Not sure why most financial channels don't take the time to give helpful examples like this. It's so nice to have this spelled out with basic examples. Thanks.

One aspect you're missing leaning towards conversions -- if you're married filing jointly, when one spouse passes, the RMDs for the surviving spouse (now filing as a single filer) get very large and will push them into a higher bracket.

Another reason to not do Roth conversions - qualifying for the ACA Federal Tax Credit. The MAGI limits are suspended because of ARPA and IRA until 2025, but then we return to the 400% of Federal Poverty Line MAGI limit to get Tax Credit Subsidy. I did some Roth conversion right before I retired, now that I'm retired, I keep my MAGI at $73k (MFJ) and get a substantial tax credit for ACA insurance. After we're on Medicare, we may look at restarting Roth conversions before Social Security at 70 and RMDs at 70.5/72 (or whatever the age is by then).

Your content is on point and presented in a calm, confident and relaxing manner that makes viewers want to learn. Well Done! I have 3 kids all starting their careers and investing and I have told them to subscribe to your channel and LISTEN to what you have to say.

Love the clear examples and scenarios you use to illustrate your presentations

Great job 👍 Many financial "experts" on social media just push Roth conversions.

If the market is perceived at being very high, then Roth conversions are not as beneficial as when the market is low. This could be another factor in deciding timing of Roth conversions.

Excellent, Thank you for this, you are so easy to listen to, clear, calm, concise.

I am concerned about the nonspousal inherited IRA law requirements that force one to withdraw and deplete the inherited IRA within 10 years. IMy siblings and I were not aware of this law and I bet many of your viewers do not know of this law and it can have a great tax impact on the beneficiary.

Excellent presentation James!👍🏽👏🏽👏🏽 Thank you!

Very clear and helpful video, I am now a subscriber! However, I would add a caveat on your 4th reason to not do a ROTH conversion. If you don't have a long life expectancy, it may not matter to you, but it will matter alot to your heirs. With the new 10 year liquidation rule on IRAs, your heirs will have to pay that tax on inherited pre-tax accounts. However, if the inherited IRA is a ROTH, your heirs do not need to pay taxes on distributions, thus saving them taxes. I sure hope I have that correct, please correct me if I'm wrong!

Loved the info on charitable giving through the IRA. I've never heard this before and it will probably keep me in the 12% tax bracket for the rest of my life. Thanks!

Thank you for the explaining in a way that's easy to comprehend. This has now made me rethink my strategy of converting Rollover to Roth

James - Love your content. Appreciate the consistently thoughtful and well-communicated approach you take. And in particular I appreciate that you bring in considerations/strategies relative to charitable giving. It's disappointing to realize how few finance-related content creators do that.

The best simple to understand video on Roth conversion

Clear and concise info. Very helpful.

Always great content. Thank you

Always the best from the best, James Conole.🎯🎯🎯

Four good reasons. A 5th good reason is you are continuing to work in a high compensation profession past age 65. I have worked 6 years past my normal retirement age and I want that money staying put. Then I’ll look at utilizing qualified contributions after age 73 as we have no heirs except for our legacy aimed to be given to a charity we believe in.

Great explanation when the wealth service recommends me to convert the whole 401K to Roth IRA under their management when I have the highest tax bracket. Thank you so much!

Reason 5: If you plan on leaving your estate at death to charity. A mix of brokerage, IRA, and Roth, in a proportion that leaves little to none in the ROTH at death ( always a moving target).

thanks so much! Very well explained.

Thanks for what you do, great videos...would love to see video that explains how bucket strategy and 60/40 portfolio should be used together

I would recommend in that second example of taking the balance of $12,000 from your traditional account and preserving the balance of your Roth account.

Very good information . Thank you

Great Video!

Clarification: The QCD allows a maximium deduction/IRA account. And a husband and wife, filing jointly, cannot each make a deduction from one account, ie 100K X 2. Each would need to make the 100k QCD from his/her respective IRA, a rather powerful deduction and a problem I wish I had. This was a confusing statement @10:38.

This was a great video! Can you touch more on legacy on another video? It's my understanding that when you pass away and the 401K balance goes to your estate heirs etc, they are required to withdraw the money within 10 years. My Financial Advisor felt that if I move some to a Roth IRA then my beneficiaries would inherit some tax free money. Except, I did some deep thinking which is when it comes time for me to withdraw from 401k in the future, I would probably take it from the Roth to remain in lower tax bracket so back to square one.

I'm 72. The reason I don't want to do a Roth conversion is that it forces me to pay taxes on the account NOW rather than deferring the taxes as long as possible (maybe even never, if I die), and those deferred taxes will continue to earn money as long as they are deferred.

I currently enjoy a $0/month health insurance premium for my ACA policy. I'm only 62 so not yet eligible for Medicare. I receive a modest pension which covers all current expenses, and I own my home. I have $1M+ in my IRA and originally planned to do Roth conversions from ages 62-67 when I plan to start SS, until I realized that the extra income would make me ineligible for my ACA subsidies (about $11,000/year). Feel like I am between a rock and a hard place.

Great information

Thank you for your informative videos. Qualified charitable contributions seem like yet another reason billionaires make foundations…

I now enjoy no bookwork…doing all etrading in my Roth Ira. I did not consider that years ago!!!

I have been planning for 5 years around the notion that I will have RMDs starting at 70 1/2 .. aka this year (2023) … but since congress keeps pushing back RMD age .. I have been thinking “Great! Now I can do a Roth conversion” BUT .. after a financial scare, I started to prioritize paying off my mortgage, and instead dropping my annual budget. So NOW I’m thinking … maybe I should just stick to the original plan, take out the 401k $ this year ANYWAY, and pay off my mortgage by 2025, essentially in 3 big payments. NOW I can take that mortgage payment and instead, put it into a brokerage account. I am thinking this is a safety hedge? Any thoughts on this? Basically it would only be 5% of my 401k each year. I’m expecting taxes to go up in 2026 so now is a better time to withdraw?

My situation with my spouse may be unique, we retired early 56 and 62 (2 years ago), we got an inheritance (non taxable event). We were going to do some Roth conversions but we discovered that we qualified for free medical due to our income being so low. We are now supplementing with one spouse doing early Social Security and some rental income. My point of the planning is considering medical costs in your planning, in our case we are able to conserve our capital for longer by not having an outlay for medical expenses.

Could you do a video on what to do with a 401k that is 80% pretax and 20% post tax.

So if one is required to pull out more than they need because of the RMD, then why not use the excess to put it into a Roth IRA?

My issue with the Roth conversations is the future growth of the principal. If I convert $100k and pay 32% Federal and State taxes my principal is now $68K. How long will it take to make up the taxes I payed to become even again and then future gains. Understanding I have to pay taxes on my 401k anyway I rather have MORE money working for me now. The huge swings in the market for 20 years wont stop and I would rather have the larger base working is all situations. The more money you make the more taxes you pay, I don’t see anything wrong with that. Not saying I won’t look into Roth conversions, I do like the no taxes on capital gain side of it.

Taking money out of a roth doesnt count against the social security earnings limit and it is not taxed so it doesnt raise the percentage of tax taken on your social security you do make

If you are under 65 and are getting ACA subsidies it probably doesn’t make sense to do a Roth conversion.

One reason not to do a Roth conversion: you don’t have the money available to pay the tax on the conversion, so you choose to use IRA dollars to pay the taxes. Bad idea.

I am more concern about fees pay to 403b manager vs self manage Roth IRA. I believed I paid almost $3K every year for my 403b manager whether I market ups or down.

Wow thank you...I didn't realize the QCD is now indexed to inflation starting in 2024! 2024 QCD max jumps to $105,000.

You described my situation almost exactly in reason #2. I’m 71 and paid 0 taxes last year (poor planning, huh). I expect tax brackets to increase, perhaps significantly, in the future to pay for Congress’ spending and giveaways. I am taking advantage of QCDs. I have been considering funding a Roth this year but don’t want to push myself into an upper bracket or to drain by after-tax funds to pay the tax on the conversion. Recommendations??? Does the Roth 5-year withdrawal rule apply to Roths opened after age 70-1/2?

@Root Financial It is my understanding that if you move money from your traditional IRA into a trust even a special needs trust your inheritance tax in 90% for any amount of $15,000. Although the trustee has 5 years to move the money over. so the amount is more like 75,000. But this does not happen if the money is in a Roth IRA. I would like to see a video about what happens to your IRA when you pass away.

I’m lucky that I only have about 15% of my assets in a conventional 457 plan, with the rest in Roth and a taxable brokerage account. I plan on taking distributions from the 457 starting at 59.5 if I need to supplement my income, and if I don’t need it as income I’ll use that for Roth conversions if I’m still in the 12% rate, but not if it pulls me into the 22 % rate.

I intend to do conversions to maximize flexibility. I can’t predict which scenario I’ll be dealing with in the future and avoiding RMDs means not being required to do anything. I’d rather spend my planning calories on how to create a circumstance to minimize the taxes while I’m doing conversions. Fortunately I have 12 years before it’s feasible to do anything without the penalty.

People put too much emphasis on avoiding a higher tax bracket. The real goal is to maximize after-tax dollars in your pocket, which might actually be achieved with higher tax brackets.

A fifth reason, which applies to me, is if you plan to retire outside the United States in a country that does not recognise Roth accounts as tax free. Most countries do not treat Roth withdrawals as tax free. An increasingly large number of Americans are retiring abroad for many reasons, including much better and cheaper health care, fewer guns and less violence and other crime, slower pace of life and less political strife.

Thank you for your analysis. I have a question regarding the cost and potential tax deductions for long term care. If someone has a large RMD distribution with 180k AGI but is paying 100k per year for long term care wouldn't their tax liability be reduced by 82k (LTC expense over 10% of AGI)? Would this be a valid consideration in not doing Traditional/Roth IRA conversions when considering the expense of LTC and its tax deduction affect on their marginal tax rate?

How much maximum do they let Roth conversion ?

yes

How about addressing one spouse dies early and the other dies late

I could be wrong..but doesn't Roth-conversion make less and less sense, as the RMD age keeps moving up?? I'm 59..living just fine on a pension..and with the recent increase in RMD ages, I won't even be thinking about it, for at another 16 yrs...and, WHO KNOWS what other changes to RMD age could be made between now, and then!

Does the QCD count as the RMD?

I'm 65 and am looking to open a Roth IRA for 7,500. I have an IRA and 401K. Is it too late to open a Roth IRA? What would be the upside aside from the tax savings

Might I consider a Roth conversion when my taxes are low, and I plan an activity with a tax credit greater than my tax liability? I'll be getting those $$$ back with the tax credit.

Question: What if you have a pre-tax retirement account that you never plan to use because your other income streams will cover all expenses through retirement? Thinking that it would be good to do small conversions each year between 60 and 67 before social security kicks in to stay below the next income ceiling in an attempt to get as much rolled to non-taxable as possible. When I pass, I would like my heirs to get the tax free inheritance instead of facing the tax burden. Love to hear your thoughts.

While I agree for the most part, for the 4th case of short life expectancy, you need to consider the effect of leaving a large traditional IRA to your beneficiaries. It may well be more beneficial to gradually transfer traditional IRA to Roth IRA, staying within the lower tax brackets (22%/24%). This not only moves funds to Roth IRA, but also reduces RMD liability or totally eliminate if you can do the conversion before age 73, . In that regard you may want to convert before 2026 unless you want to bet on the next government extending the current reduced tax brackets!

I’m currently single 64 yr old and in the 32% federal tax bracket. I plan on retiring Sept 24. Wouldn’t it make sense to initiate some level of Roth conversions, from my 401, in 2025 when my tax bracket is lowered as I plan on waiting to take SS when I’m 67-70 and I can also stall my Pension for 1 year

Consider the Infinite Banking Concept as an alternative to Markets. Just a thought.

My favorite charity is me and mine, nonetheless we all are forcefully giving to “charity” through multiple layers of taxation whether we want to or not

Another aspect to consider is Traditional IRA is the Required Minimum Distribution whether you need/want it or not. With ROTH IRA, you do not have that. Outside entities forcing/choosing your financial decesions is never to your advantage.

i got laid off from work and thought i would put money in an ira since i couldn't put it in a 401k plan. once i put it in a traditional ira (since my salary and severance package put my wages too high to go straight into a roth ira), i then did the backdoor roth strategy by converting the ira money into a roth. i didn't even realize that when doing roth conversions, you have to look at all your ira accounts. i have a larger ira account that another financial planner manages that has money in it that hasn't been taxed. now, the money i converted (even though it was money that had already been taxed), i will have to pay taxes again on when i did that conversion. My financial planner is from one of those big companies that has different departments i could/should have consulted. when i talk to the person i normally do with this financial advisor company, they always tell me to talk to my cpa about tax issues like you mention in your other videos. my old financial planner was a smaller office that had cpa's, social security experts, etc.

In MD RMD get taxed 4.75% and local tax is 3.2%. This is on top of federal taxes. Is this a reason not to do a Roth conversion? Could you give an example of a 50K RMD that has been taxed so I can see what a taxed RMD looks like at the 22% tax bracket.. Do Federal taxes include deductions for SS and Medicare? Does it make sense to decimate cash reserves to pay for the conversions?

Nice presentation James. A slight twist on this video, would be when not to CONTRIBUTE to a pretax account, and instead contribute to a Roth or even a brokerage account. Other than to get a company match, I’m not seeing much benefit in contributing to 401k or pretax IRA if you can instead fund your Roth IRA in lower tax brackets. I See mostly “conversion” videos. It seems that most low to moderate wage earners would be better off going straight to the annual Roth IRA limits, especially with the current low tax rates.

You’re right, I am terrified because the RMD percentages just keep going up and up. To me, would I be right in thinking this is a compounding tax bite each year? Part of me just wants to bite the bullet, and withdraw as much as I can over a 3 year period. For instance, let’s say someone has a pre-tax portfolio of $1 million dollars and $1 MM in after tax accounts. Over a course of 3 years, take out $335,000 each year from pre-tax. Add in SS and/or pensions which mean income will likely be over )400K for 3 years. Or, maybe take out just enough to keep income under $400K. Tax liability will be big (unless doing a QCD), but the nightmare will be OVER WITH going forward and the money left will only continue to grow for years to come with no RMDs required and feeling free after suffering through this for 3 years. Thoughts?

There was mention that RMDs take the money out of your portfolio. The only money that has to come out is the taxes on that RMD. You're going to have to pay taxes on it eventually anyway, now or later. Invest the rest in a regular brokerage account and it's still in your portfolio, just no longer tax-advantaged.

I am wondering if you have future properties you plan to sell (a real estate property that was inherited) the income will raise your tax bracket. So then a conversion would not make sense? right?

I’m confused on the direct to charity RMD loophole you mentioned. I give a couple of thousand through Charity Navigator every year where you pick a bunch of charities and they distribute the funds. But I pay with a credit card. You’re saying the funds would have to go directly to Charity Navigator?

Two other reasons you may not want to do a Roth conversion. 1. If you are under age 65 and getting a subsidized health plan from the ACA and doing a conversion would reduce your subsidy and 2. If you are on Medicare and doing a conversion would push you over the IRMMA limit.

Does the link to the next video work for anyone else? I tried clicking and didn't see it in the description either.

After making the contribution of my choice from an IRA account, can I still get the standard deduction?

RMD gets larger over time. It might be 80k in the beginning but 250k later. RMD money cannot go into a Roth. I'm paying 24% FED 6% State doing Roth conversions. It's a gamble it will grow tax free much more than the increased tax I'm paying now in a few years. I pay the tax out of income to maximize the Roth conversion. I will never be in a lower tax bracket either.

My issue with Roth conversions is the opportunity cost of that taxable money you need to give the government right now. Even if you are in a 10% you are giving 10% of your returns to the government right now instead of letting it grow for the next 15 years (I am 60 and retired and don't need my 401K money right now) Unless taxes skyrocket and I just don't see that happening, it almost a wash in the long run.

Something I didn't hear covered was income vs Medicare IRMAA, which I am focused on. People who super save, don't take social security until 70 and start getting RMDs can hit the IRMAA extra charges. This in combination with the upcoming 2026 tax reversion to higher rates means that people in this boat (like my wife and me) would be kicking ourselves for not having Roth converted at least to the IRMAA limit. I will point out that you have to be very careful with this because interest and taxable account dividends add to income and going $1 over means big Medicare cost increases. And yes, when the wife and I are taking RMDs, with no other income, we'll be well over the IRMAA limits so we're doing conversions now in the tax brackets before the 2026 increases and before we get to RMD land.

Wouldn't it be a safe assumption that they were planning to use charity for tax deductions? If QCD's are not taxed, that means you cant claim it as deduction for charity anymore. There does not appear to be an advantage either way in tax savings. If all things equal, would rather convert to have the flexibility of doing what I want with the money it instead of having donate option only.

An income of $140k produces about $115k of post-tax income (depending on state taxes). That's a lot better than $80k pre-tax income!! So, don't worry about paying higher taxes!

All good reasons, however, you also want to understand tax consquences of your beneficiaries if you plan to leave money to someone. Taxes on pretax money is more complicated, and could be higher for the beneficiary. It might be worth paying a little higher taxes doing a roth, than leaving rhe tax problem to the beneficiaries. Just consider that when saying no for those four reasons.

Regarding giving, gifting directly from a pre-tax IRA is a no brainer.

One big reason to move money out of an IRA is if you care about leaving a legacy. Kids and grandkids will be paying a lot more in taxes in the not too distant future and as Ed Slott (the IRA guru) would say, leaving a tax free legacy is far better, especially with recent changes to how non-spousal distributions are made. Heck, Ed has done “deathbed” Roth conversions. No kids? Probably ok to let things lie. Or, if your income (and income needs) will substantially drop in retirement.

It is better to invest now,. You will never be younger than you are today and there will never be a perfect time to invest. Due to compounding, which Einstein called the 8th wonder of the world, you can get rich slowly from investing if you do it from a young enough age..

Another reason not to convert. We are retired, but less than 65. If we keep our qualifying income below the ACA limits the subsidy essentially pays for our health insurance. The Roth conversion counts against this, so it would cost around $20,000 if the conversion bumped us above the ACA subsidy limits.

I’m not sure why you left out inheritance of IRAs. And inheriting child might already be in a high tax bracket, and now has to take withdrawals at an accelerated rate, pushing much of that withdrawal into close to the highest tax bracket. So if I person anticipates a significant portion of their IRA going toinheritance when the people receiving it are in high tax brackets that’s another reason to convert to Roth now

I am going to give all my wealth to St. Jude's Hospital and I will go live in a cave up on the Musshelshell like Hatchet Jack in the movie!😊. Seriously? I thought a ROTH account (Sen. William Roth R-NH) is after tax contributions and all withdrawls are tax free both contributions and gains? I have a company 401K with both Roth and non Roth contributions and gains...I have no clue what percentage is what? It seems to me that if retirement is years away not to do a ROTH conversion is unwise. I dunno...James gives me a headache...😊

Let’s just give away all the compounding we worked decades for! Just give it away, isn’t that awesome????

If you don't need the money from your IRA it is excess cash. You invest that money into a brokerage account income on both hands. sounds good to me

Graduated income tax is brutal on people who have worked hard and saved then the RMDs withdrawals are beat down with taxes.

The 5 th reason being if you don’t have enough money from savings or brokerage accounts for conversion.

--many people on youtube who push roth conversions, leave out the "5-year rule" ... after you convert a traditional IRA to a Roth IRA, you have to wait 5 years before you can withdraw without a penalty? I think. something to consider, or factor in yr decision.

I don't think your conclusion -- that if RMDs are not an issue, then it might not make sense to do ROTH conversions --- is correct. At age 65, filing MFJ, if you have 1 million in IRA and your social security is equal to your standard deduction and you need another 40K for expenses, RMDs wont be an issue as you are already taking the equivalent of RMD from the IRA. Your taxable income is 40K but if the first 93K are taxed at under 12%, then you can take advantage of that by taking 93K from IRA and putting 53K in ROTH. The whole idea of IRA is to put money into it when your tax rate is high and take it out when it is low. Comments?

Your under 65 and need health benefits but don't have an income. You may need to convert in order to qualify for covered california which goes by your income and how many people in your household.

Don't take a ROTH conversion if you plan on taking medical or LTC withdrawls later in life. I am toying with converting 60-75% of my ira, but leaving the remainder as a hedge against medical/LTC thus eliminating or reducing taxes on the withdrawls below the ROTH withdrawl bracket.

🤘🏻

Why wouldn't you just BUNCH the giving to drive down you taxable income, and then do a roth? So if you give 10% per year , just give 20 ro 30% in one year and THEN do the roth conversion?

Good information. However, if someone does not know to these basics and they are about to retire. They probably don’t have much to convert or … …

There are problems when you have too much money, There are problems when you have too little.

I am still confused. 😂😂

Come on you " MoMos " give me some feedback and replay !!

The government will make sure you’re not in a lower bracket in the future!