxable income (pension, side gigs, real estate, taxable brokerage accounts, social security) will affect where your "first dollar" of your traditional/tax-deferred accounts gets taxed.
Confirming my understanding: it is generally NOT advisable to co-mingle Roth IRA conversions if already owning a rollover IRA because of the pro-rated tax treatment on the conversion? (i.e. the gov't treats all IRA accounts as "fungible" regardless of type?)
But if I converted 100% retirement savings, at 71yo, 100% to Roth, paying the 50% fee, then went 100% into TSLA, aren’t my TSLA gains still protected from such nonsense, however it may play out? Btw, by the time I paid the taxes, my TSLA gains (as I’d estimated), not only compensated for the conversion fee, but also (from growing much faster) the ~6% late filing fee. But, am I in a quandary by withdrawing too much before the 5 year “waiting period” or does my age at conversion protect me (somewhat) from that onus?
There is a giga-backdoor Roth "conversion" available only to billionaires and unfortunately unavailable to the rest of us. P. Thiel used this "backdoor" technique to invest in PayPal inside a Roth in pennies in 1999. Thiel's balance grew from $2000 to $5 billion over the years as reinvestment in other shares and accompanying *tax-free* growth are within the Roth . Hence, the giga-backdoor.
Thank you for watching! This video was more about how. The video here is more about reasons someone would lrefer Roth vs Readitional: ruclips.net/video/VHHNYdpVwrU/видео.html
I might need a little more info to make sure I answer the question correctly. When it comes to your requirement to pay taxes as you go, it must be 90% of this year’s tax liability or 100%/110% of last year’s liability. (10% difference is based on higher or lower income levels) If you fail to do that, you must pay quarterly taxes the next year. If you are having a decent amount of income without tax withholding (think Biz owners) you often can avoid penalties by paying quarterly taxes to meet that threshold. Bottom line, as long as those thresholds are met…doesn’t matter whether it was IrA withholding, W2 wage withholding, quarterly payments, etc.
are they actually though? If your RMDs alone are putting you in the top tax bracket then you are a 10x-millionaire and money is not a factor for you, and RMDs are the least of your concerns.
A good rule of thumb is to first contribute enough to your 401k to get the company match (if available) and then max out your Roth when young (and probably in a lower bracket than you will be in later years) and to prioritize 401ks or IRAs later in your career if you start moving into higher brackets.
I agree 100%. At age 73 this person is in their first year of RMDs. The RMD on $1m is less than $40k and the standard deduction is $30k so if RMDs are killing them, they have a lot of other income. Translation no sympathy here.
@@gauravipal9518 great observation. The tax pain of RMDs is often perceived to be greater than the tax pain on earned income. However, a lot of people saved more on the deduction during the earning years (Traditional) than they would save on withdrawing tax free (Roth).
what if you want to go into day trading where you are making significant money on the gains. You are retiring (I'm 64) Wouldn't it be nice to place some money in Roth post tax then generate money on the side, What about a backdoor Roth with a business where you can stash away much more in a Roth
If a spouse dies 10+ years earlier than the surviving spouse, the surviving spouse will face RMD with single filer tax brackets (potentially high taxes). This must be a considered risk/opportunity for Roth conversions.
I see a lot of these videos talking about Roth vs 401k taxes. But what about state tax, SS tax and Medicare Tax? I am in IL. I pay Federal, State ,SS and Medicare on income now. But not on my 401k contribution. When I retire and start withdraws from my 401k I pay only Federal, IL does not tax retirement pay. So this should be a big factor in the Roth vs 401k math? But I don't ever see it talked about? Am I missing something or am I wrong?
My current strategy for the past 6 years has been maxing out traditional 401k and HSA to reduce my MAGI and then max out Roth IRA every year. If i do Roth 401k , i will not be able to max out contribution to Roth IRA , perhaps no contribution at all due to income limits. So in my case , total contribution for Roth 401k is just $23,000 but if i do traditional 401k , my total contribution will be $30,000 ($23,000 for 401k + $7,000 for Roth IRA) Do you think the traditional 401k look better for investment in my case?
If you are moving a 401k to an IRA, and the 401k has both pre tax and roth contributions, does the ira company you choose create two seperate accounts?? One roth and one traditional?
Yes, I did that exact thing. The financial company will set up one Roth IRA account for the Roth source of money from your 401(k) Plan and a regular Rollover IRA account for all of the other sources of money from your 401(k) Plan.
I saw a video where the tax code could be changing. No new Roths after 2025. New Capital Gains rules, which includes 401k, 403b, 503c, realestate, IRA, Roths, and any investment gains will be taxed at higher rates even for any unrealized gain$. If implemented none of this will matter.
I am probably a 1 of 1 on this issue . I have a pre1986 after tax 401k acct. at work that has grown a lot( 3x what was put it in after tax ) also large traditional . Trying to figure out how to Convent this after tax to Roth . It seems like I am in the same issue as your IRA example . Does that apply to the 401k also ?
Yes, he talks about that. In most plans you will probably have to first roll the 401k into an IRA and then convert. Some 401k plans allow direct conversions
Try to use your linked tool but ran into an issue. Where can I enter the existing IRA balance on the input box. It does not appear to have entry for it. Help!
Hi there! Existing balance in the context of our tool isn't a part of it. It's how much income within a year you pull from that IRA, if that makes sense.
Ok pls clarify if the transfers from 401k to IRA is reportable will it affect tax brackets…let’s say an individual is making 125 and so happen to transfer 50 from 401 k to IRA…will it affect tax bracket for that year since it’s 175 that will be reported.
Looks like that's covered at 19:57 Traditional 401(k) to Traditional IRA has no tax implications _per se;_ it's only the Roth conversion stup that really has teeth.
If I have a traditional IRA and a Roth IRA. I also have a traditional 401K and Roth 401K. Assume I make 300K (AGI). I want to convert 50K from traditional IRA to Roth IRA. I would pay 24% in federal taxes to convert, correct? I would pay that out of savings (after tax acct). I don't follow his explanation (in the 28 min area) about why you would take traditional IRA money and contribute that to traditional 401K then converting to roth IRA. Why is he saying to do that?
The tax rate conversion is partially useless. Imagine I have a 1,000,000 in a tax deferred IRA or 401K. I have want to buy a lake house for 250K, I have pay federal taxes over 250k. If I leave that to my heirs, they have to pay taxes and "empty" it in 10 years. If I have 1,000,000 in a Roth, I pay no taxes when I buy my lake house and my heirs do not have to pay taxes and do not have to spend it within 10 years.
I am not following all of your logic but if you have $1m in a tax deferred account you are not going to have $1m in a Roth because you will need to either pay tax to convert to Roth, or if you are saying that was the original contribution you would have paid more tax at that time. Either way you are not going to have the same amount in the Roth. The reason you have no taxes when you buy your dream house is that you already paid them when you contributed or converted to the Roth. If your tax rate is the same you end up in the same place.
@@keithmachado-pp6fvis right here. If you have $1m in Roth, it prob cost you somewhere around 1.15m to 1.30m of pretax money to build that $1M post tax Roth. You could have had a 1.3M Trad instead. Making it nearly the same to get your $250k out. Btw, where can you get a lake house for $250k?????? 😊
I actually stand corrected. One benefit of paying tax outside the conversion is you have more in Roth vs taxable. For example if you convert $100k and pay 25% tax from the withdrawal you are only depositing $75k into the Roth, in effect paying 33% tax on that money
1.5% is quite high. It'll depend on how many assets your having them manage, but 1.5% is a high fee. There are a lot of flat fee planners out there that will do something like $5,000 for a full plan and then you go out and execute it.
Hi there. This video is not about whether you should or shouldn't have both. It's about how to do the conversion itself. This video goes over having one, the other, or both: ruclips.net/video/VHHNYdpVwrU/видео.html Hope that helps.
That’s true since you’ve already paid the tax on that income. However, your children have to withdraw all of that money within 10 years. The IRS doesn’t want them getting that tax free growth forever. There are some exception (eg inherited by a minor), but generally it’s 10 years.
He covers that at 14:38 But if you overpay, you're harmed by giving out an interest free loan when inflation is sky-high; and if you underpay too much you're harmed by explicit penalties. So trying to be accurate is good.
@@codegeek98 you don’t incur penalties until after April 15 of the following year so if you underpay, you have time to pay the rest. But yes, if you pay too much, you are allowing Uncle Sam to use your money.
@@RobWilliams007 Uncle Sam understands the time value of money and does not allow you to wait paying for the Roth conversion at the last minute in April unless your form 1040 tax payment is under $1,000 or you have a refund, but if you go over $1,000, then there is a penalty. Caveat; that's what I remember from several years ago. The tax laws and amounts may have changed.
It's interestng and I feel jammed into a corner, but I don't think Roth conversion is a wise choice for me. I'm all in a standard IRA, but retired, single, no ex's, no dependents, and living off withdrawals from IRA now, so any conversion would hit high brackets. The best plan feels like to kick the bucket before RMDs. LOL.
@@ph5915 if you’re not already, you might want to consider maxing out your current tax bracket before RMDs start kicking in. That might reduce the amount of tax paid in higher brackets in later years. Many brokerage and bank accounts now let you set a Payable on Death (POD) beneficiary if you’re worried about leaving it to someone.
If invest 100k total over 30yrs into a Roth and have 1 million tax free dollars at retirement vs 100k total contribution in traditional money and have the same 1 million at start of retirement.. I was in the 24% tax bracket my working years and now in retirement I am in a 12% bracket.. which option is the better choice ?
Is this math not correct ?? raditional IRA/401(k) Tax Scenario: • Contributions: You saved 24% in taxes on your $100,000 contribution. This means you effectively saved $24,000 in taxes during your working years. • Withdrawals: In retirement, you will withdraw $1 million, and if you are in the 12% tax bracket, you will pay $120,000 in taxes over time on these withdrawals. Roth IRA Tax Scenario: • Contributions: You paid 24% taxes on the $100,000 contribution during your working years, meaning you paid $24,000 in taxes upfront. • Withdrawals: The $1 million you have at retirement can be withdrawn tax-free, meaning you pay $0 in taxes on the withdrawals. Comparison: 1. Traditional IRA/401(k): • You saved $24,000 in taxes upfront. • You will pay $120,000 in taxes during retirement. 2. Roth IRA: • You paid $24,000 in taxes upfront. • You will pay $0 in taxes during retirement. Total Tax Costs: • Traditional IRA/401(k): You save $24,000 now but pay $120,000 later, resulting in a net tax cost of $96,000. • Roth IRA: You pay $24,000 upfront, with no additional taxes later, resulting in a net tax cost of $24,000.
@@Theretirementnerds I did actually and posted this at the wrong place !! In my example the Roth wins everytime unless I’m doing something wrong … 1 million taxed at even 12% would cost someone 120k vs the 100k write off on the contribution that saves them 24k in income they would pay doing a Roth
@TimeForTrim the difference is you're using the same starting point, but the starting point wouldn't be the same. For it to truly be accurate, it's not 100k in traditional and 24k saved, then 100k in roth. There is 124k in investable assets. Traditional gets all 124k. Roth sends 24k to taxes and has 100k to start. That 24k difference, if both accounts experience the same growth rate over the same amount of time results in the same amount spendable by both. Does that help?
Please stop calling the Social Security Tax Torpedo the "Tax Tornado". Your ( or youtube ) transcriber reads like a poor non-native English speaker at 8:00 minute mark. You might as well call it a surtax.
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This has topped the best videos I have seen on roth conversions. Thank you so much for the details!
So glad it was helpful! Appreciate you spending time with us!
I'm only 23. But I love watching the guests that you have on your podcast. Thanks for all you do Erik!
So glad they are helpful! Appreciate you tuning in!
Thank you very kindly, The Retirement Nerds! Roth conversions require careful deliberation and consideration. However, they provide an undeniable measure of certainty and control for your future financial self. You want to increase your optionality and degrees of choice freedom regarding taxes when you are retired.
Thank you David!
@@Theretirementnerds My pleasure, most certainly.
This is great stuff!! Thank you for what you do, this is truly valuable information for those who are willing to sit down and listen to it!
Thank you for taking the time to watch and comment!
I think one of the best strategies is if you plan to retire early, go all in on traditional and then during the years you take no income in early retirement, convert your accounts to Roth to be at the lowest tax rate you would have if you are today in that 22% and above tax rate. Such a good strategy to minimize taxes for those years while enjoying early retirement before any social security kicks in.
2 other reasons:
1) Tax free inheritance to heirs.
2) Decrease huge increased tax bracket with RMD kicks in at age 73.
We chose Roth conversion in retirement for the above reasons. Social security tax was low due to the Windfall Elimination Provision.
If your employer offers an after tax 401a plan, then you can ask the plan administrator to do an in-service distribution (as frequently as you want) to transfer funds from the 401a to your own Roth IRA. You would only be subject to tax on any gains in the 401a that you transfer over, but now you will be able to invest in anything offered by your broker, rather than the limited selection of the 401a plan. This is one possible back door Roth strategy.
You brushed over the Medicare IRMMA charge too lightly when doing Roth conversions. This deserved more conversation.
@MarySNRoxanne hi Mary. Thank you for watching. Not sure how far you were able to watch. We outlined at the beginning that we have about 2.5 hours across 3 other videos that cover the "why" around Conversions. This one is focused on the "how."
Here are those videos if you want more detail:
ruclips.net/video/VHHNYdpVwrU/видео.html
ruclips.net/video/-U_su7Ak7QE/видео.html
ruclips.net/video/ZetbFdEqi2A/видео.html
Hope that helps!
Thanks so much Zacc I learned a lot and you saved me when you mentioned ACA subsidies. I forgot all about that and it's a big number for us (>$10k/yr). We're 58 & 59, so I need to get this figured out. I have an advisor who I will lean on for help but I like to have full understanding too. Thanks again you guys!
Appreciate you watching!
Love to hear that!
This guest speaker is awesome. Looks so approachable and is so clear and eloquent.
Zacc is amazing! We have a new video with him coming out soon!
Great video. Be careful on going from 12% to 22% bracket if the majority of your income is from qualified dividends and capital gains which will go from zero to 15% in addition to the ordinary income going to 22%.
Some companies also allow After Tax contributions to be "in plan" converted into that plan's Roth 401(k). Mine does, so my MBDR stays all inside the 401(k) plan instead of the After Tax converting to a Roth IRA.
Thanks for the how-to Zaac and Erik! I saw your torpedo/tornado video when you first released it and immediately stopped my 401k contrbitions and changed to Roth (I'm in my 60s and don't plan to be working long enough to be vested).
So glad you found us! Thank you so much for watching!
I’ve always thought I would rather pay a little more in taxes now while I’m working and young. And then have my more limited income be tax free when I retire.
It should be noted that if you do the roth conversion in a down market and you pay the tax out of the converted dollars there will be no advantage to doing the conversion in the down market.
Example
You convert 150k - 25% tax =$112500 and than the market crashes by 30% =$78750
VS
150k -30%market crash=$105000-25%tax=$78750
As you can see you end up with the same amount regardless if the conversion was done before a market crash or after a market crash.
There are some good reasons for not converting *all* of your IRA money to Roths. It's best to have money with different tax statuses. For example, if you or your spouse need expensive medical care at some point, much of that cost could be deducted from your taxes, so you could withdraw a lot of IRA money and not pay much in taxes. If all you have is Roth money, you lose out on that deduction.
What if you never have expensive medical bills ?
53:00 Aggressive plan I used: I pulled $250,000 from my home via a cash-out refinanced mortgage. This helped me get an 11% average tax rate on my planned 13 years of Roth conversions (4 years to go). I also received an inheritance the same year. For these 13 years, I withdrew $0 from my retirement accounts, in order to maximize my conversions.
In 2028, I'll start withdrawing from my Roth IRA and 401K (up to the top of the 12/15% tax bracket; not a dollar over or under. I did my conversions in Texas (no state income tax), and I'll be moving to California (high state income tax) in 2027. This allowed me to convert at a low rate, and will allow me to nearly avoid California income taxes, altogether.
I see too many people using non-aggressive plans and therefore, not maximizing their potential with Roth conversions. i.e. people are paying too high of a tax rate on their conversions.
Fascinating! Good for you
@@zaccarycall Roth Conversion/Cash-Out Refi Combo (RC/CRC)!
@@zaccarycall RCCRC (Roth Conversion Cash-out Refi Combo) for the brave!
I love that diagram at 1:15. I share it with anyone who asks me about Roth conversions.
It's a good one!
So many can't accept it 😬
As for what time of the year is best for conversion, it really only matters the first year. I do mine at the end of the year, when I know more accurately what my total income is and exactly how much I can convert.
If I do it in December every year, consider I am doing it a month before the new year. More important is to convert before 63 so IRMAA is not even in the picture.
I did a ton in 2020 when tanked 30 plus %… ended the year in double digits but saved a ton in taxes doing on fresh lows!
Non-Roth IRA withdrawal impact on IRMAA is a serious consideration. You may be better off to take the hit upfront with few years of big conversions prior to social security, so later you tamp down your income and IRMAA charges over the long hall. It stings like hell up front, but when you do the math and look at the IRMAA benefits, not only the rates, but the additional flexibility you have when not being impacted by RMDs you come out ahead. Do the math.
If you have a substantial pre-tax 401K/IRA, you should take money out of those accounts up to your desired tax bracket limit as soon as you retire to limit the effect of RMD that start at age 73. You don't have to spend it all. Reinvest what you want post-tax or convert to a Roth.
Beware IRMAA. It varies about 0.25% from bracket to bracket, but IRMAA adds *about* 2.5% to your effective tax rate
❤ the videos.
Waited w baited breath for the "wrinkle" afterthought you guys wanted to address:
(Or hopefully you'll address soon!)
Which is the IRA inside the insurance product.
We've looked for this topic on RUclips many times in you're the first we've heard mention it.
Would love a video from you guys that addresses that 😁🙏
Thank you for watching! We'll put it on the list of topics! 🙂
Great comment. What in particular? The idea of conversions or just the general concept of owning an annuity in an IRA?
@@zaccarycall correct.
The IRA inside the insurance product. 👍
Would love to hear more about the $0 capital gains conversion
Being in the 12% US federal tax bracket my retirement contributions are 100% Roth IRA/ Roth 401k. I only have to worry about converting my employer match to Roth when I retire or leave the company. Also I have an inherited taxable brokerage account because of being in the 12% tax bracket my qualified dividends are taxed at 0%.
Yup and that brokerage account uses the step up Cost basis resetting it anyway.
@@TimeForTrim yes the date that my brother died was my stepped up cost basis.
@@martinguldnerAutisticSwanGuru sorry for your loss
I have done 3 conversions of small amounts but I Live in California and am not going to retire here and am in about 9% state tax range so I stopped. Also, I have gotten conflicting info on the aggregation rule.
Great information! I did come across the Capita's Financial Bootcamp video! Thanks for the awesome information🙂
Thank you for watching! So glad it was helpful!
Another great video. Thank you both so much!!!
Thank you for watching!!
Another consideration is leaving money to your children. If they are working, making good money and only have 10 years to convert that pre-taxed gift, you may actually want to consider closer to 100% of your traditional funds. If you think odds are good that tax rates will increase over your lifetime, what are the odds they will be higher over the course of your's and your children's lifetime. Also, if you only have one child, they will have to deal with converting the entire amount.
Yup many don’t look at the benefits of legacy planning and converting to Roth for this exact reason..
Great video, Erik. I do have a question on Roth conversions if you can pass this along to Zacc. If you have an existing Roth IRA that is more than 5 years old -- meaning that all of the earnings money in it is forever tax free -- when you convert money in from a Rollover IRA, does the earnings on that new money have to age 5 years before it is considered tax free like the original 5 year old+ earnings?
I'll pass this along!
Yes, I have this exact question. I have a Roth with Vanguard since 2019 want to use that since it's reached the 5 year clock.
@@striperkid My Roth IRA is with Vanguard as well and I rolled into it in 2019 from my 401(k) Plan. I called Vanguard and asked them about the 5 year rule. The rep there said that it goes by year and not by date so anything contributed/rolled into the Roth IRA in 2019 has now met its 5 year age and can be withdrawn tax free. My question is any subsequent Roth conversion money put into the existing Roth IRA -- does that money need to age as well? I THINK if you're over age 59 1/2 that the age rule doesn't apply but I'm not sure hence my question to Erik.
@@Theretirementnerds Thanks Erik.
Each conversion has it's own 5 year clock on **earnings**
11:38 I guess an ultra-niche case would be if someone were really concerned about reclaiming the federal liability protection if they moved to one of the few states that has poor protection on IRAs
Zac emphasizes the basic idea that one should compare tax rates now Vs later as the critical decision point in deciding whether to Roth. Fine, but what tax rate ?
Marginal tax bracket ?
Blended tax brackets in which the Roth-able funds fall ?
Effective tax rate across all involved tax brackets ?
Marginal. The effective or average will lead you to decisions that may or may not produce the most spendable $ in retirement. If you make $200k today and you are thinking of converting $50k, all that matters is the marginal cost of the $50k. Now, keep in mind that rate might be different than your marginal rate. Your marginal rate is the one charged on the very last dollar of income. Your marginal cost of the conversion is the average rate of the entire $50k conversion. Then you compare that to the expected cost of getting $50k out of a traditional IRA in retirement. Maybe you have $100k of income at that time. So it is the marginal tax cost of going from $100k to $150k. (Not the marginal rate on the last dollar from $149,999 to $150,000)
@@zaccarycall Thank you Zacc !
I just recently internalized the difference between 'marginal rate' and 'marginal cost.' BIG difference !
Over time the $50k grows with compounding. I presume we calculate the marginal cost to withdrawal the compounded amount ? If correct, then I have to answer *when* I withdrawal. This gets complicated
What about conversions for people who retired before 60 and are now paying for health insurance through and exchange? This is another kind of tax tornado although it does affect a smaller group of people.
Great talk! Thanks!
I do have one small bone to pick!
I understand that when you have stocks in the IRA account (that is being converted to Roth) that you don't have to sell those stocks but can be moved to Roth using 'in-kind' conversion. Did you guys talk about that or did I miss it?
Great video! One question. I opened Roth 401k 6 years ago and Roth IRA 3 years ago. I am 60. If I roll the Roth 401K into the Roth IRA is withdrawing all the monies in the Roth IRA completely tax and penalty free? Or do need to wait 2 more years? Thanks!
When attempting a conversation, How does the IRS know to differentiate what monies are being converted into ROTHS rather than contribution to a Roth.
Excellent presentation, Question, Im 63 y/o retiree , no kids or heirs , own my home, dont care about a legacy , plan on spending down my account, in in the 12 % bracket , I collect SS and a Pension, I have 900 K in a IRA , am I missing something, I DONT think a Roth conversion is for me ?
You only have to convert to cash if they don’t have the same fund in the new custodian. If I have 500 shares of NVDA, I keep 500 shares. If I have 200 shares of QQQ, I keep 200 shares of QQQ.
Not at Schwab. If I'm making a "transfer" from my traditional to my Roth, it's cash only. So sell, transfer, then repurchase.
@@hogroamer260 Fidelity makes me sell, transfer and repurchase, as well. I now try to request my conversion on a day when the stock market is up, in hopes that it will be down the next day, when I repurchase within my Roth. I've had better success with this option, as I was getting real tired of buying back in at a higher price, and therefore losing $.
@@hogroamer260 what are you talking about Schwab allows me to transfer both stock and cash in traditional to Roth IRA
@@hogroamer260weird Mine does transfer in kind
If I underwithhold on a conversation, don't i risk having to report quarterly taxes the following year?
can you guys put this on paper for visual example? great talk!
I'm thinking about converting some of my IRA to Roth, but have a few concerns. I sometimes read about the need to pay estimated taxes rather than waiting to 1040 time, and the risk of penalties. On the other hand, if I immediately withhold 10%, I calculated I could get nearly 50% of that back due to the currently very generous senior std deduction (assuming a strategically selected conversion amount). My concern there would be whether the IRS would ding me on some rule that prohibits too much withholding.
Ha! I wouldn't be surprised if both directions (too little/much) are covered by obscure rules.
What matters to me is property tax. My assessed value just shot up 28%. I need to qualify for a senior freeze property tax exemption. Income tax has nothing to do with it.
If your income tax is lower then you'll have more money to pay the property taxes with...
Does widower's penalty or switching from head of household often change the math so it is better to convert early in life?
If you are not age 59 1/2, will you have to pay a penalty tax on the $10,000 since it would be considered an early distribution?
It's not a distribution if the funds never leave retirement accounts- if it's an institution to institution transfer and the money never touched your hands then you're in the clear
If I did a backdoor Roth for two years (6,500 year 1, then 7,000 year 2), but then in year 2 I had to take out 13,500 for an emergency. I heard you can’t redeposit the monies back in year 2 unless it’s within 60 days. Is this true? Also I heard there’s no penalties for taking out my contributions, is this right? Or will there be penalties?
I'm self employed and would ask if you would consider touching on SEP IRA's if only because the contribution limit is 25% of your income up to the $69k limit per year and I don't know what my ROTH options are (if any..)
Great video.
Thank you!!
The diagram at 1:15 doesn't adequately show how the traditional path will grow faster over time because it started with more invested. That part of it is not the same.
@@richcomeau7230 yes but you will have to pay taxes on a larger amount in the end with a traditional Ira
Compounding growth is *proportional*. The same index fund would give the same capital CAGR no matter how much money starts in it. Go ahead and test out what $10k growing at 7% per year turns into after 10 years, and see if it's about 2x what you started with. Then test what $7.5k growing at 7% per year turns into after 10 years, and see if it's also about 2x what you started with.
It did show that. The traditional account grew by $10k while the Roth account grew by $7.5k in their example. Scaled up or down, that's a 25% difference
What it doesn't show is that you're paying effective tax rates on the traditional account and marginal rates on the Roth. So maybe 22% on the Roth and maybe only 13% on the traditional. Hee-uge difference
Even when you're "paying the same tax rate" on withdrawals, the traditional fills all of the lower tax brackets first before hitting that "same tax rate" as the Roth. Professionals miss this constantly and it kills me
@@rayzerot this depends on your situation. Having taxable income (pension, side gigs, real estate, taxable brokerage accounts, social security) will affect where your "first dollar" of your traditional/tax-deferred accounts gets taxed.
FWIW, 457 plans are not subject to ERISA
Great content!
Thank you! 😊
if i make income after retire, i don't mind paying more tax to be honest.
Confirming my understanding: it is generally NOT advisable to co-mingle Roth IRA conversions if already owning a rollover IRA because of the pro-rated tax treatment on the conversion? (i.e. the gov't treats all IRA accounts as "fungible" regardless of type?)
But if I converted 100% retirement savings, at 71yo, 100% to Roth, paying the 50% fee, then went 100% into TSLA, aren’t my TSLA gains still protected from such nonsense, however it may play out? Btw, by the time I paid the taxes, my TSLA gains (as I’d estimated), not only compensated for the conversion fee, but also (from growing much faster) the ~6% late filing fee. But, am I in a quandary by withdrawing too much before the 5 year “waiting period” or does my age at conversion protect me (somewhat) from that onus?
There is a giga-backdoor Roth "conversion" available only to billionaires and unfortunately unavailable to the rest of us. P. Thiel used this "backdoor" technique to invest in PayPal inside a Roth in pennies in 1999. Thiel's balance grew from $2000 to $5 billion over the years as reinvestment in other shares and accompanying *tax-free* growth are within the Roth . Hence, the giga-backdoor.
The mega or giga backdoor is available to employees of certain big companies that have company stock like AMZN.
I am here at 38 and I am trying t figure out whether to convert to a ROTH some of our Simple IRA account... still couldn't say yes or no!
Thank you for watching! This video was more about how. The video here is more about reasons someone would lrefer Roth vs Readitional: ruclips.net/video/VHHNYdpVwrU/видео.html
I need help understanding your SS income taxibility analysis sheet I down loaded
Send me an email to erik@theretirementnerds.com and I can connect you to Zacc's team
On Conversions, don't you have to pay taxes on a quarterly basis if you're paying the tax out of your brokerage?
I might need a little more info to make sure I answer the question correctly.
When it comes to your requirement to pay taxes as you go, it must be 90% of this year’s tax liability or 100%/110% of last year’s liability. (10% difference is based on higher or lower income levels)
If you fail to do that, you must pay quarterly taxes the next year. If you are having a decent amount of income without tax withholding (think Biz owners) you often can avoid penalties by paying quarterly taxes to meet that threshold.
Bottom line, as long as those thresholds are met…doesn’t matter whether it was IrA withholding, W2 wage withholding, quarterly payments, etc.
Very complicated issue; If possible always choose Roth, tax free. I have way too much in pre-tax IRAs and @73 years RMDs are killing me!
are they actually though? If your RMDs alone are putting you in the top tax bracket then you are a 10x-millionaire and money is not a factor for you, and RMDs are the least of your concerns.
Had you selected Roth, you would not have received the tax breaks when you were working and complained about that instead.
A good rule of thumb is to first contribute enough to your 401k to get the company match (if available) and then max out your Roth when young (and probably in a lower bracket than you will be in later years) and to prioritize 401ks or IRAs later in your career if you start moving into higher brackets.
I agree 100%. At age 73 this person is in their first year of RMDs. The RMD on $1m is less than $40k and the standard deduction is $30k so if RMDs are killing them, they have a lot of other income. Translation no sympathy here.
@@gauravipal9518 great observation. The tax pain of RMDs is often perceived to be greater than the tax pain on earned income. However, a lot of people saved more on the deduction during the earning years (Traditional) than they would save on withdrawing tax free (Roth).
what if you want to go into day trading where you are making significant money on the gains. You are retiring (I'm 64) Wouldn't it be nice to place some money in Roth post tax then generate money on the side, What about a backdoor Roth with a business where you can stash away much more in a Roth
If a spouse dies 10+ years earlier than the surviving spouse, the surviving spouse will face RMD with single filer tax brackets (potentially high taxes). This must be a considered risk/opportunity for Roth conversions.
I see a lot of these videos talking about Roth vs 401k taxes. But what about state tax, SS tax and Medicare Tax? I am in IL. I pay Federal, State ,SS and Medicare on income now. But not on my 401k contribution. When I retire and start withdraws from my 401k I pay only Federal, IL does not tax retirement pay. So this should be a big factor in the Roth vs 401k math? But I don't ever see it talked about? Am I missing something or am I wrong?
My current strategy for the past 6 years has been maxing out traditional 401k and HSA to reduce my MAGI and then max out Roth IRA every year.
If i do Roth 401k , i will not be able to max out contribution to Roth IRA , perhaps no contribution at all due to income limits.
So in my case , total contribution for Roth 401k is just $23,000 but if i do traditional 401k , my total contribution will be $30,000 ($23,000 for 401k + $7,000 for Roth IRA)
Do you think the traditional 401k look better for investment in my case?
Yes, in later years, you'll probably have the option to do 401K to Roth conversions, at hopefully a low tax rate, once you stop working.
If you are moving a 401k to an IRA, and the 401k has both pre tax and roth contributions, does the ira company you choose create two seperate accounts?? One roth and one traditional?
Yes, I did that exact thing. The financial company will set up one Roth IRA account for the Roth source of money from your 401(k) Plan and a regular Rollover IRA account for all of the other sources of money from your 401(k) Plan.
I saw a video where the tax code could be changing. No new Roths after 2025. New Capital Gains rules, which includes 401k, 403b, 503c, realestate, IRA, Roths, and any investment gains will be taxed at higher rates even for any unrealized gain$. If implemented none of this will matter.
Is this with Kamala? Who is starting these things?
I am probably a 1 of 1 on this issue . I have a pre1986 after tax 401k acct. at work that has grown a lot( 3x what was put it in after tax ) also large traditional . Trying to figure out how to Convent this after tax to Roth . It seems like I am in the same issue as your IRA example . Does that apply to the 401k also ?
Yes, he talks about that. In most plans you will probably have to first roll the 401k into an IRA and then convert. Some 401k plans allow direct conversions
Try to use your linked tool but ran into an issue. Where can I enter the existing IRA balance on the input box. It does not appear to have entry for it. Help!
Hi there! Existing balance in the context of our tool isn't a part of it. It's how much income within a year you pull from that IRA, if that makes sense.
@@Theretirementnerds Thanks for your response. Without the ability to enter an existing balance, the usefulness of the tool is rather limited though.
Is Edward Jones considered a “discount brokerage” firm?
Not at all. High fees.
Ok pls clarify if the transfers from 401k to IRA is reportable will it affect tax brackets…let’s say an individual is making 125 and so happen to transfer 50 from 401 k to IRA…will it affect tax bracket for that year since it’s 175 that will be reported.
Looks like that's covered at 19:57
Traditional 401(k) to Traditional IRA has no tax implications _per se;_ it's only the Roth conversion stup that really has teeth.
If I have a traditional IRA and a Roth IRA. I also have a traditional 401K and Roth 401K. Assume I make 300K (AGI). I want to convert 50K from traditional IRA to Roth IRA. I would pay 24% in federal taxes to convert, correct? I would pay that out of savings (after tax acct).
I don't follow his explanation (in the 28 min area) about why you would take traditional IRA money and contribute that to traditional 401K then converting to roth IRA. Why is he saying to do that?
The tax rate conversion is partially useless. Imagine I have a 1,000,000 in a tax deferred IRA or 401K. I have want to buy a lake house for 250K, I have pay federal taxes over 250k. If I leave that to my heirs, they have to pay taxes and "empty" it in 10 years. If I have 1,000,000 in a Roth, I pay no taxes when I buy my lake house and my heirs do not have to pay taxes and do not have to spend it within 10 years.
I am not following all of your logic but if you have $1m in a tax deferred account you are not going to have $1m in a Roth because you will need to either pay tax to convert to Roth, or if you are saying that was the original contribution you would have paid more tax at that time. Either way you are not going to have the same amount in the Roth. The reason you have no taxes when you buy your dream house is that you already paid them when you contributed or converted to the Roth. If your tax rate is the same you end up in the same place.
@@keithmachado-pp6fvis right here. If you have $1m in Roth, it prob cost you somewhere around 1.15m to 1.30m of pretax money to build that $1M post tax Roth. You could have had a 1.3M Trad instead. Making it nearly the same to get your $250k out. Btw, where can you get a lake house for $250k?????? 😊
Is this gentleman a CFP?
Yes he is 🙂
I agree that where you pay the tax on conversion from does not matter. In both cases it is money no longer available to invest.
I actually stand corrected. One benefit of paying tax outside the conversion is you have more in Roth vs taxable. For example if you convert $100k and pay 25% tax from the withdrawal you are only depositing $75k into the Roth, in effect paying 33% tax on that money
People might not be so averse to paying taxes if their representatives weren't in debt and STILL spending like drunken sailors.
Does anyone charge a flatter fee for management instead of 1.5% of assets?
1.5% is quite high. It'll depend on how many assets your having them manage, but 1.5% is a high fee.
There are a lot of flat fee planners out there that will do something like $5,000 for a full plan and then you go out and execute it.
Y’all are skipping over the most important thing about IRA’s. You should have both, Roth and individual. That is how you maximize.
Hi there. This video is not about whether you should or shouldn't have both. It's about how to do the conversion itself.
This video goes over having one, the other, or both:
ruclips.net/video/VHHNYdpVwrU/видео.html
Hope that helps.
I have a question, please. Is it true that you can take a Roth? IRA and pass it on to your children without a tax implication.
That’s true since you’ve already paid the tax on that income. However, your children have to withdraw all of that money within 10 years. The IRS doesn’t want them getting that tax free growth forever. There are some exception (eg inherited by a minor), but generally it’s 10 years.
Do people really not understand that if you overpay the IRS, they have to refund you your money?
He covers that at 14:38
But if you overpay, you're harmed by giving out an interest free loan when inflation is sky-high; and if you underpay too much you're harmed by explicit penalties. So trying to be accurate is good.
@@codegeek98 you don’t incur penalties until after April 15 of the following year so if you underpay, you have time to pay the rest. But yes, if you pay too much, you are allowing Uncle Sam to use your money.
@@RobWilliams007 Uncle Sam understands the time value of money and does not allow you to wait paying for the Roth conversion at the last minute in April unless your form 1040 tax payment is under $1,000 or you have a refund, but if you go over $1,000, then there is a penalty. Caveat; that's what I remember from several years ago. The tax laws and amounts may have changed.
Thanks. Great information
It's interestng and I feel jammed into a corner, but I don't think Roth conversion is a wise choice for me. I'm all in a standard IRA, but retired, single, no ex's, no dependents, and living off withdrawals from IRA now, so any conversion would hit high brackets. The best plan feels like to kick the bucket before RMDs. LOL.
@@ph5915 if you’re not already, you might want to consider maxing out your current tax bracket before RMDs start kicking in. That might reduce the amount of tax paid in higher brackets in later years. Many brokerage and bank accounts now let you set a Payable on Death (POD) beneficiary if you’re worried about leaving it to someone.
Just withdraw and spend it. Enjoy.
If invest 100k total over 30yrs into a Roth and have 1 million tax free dollars at retirement vs 100k total contribution in traditional money and have the same 1 million at start of retirement.. I was in the 24% tax bracket my working years and now in retirement I am in a 12% bracket.. which option is the better choice ?
Is this math not correct ??
raditional IRA/401(k) Tax Scenario:
• Contributions: You saved 24% in taxes on your $100,000 contribution. This means you effectively saved $24,000 in taxes during your working years.
• Withdrawals: In retirement, you will withdraw $1 million, and if you are in the 12% tax bracket, you will pay $120,000 in taxes over time on these withdrawals.
Roth IRA Tax Scenario:
• Contributions: You paid 24% taxes on the $100,000 contribution during your working years, meaning you paid $24,000 in taxes upfront.
• Withdrawals: The $1 million you have at retirement can be withdrawn tax-free, meaning you pay $0 in taxes on the withdrawals.
Comparison:
1. Traditional IRA/401(k):
• You saved $24,000 in taxes upfront.
• You will pay $120,000 in taxes during retirement.
2. Roth IRA:
• You paid $24,000 in taxes upfront.
• You will pay $0 in taxes during retirement.
Total Tax Costs:
• Traditional IRA/401(k): You save $24,000 now but pay $120,000 later, resulting in a net tax cost of $96,000.
• Roth IRA: You pay $24,000 upfront, with no additional taxes later, resulting in a net tax cost of $24,000.
Watch the first part of this one. It goes over the math more:
ruclips.net/video/VHHNYdpVwrU/видео.html
@@Theretirementnerds I did actually and posted this at the wrong place !! In my example the Roth wins everytime unless I’m doing something wrong … 1 million taxed at even 12% would cost someone 120k vs the 100k write off on the contribution that saves them 24k in income they would pay doing a Roth
@TimeForTrim the difference is you're using the same starting point, but the starting point wouldn't be the same.
For it to truly be accurate, it's not 100k in traditional and 24k saved, then 100k in roth. There is 124k in investable assets. Traditional gets all 124k. Roth sends 24k to taxes and has 100k to start. That 24k difference, if both accounts experience the same growth rate over the same amount of time results in the same amount spendable by both. Does that help?
@@Theretirementnerds my thinking is someone is putting in 7k a year into their Roth IRA or 7k in their traditional… exact same amounts each year .
Thanks for the tip on conversion after age 59.5. That is worth considering now that I'm an old fart.
My head hurts
Sounds like a high class problem 😂
Please stop calling the Social Security Tax Torpedo the "Tax Tornado".
Your ( or youtube ) transcriber reads like a poor non-native English speaker at 8:00 minute mark. You might as well call it a surtax.