馃攳
Should I convert my tax infested IRA to a tax free Roth IRA? - YouTube
Channel: Oak Harvest Financial Group
[0]
should you convert to a Roth IRA could
[2]
it possibly save you tens of thousands
[4]
if not hundreds of thousands of dollars
[6]
in potential taxes what are the pros and
[8]
cons and how does it impact your overall
[10]
retirement income plan hi I'm Troy
[18]
Sharpe CEO of Oak Arvest Financial Group
[21]
host of the retirement income show
[22]
certified financial planner professional
[25]
and author of the upcoming book core 4
[27]
when we talk about generating a
[28]
retirement income plan and building a
[30]
retirement income plan customized to
[33]
your goals what's most important to you
[35]
about your money there are a lot of
[37]
things that go into those considerations
[39]
when we look at what's most important to
[43]
you and start to map out a strategy for
[46]
generating income reducing taxes making
[49]
sure you don't run out of income and
[50]
also making sure your spouse is ok if
[52]
something should happen to you there's a
[54]
lot of work that goes into that and one
[57]
of the strategies available to us is to
[59]
take advantage of the fact that taxes
[61]
are on sale today right now under the
[63]
current tax law you have the greatest
[65]
opportunity in the history of your
[67]
lifetime to take money from your tax
[69]
infested IRA accounts and convert that
[72]
over to a tax-free Roth IRA but it for
[75]
some of you it may not be the right
[76]
thing to do and for others who could
[78]
potentially save you tens of thousands
[80]
if not hundreds of thousands or even
[81]
more in retirement income in taxes on
[85]
your retirement income we're gonna go
[86]
through today and talk about some of the
[88]
considerations that you should
[90]
understand before making this decision
[92]
and talking to a tax advisor or your
[94]
financial professional so when we look
[99]
at so this is an example of an analysis
[101]
we recently did for a new client and one
[104]
of their primary concerns was taxes are
[107]
going to be a lot higher in the future
[108]
and we want to take advantage while
[110]
taxes are on sale today so we do this
[112]
analysis to look to see how much should
[114]
we convert to a Roth IRA what are the
[117]
taxes that we'll pay now and what are
[119]
the taxes that will potentially save
[120]
down the road and how does it impact
[122]
portfolio longevity and retirement
[125]
income account balances and many other
[128]
factors so when we look here the
[133]
the blue lines right here are
[134]
representative of total taxes paid on an
[137]
aggressive Roth conversion strategy over
[140]
the next several years so this is
[142]
converting from IRA to Roth IRA up to
[146]
the thirty-two percent tax bracket and
[147]
as you can see it generates a good
[149]
amount of taxes in the beginning years
[151]
and what this does is this reduces the
[154]
overall account balances but it's a
[156]
planning strategy that over time what
[159]
we're trying to do is to take tax risk
[160]
off the table so this chart total tax
[164]
chart shows us for the first let's call
[166]
it eight nine years of retirement here
[168]
as the conversion is taking place there
[172]
are a lot higher taxes than an opposing
[174]
strategy what we call conventional
[176]
wisdom so conventional wisdom is
[178]
recommended by by many many firms today
[181]
the big brokerage firms the big publicly
[184]
traded companies for years they've told
[187]
you to defer your IRAs until you're 70
[189]
and a half and live off your non IRA
[191]
money first well while they're telling
[194]
you to do that we're telling you to
[195]
consider an alternative strategy because
[197]
if you believe taxes could be higher in
[199]
the future like we do this is something
[201]
that should be interesting and you
[203]
should consider looking at a different
[206]
retirement distribution strategy so this
[209]
is just a visual of total taxes paid in
[214]
the up front years from doing a Roth
[215]
conversion but as you see as we get out
[217]
here in twenty twenty nine twenty thirty
[219]
and beyond the orange lines these huge
[222]
lines this is representative of the
[224]
potential future income taxes you would
[226]
pay by not doing any Roth conversion
[228]
strategy and following that conventional
[230]
wisdom advice so total taxes get you
[234]
know 50 70 100 hundred and twenty five
[236]
hundred and fifty hundred and seventy
[238]
five thousand dollars a year and this
[240]
doesn't take into account what happens
[242]
if taxes are much higher in the future
[244]
so we're just looking at current tax law
[247]
with the sunset provision in twenty
[249]
twenty five of the Trump tax cuts so
[252]
taxes are on sale right now if there was
[254]
a flashing sale let's say out of the
[256]
department store and you wanted to get
[258]
some new clothes
[259]
for me I want to go to the department
[261]
store while the sale is going on I don't
[263]
want to wait until the sale is over and
[265]
then go
[265]
shopping and by not looking a trough
[267]
conversion that's kind of what you're
[269]
doing you're waiting for the sale to get
[270]
over letting the IRAs balloon in value
[273]
and then carrying this tax risk where
[276]
you have to take all the money out and
[277]
tax rates we know will be higher in 2026
[280]
they could potentially be much higher in
[282]
2026 and beyond
[284]
if legislation is enacted to increase
[287]
the personal income tax rates another
[290]
side effect of not doing Roth
[293]
conversions our required minimum
[295]
distributions so this chart shows a
[297]
comparison of doing the aggressive Roth
[300]
conversion strategy and paying the taxes
[302]
while taxes are on sale versus not doing
[305]
it following the conventional wisdom
[306]
advice and as we can see here once we
[309]
get to require minimum distribution age
[311]
which is 70 and a half you are forced to
[314]
start distributing money from your
[315]
retirement accounts require minimum
[317]
distributions jump from 50,000 to
[321]
100,000 to 150,000 to 200 to 225
[325]
thousand for this particular family now
[328]
when you have high require minimum
[330]
distributions you're effectively forcing
[332]
money out of your IRAs in time period
[335]
where taxes could potentially be much
[337]
higher and this is what we call carrying
[339]
tax risk into retirement now we don't
[345]
have any blue lines here and the reason
[348]
is is we've done the Roth conversion
[350]
strategy while taxes are on sale getting
[353]
those IRA balances down converted to a
[355]
tax-free place so we're not forced into
[357]
required minimum distributions of these
[359]
exorbitant amounts down the road in five
[361]
10 15 20 years so one of the downsides
[365]
though to doing a Roth conversion is
[370]
what we call the crossover point so yes
[374]
when we do a Roth conversion we're
[375]
reducing our future income taxes we're
[377]
taking tax risk off the table we are
[380]
protecting our spouse if something
[382]
should happen to us because when one
[383]
spouse passes away the surviving spouse
[386]
goes into the single filing tax breaks
[388]
tax brackets which are much more
[390]
punitive than the married filing jointly
[392]
tax brackets but what we have to
[394]
consider is this trade-off between
[396]
account balances that you can have money
[399]
invested in earning interest in
[400]
compounding for your future versus
[403]
carrying tax risk and having more income
[407]
being forced out of your IRA and
[409]
potentially future higher tax rate
[411]
environments so what this graph here
[413]
depicts is the crossover point so the
[416]
orange line is account balances without
[419]
doing any Roth conversions just
[421]
following the conventional wisdom
[422]
letting your IRAs defer until age 70
[424]
strategy whereas the blue line here is
[427]
the more aggressive converting up to the
[429]
thirty two percent tax bracket strategy
[432]
so the account balances are less when
[435]
we're doing Roth conversions because
[437]
we're taking money and we're sending it
[438]
to the government to pay taxes in this
[440]
low tax rate environment the crossover
[442]
point for this family is around 85 86
[445]
when it comes to account balances but
[447]
big caveat here when we look at account
[451]
balances here this is a higher net worth
[454]
couple starting with about 4 million
[455]
dollars of net worth and how much money
[458]
you have also does dictate to a certain
[461]
extent whether you should do Roth
[462]
conversions or not there are many many
[464]
variables that go into it it's not just
[465]
the taxes that you could potentially pay
[468]
so when we look at on the left side here
[473]
we have converting aggressively up to
[474]
the 32 percent tax bracket on the right
[476]
side we have the conventional wisdom
[478]
when we look out here let's say age 75
[481]
there's about 6.9 million in the account
[485]
balance total for the Roth conversion
[487]
strategy the same year there's about 8.3
[490]
million in the conventional wisdom
[491]
strategy so yes we have higher account
[494]
balances by not doing the Roth IRA but
[497]
my question to you is is all of that
[499]
money really yours because you have a
[501]
partner in that account Uncle Sam is
[503]
your partner and if we needed to get in
[506]
and take a million dollars out for
[507]
health care for medical passing on to
[509]
the next generation whatever it might be
[511]
or income we don't really have 8.3
[514]
million because a good portion of that
[516]
distribution is going to have to go to
[518]
the government so yes your account
[520]
balances are much higher when you don't
[524]
do the Roth conversion but you're
[525]
carrying that partner in your retirement
[527]
account throughout retirement which
[530]
leaves us exposed to
[532]
higher income tax rates in a potentially
[535]
punitive legislative action that could
[539]
upon distribution really destroyed a lot
[542]
of our IRA account balances so a lot of
[545]
things to consider when we start talking
[547]
about Roth conversions not only is it
[550]
the total taxes we'd pay initially and
[553]
how that impacts the taxes or lack of
[555]
taxes we'll pay in the future we also
[558]
have to consider required minimum
[559]
distributions account crossover point
[561]
future legislation tax risk legacy goals
[566]
with the new secure act that is going
[568]
through Congress it looks like your IRAs
[571]
upon passing to the next generation are
[573]
going to have to be distributed over a
[576]
period of either five years or ten years
[577]
so your kids are going to be forced to
[579]
take the money out of the retirement
[580]
accounts anyways and pay income taxes in
[583]
these future years where we could have
[585]
higher rates so not only do these
[588]
considerations go into it as well as
[590]
many others that can't cover entirely in
[592]
this video you also have to look at the
[596]
effect of high required minimum
[599]
distributions have on other aspects of
[601]
the tax code in a retirement plan
[604]
so I've already went through this yes if
[607]
we have high required minimum
[609]
distributions this is the chart I'm
[610]
talking about over here we're not doing
[613]
any conversions letting the IRA balances
[615]
balloon and being forced at 70 and a
[618]
half to start distributing we understand
[620]
that yes we could potentially have
[622]
higher income tax rates but we also have
[625]
to understand that we can get bumped
[627]
into Medicare tax brackets this is
[629]
called OMA IR maa and it stands for
[632]
income related monthly adjustment amount
[635]
and your Medicare Part B premiums can go
[638]
from a hundred and thirty five dollars
[640]
per month per spouse right now under
[642]
current law to over four hundred dollars
[644]
per month per spouse so you're talking
[647]
over ten thousand dollars potentially in
[649]
increased Medicare taxes by having these
[653]
higher required minimum distributions
[655]
being forced out of your accounts and
[656]
putting you into these excise taxes
[658]
these Medicare surcharges and then
[661]
additionally we have the 3.8 percent net
[664]
investment income
[665]
so when you have high require minimum
[668]
distributions you have to not only be
[670]
concerned about higher income taxes but
[672]
potentially higher Medicare taxes and
[675]
also the 3.8% investment income tax plus
[679]
more legislative risk any other laws
[682]
that get passed in the future that are
[684]
going after people with high incomes or
[686]
high asset levels high require minimum
[689]
distributions by not doing any Roth
[691]
conversions could potentially bump you
[692]
into some of those higher brackets and
[694]
higher tax thresholds thereby reducing
[696]
the longevity of your portfolio and
[698]
giving you less income in retirement so
[700]
the last thing just to reiterate that
[702]
that I think is very very important and
[704]
this is one of the most punitive aspects
[707]
of the tax code is when one spouse
[709]
passes away the surviving spouse goes
[711]
into the single tax brackets so I
[713]
recently did an analysis for a couple
[715]
and they had about a hundred thousand
[717]
dollars of income and one of his most
[719]
important goals was Troy what happens if
[722]
my wife what I want to make sure my wife
[724]
is okay if I pass away
[725]
what type of income tax situation will
[727]
she be in well when we did the analysis
[729]
they lost one Social Security check
[731]
because when a spouse passes away you
[733]
lose a Social Security check their
[735]
income went from a hundred thousand to
[736]
eighty-five thousand but their taxes
[739]
went from ten thousand a year to
[741]
seventeen thousand a year so a seventy
[743]
percent increase in taxes just by going
[746]
from the marry filing jointly brackets
[748]
to the single brackets and keep in mind
[750]
that's with a fifteen thousand dollar
[752]
lesser income because once Social
[754]
Security check went away as you can see
[756]
there are a ton of variables that go
[758]
into trying to determine should I
[761]
convert to a Roth IRA how much should I
[763]
convert to a Roth IRA and how does it
[765]
impact my overall retirement income plan
[767]
I encourage you if you have these
[768]
questions reach out to us send us an
[770]
email give us a call and we can help you
[772]
figure this out
[774]
for your particular retirement based on
[776]
what's most important to you with your
[777]
money understand that that a lot of
[779]
these decisions should be worked through
[782]
with a financial professional who is
[784]
proficient in retirement income planning
[786]
because every decision you make will
[788]
have lasting impacts on how long the
[790]
money lasts how much income you'll have
[792]
in retirement and how many taxes or how
[794]
much you'll pay in tax over the course
[796]
of eight twenty thirty maybe forty
[799]
firemen so I encourage you find someone
[801]
who knows what they're doing if you
[802]
enjoyed this video please share it with
[804]
a friend or a family member maybe
[806]
they're entering retirement maybe they
[808]
have recently retired and they could
[809]
benefit by understanding more about how
[812]
taxes Roth conversions and other aspects
[815]
affect their retirement income make sure
[817]
to hit the like button below and comment
[819]
down below so we can get feedback and
[821]
respond to any comments that you have
[823]
also subscribe to the channel and hit
[826]
the little bell icon to be notified when
[828]
we upload new content
[831]
[Music]
Most Recent Videos:
You can go back to the homepage right here: Homepage