Episode summary
Is a $400K Roth Conversion at Peak Income a Mistake?
Your Money Your Wealth
· · 46 min · Hosts: Joe Anderson, Big Al Clopine · Guests: George, Louise, Cher, Sonny, Michelle, Marion
Summary
The episode centers on whether high earners should keep working just to fund Roth conversions, and the hosts argue that the answer is usually no if retirement is otherwise affordable. For George and Louise in Queens, who earn $600,000 a year and have about $10 million across brokerage and retirement accounts, the hosts say the real decision is personal: if they want to keep working, fine, but the Roth conversion itself should not drive the retirement date. They also argue that large conversions are expensive in peak-income years and that waiting until retirement often makes more tax sense, especially when the couple will already face sizable future RMDs.
For Sher and Sunny in Oregon, with about $2.7 million in retirement accounts, the hosts think retirement in the next couple of years is plausible if spending stays near the couple’s targets. They recommend maxing the retirement plans, using the new mega backdoor Roth when available, and not overcomplicating the quarterly conversion rule. They also say the couple’s plan to move to a lower-tax state and to rely on Social Security later improves the odds.
For Michelle in Vienna, Virginia, the hosts are bullish despite a new $1.4 million mortgage, saying the household has enough liquid assets to make retirement workable. On Vanguard’s annuity idea, they say annuities can be a valid way to fill a gap between essential spending and guaranteed income, but they are optional rather than required.
Key takeaways
- The hosts say George and Louise should not retire solely to front-load Roth conversions; if they want to keep working, the decision is mainly lifestyle, not financial.
- For George, the hosts prefer waiting until retirement or a market drop to do larger conversions, because conversions in peak income years are taxed at very high marginal rates.
- For Sher and Sunny, the hosts think retirement in the next two years looks feasible if spending can settle around $150,000 to $170,000 and they keep building tax-advantaged savings.
- The hosts recommend Sher and Sunny use the mega backdoor Roth even if conversions only happen once per quarter, since Roth money is more valuable than extra taxable brokerage savings this close to retirement.
- The hosts give Michelle a green light, saying her household’s assets are strong enough to absorb the new mortgage and still support early retirement.
- On Vanguard’s report, the hosts say an annuity can be useful if guaranteed income does not fully cover essential expenses, but it is not mandatory.
Notable quotes
“I would look to convert as much as possible of the uh pre-tax between now and 75 with a goal of leaving $1.5 million in the pre-tax at 75”
“So, the mega backdoor is getting taxed in the 22, 24, and 32% tax brackets”
“I think I would do the same. Right now, he's making all his contributions in the Roth”
“Annuities are especially useful uh when guaranteed income like social security or pension doesn't fully cover essential expenses”
How the episode opens
George and Louise and Queens bring in $600,000 a year. Should they keep working just to do Roth conversions? Sher and Sunny in Oregon wonder if they can retire in a couple of years at 59 and 60 and whether the mega backdoor Roth belongs in their plans.
Join Big Al Fitball for them today on Your Money, Your Wealth podcast number 603. Plus, Michelle in Vienna, Virginia is 56 and ready to retire, but what about her brand new mortgage? Finally, our friend Marian in Fresno asks about Vanguard's suggestion of an annuity to cover fixed expenses.
If you're watching us right now on YouTube and you're one of the 45% of people who aren't subscribed to the channel, why don't you fix that right now? It'll help other people find us making fun of finance over here on YMYW. I'm executive producer Andy Last, and here are the hosts of Your Money, Your Wealth, Joey Anderson, CFP, and Big Al Copine CPA.
Andy's bluff. What is that? — Bottom line up front. So, that's just a line to tell you what the email is about. And I think I did it on this one and I don't think I've done it on any of the future ones. So, use it if you want or just ditch it.
I I had to look up the acronym. I wasn't familiar with bluff. — Andy's that's like a fib or something, right? Bluff bluff. — Bottom line up front. — Yeah. — Bottom line up front. Should I stay employed to the front loaded conversion versus retire now and backload them later? Front load. Back load.
Front load. Okay. Okay, let's get into it. — Um, no, you keep working, — Right? Should we just — Hasb seen the wrong question yet.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- retirement planning
- mega backdoor roth
- retiring at 59 and 60
- annuities
Companies and tickers mentioned
- Pure Financial Advisors
- Vanguard
Watch the episode
Watch “Is a $400K Roth Conversion at Peak Income a Mistake?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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