Top 8 Roth Conversion Misconceptions and Mistakes
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- čas přidán 9. 12. 2021
- Top 8 Roth Conversion Misconceptions
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Lane Martinsen is a financial planning practitioner, but not YOUR financial planner. Do not take what is said in a video as specific advice for your situation. Please consult with your own tax, legal and financial advisors.
Im about to do a Roth conversion here at the end of the year. Your insights are much appreciated. Thank you so much for this helpful hints
Came across your channel tonight. Watched one video and got hooked right away, and subscribed. Watched 10 videos all together tonight. Will watch more tomorrow, and the day after ...
Nice channel. Very educational. Thank you.
Excellent presentation and very professional. thanks
Lane your presentation was very informative and helps people out to understand the whole investment process thanks 😊.
Well done, thank you.
Thanks for your trustworthy information! Good work!
Thank you Jerry!
I finally got to the right person make the distinction between conversion difference and contribution to Roth IRAs. TU
Great Video !
This was such a helpful video! One question just for clarification. For conversions after age 59 1/2 do you also have to wait 5 years before withdrawing any gain amount? Do you have to wait 5 years for each years conversion amount? How do you figure out the gain for each years converted assets? Thank you!!
Very informative
I love this guy but this does not apply to my situation. Merry Christmas, Y'all!! God bless us every one!
Lane, what happens with a BDA Roth when mom and dad are both long gone (*sniff) and the contributions to the thing are so old Fidelity can't tell me what was contribution versus gains? I want to pull the 'contribution' portion out however nobody can tell me what that is/was/etc. Even mom's accountant has passed away so there isn't any record....
How do state taxes figure into Roth conversions? Do states charge tax at time of conversion as well as withdrawals?
ROTH CONVERSION DONE AFTER AGE 59.5 PAYING ORDINARY TAX RATE ON THAT AMOUNT AT THE TIME OF THE CONVERSION. WHAT PENALTY AND/OR TAX RATE WOULD RESULT FROM WITHDRAWL ON ANY EARNINGS IF DONE PRIOR TO 5 YEARS AFTER THE CONVERSION?
Misconception #5: if you wait to pay full Roth conversion taxes at year-end, you could be subject to an underpayment penalty if not enough tax is paid (e.g. estimated tax payments) throughout the year unless you meet the Safe Harbor Rule.
I am already at the point of needing to pay taxes on 85 percent of my social security. At what level of ahi would I would my Medicare payment be affected as a single filer? My total tax rate with federal state and local taxes would be 29 percent give or take. I have the funds to pay the taxes but does it make sense? How many years would it take to reach the benefit cross?
Is there a limit to the number of conversions with a tax year? Typically we focus on the dollar amount and the applicable taxes, but I want to take advantage of dips in market values when they occur, converting stocks from my IRA to a Roth IRA, reducing the tax.
Thanks for the informative series of information on retirement strategies.
Larry
No, you can do one big conversion or multiple conversions throughout the year.
@@km-bo3zx thank you
Very much appreciate the information and clarity to this very important topic
Since the Roth conversion is taxed in the year it is converted, why isn’t it considered as part of the RMD for that year. On the 1099R it is included as part of the total distribution which includes normal RMD’s and Roth conversions, and is described as “7” normal distribution. Where in the IRS regulations is it stated that RMD’s must come out before Roth conversions? I would appreciate you clarification.
A key difference between a Roth conversion and and RMD is that the Roth conversion money goes into a Roth where it can grow tax free. RMD's are not allowed to go into a Roth. Not only do they want you to pay the tax on the conversion but they also don't want to you have tax free growth on those funds. If you invest your RMDs they want to tax the gains every year. You are definitely required to take your RMD before you can complete a Roth conversion when you are 72 or older. Hope that provides more clarification.
Excellent content! Questions: Can’t you convert directly from 401k to Roth? Don’t you risk underpayment penalties if you pay the conversion tax at year end? Thanks.
Good questions! Some 401k plans will support Roth 401k conversions some will not, it depends on your specific company plan. If you are rolling out of a 401k into a Roth IRA that is allowed, it is called an "inflight" conversion. I would suggest instead simply rollover to an IRA first and then do the conversions to avoid potential problems. And yes, underpayment penalties will apply so estimated taxes should be paid if needed.
@@FinancialFastLane Thank you sir.
@@FinancialFastLane Agreed. My company does not allow for 'in-service conversions' for whatever reason(s) = I am stuck with the bulk of my contributions in their 401K basket because I was ignorant and thought 401Ks were the way to go. Live and hopefully learn...
@@FinancialFastLane What if I have less than 500K on my 401K? Do I need to converts that to ROTH IRA? I'm thinking of using it while waiting for me to turn age 70 to collect Social security.
@@joedehitta2903 There are too many variables to give a reliable recommendation in these comments. Depends on income level, marital status and other sources of income such as rental or pension income if you have any of those.
Re not having to pay tax immediately. If you wait till April of the following year, and the conversion was big enough, aren't you risking underpayment penalties, with the IRS saying you should have paid estimated taxes in that quarter?
Yes, you are correct. I should have been more clear on that.
You do get a pass on the underpayment penalty the first year you do a conversion.
Question, those that do a Roth conversion after 59 1/2 years old there is no 5- year rule (10% penalty), but there is on gains.
Question, specifically each and every year gains have to wait 5-years?
Or, is it only on the very first 5-years only?
There are two different 5 year rules. You have to have any Roth IRA account at least 5 years (the forever clock). Here is a video with more explanation and also with a chart you can download czcams.com/video/Uyz4Wq12Me0/video.htmlsi=27h2HP2-RP3x3Bqi
If I do a Roth conversion from my IRA, am I still able to contribute additional new money to my Roth up to the max based on my income level?
Yes!
I had 401(k). I rolled over to Roth. I don't want to pay taxes on my Roth distribution when the time comes. I would like to convert it in to Roth IRA and pay taxes on it now rather than later. Because of Covid I lost my job. My financial advisor said that there is a limit [1] of how much I can convert from IRA to ROTH IRA and that I have to have [2] a monthly income (salary) to be able to do the conversion. And one more [3] ... that the time line for this conversation is not a calendar year, but up to April of 2022. Does [1], [2] and [3] is true?
You are confusing "Contributions" with "Conversions".
@@FinancialFastLane it didn't really answered my question about three things what my financial advisor said to me. after watching the video i understand that my financial advisor is not correct in none of those 3 ?
Apart from my 401k contributions ( 12%), I also contribute yearly 6000 for Roth is this some thing wrong ?.
It depends on your income level and marital status. If you are married and have a company 401k plan your connot contribute into a Roth IRA if your income exceeds $109,000. If you are single your income cannot exceed $68,000. If your income is too high for Roth IRA contributions then you could do a back door Roth.
Okay..did I get this straight I am 56 yrs old have had a roth ira since 2001 its has a total of 95k of the amount $60k is the money I put into this account, I can withdraw up to the $60k and not be penalized as long as I leave the other $35k which is the growth/capital gains/dividends?
That is correct. All of the contributions can be withdrawan at any time and at any age tax and penalty free.
That's not correct. You have to have your account for 5 years and be 59 1/2.
Am I able to perform a Roth Conversion after age 62? 72? Do I need to be working still?
Yes, yes & no.
No one ever talks about what the rules are for Roth losses. What to do if you have a Roth investment that actually goes down in value in less than 5 years or after.
The rules apply to the gains/growth so if you don't have any gains then the converted funds can be accessed tax free at anytime but if you are under 59 1/2 then the 10% penalty would apply for early withdrawals.
Not all Roth conversions cause an increase in AGI, only those IRA contributions that are tax deductible when converted cause an increase in AGI, but if all of your $$$ in the IRA when contributed are not tax deductible, and there is no growth, then at the time of conversion there would be no AGI increase.
An example of this is you open an IRA, make a $6000 non tax deductible contribution for tax year 2022, then immediately convert into Roth IRA a day later with nó appreciation in assets value , then that $6000 in the Roth IRA won’t cause any spike in your AGI.
I am confused on yearly ROTH withdrawals in regards to the 5 year rule. I will be 59 1/2 this year. In 2019 I moved approx. 40K from my TSP ROTH to a new TD Ameritrade ROTH account. I understand you can take your contributions penalty free prior to age 59 1/2, then your conversions , and then the gains (penalty free if 59 1/2?) The $40K I moved in 2019, is that amount penalty free once I turn 59 1/2?. and with each conversion having its own 5 year rule, how do figure out how much I can take out with out penalized? Do I get a statement or do I have to request a statement from the IRS on the yearly contributions? or I have to review each years end statement from TD for those numbers?
This video may answer some of your questions czcams.com/video/_Yba42dQhzY/video.html
@@FinancialFastLane So with the last burb, If I had a ROTH started in 2018 over 5 years ago, and I turn 59 1/2 this year, ALL the money in my ROTH that is available, tax and penalty free this year?
@@dougmead7669 Yes!
@@FinancialFastLane So what is the point of talking about 5 year counter with each ROTH? If the clock starts (in regards to the 5 year rule), with the FIRST ROTH, why confuse everyone with the clock starting on other funds???????
@@dougmead7669 I'm sorry, I'm probably not following your question. Every Roth conversion has it's own five year clock. I have a great handout/document that explains the rules. If you contact my office and request the 5 year clock chart we will email you a copy. Office: 480-550-6556