Thanks. I never thought about converting the money at the beginning of the year. It does make sense.
@SafeguardWealthManagement
2 жыл бұрын
Our pleasure!
@johnnyfive1412
2 жыл бұрын
I've been doing monthly conversions rather than lump sums. Its not perfect, but dollar cost averaging works in my taxable account, so I've applied the same approach in my conversion strategy.
@SafeguardWealthManagement
2 жыл бұрын
I like it!
@SundarKothandaraman
2 жыл бұрын
why can’t directly put your money in ROTH 401k ?
@johnnyfive1412
2 жыл бұрын
@@SundarKothandaraman -- You should do that now, but many people started their careers investing in tax deferred accounts. Now we realize that this will cause more harm than good in the future mainly once RMDs kick in.
@stevenbingham3061
2 жыл бұрын
In a similar vein, I try to max out my retirement accounts as early in the year as possible. I save money up the previous year, that I use for retirement the following year. For instance, let's say I have $10,000 in savings at year end. If my max contribution to a Roth is $6,600 that year, as soon as I've earned the $6,600, I make the full deposit into my Roth as soon as I can. That way my max contribution starts working as soon as possible in the year, rather than spreading contributions across the year slowly building up to the max in December. I usually make my contribution in January. Working well so far.
@sirreptitious6645
2 жыл бұрын
The only time it should make a difference is the first year you do it, and then only if the market goes up that year. After that, you are just doing the conversion at 12 month intervals, same as if you converted always in December. Nothing magical happens in January!
@SafeguardWealthManagement
2 жыл бұрын
Sir, This is a very common misconception. It would be similar to saying a contribution at the beginning of the year vs start doesn’t really matter. We know this is not true. By shifting forward, you are allowing each conversion + past conversions compound at the subsequent year return. You can see this easily with a simple spreadsheet. For instance, if your statement was true, you would expect this strategy to perform worse if the first year was negative. This is not the case at all. Yes, there is a path dependency element that determines the ultimate value of this strategy but it is not just one year dependent. Something magical does happen in January… More time for compounding.
@sirreptitious6645
2 жыл бұрын
It’s the same as saying you should have started your conversions a year ago rather than starting them this year. Of course an extra year of tax free earnings (if it in fact happens) is a good thing. But that “extra”year, or moving from December to January, only happens once. albeit the compounding will be a benefit, just as starting a year earlier would also be.
@SafeguardWealthManagement
2 жыл бұрын
Again, it doesn’t just happen once. It’s every conversion thereafter as well. This seems to be a common objection so we will likely record a video on this topic in the future
@ralphparker
2 жыл бұрын
Yea, I converted 10% late Nov which was about half of the growth of the IRA over the preceding 12 Months. This is good thought material. Thanks,
@krishnadevulapalli315
Жыл бұрын
I did my Roth conversion at the beginning of this year when my tax deferred portfolio was high. Now the markets have been down this year, I probably lost on my discounts😕 Next year I am planning on quarterly conversions and hoping to be better given the probability of impending recession. Doing Roth conversions & giving to DAF has been a great strategy to keep myself in 22-24% brackets.
@johnkelley1426
2 жыл бұрын
Another brilliant video! Thanks for sharing. I admire the flexibility in Safeguard's approach, recognizing there are better answers, but often not one right answer - and certainly there are less tax efficient (worse) answers. I need a better plan.
@SafeguardWealthManagement
2 жыл бұрын
John, thank you!
@Random-ld6wg
2 жыл бұрын
with these conversions, where is the money to be paid for taxes coming from? i get what is talked about regarding the timing of the conversion. the only thing that i am aware of and plan to utilize is the
@stevenobrien595
2 жыл бұрын
Another great video on this awesome topic! 👍
@SafeguardWealthManagement
2 жыл бұрын
Thanks Steven!
@johnd9279
10 ай бұрын
I do my RMD late in the year, hopefully after some growth has happened. Roth conversion after RMD.
@rontina8686
2 жыл бұрын
I'm not sure I would call this a "Trap" but with that being said, great video and good timing.
@SafeguardWealthManagement
2 жыл бұрын
Fair enough. Catch up 'Cycle' maybe?
@cliffluxion7019
2 жыл бұрын
Thank you for sharing this content! Because I am still working and self-employed for four more years, I am still contributing to my 401k accounts to the maximum amount my earnings will permit. Retiring at FRA in four years and thinking about Roth conversions at that point. Not sure about the tax impact overall, however. Do have a pension and possibly a working spouse that might keep us in higher tax brackets at conversion time, so a bit uncertain about how much to plan to convert annually for five or more years. 🤔
@SafeguardWealthManagement
2 жыл бұрын
Our pleasure Cliff!
@straitjacketstudios
2 жыл бұрын
Equally “baffling” is why this same logic does not apply in the argument of waiting until jan to do conversions. I get the point but at least if converting at the end of the year you safely (and accurately) maximize the current year tax strategy. Waiting until jan may solve for lowering your tax deferred account yet creating a predicament in the coming year due to the very unexpected gains in the year ahead that you describe. The same recommendation to not “predict” is exaclty why end of year is a safer option.
@southothehighway
2 жыл бұрын
But what if the market is declining from Jan to December?
@Jack63141
2 жыл бұрын
Watch starting at 7:24 to answer your question. Move some, then move some more, then move some more depending on how much it drops. Maybe you want to stay in the 22% bracket for your move. If the market drops, then you can move more and go into the 24% bracket, but it basically nets out at less than 22% tax bracket if you incorporate a future recovery.
@junshen8040
2 жыл бұрын
Thank you for the useful Roth Conversion information 👍. Quick question, can I convert few times in a calendar year? Thanks.
@robstreicher5561
Жыл бұрын
yes, as many times as you like. no limit.
@Ladder8A
2 жыл бұрын
Can someone explain the benefit of a conversion in a market downturn. Unless you are converting your entire account balance at one shot, I don’t see the advantage in a down market. If I were to covert $50,000 in an up market I would have to pay taxes on $50,000, versus converting $50,000 in a down market , I would still have to pay taxes on $50,000. In an up market I would have to convert less shares to make $50,000, in a down market I would have to convert more shares. Once moved to the Roth I would most likely invest in the same stock , ETF, or investment. Thanks, Ray
@1134Bigguy
2 жыл бұрын
It looks like your to focused on the exact $$ amount. Instead, think of it as what it is valued at. If the market goes down, you would expect it to rebound. So if you convert $50K that was $60K the previous month, you convert it so when it rebounds you have $60K converted and it only cost you taxes on the $50K. It's a little abstract, but the logic works. I just struggle with knowing where my tax bracket is going to be that early in the year.
@tvstation8102
2 жыл бұрын
Think of starting the year with $200,000 in Stock ABC...you plan to convert $50,000 in the year. If the market (in particular ABC goes down by 25%) you now have $150,000 of Stock ABC. So depending on the date of the conversion you either convert either 25%, or 33.33% of your ABC holdings...but pay the same amount of tax in both scenarios. Once ABC returns to its original value you have a higher proportion of your holdings in the ROTH with the second scenario.
@DB-xp9px
Жыл бұрын
this video kind of implies i shouldn't do my conversion for 2023 since i didn't get it done early in the year. if i waited until Jan 2024 then i've missed out on 1 year at what could be a lower tax rate given 2026+ tax rates are unknown.
@rpguitar
2 жыл бұрын
Definitely some good analysis and food for thought! The only nit I can pick is that converting routinely in December (End of Year 1) vs. January (Start of Year 2) is essentially the same point in time from a future growth perspective. The entire multi-year conversion sequence is shifted by just one month and is not a profound difference.
@rbrucesummers6121
2 жыл бұрын
Actually, it's an 11 month shift. If you did this year's in December as usual, then you do next year's in January, you moved it up 11 months.
@SafeguardWealthManagement
2 жыл бұрын
This is a common misconception. It would be similar to saying a contribution at the beginning of the year vs start doesn’t really matter. We know this is not true. By shifting forward, you are allowing each conversion + past conversions compound at the subsequent year return. For instance, if it was 'just a small shift', you would expect this strategy to perform worse if the first year/period was negative. This is not the case at all. Yes, there is a path dependency element that determines the ultimate value of this strategy but it is not just one year dependent. This is why we ultimately recommend some diversification when it comes to implementing your conversion strategy.
@Sylvan_dB
10 ай бұрын
December and January would be the same only if it were already December AND it is a one-time happening. To see the difference for a repeating task, do this year's conversion in December. Now do next year's conversion in January. The 2024 growth on the converted amount will occur in the Roth instead of the tax deferred. Repeat every January. That one month shift in 2023-2024 has now shifted the entire multi-year conversion by 11 months, and the expected annual increase every year (statistically a huge majority of years) will happen in the Roth for the amount converted that year. Two ways acting in January might be disadvantageous: Possibly acting in January might be a mistake is if you receive a significant amount of unexpected income during the year. For most, the thought is (as in the video) that acting in January is disadvantageous because you think you can successfully time the market. You might know that almost every year has a 10% drop sometime during the year, so you might think "wait for it to drop 10% and I'll do my conversion then." This doesn't work because the 10% drop might occur after a 20% gain and even if it didn't, most people at that point will think, "I'll wait for it to drop more" or "I'll wait until it starts going up." It's very rare for people to be able to accurately time market bottoms or tops. Statistically it just doesn't work. Given the probabilities, unless you can predict the future with accuracy, January is the best time to get the money out of the tax deferred account. The same argument applies for RMDs and if you are still working, for making contributions to your Roth.
@rajbeekie7124
2 жыл бұрын
I am not seeing any trap. I am seeing market timing. If you convert in Jan and the market tanks, you will end up paying more taxes than if you convert at Dec.
@seetheforestthroughthetrees
2 жыл бұрын
and the opposite is also true which @safeguard points out. The idea is to diversify the risk of "timing' incorrectly by doing conversions potentially multiple times a year.
@stevenobrien595
2 жыл бұрын
Hi quick question. Will regular plain old vanilla Traditional to Roth conversions continue indefinitely into 2022 and beyond? I know backdoor conversions are on the chopping block. Thoughts? Would like to continue conversions for the next several years! Thanks
@SafeguardWealthManagement
2 жыл бұрын
There is nothing on the table right now that would discontinue plain old conversions for the vast, vast majority of people. We certainly aren't adjusting multi year conversion strategies right now
@stevenobrien595
2 жыл бұрын
@@SafeguardWealthManagement That's great news. Thanks for the update. Was thinking of doing our first of several 2022 conversions on January 3rd!
@gurrrrlish
2 жыл бұрын
great video... just great
@dmpase
2 жыл бұрын
I know "experts" who have have predicted 17 of the last three stock market drops... :)
@ronloftis9080
2 жыл бұрын
Well, I have about 7k left in an inherited Roth, and I just dont have the money to do my own personal Roth IRA....so in January I am going to cash out the inherited and contribute to my Roth and eliminate my RMDs.
@amerlin388
2 жыл бұрын
You barely mention taxes. Generally if one is withholding to pay taxes, he/she opts to pay as late in the year as possible. Perhaps you would recommend converting one chunk early in the year with no tax withholding, then a second chunk in December with a high percent of withholding. Also, one might want to avoid conversion with tax-withholding when the market is down because you want the amount that would be withheld to instead remain invested to recover with the market.
@SafeguardWealthManagement
2 жыл бұрын
This video wasn't about conversion taxes. We have additional videos on this topic, however. Be careful about delaying your tax payment. IRS can and will subject you to underpayment penalties and quarterly estimates into next year if you wait too long.
@amerlin388
2 жыл бұрын
@@SafeguardWealthManagement I will happily be checking out your other videos for conversion tax advice. As I understand it, Withholding(s) taken from IRA distribution/conversion at any time (December, for example) is treated as if it were spread out over the year - not subject to criticism regarding quarterly shortfall. Not 100% sure this applies if you are already subject to quarterly tax payments. That's why this method is also sometimes used to cover other income (such as post-tax investments) over and above the IRA distribution/conversion. Very important consideration when planning when to take the IRA distribution/conversion (or reserve a portion to be taken in December).
@fredt3903
11 ай бұрын
Great video
@ceciliafox7176
2 жыл бұрын
LOL. A million? Poor poor trapped people. 😂🤣😃
@calbob750
2 жыл бұрын
$1,000,000 to $1,200,000 growth in one year? Just like trying to find a quick oil change for the Bentley.
@SafeguardWealthManagement
2 жыл бұрын
S&P 500 has averaged approx. 26% per year for the last 3 years. 60/40 has averaged 17.5% for the last 3. Was a one year example of 20% growth way out of line?
@robertjohnson4401
2 жыл бұрын
Converting at the beginning of the year or end of the year is irrelevant. There is nothing magical about the calendar year. You could convert in January at a market high and then there is a pullback in the market. You are assuming that market highs only occur toward the end of the year. On the average, market highs occur in all months. The bottom line is you cannot predict market pullbacks.
@SafeguardWealthManagement
2 жыл бұрын
On the contrary. There is something very 'magical' about the first of the year... The conversion calendar begins. When we invest, we build an investment strategy that we expect to deliver positive returns over time, correct? So a conversion at the beginning of the year is going to be more valuable than a conversion at the end on average. Based on your comment, you agree. No one is predicting pullbacks. We don't believe consistent prediction is possible. Planning is, however. Converting at a discount, despite potentially falling to a greater discount is a positive move.
@robertjohnson4401
2 жыл бұрын
@@SafeguardWealthManagement Instead of doing the conversion every January, I decide to do the conversion every July. How is your January conversions any better than my July conversions? There is nothing magical about January.
@SafeguardWealthManagement
2 жыл бұрын
@@robertjohnson4401 6 more months of expected return in the Roth/conversion vs. the tax-deferred account
@robertjohnson4401
2 жыл бұрын
@@SafeguardWealthManagement I do my Roth conversions 10 years in a row in July and you do your Roth conversions 10 years in a row in January. Do you believe there is an advantage to doing it in January after 10 years of doing this? Can you link to any source that backs your position? Here's an analogy. I will invest $1,000 per year on one calendar day per year for 10 years. Is there an advantage to making that investment on each January 1st as opposed to each July 1st after those 10 years? There is nothing magical about January.
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