Early Retiree With $2.5M in a 401k: Why you SHOULDN'T Convert

Comments · 261

• CO

  @CodyGunnAdvisor · 4 months ago · pinned

  Book a call: <a href="https://arrowstonewealth.com/schedule">https://arrowstonewealth.com/schedule</a>

  7

• OM

  @omniraz · 4 months ago

  You&apos;re dropping some knowledge. I watch a fair amount of financial content and YouTube and this seems far more in depth than most of what is out there. Subbed!

  32

• EX

  @ExtraGuac007 · 3 weeks ago (edited)

  If left alone, that 2.5M will balloon to 10M at 75 at a 7% rate of return. &nbsp;Converting or withdrawing up to the 12% tax bracket each year is an act of futility.

  2

• DA

  @danhoang6335 · 8 days ago

  Clear explanation! We are early retirees with cash poor, and after much calculation we found strategic small conversions is optimal for us.

• HE

  @HenryJHajds · 3 months ago

  Like everything in life, there are trade offs. &nbsp;Doing aggressive Roth conversions in your late 50s and early 60s eliminated the ACA option and using brokerage account to live and pay little taxes. &nbsp;However, an early retiree in late 50s with a $2m traditional account could easily have $7M in their Traditional IRA between retiring in their 50s and taking RMDs at 75. &nbsp;Start running RMD figures on a $5M + account then couple in impact of a spouse passing and the surviving spouse is permanently locked into 35% federal bracket &amp; substantial IRMAA surcharges. &nbsp;<br><br>You certainly don’t have to get your traditional IRA fully converted, but just get the balance down to a manageable level

  3

• NE

  @NeonRogue1969 · 4 months ago

  Great video! This video is us perfectly and we found out that we can either get subsidies or do Roth conversions, but not really both. Since my wife is 49 and I am 57, we retired 2 year ago, we have the ACA much longer than most. We need to make sure our taxable money is not depleted before we need it to control our MAGI. So we have decided to use the rule of 55 and for me to pull out money from my 401k. We have a good idea what interest and dividends we will likely have each year, so we pull out from my 401k up to the amount that will keep us under the cliff, we obviously leave a buffer and we have a money market bucket if we need a bit more spending cash. Sure I have to pay a little tax on the 401 (k) distribution, but after our standard deduction is removed the tax bill is fairly low and this preserves our taxable accounts so we can make it until my wife hits 65. Overall I am not too worried about RMDs, if we have large RMDs when we are older that means we have a large balance and frankly we are doing well. We will pay as little as possible, but knowing that large RMDs means large balances, I think that is a good problem to have.

• ME

  @MeasureTwiceMoney · 4 months ago

  Note: LTCG still counts toward MAGI to determine ACA subsidies. If someone maxes out the 0% LTCG bracket, they&apos;ve likely also eliminated the entire Premium Tax Credit - the same as doing the $100K+ Roth conversions. And it&apos;s generally unwise to waste 0% tax rates (such as the standard deduction) on LTCG income.

  8

• CY

  @cybrainx72 · 4 months ago (edited)

  Capital gains harvesting also counts to the limit for ACA subisidies. It might seem as if it is not per the presentation.

  8

• FI

  @fixittony · 3 months ago

  Genuinely good video — the ACA cliff and 0% LTCG points are real and usually ignored. Two pushbacks: (1) paying conversion tax from a taxable account isn&apos;t &quot;lost growth&quot; — those pre-tax dollars always carried an embedded tax bill, so you&apos;re really just moving already-taxable money into a tax-free wrapper. (2) &quot;Most stay in the 12–22% bracket for life&quot; skips the survivor years — when one spouse dies, the survivor files single against the full pre-tax balance, which is exactly where pre-paying at 22–24% earns its keep. Still, nice to see real nuance.

  1

• DL

  @dlbade01 · 2 weeks ago

  <a href="https://www.youtube.com/watch?v=_ZWiD2kukts&amp;t=807">13:27</a> if you&apos;re trying to save from hitting the the subsidy cliff you&apos;re not going to be able to spend into the 22% bracket. You&apos;re low to mid in the 12%. You&apos;re not going to spend your way out of the RMD problem without blowing past the ACA cliff that was claimed to be a road block for the Roth conversion. In my modeling of an slightly smaller portfolio you&apos;ll probably need to go past the subsidy cliff once or twice which if you do favors somewhat large conversions to make the effective cost of the subsidy loss less. But in doing so you can then enjoy the 10-12% bracket on the remainder of the portfolio, even in rmd years.

• AL

  @allanc9472 · 1 month ago (edited)

  Sitting on a 2.5M at 55, 20 years before RMD is so manageable.

  1

• TA

  @tapashmajumder2377 · 1 month ago

  I wish I had seen this video earlier. <br><br>Very informative, no-nonsense and useful. Thank you 🙏