You didn’t account for the clients effective tax rate on the 70K in SS during the current year (3-4% effective) - essentially your 20% tax in funds moved goes to much closer to 30% if not higher
To me the conversion only makes sense if I can stay in the same tax bracket. If throughout my working life I have tried to stay in the 12% tax bracket and now in retirement I have to go into a higher tax bracket to do Roth conversions it doesn't make sense to me. On the other hand if I want to leave something to my children I don't want a lot of money in a pre-tax account. They are in the 32% tax bracket and leaving them money to pay the 32% tax on their inheritance doesn't sound like good planning. There is no one size fits all.
Everett, I agree with you if you could ensure that brackets never change. In this video we are looking at an example that is aggressive and as you mentioned not every situation is the same so you do need to combine the goals for your money with strategies that help you keep more of it.
@@blueridgewealthThank you for your response. I am pretty confident the lower brackets will not change. I believe in KISS, basically that is to stay in your lane. October 2022 was the exception. The bottom was a perfect time to do Roth conversions irrespective of tax brackets.
What was the benefit of making the conversion after the crash? . The net result will be the same whether you do the conversion before the crash or after the crash Example if you do a 100 k conversion in January and you pay the 12% tax you will have 88k in the Roth Than the market crashes by 20% in October leaving you with $70400 This is no different than if the. 100k suffered a 20% crash in October reducing your 100k to 80k and then you converted the 80k at a 12% taxe leaving you with the same $70400.
Without even listening to the video I will say absolutely not. What are you trying to avoid? The year 1 RMD on $750k is less than $30k. The standard deduction is higher than that.
Except you never said how this family would pay for the taxes and when they would pay for the taxes Other than that this was an excellent presentation and I just happen to be in this exact predicament with the amounts in the age being very close
You have the choice to either take it as a withholding from the funds themselves or pay the taxes from after tax savings. We have clients do it both ways so it really matters which is more practical for you. If you need help in this area, let us know how we can help.
They don’t have enough money to be worrying about inheritance. $1m at age 70 is not the type of money where they can be comfortable they won’t run out of money and instead of figuring out the inheritance they should maximize the amount of money for their lifetime.
The age 70 taxable income of 61k is incorrect. The 72k of income is 100% social security and once you work through the provisional income calculations you will see that only 2k of the 72k of social security will be taxable, and the 2k of taxable social security will be offset by the 28k of standard deduction leaving them 26k of room in the 0% tax bracket.
The taxable portion of SS is correct if no other income, if you do conversions it’s not long before the SS is taxed at 85%. They can’t just add 26k of income at zero because every dollar of taxable income makes SS more taxable.
How about an early retirement video where 401k is 1-2MM; Live abroad; and want to do Roth Ladder with Living expenses coming from only source 401k using law 72T. Lets assume withdrawal 4% 80 a year person can live on 40k; and puts remaining 40 into Roth; how can we calculate taxes etc. ?
Since I have been doing this I have seen one case of 72t distributions, I don’t think the sample size that would benefit from that video is large enough to justify the time to record it. That’s the kind of situation you schedule a meeting to discuss.
My immediate question is: if they need $70K (post tax) to live on, and they are receiving $72K from social security (pre-tax. ~85% of the $72K will be taxed at 12%, or they will have spendable income of ~$64K), where are they getting the difference in order to live (the difference between $70K and their income of ~$64K)? Sorry, no-one living on $70K/yr will be pulling out all of the IRA ($200K) at one time. They will use it as a checking acct and slowly deplete it and those amts will be taxed at whatever the current tax rate is for married, filing jointly. Right? Whether it's 12%, 15%, 22%... I suggest that you use the real tax rates of today and the possible recognized tax rates of 2026 and beyond instead of using 20% and 10%. Those rates do not exist Federally speaking. And assuming that your Roth is going to double in 5 yrs is not really realistic. You would have to have 20% compounded results for 4.5 yrs to get $80K to $160K. Think about giving it to your kids. They will have 10 yrs after your death to figure out how they want to handle it and convert or get it taxed.
You didn’t account for the clients effective tax rate on the 70K in SS during the current year (3-4% effective)
- essentially your 20% tax in funds moved goes to much closer to 30% if not higher
Good video. Straight talk. Well done.
where was the answer to the question, convert all?
Thanks for the question! You can view my conclusion at 12:29
To me the conversion only makes sense if I can stay in the same tax bracket. If throughout my working life I have tried to stay in the 12% tax bracket and now in retirement I have to go into a higher tax bracket to do Roth conversions it doesn't make sense to me. On the other hand if I want to leave something to my children I don't want a lot of money in a pre-tax account. They are in the 32% tax bracket and leaving them money to pay the 32% tax on their inheritance doesn't sound like good planning. There is no one size fits all.
Everett, I agree with you if you could ensure that brackets never change. In this video we are looking at an example that is aggressive and as you mentioned not every situation is the same so you do need to combine the goals for your money with strategies that help you keep more of it.
@@blueridgewealthThank you for your response. I am pretty confident the lower brackets will not change. I believe in KISS, basically that is to stay in your lane. October 2022 was the exception. The bottom was a perfect time to do Roth conversions irrespective of tax brackets.
What was the benefit of making the conversion after the crash? .
The net result will be the same whether you do the conversion before the crash or after the crash
Example if you do a 100 k conversion in January and you pay the 12% tax you will have 88k in the Roth
Than the market crashes by 20% in October leaving you with $70400
This is no different than if the. 100k suffered a 20% crash in October reducing your 100k to 80k and then you converted the 80k at a 12% taxe leaving you with the same $70400.
Without even listening to the video I will say absolutely not. What are you trying to avoid? The year 1 RMD on $750k is less than $30k. The standard deduction is higher than that.
Don’t forget the 3.8% surcharge on investment income kicks in at $250k and is not indexed for inflation
Except you never said how this family would pay for the taxes and when they would pay for the taxes
Other than that this was an excellent presentation and I just happen to be in this exact predicament with the amounts in the age being very close
He mentioned 100K from 401k turns into 80k in the Roth, hence the taxes being taken out....
You have the choice to either take it as a withholding from the funds themselves or pay the taxes from after tax savings. We have clients do it both ways so it really matters which is more practical for you. If you need help in this area, let us know how we can help.
They don’t have enough money to be worrying about inheritance. $1m at age 70 is not the type of money where they can be comfortable they won’t run out of money and instead of figuring out the inheritance they should maximize the amount of money for their lifetime.
Would you go through the math done to arrive at “How much to convert at the 12%, 22% and 24%? Thanks
I think we did that at the end of this video
The age 70 taxable income of 61k is incorrect.
The 72k of income is 100% social security and once you work through the provisional income calculations you will see that only 2k of the 72k of social security will be taxable, and the 2k of taxable social security will be offset by the 28k of standard deduction leaving them 26k of room in the 0% tax bracket.
The taxable portion of SS is correct if no other income, if you do conversions it’s not long before the SS is taxed at 85%. They can’t just add 26k of income at zero because every dollar of taxable income makes SS more taxable.
How about an early retirement video where 401k is 1-2MM; Live abroad; and want to do Roth Ladder with Living expenses coming from only source 401k using law 72T. Lets assume withdrawal 4% 80 a year person can live on 40k; and puts remaining 40 into Roth; how can we calculate taxes etc. ?
Since I have been doing this I have seen one case of 72t distributions, I don’t think the sample size that would benefit from that video is large enough to justify the time to record it. That’s the kind of situation you schedule a meeting to discuss.
My immediate question is: if they need $70K (post tax) to live on, and they are receiving $72K from social security (pre-tax. ~85% of the $72K will be taxed at 12%, or they will have spendable income of ~$64K), where are they getting the difference in order to live (the difference between $70K and their income of ~$64K)?
Sorry, no-one living on $70K/yr will be pulling out all of the IRA ($200K) at one time. They will use it as a checking acct and slowly deplete it and those amts will be taxed at whatever the current tax rate is for married, filing jointly. Right? Whether it's 12%, 15%, 22%...
I suggest that you use the real tax rates of today and the possible recognized tax rates of 2026 and beyond instead of using 20% and 10%. Those rates do not exist Federally speaking.
And assuming that your Roth is going to double in 5 yrs is not really realistic. You would have to have 20% compounded results for 4.5 yrs to get $80K to $160K.
Think about giving it to your kids. They will have 10 yrs after your death to figure out how they want to handle it and convert or get it taxed.
Thanks for watching Keith, we do use the current tax rates later in the video, I would encourage you to watch it to answer some of your questions.