Everyone, we noticed we had one of those 🤦♂️ moments... The slide that shows your effective tax rate should have the total taxes / total income. We showed the other way around. Apologies for this mistake.
@lostinmyspace4910
Жыл бұрын
Yes, convert while you're working when you have more income to afford the conversion, and do it slowly thruout your career, and try not to get into the next higher tax bracket. There's a strategy you should follow.
@lostinmyspace4910
2 жыл бұрын
You've hit on the biggest topic Ive been screaming about for years. Last several years I've been doing ROTH conversions, and yes it does increase taxable income; that's how you pay the tax on conversions. But it blows me out of the water because I can no longer get the ACA. WTF! Doing a conversion actually lowers my disposable income because now I have to pay more in taxes. I never even touch the ROTH money or spend it, so it is not a current cash benefit that I can spend...it's retirement money down the road. It goes from one acct to another, and just labeled differently. There should be a calculation adjustment when determining actual income in calculating the ACA premium. It is so unfair. What is the theory behind not allowing the ACA adjustment? No one looks at the size of your home or other assets to determine if you truly can or cannot afford the health benefit allowance. The IRS is just looking at the trigger point of an increase in taxable income due to conversion, that they're not really too concerned what caused it, and "oh we need to allow taxpayers the adjustment of true taxable income." BTW...THUMBS UP!!!
@rockystaatz521
Жыл бұрын
Good points
@stevenbingham3061
Жыл бұрын
You should contact your lawmaker to inform/educate them about this. The ACA could be improved with feedback on this issue.
@eddieloujones2673
Жыл бұрын
Yep. I always hear the decision is tax rate now vs tax rate later but there are things like aca, irmaa, and taxation of social security and Medicare that can really put a damper on how much you can convert each year. I may go part time at work to reduce income and keep health insurance or find a new part time job with health insurance. It is a significant challenge due to the way the game is played.
@lostinmyspace4910
Жыл бұрын
@@stevenbingham3061 Steven, I've written letters to my representative, to no avail. I feel sorry for families trying to put away money for retirement then gets hit with a rejection/disqualification to get much needed health care. Someone was not thinking when they put this program in place, the ramifications it's made on families. Too sad.
@johnfranklin6222
Жыл бұрын
Another factor in Roth conversion strategy while working is risk reduction strategy - the risk being the government raises income taxes in the future, which historically has been the case over time.
@bobbert1945
10 ай бұрын
We've been re-listening to all your videos for several months now. My husband is "retired" from his main job at 67, but is still making a good salary from his "encore" jobs. He enjoys his jobs, and plans to keep them until he's at least 75. Because he retired from his main job, he's now getting income from a pension. Basically, he's looking at conversions while he's in a high tax bracket, but it will be even higher when RMDs start. Thank you for these videos.
@TheFirstRealChewy
Жыл бұрын
I view it as extra income today vs in retirement. Retirement income factors in social security, pensions, dividends, IRMAA, etc. I also assume taxes will be higher in retirement. Since we were late starters when investing, this is an easier decision for us. We'll convert later. That said, we'd love for our investments to do so well that we make more money in retirement.
@koryandmaria3560
2 жыл бұрын
When I play with the online calculators it appears that there may be a tax advantage even if you are in a somewhat higher tax bracket now than in retirement even with reinvesting the tax savings along the way . This advantage seems to increase with time or with higher anticipated rates of returns. I do not completely understand why this is the case. Your video would suggest that if the effective tax rates now and in the future were the same then there would be no obvious benefit to the Roth option. However the better online calculators seem to argue against this. Can you explain this discrepancy? Thank you. I have greatly benefited from your video series!
@i-postm4943
Жыл бұрын
Which tool/calcul ator are you using, please?
@lostinmyspace4910
Жыл бұрын
The only reason ROTH conversions affect the Affordable Care Act premiums is because lawmakers failed to fully understand the impact ROTH conversions have on affordable health insurance. They failed to allow an adjustment of net income on Form 1040 when determining health care premiums. And now they're not going backto correct the law to finally allow the adjustment of income so that many people can finally afford (and rightfully so) health care. When doing a ROTH conversion in any year, that really is a net decrease in disposal income, so that those who do convert has less money to pay for health care. They're taking, or moving money from one account (trasditional IRA) into another account (ROTH). Those under the age can't even touch the ROTH IRA until they become of age 59 1/2, unless you're a first time home buyer, or spend it on education, or a birth/ adoption, become disabled, or unreimbursed medical expenses or health insurance IF you're unemployed. Those are the exceptions. I always felt the IRS was very fair and reasonable in many tax laws. I truly believe that the ACA was so quickly written by people in government, that they truly forgot this issue of ROTH conversions increasing gross income, and failing to allow an adjustment. For tax purposes on Form 1040 I can understand why a ROTH conversion is included in taxable income since it is a taxable event. But knowing it's also for retirement and not the above stated reasons, (buying a house, education, adoption, etc.) you CAN"T TOUCH IT. And if you can't touch it, it's not an increase to disposable income, and you're still in the same boat of trying to qualify for the high costs of medical insurance. Same reasoning, if you own a valuable home, say 500,000 and up, are you disqualified from ACA subsidies? Why not? You can afford that house, but not monthly medical premiums? Are they looking at other assets other than what your income flow is annually? No. No matter what you own, the only deciding factor is what your annual income is. A ROTH conversion is not a windfall (if that's what you want to call it). It's for the distant future, not the current spending lifestyle. I honestly believe there's no financial reason ACA would disallow someone from qualifying for a subsidy other than they forgot to allow an adjustment in determining what a person's real income level is, again because when you have to come up with extra tax money to pay for the ROTH conversion, there's now even less HOUSEHOLD INCOME to afford health insurance. For me, I'd rather pay additional income taxes on a ROTH CONVERSION than have health insurance. And here's another sticking point; if you don't carry health insurance , and prove you did, then in past years you were penalized for not having qualifying insurance. And in years past, I had to pay a penalty on not carrying health insurance, but I always came up with the money to convert. In some years it was a struggle but a good decision for me and my wife. We were always healthy, and when we did see a doctor, we gladly paid the office visits which were cheaper than paying the monthly health insurance. With only two more years of ROTH conversions to go, I am at the point of thumbing my nose at the federal government. A seven figure ROTH, and they can't touch it. Don't even have to report the income, then adjust by deducting it on the Form 1040...it's fully excludible from the get go. They don't even care to see what you earn in your ROTH because it's not reportable anywhere in the tax forms. Here's the other point I want to make about the wonderful ROTH ownership. There's no required minimum distributions (RMD's), and having a ROTH helps keep your gross income that you have to report like earned income, bank interest, taxable social security, investment incomes, all lower. If you had to include ROYH earnings in that taxable income calculation, then it may likely bump you up into the next higher tax bracket; then everything gets hit with a higher tax rate. So fight to convert to keep all your income in a lower tax bracket.
@philipgerry5228
Жыл бұрын
If you convert after you’re on Medicare, your Medicare premiums may go up.
@TheFirstRealChewy
Жыл бұрын
It will go up depending on the income. Just make sure its worth converting.
@johnbrown1851
Жыл бұрын
Another factor is that the market is down over 20,%. Paying tax on less money could make sense instead of waiting for the market to rebound.
@TheFirstRealChewy
Жыл бұрын
There will be a market crash every few years.
@edmundfong7288
2 жыл бұрын
Still better than the salesman who proposed I convert six figure IRA into Indexed Universal Life insurance, borrow from the policy to pay the 35% taxes arguing I should take the risk of arbitrage and leverage my assets...and later borrow again for "tax free" monthly income in retirement...Of course, I won't care about the paying back the loans or the reduction in death benefit because I am dead with no dependents.
@i-postm4943
Жыл бұрын
Wow! That's creative. I got burned once by a life insurance company's variable annuity with lots of hidden fees.
@edmundfong7288
Жыл бұрын
@@i-postm4943 Later found a white paper arguing such strategy made the IUL likely to implode on itself triggering reversal of the the "tax free loans" possibly when I was still alive.
@gregoryellis324
2 жыл бұрын
Doesn't this analysis ignore the potential growth in the Roth account post-conversion? Consider Peter Thiel's example (had it been a conversion): he had an opportunity to buy PayPal stock inside his Roth. Had he converted an additional $2,000 that same year, he would have paid taxes on $2,000 and avoided taxes on $5,000,000,000! I understand that is an extreme example, but the same concept applies to all investors. As investments grow in value, that growth is either taxed in a traditional account or not taxed in a Roth account. At 7% interest, the investment doubles every 10 years. The Roth conversion doesn't just compare the tax rates on the conversion date to the tax rates during retirement, it may drastically change the amount that gets taxed at all. It seems like every analysis misses the total taxes paid after 10-20-30 years beyond the conversion.
@TheFirstRealChewy
Жыл бұрын
Regardless of the example, it depends on the percent cost to convert now vs convert later. Your example is similar to saying your income in retirement will be much higher that it is today. In that case its easy to recommend converting now. Tax deferred investments are best until you cross the threshold where additional money loses its benefits and become a penalty. So the balancing act is to have enough to reach this threshold but not cross it.
@gregoryellis324
10 ай бұрын
@@TheFirstRealChewy Please remember that there are other reasons to convert traditional funds to Roth. Saving on taxes may be the most popular reason, but leaving tax-free funds to heirs is another important consideration. There are other cost factors, such as the impact of RMDs on IRMAA and Social Security taxability.
@jskweres2
2 жыл бұрын
Is there a situation where having kids would stop you from converting? For example if I have eight children...
@dylankramer9249
Жыл бұрын
Comment
@chaimbread
2 жыл бұрын
Super helpful thank you!
@wdeemarwdeemar8739
2 жыл бұрын
I plan on leaving California as soon as possible and would never retire in this dumpster fire of a State. Even if I was A billionaire.
@victorvale8391
2 жыл бұрын
even if you are in a higher bracket while working, can it make sense to do it any way because the longer you wait the more the account may grow?
@timtoolman9940
2 жыл бұрын
Yes and then the RMDs will be taxed at a possible higher bracket than while working esp if they stack on SS, pensions. RMD withdrawals cannot be moved into a Roth IRA! Future gains on RMD money will be taxed. I'm converting chunks next 7 years pay the brutal tax now but will reduce the mandatory RMDs and have a hefty tax free Roth.
@timtoolman9940
2 жыл бұрын
RMDs get bigger over time so it's one thing to pay tax on it early in retirement but 15 years down the road boom top tax bracket on it.
@f430ferrari5
2 жыл бұрын
@@timtoolman9940 I scratch my head on the concept you are doing. Basically you are admitting you over saved to begin with and you shouldn’t have been deferring as much as you were. Yes?
@timtoolman9940
2 жыл бұрын
@@f430ferrari5 things happen unexpectedly I assumed it be in a lower tax bracket in retirement. Over saved no but now wish I had gone 50 percent pre and 50 percent after tax. So I'm moving 401k to Roth each year before RMDs start and get the taxes out if the way. I'll delay SS to 70.
@f430ferrari5
2 жыл бұрын
@@timtoolman9940 everybody who is in or near retirement wishes they put more into Roth to begin with. It only started in 96/97 though and the max was only 2k. I’m 55 now and just started Roth myself. I don’t feel I need to do conversions at this point while still working. Having affordable and good medical insurance is key for me and my wife despite being healthy. Going from 3-4k per year where employer covers most to potentially 25k in medical insurance is outrageous. This is why I’ll work until 64-65. If we put 7k each into Roth now for 10-11 years plus do 25-50k conversions from 65-67 then start taking SS at FRA then don’t touch the Roth until near 80 or at all we will be more than fine. I’ve thought about waiting until 70 also but my wife will get half of mine and she won’t get any more if she waits until 70 so it makes sense to go FRA. We’ll see though. Sounds like you have a good plan. Good luck with it.
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