Episode summary
We Have $12 Million. Should We Do Roth Conversions?
Your Money Your Wealth
· · Hosts: Joe Anderson, Big Al Clopine · Guests: John, Jonathan, Jennifer, J, C, Bonnie, Clyde
Summary
The episode centered on when Roth conversions make sense for retirees with large tax-deferred balances, and the answer was mostly “it depends on the tax bracket math.” For John in Oklahoma, who is 75 with about $1 million in traditional IRAs and about $160,000 of annual income, the hosts argued that current conversions would be too expensive because the new senior deduction would be reduced or lost. They said the widow’s penalty matters too, but the immediate tax hit makes small annual conversions unattractive.
For Jonathan and Jennifer in Phoenix, the hosts were much more bullish. With $12 million in assets, including $6.3 million in tax-deferred accounts, strong cash flow, and plans to spend $180,000 after tax, they said converting up to the top of the 24% bracket is a no-brainer. They estimated that waiting would leave them facing much larger required distributions and likely higher brackets later.
JNC in Hawaii was the most optimistic retirement case. At 38, with about $1.1 million already saved and a goal of retiring at 55, the hosts said their current savings rate and future pension and Social Security look more than adequate. They recommended using the 401(k) access rules at 55, leaning on tax-deferred savings first, and not overcomplicating the plan by chasing a bigger taxable account.
Key takeaways
- The hosts said John in Oklahoma should not do Roth conversions now because the $6,000 senior deduction is already near phaseout and a conversion would be taxed too heavily.
- For Jonathan and Jennifer in Phoenix, the hosts favored converting to the top of the 24% bracket because their $6.3 million tax-deferred balance will likely create much larger future RMDs.
- The hosts said the widow’s penalty is a key issue for older retirees, especially when one spouse may end up in a higher bracket alone.
- For JNC in Hawaii, the hosts said the retirement plan already works: strong savings, a future pension, and Social Security make a 55 retirement realistic.
- The hosts said a 401(k) can be tapped after separation from service at 55, so the couple does not need to build a large taxable bridge account.
Notable quotes
“the widow's penalty is probably the most important thing here, but she's not going to be paying probably 34%. So I I wouldn't do it now”
“Convert to the top of the 24 every day”
“if you think about the way this works is that senior deduction, so it came about of $6,000 per person”
“You do a contribution a dollar and your tax rate's 33 cents. So, you lost 33 cents”
“I think he's in good shape”
How the episode opens
Joe and Big Al are spitballing Roth conversions from every angle. Today on Your Money, Your Wealth podcast number 597. John in Oklahoma is 75, sitting on a million dollars in traditional IAS, and he's got a whole list of reasons not to convert to Roth.
Is he right? Jonathan and Jennifer in Phoenix have over $6 million in tax deferred accounts. How much should they convert and where should they stop?
JNC and Hawaii are both 38 and want to walk away from work at 55. How did they bridge the gap? And finally, are Bonnie and Clyde working for nothing if it all just turns into a giant tax bill?
Do your fellow podcast listeners a favor and leave your honest review or rating for YMW and Apple Podcasts to help them find us over here making fun of finance. I'm executive producer Andy Last and here are the hosts of Your Money, Your Wealth, Joe Anderson, CFP, and Big Al Copine CPA. We got John from Oklahoma.
Hey, I've been listening to your podcast for several months early morning and you have yet to lull me back to sleep as some do.
Yeah. — All right. — Not ours apparently. — He's not falling asleep yet. Kind of my plan really. — He wants to fall asleep. — But here's my situation. Here's my questions. Uh he's looking at some Roth conversions at 75 plus considering many factors. All right.
Okay. Uh factor number one, OBBB. That's the old big ass bad — Ass beautiful bill. — What? Yeah, you're right. — Beautiful bill. — Yeah. So, it adds $6,000 um in a senior deduction. Converting can cause a reduction or possibly a total loss of the benefits of such deduction. To my point, with RMDs and other income, we approach $160,000 per year.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- retirement planning
- tax planning
- retirement account strategy
- capital gains bridge gap
Companies and tickers mentioned
- Pure Financial Advisors
Watch the episode
Watch “We Have $12 Million. Should We Do Roth Conversions?” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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Should You Do Roth Conversions in a Down Market?
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