Episode summary
Roth Conversions: When to Pay Taxes NOW
Your Money Your Wealth
· · Hosts: Joe Anderson, Big Al Clopine
Summary
The episode focuses on when Roth conversions make sense, using three listener situations to compare current tax brackets, future required minimum distributions, and the value of building Roth balances now. The hosts say the key question is not just what bracket you are in today, but what your lifetime tax picture looks like once pensions, Social Security, and RMDs arrive. For the Iowa couple, they conclude the early-retirement path looks workable and that converting in the 22% bracket, with some room to stretch into 24% if needed, is reasonable.
For the California couple with $2.3 million in qualified savings and a large brokerage account, the hosts lean toward converting to the top of the 22% bracket, while noting that 24% could still make sense opportunistically in down markets. They also emphasize that if spending needs are unclear, taxable income is a better guide than guessing at future lifestyle costs.
The final case turns to a new employer option that would allow a non-elective contribution to go into Roth. The hosts favor the Roth version, especially because the couple already has meaningful pre-tax savings and enough taxable assets to manage cash flow. Across all three questions, the recurring theme is to prioritize future tax flexibility, not just the immediate deduction.
Key takeaways
- The hosts think the Iowa couple is on track to retire early and should likely convert in the 22% bracket, with 24% as a possible stretch target.
- For the California couple, the hosts estimate about $150,000 of room to convert into the top of the 22% bracket based on current taxable income.
- The hosts say Roth conversions matter most before Social Security and RMDs raise taxable income later.
- On the new employer non-elective contribution, the hosts prefer making it Roth rather than adding more tax-deferred money.
- The hosts argue that effective tax rate matters less than the lifetime marginal bracket you are trying to avoid in retirement.
Notable quotes
“A Roth conversion master class disguised as four spitballs from Joan Big Al”
“I think they're going to be in the 22% bracket”
“I would much rather have $80,000 in a Roth IRA than $100,000 in a 401k”
How the episode opens
Welcome to Your Money, Your Wealth podcast number 586. A Roth conversion master class disguised as four spitballs from Joan Big Al. Walter and Skyler in Iowa ask if they're on track to retire early or if they're just cooking up overconfidence.
And how aggressively should they convert their retirement savings to tax-free Roth money before the pension and social security kick in? California Dreaming has it down to one decision. Convert to the top of the 22% bracket or push into the 24.
Mike and Carol in Florida asked, "When you're weighing a conversion, should you be looking at your tax bracket or your actual effective tax rate? Finally, is it worth the cost for Wesley and Buttercup to use the brand new option to turn a big employer contribution into Roth money? If this show has ever helped you, or if you've ever thought, "What the heck are these guys talking about?
Do us and your fellow podcast fans a favor and leave your honest ratings and reviews in Apple Podcasts or any other app that accepts them like Amazon, Audible, Castbox, GoodPods, Pandora, Player FM, Pocketcasts, Podcast Addict, and Podchaser. I'm executive producer Andy Last, and here are the hosts of Your Money, Your Wealth, Joy Anderson CFP, and Big Al Copine CPA.
So, how come it starts with a 49? — That's how Walter wrote his email. — Okay. All right. Not like, "Hi, Joe. Big Al, good to see you." — We try to just read it like it is. — All right. Age ages 49. Me, Walter, and 52. Wife Skyler from Iowa.
Okay. — Those are the names from Breaking Bad, by the way. — Got it. — All right. — Okay. — We got savings of $575,000. Walter $118,000 traditional 401k $115,000 rollover IRA Skyler $20,000 Roth 401k $25,000 taxable brokerage growing via RSUs plus bonus.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- tax bracket vs effective rate
- early retirement planning
- roth ira
- 401(k) to roth options
Companies and tickers mentioned
- Pure Financial Advisors
Watch the episode
Watch “Roth Conversions: When to Pay Taxes NOW” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
More from Your Money Your Wealth
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What $4.7M at 39 Really Gets You in Early Retirement -
Give Up a $76K Federal Pension and Retire Early: Worth It? -
Can You Afford Early Retirement AND Millions for Your Kids? -
Is 4% Too Conservative? How Much You Can Really Spend in Retirement -
Is a $400K Roth Conversion at Peak Income a Mistake? -
Should You Do Roth Conversions in a Down Market?
Your Money Your Wealth, this episode and its artwork belong to Your Money, Your Wealth. Octagon is not affiliated with the show; this page is an independent summary.
