Episode summary
When Roth Conversions Don't Make Sense (And When They're a No-Brainer)
Your Money Your Wealth
· · 43 min · Hosts: Joe Anderson, Big Al Clopine
Summary
The hosts spend the episode stress-testing Roth conversion decisions for retirees with very different balance sheets, but the same core question: when does converting make sense, and when is it just unnecessary tax friction? For TJ in PA, they argue that a $2.5 million IRA, $700,000 Roth, and more than $4 million in taxable assets leaves plenty of room to convert, even if taxable sales trigger large capital gains. Their view is that the real planning problem is not the gains, but how to sequence withdrawals, manage lots, and forecast taxes over a multi-year retirement horizon.
For the retired nurses in New England, the hosts are even more direct: with about $210,000 in after-tax retirement income, no need to spend savings, and traditional IRA balances that will keep growing into larger required minimum distributions, they recommend converting up to the top of their current bracket. They frame the move as both a tax-reduction strategy and an estate-planning decision, since Roth assets are more efficient to leave to children.
For the Arkansas retiree with pensions, Social Security, rental income, and a large taxable portfolio, the hosts again favor modest conversions if he can afford the tax. For Zisi and his wife, with roughly $18.7 million of assets and sizable capital gains, they say the couple is not being too aggressive; in fact, they should map conversions against future brackets and then work backward from age 75.
Key takeaways
- The hosts say TJ in PA likely should do Roth conversions even if paying conversion tax requires selling taxable assets with large capital gains.
- For the New England retirees, they recommend converting traditional IRA money up to the top of their current bracket, not all the way to 32%.
- They argue that large unrealized gains in a taxable account are not a problem; they are a tax-management opportunity because basis comes out tax-free and gains may be taxed at lower rates.
- For the Arkansas retiree, they estimate a roughly 3.8% withdrawal rate and suggest conversions up to the 22% bracket if he has cash to pay the tax.
- For Zisi and his wife, the hosts say their conversion plan is reasonable and should be mapped over time, especially through age 75 and beyond RMD planning.
- They emphasize that Roth decisions depend on age, bracket, cash to pay the tax, and whether the goal is legacy planning or minimizing lifetime tax.
Notable quotes
“you have to look at this not year by year, you have to forecast the years out and then come back to present day”
“The answer is yes. Because sometimes it even makes sense to pay the tax out of a tax deferred account to pay the tax on a Roth conversion”
“Do conversions. You're not advanced age. You don't need the income”
“I would say his taxable income is going to be 70. I don't know, call it 70,000. He's in the 22% bracket”
How the episode opens
Are Roth conversions worth it? We'll find out today on Your Money, Your Wealth podcast number 576. TJ in PA is going to have huge capital gains.
Joe Big Al pitball on whether it's worth it for him to convert. Rebels without a gauze in New England are over 70. Is it too late for them to convert?
How much should Viking Barny convert from his tax deferred accounts to Roth each year? and are there any single ladies in the YMW audience that would like to help him spend his retirement money? Finally, the fellow spitfall on whether Zezy and his wife are being too aggressive with their conversion strategy.
By the way, every time you leave your honest ratings and reviews for YMYW and Apple Podcasts, or any of the other apps that let you do that, you're helping someone escape those boring money podcasts. I'm executive producer Andy Last and here are the hosts of Your Money, Your Wealth. Joel Anderson, CFP, and Big Al Copine CPA.
Let's uh let's go to TJ from PA. Have been listening to your podcast for about 3 years. Well, congratulations. Longer than most. — That's is that that's going to be in the top 10, right? — Could be. Uh we don't drink that much. If we do, it's a Rosé Red Wine will be the choice. We drive 2015 Honda CRV and a 2023 Lexus RX 350. Question is, Roth conversions worth it in our situation. Here's our finances. We have an IRA account of $2.5 million. We got $700,000 in a Roth and $4 million plus in a taxable account.
Yeah. — Uh I'm going to just take a highf flyier here. — Say that'd be okay. — I could probably say, yeah, we're I think you're looking pretty good.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- roth conversions
- capital gains taxes
- retirement planning
- tax-deferred accounts vs roth
- roth conversion timing
Companies and tickers mentioned
- Pure Financial Advisors, LLC
Watch the episode
Watch “When Roth Conversions Don't Make Sense (And When They're a No-Brainer)” 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
-
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.
