I'm 62 And Retired With $700,000 In My 401K Should I Convert To A Roth IRA

Рет қаралды 8,591

Жыл бұрын

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Would a Roth Conversion improve my tax efficiency? What happens if I run out of income before I run out of life? Will my spouse be ok? In this study, we'll take a look at being 62 and retired with $700,000 in your 401(k). Should you convert to a Roth IRA?
0:16 Introduction
0:52 Case Study
1:06 Disclaimer
1:47 Plan for Everything
2:20 Current Situation
2:53 Roth Conversions
4:55 Tax Brackets
5:52 401(k) vs Roth IRA
10:07 Starting Distribution Tax
10:47 How Much to Convert?
11:54 Conclusion
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#incomeplanning #retirementplanning #retirementincome #retirewith700k #retirementat62 #retiredandmarried
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Blue Ridge Wealth Planners does not offer legal or tax advice. Please consult the appropriate professional regarding your individual circumstance.
Hypothetical example(s) are for illustrative purposes only and are not intended to represent the past or future performance of any specific investment. Actual results will fluctuate with market conditions and will vary over time.
Converting an employer plan account or Traditional IRA to a Roth IRA is a taxable event. Increased taxable income from the Roth IRA conversion may have several consequences including but not limited to, a need for additional tax withholding or estimated tax payments, the loss of certain tax deductions and credits, and higher taxes on Social Security benefits and higher Medicare premiums. Be sure to consult with a qualified tax advisor before making any decisions regarding your IRA.
Blue Ridge Wealth Planners is an investment advisory firm, and not an accounting firm. Viewers are encouraged to consult with a tax professional to assist them with their specific tax situation. This video is for informational purposes only and should not be considered as tailored financial or tax advice. Viewers should consult with a financial services professional to assist them with their investment and financial planning questions.

Пікірлер: 18

@bradk7653 Жыл бұрын

I have watched a number of your chats, and while the information is valid, it is very repetitive. You always seem to use the same example for conversions, rather than gearing the conversion to the specific situation, such as showing that this couple should likely convert approx 20-30k this year (up to the the end of their 12% tax bracket), or possibly delay taking SS and living on more of their cash while they convert more of the 401k to a Roth.

@blueridgewealth Жыл бұрын

Thanks for watching several of our videos! I agree with your assessment and appreciate the feedback. Since I talk to couples everyday about this stuff in planning meetings, that is the best and simplest example I have found to illustrate this topic. That’s the main reason I use it in each video, in case someone only watches that one video I want it to be as simple as possible. I have thought about making it relevant to the situation and may add that to future posts. Thanks again!

@MKF1205 Жыл бұрын

It will depend on if they have other incomes to spend so they could delay their SS withdrawal.

@MKF1205 Жыл бұрын

They are only 62, 10 years away from RMD. So they do have time to do several small conversions. One thing you might have missed is the medical expenses. The conversion could raise their MAGI which could increase their ACA or part B cost.

@blueridgewealth Жыл бұрын

Ke, you are correct about increased costs of Medicare but that does come into play until age 63 since it’s a two year look back from when you age into Medicare.

@randolphh8005 Жыл бұрын

@@blueridgewealth they don’t make enough to create a Medicare problem unless they convert a lot, but it would definitely affect ACA subsidies if they go that direction for healthcare, and they probably should unless they are able to get healthcare another cheaper way.

@robertlindefjeld9022 Жыл бұрын

This is an awesome video. I would also add one important consideration as well -- the current bear market. When stocks are down, that is the best time to do a Roth Conversion, because the dollar value (and consequent tax bill) is lower than when stocks are inflated. Just like you correctly predict that taxes are likely to go higher in the coming years, stocks are likely to go higher as well. Accordingly, it is better to convert a 401k portfolio now rather than waiting for taxes to rise and the value of the portfolio to increase. Nicely done!

@blueridgewealth Жыл бұрын

Thanks Robert, that is a very good point. We try to make these videos where they can be good in good or bad market conditions but it is very true that converting to a Roth when the market is down will help you maximize your tax dollars and hopefully ride the uptick in the market tax free! Thanks for the feedback!

@HeadinUp Жыл бұрын

Great videos. Sorry if I missed the answer to this question in a video. When the conversion occurs, and the tax event is triggered, do the taxes owed come out of the transaction, or does one have to obtain that from another source? Thanks!

@blueridgewealth Жыл бұрын

Thanks for watching and we have tried to allude to this in some of the videos but not specifically answered it. You actually can choose. The best option is if you have after tax funds to pay it, especially if you are under 59.5 because any taxes withheld would incur a 10% penalty since that would technically be a withdrawal even though the funds didn’t go to you. Over 59.5, after tax is still the best route to pay the taxes if you have the means, if not you can take a withholding for taxes at the time of conversion. In the examples we give in the videos we show the taxes always coming from the IRA or 401k because that is the only fair way to show the comparison.

@randolphh8005 Жыл бұрын

This couple has a measly SS check. They really barely have enough to have a tax problem. Their SS will get taxed if they convert too much. At least one of them should have waited to take SS. Obviously converting at the 12% bracket makes sense. But, they will not have a 20% tax rate on 60k of income, you didn’t even talk about deductions.

@blueridgewealth Жыл бұрын

Randolph, in this case we are using standard deductions and those are included with the income tax brackets used toward the end of the video. If this couple does nothing their SS will get taxed when they are forced to show RMDs later so it’s still the same conversation of will the tax percentage now be lower than that percentage later.

@johngill2853 Жыл бұрын

Do you expect this IRA to grow or shrink? With stocks in taxable and all your fixed income in IRA and all withdrawals from IRA, the IRA part of portfolio shouldn't grow much causing little worry about taxes from it in future. I would have seriously considered delaying Social Security to spend down some of the traditional IRA

@blueridgewealth Жыл бұрын

John, deferring SS could definitely make sense but based on experience sometimes you have to make the decision with SS that best suits the individual not just the numbers

@johngill2853 Жыл бұрын

@@blueridgewealth now that I can definitely agree with

@johngill2853 Жыл бұрын

The only way is to raise taxes? You can only raise taxes so much or you will kill the economy. Taxes take away from spending and we live in a consumer economy This couple with 700k and 3k a month SS will not see heavy tax raises (60k is very little in a lot of places in this country for a couple) I would not do any conversions at 22%

@blueridgewealth Жыл бұрын

John, there are three ways to fix what’s happening, government spending less (can’t and won’t happen), large scale economic growth (can happen but that alone probably won’t fix our current trend), or tax increase. We have had much higher taxes in times when our economy was growing so it’s not impossible to navigate those waters. From a tax bracket perspective, each situation is different and those differences can impact whether or not going into the 22% bracket makes sense.

@johngill2853 Жыл бұрын

@@blueridgewealth I don't believe raising taxes in any significant amount for the bottom 80% of population does anything but kill our consumer economy and doesn't help the problem we have. I believe spending cuts or spending less than inflation will definitely happen to US government because it's unsustainable long term. Maybe not my lifetime but eventually. I will almost definitely be in top 20% in savings at retirement (only because most people don't save) but I'll spend a good chunk before I collect social security making me just about median income at the time I collect social security. I don't see any big tax problems in future for people of median income because the majority live paycheck to paycheck