I Tested Converting $1.9M In Pre-Tax To Roth - Here's What Happened

Comments · 153

• NT

  @ntssw · 1 month ago

  All these videos just make me realize we need a simpler tax system.  It's insane how much thought goes into trying to come up with optimum tax strategies.

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• GO

  @GoGetEmGoyo · 4 weeks ago

  Life expectancy and uncertainty of future tax rates make this all really frustrating.

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• DO

  @dougbratman5398 · 3 weeks ago

  Of course, in this scenario, we are not accounting for state taxes. So the 24% bracket really is the 30% bracket in some states.

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• JO

  @jonlynch · 1 month ago

  Excellent, accurate and thorough analysis.  Nicely done.

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• KU

  @kurtyap5012 · 1 month ago

  You do an amazing job educating others!

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• DA

  @davega5390 · 1 month ago

  This is a well-done walk through of how to think of Roth conversions. I agree the modeling software is always too aggressive. Your reasoning is where I eventually wound up after months of trial and error analysis. Thanks for putting this together, I am sure it will help a lot of people.

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• RO

  @Rom2814SK · 1 month ago

  I’m 57 and just retired this year and have about $1000 in Roth, the rest is in traditional IRA & 401k and brokerage. I’m doing Roth conversions for 2 years (up to 24% bracket) for one very specific reason: MAGI control for ACA credits. I need the tax-free money in order to reliably stay under the ACA cliff for ~6 years. I will have to eat higher taxes for 2 years and paying $25k/year for healthcare, but after that I’ll be in the 12% bracket and get credits. RMD’s didn’t even factor into the equation for me - at 65 or 66, I’ll revisit the state of my portfolio to see if I still need to do some conversion before taking social security at 70.

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• JD

  @Jdlikesgolf · 1 month ago

  Excellent video. You touched on the depletion of the brokerage account along the way.  And paying for conversion from the IRA.

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• PA

  @Paul-e7t3x · 1 month ago

  Well done Eric, this is one of your best videos and I particularly appreciate highlighting the point that RMDs won&apos;t matter if you&apos;re drawing more than that from the account for spending needs. That doesn&apos;t get emphasized enough and is also a benefit of drawing from your IRA before RMDs kick in. <br><br>I&apos;d add a further refinement - you can limit the impact of a modest excess RMD by using the funds in a tax efficient way. You could use the funds to pay taxes on bracket-maxing Roth conversions at that time (if the space is available and you&apos;ve already spent down your non-preferred accounts), since that effectively brings the money back into a tax preferred account.Or you could invest those funds in no dividend growth stocks or long dated zero coupon bonds and show no current income and allow the capital gains to be passed on tax free after death (assuming you aren&apos;t subject to inheritance or estate taxes). Or you could just gift it to your heirs now. Any of these approaches will eliminate the tax drag exposure you have now that the funds are outside the IRA. You do lose flexibility with the brokerage account, since you can&apos;t sell without tax issues, but late in retirement that&apos;s a much less significant issue than it is when you are 60. You can&apos;t fully avoid current taxes with mutual funds, but there are funds specifically designed to be tax efficient that will keep gain distribution and dividends to a minimum. I&apos;m not saying you should explicitly plan to do this, but it&apos;s a reasonable excuse to ignore tax drag element of forced RMDs if you are planning for the money to be passed on. If you need additional funds you have the Roth to draw on rather than facing a forced sale or additional taxable IRA draw. Doesn&apos;t help with bracket creep, but if you don&apos;t expect to be near a bracket boundary with your normal spending you&apos;ll have room to deal with some upside. Too much upside? Well that&apos;s not really a bad problem to have.

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• FI

  @fialee8ca132 · 1 month ago

  I would say convert up to 24% and hold &lt;$1m in pretax by RMD.

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• DA

  @dalgguitars · 1 month ago (edited)

  excellent video!! &nbsp;Thank you. &nbsp;This guy is so good at this. &nbsp;Smart.

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• TH

  @thereasoner9454 · 1 month ago

  Another well explained video Eric. &nbsp;However, when you do videos like this, I feel it would be helpful to tell viewers that this ONLY applies to higher balance IRA retirees with a pension. &nbsp;If you remove the pension from the equation, it substantially changes the equation against conversion. &nbsp;The average retiree couple with up to $4 million in IRAs/401ks does NOT have a pension at this level. &nbsp;I am sure you have a video or two I might have missed that addresses a high IRA retiring couple with only SS and IRAs, so I am not complaining. &nbsp;I would ask that in your future videos you maybe link directly to 1 or 2 of your other videos that would show modifications to the average retiree couple. &nbsp;I will keep hunting through your content on my own in the meantime. &nbsp;Love your work sir.

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