I do love your videos, but for the record I must say. Sometimes you just need more money. ☺️

IMO the Historical results should include the performance of the funds in the regular IRA which would be the source of these conversions. Yes it's better to have gains in tax free accounts but the overall difference is just the tax saved on the gains, not the extra gains made from the extra time in Roths which ignores the gains you would have had in the regular IRA.

Great! Informative. Looking forward to the next episode.

Fantastic work Eric your analysis is so complete and definitively show the worst approach. Keep up the great work and I look forward to the 2 future episodes on this topic.

Ok I've pondered this for some time. For the audience here's another way to think about this. When you withdraw for a conversion the withdraw hits you as taxable income so 1) How much additional taxable income are you willing to take on in a given year? 2) You will be taxed the same if you withdraw for the conversion in month 1 or month 12 - same tax. 3) We have to assume that your Roth is going to be invested in nearly an identical portfolio as Traditional/401 was, so that converted (now Roth) money in going to grow tax free, so its better to grow tax free in a Roth for 12 months than grow all year as taxable (albeit deferred) for 12 months in Traditional or 401k.. The sooner you get it under tax free growth conditions, the better - in theory. Safeguard ran the numbers and found that in order to catch as many bottoms in the year as possible you should 1) dollar cost average your money out from Trad to Roth unless 2)you hit a real good -10 percent or greater market slump in which case you should pull out about as much as you're willing to be taxed on once that condition is met

Great video as always! If converting, I do it in chunks, say, 4 times a year. A lot can happen in a year in personal life and stock market. So, I prefer flexibility as you said in the video. And, I want to be sure I have the $ to pay the estimated taxes and am willing to let that $ go. Even though my future self will be happy, the taxes paid now can be a hefty sum.

Great information in this video. This year I'll be using a hybrid version of #4 equal conversions and #5 drawdown conversions. I'm planning equal monthly conversions because dollar cost averaging fits my risk tolerance/comfort zone, but I will use my November conversion earlier in the year if the market hits a 5% drawdown point. If it hits the 10% drawdown point I'll use my October conversion. If 15% I'll use the September conversion, and so on. I'll be protecting the December conversion to adjust for income variance, IRMAA, and tax brackets.

Bring on Part 2 !! This is great info

I think the best strategy depends on what is going on during each year. I like to look for market downturns and due conversions during that time. Preferably 15% or more. The larger the market downturn the better as long as you're confident in your selections in your portfolio.

I think that always starting the year with a partial conversion sounds like the best idea as it covers all the best strategies even if you're not sure what to choose of the other options at the time. I did a draw down last year starting with about 60% pf what I intended for the year then the rest after a market drop. I've been adding and converting to my Roth for years and don't feel the need to put a large amount in each year. No where near 100K!

I just started conversions last year and did end of year. With the down market I just converted the whole year target; good to hear my intuition matched statistical analysis. I’m still working so if the market draws down more I’ll likely convert more later this year.

Excellent information, as always.

Great video! I appreciate your content.

First I love your statement… “You don’t need more money, you need a better plan.” Since I’m paying for my Roth Conversion from a normal brokerage account and markets tend to rise in Nov & Dec. I’ve been doing my conversation in October and then sell stocks in Dec, thus it’s all a 4th quarter 1040ES due in January. I thought Roth conversion is all about the taxes and best way to leave money to heirs. Anyway love your advice, just sad not to see my method and makes me wonder if I’m doing it wrong.

I'd just add that what time of the year you do the conversion(s) may trigger an 'underpayment penalty'. Even if you make an estimated payment in January of the following year for the amounts you've converted. If you make estimated payments the same day you do the conversion even, you may have to look at form 2110 and see if you can use 'annualized income' strategy for what can be considered varying rate of income for the year. May also apply to state income taxes if your state has such.

Here's a version of the Drawdown Strategy with an extra benefit! If the value of an asset held in your traditional IRA (stock, ETF, or mutual fund) drops by your target percentage, consider waiting till the next day before moving it to your Roth IRA. If it drops down even more, wait another day. Continue waiting until its value rises, then do the conversion early enough to be sure it will be processed before close of market that day. This works because (at least at the brokerage firm I use) the Roth conversion amount for tax purposes is calculated based on the asset's value as of the prior day's market close. If you are willing to spend the time and the asset value keeps dropping for a few days, this can save you even more than your original target percentage in taxes! 😊

You sort of raced by the "if you have the ability to wait for the market to recover" part. And it's corallary: that you can afford to let time go by while the Roth IRA builds up to the point where the 401K and Roth now equal the original 401K amount (pre-tax). It might take a decade.

Agreed with your numbers, but to complete the picture, you need to add the performance of the 401k you draw money from. Together, they show the gain/loss

Some of us have income that changes every year, so for us, doing the conversions in December when we know the best amount, seems to make the most sense. Because we still have earned income, we also like to be sure that our income qualifies us to do the 15 K 2023 contribution. IRMAA is no fun, but when tax rates go way up in 2026, having more money in Roth and less in taxable retirement accounts may be a wise change.

Did you factor in the lost annual earnings/opportunity cost from the money taken from your cash account in order to pay for the rollover taxes? I don't see that accounted for.

Great video.👍👍👍

You made good points and I already use what you call the drawdown plan, but I think you totally miss the reason for some conversions. Don’t a lot of people convert in order to shrink their standard IRA and 401k balances in order to reduce their RMDs? Converting at the end of the year typically does the least to reduce RMDs. If you had $1M in standard accounts and converted $100k at the end of the year, and the market went up 8% that year you would hardly reduce your standard balances and your RMDs wouldn’t change much. Whereas the exact same scenario but beginning of the year conversions would get you zero RMDs after 10 years.

Do you mention or consider "In-Kind" conversion of assets? Can be extremely powerful. Especially when you can pick which assets to convert and not disrupte your overall asset allocation.

Excellent video. Is it fair to think that after the first year the strategies are the same but that the initial difference grows/compounds over time?

In your chart comparing end of year to start of year conversions, the Roth IRA ends up with an additional $26k with start of year conversions. But with end of year conversions, the tIRA ends up with an additional $26k. You don’t gain that amount, you gain the tax costs on that amount, which is much less.

My suggestion is traxk the snowbird route: southern states in the winter and northern states in the summer....Every young retiree's dream

One thing I didn't see you mention is the 5 year rule. Your strategies make sense when deliberately planned. But sometimes situations allow for a first conversion late in the year that may not have been pre-planned. Even if it's at the end of the year, if it's done in that year, the entire year counts against the five year waiting period. So people shouldn't wait until the beginning of the new year. After that, the 5 year rule doesn't have as much of an impact on the planned periodic conversion strategies.

I'm playing a different game. What this example does in a single year takes me 5 but not a penny of tax. I've been at this for 7 years with maybe another decade or so, perhaps a little more, depending on future returns, to go. Still about a decade before RMDs so I'll use the same mechanism to step up the cost basis on our taxable investments.

As I said last year, I still disagree that the Drawdown is the best option. The best option is Beginning of Year (90% at the beginning of the year & 10% at the end of the year), in most situations. My 10 year plan for Roth conversions ends on 12/31/25, when tax rates will probably increase. And, most importantly my plan is to get my 401K down to $0, by age 95. The examples provided don't include these two important (real life) components. Not performing a (90%) Roth conversion in early January, is going to cause the tax infested accounts to further grow (usually). That's a BAD thing. Real life example: I performed 90% of my planned 2023 Roth conversion on 1/4/23. The market is up 4% since then (more tax infestation!). Any delay runs the high risk of adding a year or two more to a Roth conversion plan. Most people don't have an infinite number of years to perform Roth conversions. I was lucky to have 10 years available, as I'm not working. As with stock investing, any type of market timing is risky behavior (including Roth conversions). The Drawdown strategy is going to successfully convert the planned dollar amount, but it is going end up converting a lower PERCENTAGE of the tax deferred balance. Not getting the tax deferred down to the desired goal ($0 by age 95, in my case), is a serious risk, that could result in having to pay a high tax rate (41% in my case), in order to withdraw the remaining tax deferred money. Love this channel and the debate! If I had used the Drawdown option, I would have been in big trouble due to the recent double digit stock returns. I would have had to convert more in the 22% tax bracket (which I hate doing), in order to meet my 12/31/25 deadline & $0 tax deferred balance by age 95. I plan to move to CA (high state tax) from TX (no state tax), in early 2026.

Aren't all these strategies basically margin trading but worse? You're borrowing money from the IRS to buy stocks and then selling stocks to pay it back during tax season. If the price goes up, you get to keep some shares, but if it goes down, you have to sell other assets to cover the loss. Unlike margin trading, there are no margin calls, and you can't claim the loss on your tax return. You're not accounting for that added risk. If you're going to do this, why not use an actual margin account?

Albert Einstein once said “Compound interest is the eighth wonder of the world". Stock returns for 2017, 2019, 2020, 2021 were 22%, 31%, 18% & 29%, respectively. This type of explosive growth is great, EXCEPT when trying to get a tax infested account balance down, to avoid high tax brackets. Safeguard's preferred method (Drawdown) means 50% of the planned Roth conversions would be done at the end of the year. Delaying 50% of a planned Roth conversion to the end of the year in 2017, 2019, 2020 & 2021 would have been a costly delay (higher conversion tax rates and/or more years of needed Roth conversions), if one is trying to get their tax deferred balance to a certain dollar amount, by the end of life. For me personally, this would have caused my 10 year Roth conversion plan to end up being a 12 year plan. If I chose not to do the additional 2 years of conversions, then my end of life tax deferred balance would have been $1,000,000, rather than my goal of $0. Closely monitor your end of life tax deferred balance goal, while planning your Roth conversions. I plan with a 10.4% stock return, knowing however, that stock returns are highly volatile. Delaying Roth conversions in years like 2017, 2019, 2020 & 2021 can throw a wrench in your plan. I realize doing Roth conversions when stock prices are down can be lucrative, but the negative consequences are usually higher (in my humble opinion).

Another reason to wait till the end of the year for a conversion is to keep your ACA premiums low. Estimate your income for ACA without counting the conversion (after all at this point you have no plans to do a conversion for the year). You pay lower premiums while that money that would have gone to premiums is earning 5.3% right now. Just plan to have an ACA bill based on your 1095-A later after you have accumulated all that nice interest.

Key Point I did not hear - While it appears to be true that with these alternative Roth conversion strategies, you do end up with more growth in your Roth, you are not foregoing the growth with an end of year conversion. That very same growth still happens in your tax deferred IRA or 401K. But it is true you have not made as much progress on conversions and you will ultimately pay income tax on the growth that remained inside your tax deferred account.

Timing of estimated tax payments? Is this included in your analysis? At what rate?(i.e, time value of the tax money at same rate as market. )

Eric, have you guys really analyzed yet the Secure Act 2.0 and it's affects on Roth Conversion Strategies since RMDs have moved out until age 73 in 2023 and 75 in 2033. Can you do a video on Roth Conversion Strategies while collecting Social Security and it's ramifications. Thanks for another great video.

Overly simplistic. Each scenario assumes you follow the same strategy for multiple years in a row, when in fact you can mix and match as you go along based on what the market is doing. Today, we have transitioned - after 40 straight years - from declining interest rates to suddenly and dramatically rising interest rates. The Fed is actually deliberately trying to suppress employment, wages and economic growth. The Fed is deliberately trying to bring both the housing and stock market down, which are interlinked in many ways. But these larger macro effects have barely begun to be felt yet. But they will be given enough time. And the Fed has not capitulated on raising rates. So, in this specific and quite unique environment - not some hypothetically based broad statistical average of market performance over a select time period in the past - leads many informed investors to wait until year end before rolling over. It's called "don't fight the Fed."

Does it really matters when you do the Roth conversions as long as you have money in brokerage account to pay taxes. If you have cash sitting on the side lines, then the down markets are ideal time to do the conversions as opposed to brokerage accounts which will be down as well. I still think earlier in the year is better since you will have a year of compounding( alas, this did not work in 2022).

Question...just so I'm clear, when you say "10% drawdown trigger", are you referring to the market being down 10% from the start of the year? In other words, do half of my conversion each January 1st and the 2nd half of my conversion if/when the market drops 10%? And complete my Roth Conversion in 5 years for optimal results? Thank you for your time and the video.

Pretty interesting. I wonder if the market tanks a certain amount, should you increase your conversions because even though you're in a higher tax bracket, the amount of the discount can't be passed up. Imagine if the covid crash of 2020, somewhere near the bottom, someone had done a 100% IRA conversion. That would have been amazing!

i finished my last conversion in Jan 2022 and had been doing them for yrs in Jan for the full growth of the yr, if there was growth. i will retire this yr under rule of 55. live 2 yrs off 401k or until its depleted, then taxable account until SS kicks in. Lowest IRMAA bracket and only pull from Roth if we need too.

I appreciate your diligence on the concepts, but disagree slightly with the math. Because the concept illustrates a conversion to a Roth IRA, we can assume any initial dollars are pre-tax dollars in a retirement account (IRA, SEP, 401K, etc....). For math continuity, this original IRA should be illustrated to grow tax-deferred at the Roth IRA rate. On the COMMON MISTAKE ILLUSTRATION, both strategies convert $400,000 at $100,000 annually over 4 intervals. However, the unconverted IRA value is not calculated at the end for either strategy. For simplicity, I assumed each strategy began with $400,000 in an IRA, and calculated the ending IRA value in each strategy. For "Convert @ Beginning" Strategy, the IRA value is about $13,200 while the "Convert @ Year-End" Strategy is about $39,600. While this reduces the disparity, I do recognize that either IRA value will be taxed on distribution, including future conversions to Roth. My takeaway is that maintaining some flexibility to adjust conversion amounts throughout the tax year seems prudent.

That was useful....

If using the drawdown method, is the trigger based on a % drop from the Jan 1st opening price? Or any intra-year % drop (even if it still not down the x% trigger from year open)?

Can one fine tune the strategy by doing 2 Roth conversions per year, the first one at year's start at 90-95% of goal, to capture the full year of tax free growth (in most years, anyway)? Then, could one do a second Roth conversion, sometime before year's end, optimally ASAP after one learns the complete income picture for the year? If so, then this would pick up the remainig 5-10% of the total conversion goal. Or is one prohibited from more than one conversion per year?

Is it better to convert when your portfolio is down or up?

Compliance is more important than picking the ideal strategy. For the majority of people the start of year strategy is ideal even though it doesn't have the best results. The drawdown based strategy is compelling. But that forces one to frequently monitor their investments for a drawdown event. I don't think its worth the extra attention it requires over many years vs. the simpler start of the year strategy from a peace of mind perspective.

Would have like to see how quarterly conversions faired.

A lot of work but the the equal conversions 12 times a year seems to resemble dollar cost averaging investing, less bang for your buck when the market is up, more bang for your buck when the market is down.

I just did 100k conversion in Jan I transferred tax estimates to State and IRS now. I do not know if I had to pay the tax now. I don't know how the IRS even knows what the money I transferred to them is for. Is there a form I was supposed to send with the payment?

So what if the drop never happens? Just an end of year one happens then?

In your modeling of the different approaches, did you consider how the associated shifted timing of paying quarterly taxes impacts the comparisons? Or does that not make much of a difference versus the complexity it adds to the calculation?

I need advice on minimizing rmds I want to take s s at 65 I only have about $110000 in traditional ira should I do $40000 roth conversion each year with little income each year keep the last $ in traditional ira?

Isn't this just effectively market timing and you'd get even better results with option #2 rather than #5 if you have no idea how things are going to turn out?

Nice analysis. What impact will the end of the Trump Administration tax changes (ending 2025?) have on timing to covert? Specifically, would it be better to accelerate and convert as much as possible before those tax benefits end?

What is the difference between Dec 2023 vs Jan 2024 ROTH Conversion?

Don't get this, is the money not growing before it is converted, basically I think what you mean is you will have more in you after tax account if you convert at the start of the year vs more in you IRA if you delay conversion...

Seems completely dependent on what the market does if the money you are converting is already invested. If market goes up, you missed some conversion. If market goes down, you get to convert more shares. So I say, do it whenever, just do it every year.

Im still questioning the time of end of year vs start. Youre giving the start of year a 1 year head start. To be equal the end of year would be made at the end of December Before year 1. Its now July if I decided to start making conversions, theres no benefit to waiting till after Jan 1st. Also, Im not waiting till December 2024, Id make the conversion Dec 2023.

These are not apple to apple comparison. For the end of year strategy, only $400k was converted vs $500k for the beginning of year and split strategies. Of course, the end values for the latter 2 strategies are higher. The ROI for the end of year strategy is higher.

Yes but…. You have your biggest modeled percentage gain of 12% in the last year, when the beginning of year balance is biggest. If you switched the % gains around to where last year is a loss, results would be much different because that loss % applied to a large balance is a big dollar loss.

Basically the earlier the better because you are comparing 3 years to 4 yrs of growth on the conversion. But end of the year is better planning for tax purposes.

Doesn’t your comparison of a January vs December conversion ignore the growth of the non-converted fund for the first year?

Interesting

how is large is large?

I don’t have Roth IRA can you suggest for people who don’t have Roth IRA

Where is Part 2?

Great info. I’m trying to understand how the timing matters if you are invested in similar funds in the account the conversion is coming from and the account it is going to. You are making the same gain in the origin account, although it wouldn’t be tax free. I didn’t see in the video that it mentioned it was only counting the gain related to the tax difference

Another relevant question is how much longer will Tax Law continue to allow Roth Conversions? There have been efforts to disallow conversions. That sounds like a reason to convert a large amount now, as opposed to a comparative trickle over years.

Doesn’t the best strategy just move your gains from the traditional to the Roth IRA? If you move $100k on Jan 1 and make 10% then you have $110k in Roth at the end of the year. But if you have $100k in Traditional on Jan 1 and make 10% and move $100k on Dec 31 then you will leave $10k in your Traditional IRA. It doesn’t seem to make a lot of difference to me. Am I missing something?

If you have a RMD doesn't that have to be withdrawn before doing a ROTH conversion? How would that change your strategy?

in a down market converting at then end of the year makes more sense

Ok, I have to admit, I do not understand the link that you are making between investing in a market decline and the benefit of the Roth. Whether in a pre-tax IRA or a Roth, you're still buying in a declining market, so there is no advantage to buying and the Roth. there is only the advantage that we would normally see in buying low and letting the value build up by end of year. And, the big point, that increase would be tax free. But those are market mechanics. The tool didn't offer any market advantage per se.

Can you discuss how converting in January would affect when estimated taxes are due?

oh yeah all that suprise income i need to plan for... :)

I don't get why you would convert just take out what you need as income exactly when you need it.

This whole thing ignores the fact that the money I'm converting into a ROTH IRA is already in the market in my SEP, regular IRA, or 401K..... The benefits of earlier conversion is still there, but not as great as proposed. Higher benefits if you're paying the tax from your taxable account and can leave that money in the market until you need to pay your quarterly tax estimates. (You do have to pay quarterly estimated taxes on SEP, IRA, and 401k withdrawals, yes? I'd bet so, but haven't gotten that far yet.)

What if the Roth and Pre-Tax are equally invested, as in the same fund? Then the growth would be equal, so it would not matter, right? And if you’re paying taxes with a withdrawal and reducing the conversion, then would it not be better to do it at year end? I know people say don’t do that, but I have no choice because I have a pension and I have a lot of money in pretax. I have a provisional income problem when I start drawing social security. I need ALL that pretax money converted, and paying the taxes with some it makes sense.

I don't see the difference in the traditional IRA balances between first of year and end of year. In the example giving with the same gains/losses in the traditional IRA, the roth has 26,000 more but the traditional IRA balance is 26,000 less. So while better, after accounting for the difference in gains on the traditional IRA is only the taxes paid on having to convert an additional 26000. I agree with a split approach with an opportunistic conversion if the market falls during the year but you need to apply to gains/losses on the traditional IRA balance to get what the final balance really means.

Good information, but wouldn’t an even better strategy be, if you expected a 10% draw down in the market each year, to just wait for that 10% drawdown and then put the full 100,000 in? In the case of 2023, that might be during the Feds’ next interest rate increase. It might cause a temporary 10% decrease in the stock market.

you're kinda wrong about the timing. you need to ADD another year to the end of year conversion. they are simply shifting their retirement by a year. the endpoints are not the same.

Just remember in a conventional retirement account the gummint will require you make RMDs wether you want to or not.

If I understand correctly there’s not much in this video about how to figure how much to convert in any single year. It’s an optimization problem: maximize account balances total at some point in the future, assuming a dollar in a non-Roth IRA is worth less than a dollar in a Roth IRA, accounting for potential income tax liabilities, potential IRMAA charges, RMDs, etc. etc.

This all assumes you have a significant portions of your assets invested in equities and that future growth is based on some past return performance.

I am not convinced that you have looked at the whole picture. It seems that you are looking only at the money going into the Roth account. I believe that you also have to look at the traditional IRA out of which the Roth conversion money is coming from. For example, if you are going to convert $500k over 5 years at $100k per year, then you have to include the traditional IRA initially worth $500k in the complete analysis.

There are pieces missing in this analysis. First of all, the results here are contingent on a market decline in the first year. You will not know this at the beginning of the year. If your goal is to maximize the Roth balance, then if you have growth in the first year you would be better off to convert at the beginning of year 1. My guess is that the market grows in most years. Then you are better off converting at the start of the year. Secondly, many people can outlive their retirement accounts. If a person in a lower tax bracket than you (e.g., your kid) inherits the account, then you might be better off to not convert at all, assuming that your goal is to minimize the tax burden on you and your estate.

Little confused here, maybe someone can help. Even if you do an end-of-year conversion, wouldn't your money still be invested in the market and growing under your tax-deferred account?

convert based on where the market is. If you convert too much, you can recharacterize back to your traditional IRA and pay taxes on a portion of the earnings you made on the earlier in the year conversion. I contributed to a ROTH in May 2022 and suddenly in September I had made too much money to make ANY ROTH contribution for the year. I recharacterized my 7k contribution for 2022 and will have to pay tax on about $150 worth of income attributed to that $7k. No big deal. Early January, I contributed the max for ROTH in 2023 - 7.5k. Life goes on. You're just doing the same with a conversion. Did this in 2017 after the tax bill passed late in December. Had converted 175k to ROTH in Aug 2017. Trump Tax bill lowered rates in 2018 significantly, so recharacterized 170k BACK TO THE IRA from wince it came last week of DEC 2017. Kept 5k in the ROTH so I could convert in 2018 after the tax rate went down. Again, convert when you think the markets are going up or there is an investment you can make that can grow.

How does tax work with a conversion? Are you on the hook for taxes on the amount that you convert?

4:24 not a fair comparison: End of year has 3 conversion in 36 months Start of year has 4 conversion in 48 months

Don’t you have to wait 5 years after the conversion to take the money out?

This is very compelling on the surface; however, it fails to include the earnings on the $100K used for each end-of-year conversions. These earnings appear to account for most of the difference.

of course, it's bigger in the second scenario because you forgot to show you still earn money in an IRA before you move it to Roth.

Would you speak about the new proposal that on National Tax on purchases of goods and services and doing away with Income taxes altogether? I assume you will say that it will never happen but even that remote possibility that something like a VAR could be imposed will totally negate the advantages of a Roth over an IRA and we will all be kicking ourselves for doing the conversation and needlessly paying an "income" tax.

If you slide equities (stocks) from an IRA to a Roth, you lose no growth.

I have a tax problem I don’t like them.

Kind of new to this. Why would you convert when market drops?

How about no conversions and understand that your retirement income going to be significantly less, thus much less tax burden. So plan D is forget about Roth conversion altogether.

I'm not sure that there is any value in going back in time to use rate of return from prior to 2000 / 2002. After the internet bubble burst, the market sort of reset, if you can ignore the debacle in 2008 attributed to the masturbators of the universe (sorry, the big banks and mortgage sellers / resellers). Looking over the past 20 years is more appropriate as it reflects a marketplace inhabited by Apple / Amzn and others during the entire timeframe. It's been normalized.

Your “Common Mistake” chart ignores an important point: your Traditional IRA is going up and down at the same time. You have to show us the total picture or you’ve missed the objective.

max roth is $8,000 a year over 50.