With the effects of ordinary income from Deferred retirement accounts on ACA premiums during early retirement, the Social Security tax torpedo, the Medicare IRMAA surcharge, the NIIT, LTCG tax rates, forced taxes on RMDs, and the surviving spouse (usually widow) single-filer tax rate; and with marginal tax rates and changes to their income brackets likely to result in higher taxes due to federal spending; it seems that HSA & Roth savings are far more valuable than Deferred savings, and Brokerage savings are also more valuable than Deferred savings.
I started making conversions after retirement. Then the calculus is much simpler. The taxes must come from the money I withdraw as I have no other income to use (pensions and SS are used up for expenses). So I take my current tax bracket, withdraw all the remaining money available within that bracket, pay the taxes, and deposit the rest in the ROTH. This gives me the best possible tax treatment because the bracket is very unlikely get better than it is now. It reduces my RMD amounts. And since, like you, I put all my highest return investments in the ROTH, it maximizes my tax-free money. It could be that there is an advantage to converting more, but that is a separate decision.
Safeguard Wealth Management has a lot of great videos on CZcams about avoiding tax traps with conversions. I’m still 20+ years away from retirement so still figuring out whether I start conversions while we’re still under the Trump tax cuts; that should be a 2-3% discount for most tax payers.
Rob Berger: When it comes to Roth conversions, you need to look at the total picture. Comparing apples-to-apples is not good enough. For example: 1. RMDs INCREASE as you get older placing you in a higher tax bracket. 2. If you use and invest your taxable account to pay your taxes later, you will be paying taxes each year on this account due to turnover, capital gains, dividends, etc. 3. Your tax rates will increase in 2026 - based on today's laws. 4. The Social Security tax torpedo - the double taxation of Social Security. 5. The widows tax trap when either you or your spouse passes away. 6. Increased IRMAA due to increased RMDs. 7. The 3.8% net investment tax due to increased RMDs 8. When passing a traditional IRA to your heirs, they have 10years to deplete and have to pay taxes on the balance. With a Roth, your heirs can wait 10 more years to deplete - tax free.
@Fred Grau - completely agree. And if you keep your income lower by using money in your Roth, your ACA will cost less and have lower or no Medicare taxes. I'm converting as much as I can to a Roth each year. This down market will help move more shares over. The simplicity and tax efficiency will be a bonus, too.
I love that you mentioned the advantages of Roth conversions by paying the taxes from your taxable account. I convert as much as possible to keep our taxable income below 30 percent (as a Maine resident we have fairly high income taxes) while paying the taxes from my taxable accounts. Awesome content!
Rob, I saw a video from an investment manager that said the math in the long run favors a “ripping off the bandaid” approach to conversion (meaning do it all in one fell swoop regardless of tax brackets as long as it’s before collecting SSA benefits). They didn’t show the math to prove their point but they spoke with a lot of confidence. I was so shocked with their example, which involved a multi-million balance and using a portion of the Trad IRA to pay for the Roth conversion. Can you run some simulations and see if they might have a viable argument (maybe it could only work with a very narrow set of assumptions).
I’m assuming that regardless if you have a Roth or Conventional IRA at RMD time your income from all sources will be the same. It’s the mandatory RMDs that are going to cause an increase in your taxes. Just look at an existing RMD calculator and you can see what the mandatory withdrawals will be. The example I see based on the $1,000,000 portfolio would put the mandatory withdrawal at age 72 of close to $40,000. If your retirement income at the time is $100,000 that $40,000 is a big bump. I know.
@cal bob - you would not include the Roth account in the RMD calculation. The non spouse beneficiary would take tax free RMDs within the 10 year period. Ideally, they would wait till the last month of the 10 year period to maximize tax free growth.
What I don't ever see discussed on Roth Conversions, is where or when is the breakeven point. Since you're paying the taxes now, you are decreasing your invested worth today to save on the taxes later. If you factor in the growth over time of the taxes payed now to the tax savings later there is an inflection point in time where the future tax savings finally exceed the worth of that tax money spent today. I look at Roth Conversions as a gamble that I'll live long enough to reap the benefits of paying out all that tax money now.
Assuming even returns and the same tax rates/brackets a conversion costs the same either way. Return sequence, change to tax rates, changes to tax brackets, funding source for taxes paid, forced RMDs (and how they impact your tax bracket), when you die, all factor into the real world break even calculations. That’s a lot of variables to give much useful guidance in general. I did a lot of research and that was my conclusion, may just need to pay a financial advisor to run a scenario for you.
@Tom P - Today's market makes it much less of a gamble. Convert a high growth index fund or stock that's down 10+% from your IRA to a Roth. Those shares will recover in the Roth giving you an additional buffer for your breakeven point. And you're paying the current lower tax rates that will expire in a few years.
Conversions.. it depends what is your goal. My goal is to leave the max inheritance, imo refer to pay taxes from cash reserves I have. MynarMDs are more than enough for me. My cash is replenished from my armada.
RMDS are subject to the income tax brackets of earned income. The 3.8% additional tax from the affordable care act is not applicable to this- it applies to capital gains and dividends
Hi Rob, I love the content and watch all of your videos. I keep checking for the latest, but see that you didn’t do your Monday or Thursday this past week. I hope all is well?
Rob, have you ever analyzed or commented on Ken Moraif’s Retirement Planners ‘invest and protect’ retirement/financial planning? It seems that he deviates from the conventional wisdom a bit. It would be great to get your take on Moraif’s approach for those in retirement.
34:00 I am also interested in why unearned investment income in a taxable account (such as non-reinvested dividends) cannot be moved and invested in a Roth for those with no other income other than investments (not claiming SS yet). It seems there should be many people who lost jobs during the pandemic that would still like to maintain an annual investment schedule in their Roth, possibly from their taxed investments. Will laws change?
I went to the NewRetirement site to look at my tax and conversion situation. I was unable to view the tax rate graphic with the free account. Looks like that feature is locked out unless you subscribe to their service. True? As a side note, it told me I already had an account when I tried to create a new account (email address was in their system). The "forgot password" routine does not work--never got my password reset email even though they send they sent it (yes, I checked my spam folder!). Thanks for producing these videos and the time stamps are very helpful.
I hear different pros talking about converting some each year from IRA to Roth and stay within 12% tax bracket. Just curious, for single person filing status: where does the income come from for annual expenses? Just under $42K a year in taxable income will hit the 12% bracket ceiling. Do people really live on a lot less than $42K a year (including money for tax and healthcare)?
A lucky inflow of $: inheritance $, cash-out refinanced mortgage. That's how I funded my 11 years of Roth conversions (2015 - 2025). Conversion rate of 11.9%. I converted into the 22% bracket for 6 years (2018 - 2023). Some was converted at 0% & 10%. High itemized deductions also helped. I converted while in TX (no state income tax). I'll withdraw from my Roth when I'm in CA (high state income tax). Future avoided taxes is $2.3 million. Net gain, in 2026 dollars is $533,000; (present value (2026) of avoided tax on Roth withdrawals less future value (2026) of taxes paid on conversions). I think of it as if someone shows up at my door with a suitcase full of $533,000 in cash on January 1, 2026, to keep me motivated. The inheritance was lucky timing, but most people can do a cash-out refinanced mortgage. It's the only way most people can convert at a low tax rate. I see people converting at high tax rates. That makes the whole endeavor MUCH less profitable. My friends thought I was crazy to do a cash-out refinanced mortgage. I got a 3.75% interest rate in 2019. This benefited me in two ways: Roth conversions, and I got lucky and invested some of this money in stocks at the bottom of the 2000 crash (3/23/20).
I like your content but who has 2 hours to listen to a video? I think that length probably significantly reduces your views. I’d suggest dividing up to at least two topics. 20:00 or less is what I look for, or if I am really interested I will go 45:00 for a listen.
I actually like the mix of long form as well as the shorter vids that are more focused. These are great to put on for commuting or have in the background while working.
There’s a thing called the pause button. CZcams will pick up where you left off. A lot if us here like these long videos. I play them in my office while I’m working or in the evening as I chill before bed.
I listen while i am working or paying bills. Its not the length but the quantity and quality of information that makes this the best self investing you tube channel. Keep it up...please
Jerry, a couple days after the upload, he adds Timestamps for chapters in the long videos. Look in the video notes for the Timestamps and skip to the chapters of interest.
Thanks for what you do. These sessions are very informative.
What the...?!?! I love your channel! How weird to see you in this space. But very cool.
Good to see you on this channel. Big fan of your channel.
I’m so shocked to see you here @Hickok45.
I thought I clicked on the wrong channel. Lol
@@kennyhart2699 😄
With the effects of ordinary income from Deferred retirement accounts on ACA premiums during early retirement, the Social Security tax torpedo, the Medicare IRMAA surcharge, the NIIT, LTCG tax rates, forced taxes on RMDs, and the surviving spouse (usually widow) single-filer tax rate; and with marginal tax rates and changes to their income brackets likely to result in higher taxes due to federal spending; it seems that HSA & Roth savings are far more valuable than Deferred savings, and Brokerage savings are also more valuable than Deferred savings.
I started making conversions after retirement. Then the calculus is much simpler. The taxes must come from the money I withdraw as I have no other income to use (pensions and SS are used up for expenses). So I take my current tax bracket, withdraw all the remaining money available within that bracket, pay the taxes, and deposit the rest in the ROTH. This gives me the best possible tax treatment because the bracket is very unlikely get better than it is now. It reduces my RMD amounts. And since, like you, I put all my highest return investments in the ROTH, it maximizes my tax-free money. It could be that there is an advantage to converting more, but that is a separate decision.
Safeguard Wealth Management has a lot of great videos on CZcams about avoiding tax traps with conversions. I’m still 20+ years away from retirement so still figuring out whether I start conversions while we’re still under the Trump tax cuts; that should be a 2-3% discount for most tax payers.
You’re amazing Rob! Love your videos and content!
Rob Berger: When it comes to Roth conversions, you need to look at the total picture. Comparing apples-to-apples is not good enough. For example:
1. RMDs INCREASE as you get older placing you in a higher tax bracket.
2. If you use and invest your taxable account to pay your taxes later, you will be paying taxes each year on this account due to turnover, capital gains, dividends, etc.
3. Your tax rates will increase in 2026 - based on today's laws.
4. The Social Security tax torpedo - the double taxation of Social Security.
5. The widows tax trap when either you or your spouse passes away.
6. Increased IRMAA due to increased RMDs.
7. The 3.8% net investment tax due to increased RMDs
8. When passing a traditional IRA to your heirs, they have 10years to deplete and have to pay taxes on the balance. With a Roth, your heirs can wait 10 more years to deplete - tax free.
@Fred Grau - completely agree. And if you keep your income lower by using money in your Roth, your ACA will cost less and have lower or no Medicare taxes.
I'm converting as much as I can to a Roth each year. This down market will help move more shares over.
The simplicity and tax efficiency will be a bonus, too.
I love that you mentioned the advantages of Roth conversions by paying the taxes from your taxable account. I convert as much as possible to keep our taxable income below 30 percent (as a Maine resident we have fairly high income taxes) while paying the taxes from my taxable accounts.
Awesome content!
Thanks Rob 👏 I invest in dividends for passive income. I love dividends and teaching younger people how to invest.
Rob, I saw a video from an investment manager that said the math in the long run favors a “ripping off the bandaid” approach to conversion (meaning do it all in one fell swoop regardless of tax brackets as long as it’s before collecting SSA benefits). They didn’t show the math to prove their point but they spoke with a lot of confidence. I was so shocked with their example, which involved a multi-million balance and using a portion of the Trad IRA to pay for the Roth conversion. Can you run some simulations and see if they might have a viable argument (maybe it could only work with a very narrow set of assumptions).
I’m assuming that regardless if you have a Roth or Conventional IRA at RMD time your income from all sources will be the same. It’s the mandatory RMDs that are going to cause an increase in your taxes. Just look at an existing RMD calculator and you can see what the mandatory withdrawals will be. The example I see based on the $1,000,000 portfolio would put the mandatory withdrawal at age 72 of close to $40,000. If your retirement income at the time is $100,000 that $40,000 is a big bump. I know.
@cal bob - you would not include the Roth account in the RMD calculation.
The non spouse beneficiary would take tax free RMDs within the 10 year period. Ideally, they would wait till the last month of the 10 year period to maximize tax free growth.
What I don't ever see discussed on Roth Conversions, is where or when is the breakeven point. Since you're paying the taxes now, you are decreasing your invested worth today to save on the taxes later. If you factor in the growth over time of the taxes payed now to the tax savings later there is an inflection point in time where the future tax savings finally exceed the worth of that tax money spent today. I look at Roth Conversions as a gamble that I'll live long enough to reap the benefits of paying out all that tax money now.
Assuming even returns and the same tax rates/brackets a conversion costs the same either way. Return sequence, change to tax rates, changes to tax brackets, funding source for taxes paid, forced RMDs (and how they impact your tax bracket), when you die, all factor into the real world break even calculations. That’s a lot of variables to give much useful guidance in general. I did a lot of research and that was my conclusion, may just need to pay a financial advisor to run a scenario for you.
@Tom P - Today's market makes it much less of a gamble. Convert a high growth index fund or stock that's down 10+% from your IRA to a Roth. Those shares will recover in the Roth giving you an additional buffer for your breakeven point.
And you're paying the current lower tax rates that will expire in a few years.
I'm leaving my Traditional IRA to charity after I "kick the bucket." Until then, I will do yearly QCD's.
Conversions.. it depends what is your goal. My goal is to leave the max inheritance, imo refer to pay taxes from cash reserves I have. MynarMDs are more than enough for me. My cash is replenished from my armada.
Thank you
RMDS are subject to the income tax brackets of earned income. The 3.8% additional tax from the affordable care act is not applicable to this- it applies to capital gains and dividends
Except application of NIIT to LTCG is based on a person's amount of ordinary income MAGI including RMDs.
@@polymath5119 correct, but not the context of his discussion which was inaccurate at this point
Hi Rob, I love the content and watch all of your videos. I keep checking for the latest, but see that you didn’t do your Monday or Thursday this past week. I hope all is well?
The 10 min video - Rob’s 4 min mile :)
So the older you are, (me 72) Roth conversions are not worth thinking about?
01:02 thanks for answering my question @RobBerger
Rob, have you ever analyzed or commented on Ken Moraif’s Retirement Planners ‘invest and protect’ retirement/financial planning? It seems that he deviates from the conventional wisdom a bit. It would be great to get your take on Moraif’s approach for those in retirement.
thanks
34:00 I am also interested in why unearned investment income in a taxable account (such as non-reinvested dividends) cannot be moved and invested in a Roth for those with no other income other than investments (not claiming SS yet). It seems there should be many people who lost jobs during the pandemic that would still like to maintain an annual investment schedule in their Roth, possibly from their taxed investments. Will laws change?
Looks like a great video but j just don’t have 2 hrs. Could you release clips? Not criticizing you. I think you do wonderful work.
He’ll post chapters soon. Then you can jump to what you’d like.
Thanks
I went to the NewRetirement site to look at my tax and conversion situation. I was unable to view the tax rate graphic with the free account. Looks like that feature is locked out unless you subscribe to their service. True? As a side note, it told me I already had an account when I tried to create a new account (email address was in their system). The "forgot password" routine does not work--never got my password reset email even though they send they sent it (yes, I checked my spam folder!). Thanks for producing these videos and the time stamps are very helpful.
I hear different pros talking about converting some each year from IRA to Roth and stay within 12% tax bracket. Just curious, for single person filing status: where does the income come from for annual expenses? Just under $42K a year in taxable income will hit the 12% bracket ceiling. Do people really live on a lot less than $42K a year (including money for tax and healthcare)?
A lucky inflow of $: inheritance $, cash-out refinanced mortgage. That's how I funded my 11 years of Roth conversions (2015 - 2025). Conversion rate of 11.9%. I converted into the 22% bracket for 6 years (2018 - 2023). Some was converted at 0% & 10%. High itemized deductions also helped. I converted while in TX (no state income tax). I'll withdraw from my Roth when I'm in CA (high state income tax). Future avoided taxes is $2.3 million. Net gain, in 2026 dollars is $533,000; (present value (2026) of avoided tax on Roth withdrawals less future value (2026) of taxes paid on conversions). I think of it as if someone shows up at my door with a suitcase full of $533,000 in cash on January 1, 2026, to keep me motivated.
The inheritance was lucky timing, but most people can do a cash-out refinanced mortgage. It's the only way most people can convert at a low tax rate. I see people converting at high tax rates. That makes the whole endeavor MUCH less profitable.
My friends thought I was crazy to do a cash-out refinanced mortgage. I got a 3.75% interest rate in 2019. This benefited me in two ways: Roth conversions, and I got lucky and invested some of this money in stocks at the bottom of the 2000 crash (3/23/20).
I like your content but who has 2 hours to listen to a video? I think that length probably significantly reduces your views. I’d suggest dividing up to at least two topics. 20:00 or less is what I look for, or if I am really interested I will go 45:00 for a listen.
I actually like the mix of long form as well as the shorter vids that are more focused. These are great to put on for commuting or have in the background while working.
I love the format Rob. Keep doing what you do!
There’s a thing called the pause button. CZcams will pick up where you left off. A lot if us here like these long videos. I play them in my office while I’m working or in the evening as I chill before bed.
I listen while i am working or paying bills. Its not the length but the quantity and quality of information that makes this the best self investing you tube channel. Keep it up...please
Jerry, a couple days after the upload, he adds Timestamps for chapters in the long videos. Look in the video notes for the Timestamps and skip to the chapters of interest.
[4:00] I don't think RMDs are calculated in the provisional income used to calculate SS tax rates.