Increasing tax rates are the reason I rolled over my 401k to a Roth. I don’t want to be 59 paying taxes on current income on withdrawals made from my retirement account.

Surprised you didn't mention IRMMA or the widow / widower tax trap. Both of these should also be taken into consideration.

You helped inspire me in 2023 to convert around $30k from my Rollover IRA (rolled over from a prior company 401k) to my Roth IRA! The tax pill was difficult to swallow, but I paid the piper at our current "on sale" tax rates, and I look forward to several decades of tax free growth and withdrawal!

Wow, nailed it. I did my first conversion last fall after many hours of serious research. I figured out a year ago, after being retired for several years, that my income and tax bracket are not going down. Ever. I’ve only been paying 10% for several years because we have passive income. Next I realized that when I draw social security it will be taxed at the max rate just like you said. Right then I understood why so many old guys complain about their RMD’s. Doing the conversion put me back up to 24% which is painful but easier than what I was paying while working. My case was exactly your example but with bigger numbers. It took me months to figure all of this out and you boiled it down to seven minutes. Good for you. My second conversion will be this fall.

Please note that when you are taking Social Security, there is NO 10% or 12% tax bracket. This is due to the Social Security tax torpedo. So when people tell you your tax bracket will be lower during retirement, it's not true. The only scenario where your brackets could be lower is when you withdraw from your IRA BEFORE taking Social Security.

Nice video, another thing seniors should consider is even if the the tax brackets are lower later, they may not live long enough to withdraw it all. And there kids (if still working) will be paying an even higher rmd%.

Thank you for such a straight-forward presentation. You might consider making it clear what the thresholds are for single vs. married, filing jointly tax returns. For me, a single tax payer, the top of the bracket at 24% is $191, 950 rather than the $383,900.

Good advice. Should have shown table of figures with talk over for the numerical exercise instead of your face.

Good video. When you do the calculation for taxes, you should reduce by the standard deduction which is around 30k for married filing jointly. If all goes as planned, my wife should have a pension of around 70k and we should have over 2 million in our 401k with 75% of it being taxable. Planning on delaying social security and doing conversions at 61 when we retire. Hopefully some of the conversions is at the lower brackets. I’m really concerned about RMD’s and just leaving that taxable portion alone.

It's not just about tax rates. I did a $50,000 conversion last year, with about half at 12% and half at 22%. Let's say it was all 22%. That would be $11,000 in taxes. So far, where I put it is up 43%! Now, let's assume I hadn't done the conversion, and that money had doubled when I need it, and I'm in the 12% tax bracket. I would pay $12,000 in taxes. So, my taxes would be more with a lower tax rate due to the growth.

Just note that a higher tax rate in the future isn’t always worse, after accounting for a person’s opportunity cost (say, 7%). In other words, it’s better to enjoy tax savings now and defer taxes to the future at 25% (no roth), compared to paying only 20% now but no taxation later (roth). Counterintuitive but mathematically true. The gap has to be wider for a roth to be worth it. For example, it is smarter to pay taxes now at 20% than to pay 50% in the future (but comparing 22% to 25% doesn’t work)

Doing about $300K per year for 2023 to 2025 to stay in the 24% tax bracket in anticipation of rates reverting back to pre-2017 rates.

It's not as simple as tax rates. You will pay higher premiums for healthcare, extra for Medicare due to Irmaa and tax on social security if all your income comes from a trad ira.

What are your thoughts regarding the proposal Biden has issued concerning Roth conversion elimination (400k filing single - 450k filing joint) in 2025? You have stated in previous videos not to go crazy or rush to do Roth conversions as we are yet to know if current Trump tax cuts will remain or Biden will let them expire. How will this impact individuals that fall into that income bracket since they can’t reposition their income? I assume that they’ll take a greater hit tax wise when it’s comes to RMD’s as well?

Do we really believe that the government won't just change the taxation rules on roth withdrawals? One-time haircut?

The government can change the rules whenever they deem necessary. That being said, in 2022 the approved budget was 6.2 trillion. The amount collected through taxation was 4.9 trillion. That is a 1.3 trillion deficit added to the already balloning national debt. I do not like paying more in taxes especially since we cannot get a BALANCED BUDGET. However, if it sure seems that there needs to be more money collected through taxation which would require raising tax rate thresholds and possibly even applying a tax on more items. Wher i live they have implemented a wheel tax and street light use tax. Whats next? We cannot continue to operate under the current tax laws unless deep cuts are made. If deep cuts are made then this will only cripple the middle class further. We need a balanced budget with fiscal responsibility and less tax breaks for the wealthy. Its that simple otherwise this madness will continue. As an investor i would invest in a roth over a 401k unless you are able to take advantage of a employer's match. That situation is a 100% return on your money. You will still need to evaluate at a later time whether it would be worth while to take the distribution from your 401k as ordinary income or convert. The fact that the SS taxation thresholds have not been changed since 1984 is just wrong. This does not reflect current middle class income if you apply 2% inflation yearly since 1984. If you do that you would be more representative of current middle class income. I would rather takr my chances with the roth and hope for no changes or having a certain amount grandfathered in. Lastly, the decision to one versus the other could be simplified if they would just get rid of RMD's. All RMD's do is increase the amount you have to pay taxes on. In my opinion if you are 59.5 or older and have paid in all those years you should be able to take it whenever and how much you want to. Of course this amount would be taxed at ordinary income. Just my .02.

I bet rules for Roth accounts get changed as well.

Outrageous tax fear mongering