Roth Conversions When is Enough Enough

I am 53 years old and consider myself to be a high earner. My job provides me the option to contribute the employer contributions to my Roth 401k. Should I do that or should I continue to direct that to my Traditional 401k ahead of retirement?

Quality content, videos like this and insight from an expert really goes a long way.

Thanks for referencing the complexities and nuance of this topic instead of just lauding it’s virtues…probably the most balanced discussion I have seen on YouTube.

2:20 Standard deduction for a single person is not 25,100, its 12,550 I believe. She probably meant for a couple.

I agree wholeheartedly with 98% of what Dana said in this video. There are MANY factors to consider in deciding when and how much to convert to a Roth. The 2% is disagree with is the "break even date" with a Roth conversion. That's because traditional IRA dollars do NOT equate to Roth dollars. $100K in a traditional IRA is only worth $76K in purchasing power when you're in a 24% tax bracket. In other words, $100K or an IRA = $76K of a Roth (24% tax bracket). If your tax rate is the same when the Roth conversion occurs as when you withdraw it in retirement, the break even date is day 1 (not 5 years or 12 years mentioned in the video).

Dana you are very good at explaining this subject and retirement income in general. Thank You very much

I am not against converting for the right fact pattern but some things to consider before converting that make it less attractive. 1. State taxes. Will you move to Florida or another state with zero tax during retirement? 2. Time value of money. The taxes paid today are with dollars worth more than those paid many years in the future. 3. If you don’t convert, you won’t pay the tax all in one year. In fact, some of it is likely going to be paid after you die.

Wow you did a great job of explaining the nuances of tax planning for Roth Conversions.

Problem with the RMD equaling your Standard Deduction to net to ZERO is that the RMD could make your Social Security taxable. I don't see taxes ever going lower...only increasing. Being ZERO TAX when you are on a fixed income is HUGE. I will be debt free, including my home, ten years before I retire. All my retirement accounts are Roth. Based on projections, I will be able to live off Social Security and use my retirement account for emergencies or to donate to charity/family.

Excellent content, excellent delivery. It is unfortunate that she misspeaks at about the 2:20 mark and declares the standard deduction is $25,100 for a single person (It was $12,550 for 2021, and is $12,950 for 2022, with over 65 additions of $1350 and $1400, respectively). Don't know why that is not edited. The rest of the video is great. Not enough is said about hitting or avoiding the IRMAA cliffs.

One of the best benefits of Roth conversions (other than tax free growth) is the ability to have more control of your taxs.

Wonderful info from Dana. Somewhat complex since it covers everything from low income to high income for conversions taking into consideration possibly having extra Medicare payments or missing some subsidies on the low income side. Dana is smart and honest in her remarks and points out doing too much in conversions might not be smart. There is a lot of bad analysis on YouTube so she is very refreshing. Comments from reviewers seem like they are more knowledgeable about finance / math which is a good sign. My situation has been somewhat simple but I would totally trust Dana if it was more complex. I am a huge fan of the Roth IRA like Dana. I think a some mix of Roth/regular makes sense starting out or 100 % if in low income. At the same tax rate during producing and withdrawing years the math is equal for both IRAs. The Roth can be huge in keeping taxes low when extra expenses occur. My situation. Retired early. Taxed at 25 to 28% while working. Did Roth conversions mostly at 12 and 15% during last 15 of 20 years (4 more years to go). Lended 40k to family trust (10 years ago from Roth )to fix house before sale. Bought a car recently and used another 25k of Roth. Extra expense from my rectal cancer last year ( I am good now I think). Roth is huge in helping stabilize tax rates. Before doing these conversions I am sure we would be in the 22% bracket if either of us died. Also, conversions are cheaper in Vegas with no state taxes on the Roth. When we die our family will get tax free Roth’s when we paid 12 to 15 percent and they would pay a huge amount since distributions would be in addition to their current income. Big Smiles and thanks Dana, Gary

Dana does a nice job of presenting a multifaceted decision rubric for Roth conversions!

If you know you will have an inheritance, you have to plan (the best you can) for that too. It gets even trickier not knowing the age at death of the giver and receiver.

Well done and thoughtful.

There are tools available to model various optimization strategies, where you select what to optimize for: highest end portfolio value, least lifetime taxation, etc. You can see how each one affects SS, IRMAA, taxes paid, end value, etc.

Thank you for providing some useful info about modeling those choosing to retire in their early 60s and how it impacts Medicare premiums @65. This is exactly the math I'm working on to convert when and how much without increasing other costs in the short term, and potentially realize tax savings in later years.

Smart lady! This is not a simple thing to measure. You also have to factor in going from married to single at some point

Excellent content. Excellent delivery.

Great job dana for explaining information in a very undestanding Analytical way continue the good work and thankyou.