Episode summary
Too Much 401k Money? The $3M Roth Conversion Problem
Your Money Your Wealth
· · Hosts: Joe Anderson, Big Al Clopine · Guests: Brian, Captain Morgan, Klo Jopine, Todd, Margo, Kyle, Katie
Summary
The hosts spend most of the episode on when high earners should keep contributing pre-tax and when Roth makes more sense, especially when large balances could create future required minimum distributions. For Captain Morgan, a 48-year-old single earner with $240,000 of income and $1.9 million saved, they argue that pre-tax is still the better choice because his current tax rate is high and he is only a few years from a very early retirement target. They think retiring at 51 is probably too aggressive unless he keeps working or earns part-time income, but 55 looks more realistic.
For Chloe Jaupain, a 39-year-old freelance musician with uneven income, the hosts recommend opening a solo 401(k) for flexibility and leaning pre-tax for now, while still diversifying across Roth, pre-tax, and taxable accounts. They also explain that self-employment tax is driven by business profit, not by whether contributions are Roth or pre-tax, so ordinary deductions and business expenses matter most.
The final two cases are about Roth conversions. Brian in New York, with $3.5 million in tax-deferred assets and a $120,000 pension, is told that big conversions can make sense in down markets because future recovery happens tax-free. Todd and Margo in Utah, with paid-off homes, rentals, and nearly $5 million in liquid assets, appear able to retire as planned, while doing annual conversions up to the 22% bracket and potentially more if markets pull back.
Key takeaways
- The hosts tell Captain Morgan to stay pre-tax because his current marginal rate is too high to justify Roth contributions right now.
- They think Captain Morgan’s goal to retire at 51 is tight, while age 55 looks much more achievable with his current savings and Social Security bridge.
- For Chloe Jaupain, the hosts favor opening a solo 401(k) and using pre-tax contributions first, while still diversifying over time.
- Brian in New York is urged to watch for market declines, because converting during a correction can move more future growth into a tax-free Roth environment.
- Todd and Margo appear on track to retire as planned, and the hosts suggest converting roughly up to the 22% bracket in early retirement years.
Notable quotes
“So I think I'd stick with the pre-tax me personally”
“He doesn't have enough non-qualified to even come close to retiring”
“I would open up a solo 401k”
“you would much rather have the recovery”
“Todd and Margo's retirement math likely works”
How the episode opens
Saving into Roth instead of traditional accounts to bring down required minimum distributions in retirement and whether retiring early is in the cards. That's today on Your Money, Your Wealth podcast number 579. Brian in New York and Todd and Margo in Utah each have over $3 million in their pre-tax accounts.
What should their Roth conversion strategies look like and can Todd retire this year? But first up, should Captain Morgan go Roth to avoid RMDs and can he retire in a couple of years? Should Cloe Joe Pine contribute to Roth instead of traditional if his income will always remain the same?
Finally, Kyle and Katie have high incomes and need a spitball on how they can avoid future RMDs. You think Roth conversions might be in their future? We'll find out.
Let us know what you think of today's episode. Hop on to our YouTube channel to watch us and to join in the conversation in the comments. I'm executive producer Andy Last and here are the hosts of Your Money, Your Wealth, Joe Anderson, CFP and Big Al Cloe Pine, CPA.
Let's kick it off with Captain Morgan. You like Captain Morgan?
No. You're not a rum guy. — No. I am. I like Captain Morgan. — Captain Morgan. No, sir. — Especially the spiced rum. I like that. Yeah, what um Wasn't there like a slogan for Captain Morgan? Yeah, I mean he The pirate The pirate Well, I don't know what the slogan was but he put his his his leg in the on the barrel. Yeah, that's what I remember.
Spice on apparently is the current slogan. Yeah. — Spice on, okay. Cool. There's also live like a captain and better than gold. Okay. Okay. So now we're in the mood.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- 401k and 403b strategy
- rmd planning
- early retirement
- high income retirement tax planning
Companies and tickers mentioned
- Pure Financial Advisors
- Pure Financial
Watch the episode
Watch “Too Much 401k Money? The $3M Roth Conversion Problem” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Is a $400K Roth Conversion at Peak Income a Mistake? -
Should You Do Roth Conversions in a Down Market?
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