Bogleheads® Conference 2024 Roth Conversion Deep Dive with Mike Piper

00:51:23
https://www.youtube.com/watch?v=Wjbf9KVSG7s

摘要

TLDRThe video, presented by CPA Mike, offers an in-depth examination of Roth conversions. It begins with a definition of a Roth conversion, highlighting its process of transferring money from a tax-deferred account into a Roth account, which then grows tax-free. The session covers the benefits and drawbacks of such conversions, focusing on elements like comparative current and future tax rates, impacts on required minimum distributions, and the broader implications on tax and retirement planning. With strategic planning, Roth conversions can enhance after-tax inheritable wealth without significantly boosting retirement financial security. The session emphasizes using taxable account funds to finance conversions for better Roth account growth and reducing tax drag. It also considers beneficiaries' tax scenarios, the relevance of charitable intentions, health and longevity factors, and how conversion strategies can dynamically adjust to life changes such as shifts from joint to single tax filing.

心得

  • 🤑 Roth conversion transfers money from a tax-deferred account to a Roth account, usually resulting in a taxable event.
  • 📊 Key factors to consider in Roth conversion include current vs future tax rates and potential impacts on required minimum distributions (RMDs).
  • 💡 A smart conversion plan can improve metrics such as after-tax wealth for heirs but doesn't necessarily enhance retirement financial security.
  • 🏠 Use taxable account funds to pay conversion taxes for more effective Roth space utilization.
  • 👴 The strategy can be beneficial in scenarios involving changing tax status, like going from married to single due to a spouse's death.
  • 📉 High earners among heirs might benefit more from a Roth conversion than low earners, potentially reducing their future tax burden.
  • 💼 Tax brackets, credits, and associated thresholds play significant roles in determining the conversion's financial sense.
  • 🎯 Charitable giving strategies, like qualified charitable distributions, should be considered alongside conversions, especially for those with significant charitable intent.
  • 🔍 Health, longevity, and anticipated future expenses must be factored into personal conversion analyses.
  • 📈 Conversion benefits can be amplified by tax-free compounding if funds remain in the Roth account over long periods.

时间轴

  • 00:00:00 - 00:05:00

    Speaker Mike, a CPA, introduces the concept of a Roth conversion, which involves transferring money from a tax-deferred account to a Roth account, making it taxable. Mike plans to cover the pros and cons, potential benefits, and how the Roth conversion fits into overall retirement plans.

  • 00:05:00 - 00:10:00

    Three primary effects of Roth conversions are introduced: paying tax now instead of later, buying more Roth space with taxable dollars, and reducing future required minimum distributions (RMDs). The pros and cons vary based on current and future marginal tax rates.

  • 00:10:00 - 00:15:00

    Complicating factors for Roth conversions include different marginal rates than tax brackets, taxation of Social Security benefits, Medicare premiums, and changes in status like spousal death affecting tax rates. Additionally, future beneficiaries' tax rates and potential charitable distributions can impact conversion decisions.

  • 00:15:00 - 00:20:00

    Roth conversions allow using taxable accounts to buy more Roth space, advantageous due to less tax drag in Roth accounts compared to taxable ones. The financial benefit grows with the number of years funds are held in a Roth account until spent or transferred to heirs, compounding tax-free growth is emphasized.

  • 00:20:00 - 00:25:00

    A Roth conversion reduces future RMDs, lessening tax drag on unspent RMD dollars that would otherwise be reinvested in taxable accounts. This benefit is long-term, extending possibly decades, reducing taxable impact on portfolios significantly.

  • 00:25:00 - 00:30:00

    Although Roth conversions solve issues like tax drag and RMD size, they don’t greatly secure financial stability in retirement as they don't address key risks of running out of funds, such as sequence of returns risk or spending shocks.

  • 00:30:00 - 00:35:00

    The primary benefit of Roth conversions is that they can improve the after-tax amount left to heirs without changing financial security. Smart conversion plans enhance wealth passing without affecting personal financial stability in negative scenarios but can boost outcomes in positive scenarios.

  • 00:35:00 - 00:40:00

    A broader retirement tax plan involves prioritizing spending from checking, savings, and tax-free accounts first, fostering low-tax conversion space. Ideal years for conversions are identified when taxable income is low, usually early in retirement, maximizing tax efficiency.

  • 00:40:00 - 00:45:00

    Decisions on conversion amounts are based on income thresholds like tax brackets, considering marginal tax rate changes or they may be tied to other financial objectives like reducing taxable IRA balances when strategically beneficial.

  • 00:45:00 - 00:51:23

    Strategies for conversion timing and amounts are flexible, often over multiple years to optimize tax impacts. The integration of conversion plans into overall retirement strategies allows for tax-smart practices that align with long-term financial goals.

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思维导图

视频问答

  • What is a Roth conversion?

    A Roth conversion involves moving money from a tax-deferred account to a Roth account, usually making the transferred amount taxable in the conversion year.

  • What factors determine whether a Roth conversion is a good idea?

    Key factors include current vs future marginal tax rates, changes in tax status, health and longevity, and how conversions fit into your overall retirement plan.

  • How can using taxable account funds benefit a Roth conversion?

    You can use taxable account funds to pay the tax on the conversion, effectively buying more Roth space and reducing tax drag since Roth accounts grow tax-free.

  • What are the impacts of changing from a married to a single tax filing status on Roth conversions?

    Converting while both spouses are alive can prevent a higher tax rate imposed on a single filer left with almost the same income post-death of a spouse.

  • How do heirs' tax rates affect the decision to perform a Roth conversion?

    If beneficiaries will likely be in high tax brackets, converting can relieve them from heavy taxes on inherited tax-deferred accounts.

  • What role does charitable intent play in Roth conversions?

    Significant charitable intent might reduce the rationale for conversions since leaving tax-deferred dollars to charities avoids taxation on those dollars.

  • Can converting at higher current tax rates be justified?

    Yes, if it avoids even higher future tax rates or maximizes Roth growth potential through tax-free compounding.

  • How do marginal tax rates influence Roth conversion strategies?

    Understanding your actual marginal tax rate versus your tax bracket is crucial, as various tax credits and social benefits can adjust your effective rate.

  • When should you consider paying conversion taxes from an IRA versus a taxable account?

    Pay from a taxable account to retain more funds in the Roth account, maximizing its growth potential which avoids tax drag found in taxable accounts.

  • Why might you spread Roth conversions over several years?

    To minimize tax impacts by staying within a favorable tax bracket or avoiding penalties like Medicare income-related monthly adjustment amounts (IRMAA).

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  • 00:00:00
    [Applause]
  • 00:00:01
    [Music]
  • 00:00:06
    all righty so I get to introduce myself
  • 00:00:09
    today so hello I am Mike I am a CPA and
  • 00:00:14
    let's just get started so as you can see
  • 00:00:17
    from our title here this is going to be
  • 00:00:19
    a deep dive on the topic of Roth
  • 00:00:21
    conversions but before we do that before
  • 00:00:25
    we really dive deep I want to take just
  • 00:00:27
    a brief moment to make sure that
  • 00:00:28
    everyone here is on the same page about
  • 00:00:32
    one fundamental piece of information and
  • 00:00:34
    that is what is a Roth conversion so a
  • 00:00:38
    Roth conversion is when you move money
  • 00:00:41
    from a tax deferred account to a Roth
  • 00:00:44
    account so for instance you could be
  • 00:00:45
    moving money from a traditional IRA to a
  • 00:00:48
    Roth IRA and when you do that the money
  • 00:00:51
    that you move over so the money that you
  • 00:00:53
    convert it's generally taxable as income
  • 00:00:56
    in the year that you do the conversion
  • 00:00:58
    so that's what a conversion is and there
  • 00:01:00
    are three primary things that we're
  • 00:01:02
    going to be talking about today that all
  • 00:01:03
    fall under the Roth conversion
  • 00:01:05
    umbrella the first one is what are the
  • 00:01:08
    effects what are the pros and cons of a
  • 00:01:10
    Roth conversion in other words how do we
  • 00:01:12
    decide whether or not it makes sense for
  • 00:01:14
    you to do a conversion in any given
  • 00:01:17
    year topic number two what can we hope
  • 00:01:20
    to achieve with a smart conversion plan
  • 00:01:23
    in other words what are the metrics that
  • 00:01:25
    we can realistically hope would be
  • 00:01:27
    improved by doing conversions and our
  • 00:01:30
    third topic which we're going to hit on
  • 00:01:31
    more briefly is how does a Roth
  • 00:01:34
    conversion plan fit into a broader
  • 00:01:38
    overall retirement tax plan so digging
  • 00:01:41
    right in here with the effects of a Roth
  • 00:01:43
    conversion in most cases conversions are
  • 00:01:47
    going to have up to three major effects
  • 00:01:49
    and these are the three things that you
  • 00:01:50
    want to be looking at in any given year
  • 00:01:52
    when trying to determine whether it does
  • 00:01:54
    or does not make sense for you to do a
  • 00:01:57
    conversion the first effect is that you
  • 00:01:59
    will end up paying tax now instead of
  • 00:02:01
    paying tax
  • 00:02:02
    later the second effect is that
  • 00:02:05
    conversions will let you use taxable
  • 00:02:07
    account dollars to essentially buy more
  • 00:02:10
    Roth
  • 00:02:11
    space and the third effect is that Roth
  • 00:02:14
    conversions will reduce your future
  • 00:02:16
    required minimum distributions your
  • 00:02:17
    future rmds and that can reduce the
  • 00:02:20
    future tax drag on your portfolio and
  • 00:02:23
    we're going to go through these one by
  • 00:02:24
    one so pay tax now instead of later the
  • 00:02:28
    idea here is that when you do a
  • 00:02:29
    conversion
  • 00:02:30
    the conversion is taxable so you have to
  • 00:02:32
    pay some tax right now right but then
  • 00:02:35
    the money is going to be in a Roth IRA
  • 00:02:36
    going forward so Roth IRA are allowed to
  • 00:02:39
    grow taxfree so you won't have to pay
  • 00:02:41
    tax later as it grows and as long as you
  • 00:02:43
    meet the appropriate requirements you
  • 00:02:45
    can take the money out taxfree as well
  • 00:02:47
    whereas conversely if you don't do a
  • 00:02:50
    conversion then you won't be doing you
  • 00:02:52
    won't be paying any tax right now right
  • 00:02:54
    because you didn't do a conversion but
  • 00:02:56
    then the money is still in a traditional
  • 00:02:57
    IRA or other tax deferred account and so
  • 00:03:01
    you most likely would have to pay tax at
  • 00:03:03
    some point later whenever the money does
  • 00:03:06
    come out of the account
  • 00:03:07
    later and of the three effects shown on
  • 00:03:10
    this slide this first one paying tax now
  • 00:03:13
    instead of paying tax later this is the
  • 00:03:16
    one that gets almost all of the
  • 00:03:19
    discussion and in fact it's very common
  • 00:03:21
    to see this treated as if as if it is
  • 00:03:24
    the entirety of the analysis like it's
  • 00:03:26
    very common to see articles and
  • 00:03:27
    bogleheads threads where this is the
  • 00:03:29
    only thing gets brought up but as we'll
  • 00:03:31
    see in just a little bit this is really
  • 00:03:33
    only one piece of the picture it's
  • 00:03:34
    important to account for more than
  • 00:03:36
    this now this effect of paying tax now
  • 00:03:39
    instead of paying tax later it can be
  • 00:03:41
    helpful or it can be harmful so it can
  • 00:03:44
    be a good thing or it can be a bad thing
  • 00:03:46
    it could be a point in favor of doing a
  • 00:03:47
    conversion or a point against and that
  • 00:03:50
    all depends on the current marginal tax
  • 00:03:53
    rate and by that I mean the tax rate
  • 00:03:55
    that you would pay on a conversion of a
  • 00:03:57
    given size if you did do that conversion
  • 00:03:59
    this year and how does that tax rate
  • 00:04:02
    compare to the Future marginal tax rate
  • 00:04:04
    and by that we specifically mean the tax
  • 00:04:07
    rate that would be paid on the dollars
  • 00:04:09
    in question whenever they come out of
  • 00:04:11
    the account later if you don't convert
  • 00:04:14
    them so we're comparing those two tax
  • 00:04:16
    rates and whenever the current tax rate
  • 00:04:18
    so the tax rate on the conversion is the
  • 00:04:20
    lower of the two then this effect is
  • 00:04:23
    helpful it's a point in favor of doing a
  • 00:04:26
    conversion and conversely whenever the
  • 00:04:28
    current tax rate is the higher of of the
  • 00:04:29
    two then this effect is harmful because
  • 00:04:32
    it means you're paying tax now at a
  • 00:04:34
    higher tax rate when you could have
  • 00:04:36
    waited and paid tax later at a lower tax
  • 00:04:38
    rate so that's not a good thing so this
  • 00:04:40
    effect it can be good or it can be bad
  • 00:04:42
    just depends on the
  • 00:04:44
    circumstances now there are a number of
  • 00:04:47
    caveats complicating factors that make
  • 00:04:50
    this pay tax now or pay tax later thing
  • 00:04:53
    more complicated than it might appear at
  • 00:04:55
    first glance the first one is that when
  • 00:04:58
    we're talking about marginal tax
  • 00:05:00
    rates your marginal tax rate might be
  • 00:05:03
    different than just your tax bracket we
  • 00:05:05
    often treat those two terms as if
  • 00:05:06
    they're synonyms but they're not because
  • 00:05:08
    there are a ton of different things in
  • 00:05:10
    our tax code where as your income goes
  • 00:05:14
    up your income tax does go up as a
  • 00:05:17
    result of your tax bracket but something
  • 00:05:19
    else also happens like this additional
  • 00:05:22
    taxable income causes you to become
  • 00:05:23
    ineligible for a particular tax credit
  • 00:05:25
    or something like that and so when you
  • 00:05:27
    account for that factor Plus your tax
  • 00:05:30
    bracket your actual marginal tax rate
  • 00:05:32
    can be considerably higher than just the
  • 00:05:34
    tax bracket that you're in and I want to
  • 00:05:36
    run through just a few things that can
  • 00:05:39
    cause that type of effect that are most
  • 00:05:41
    likely to be relevant in a rough
  • 00:05:42
    conversion
  • 00:05:43
    analysis the first one is the premium
  • 00:05:45
    tax credit so that's the credit for
  • 00:05:48
    anybody buying health insurance on the
  • 00:05:49
    Affordable Care Act exchange so that's
  • 00:05:51
    most often going to be relevant in a
  • 00:05:52
    scenario where you retire before 65 so
  • 00:05:55
    you're not yet on Medicare but you've
  • 00:05:57
    retired so you don't have insurance
  • 00:05:58
    through your previous employer most
  • 00:06:00
    likely so you're probably buying
  • 00:06:02
    insurance on the
  • 00:06:03
    exchange and the way that credit works
  • 00:06:06
    is that as your income goes up the
  • 00:06:08
    credit shrinks and eventually it shrinks
  • 00:06:10
    all the way to zero and so let's say
  • 00:06:12
    you're 63 and you're thinking about
  • 00:06:14
    doing a conversion this year and you're
  • 00:06:16
    buying insurance on the exchange well
  • 00:06:18
    then this is something we have to
  • 00:06:19
    account for right is this taxable income
  • 00:06:22
    from the conversion going to be
  • 00:06:23
    shrinking this tax credit and if the
  • 00:06:26
    answer is yes that doesn't necessarily
  • 00:06:37
    mean if we get that light switch back on
  • 00:06:39
    thank you uh
  • 00:06:41
    so so if a conversion would be shrinking
  • 00:06:45
    your premium tax credit that's not a
  • 00:06:47
    good thing but it isn't necessarily
  • 00:06:49
    enough to say that we shouldn't do a
  • 00:06:50
    conversion right it just is something we
  • 00:06:53
    need to account for in the math in order
  • 00:06:55
    to be doing it
  • 00:06:57
    correctly then the way that Social
  • 00:06:59
    Security benefits are taxed that can
  • 00:07:01
    also cause this type of effect basically
  • 00:07:03
    if your income is low enough your
  • 00:07:05
    benefits are not taxable but then as
  • 00:07:07
    your income proceeds upwards through a
  • 00:07:09
    particular range uh the portion of your
  • 00:07:11
    benefits that are taxable goes up so as
  • 00:07:14
    your income is proceeding upward through
  • 00:07:16
    that range the um actual marginal tax
  • 00:07:20
    rate is much higher than just the tax
  • 00:07:21
    bracket that you're
  • 00:07:23
    in and Medicare Irma that's income
  • 00:07:26
    related monthly adjustment amount and it
  • 00:07:28
    is just a rule that says that if your
  • 00:07:31
    income crosses a certain threshold or
  • 00:07:33
    various thresholds in a particular year
  • 00:07:35
    then your medicare premiums two years
  • 00:07:37
    from now are going to be higher so if
  • 00:07:40
    we're thinking about conversions in
  • 00:07:43
    2024 if you would be 65 or older in 2026
  • 00:07:46
    so two years from now then we want to be
  • 00:07:48
    thinking about would this conversion
  • 00:07:50
    push you over one of those thresholds
  • 00:07:53
    and again if the answer is yes that
  • 00:07:55
    doesn't necessarily mean no conversions
  • 00:07:57
    it just means that's something we have
  • 00:07:59
    to be accounting for in order to be
  • 00:08:00
    getting the math right and one thing to
  • 00:08:04
    point out about this idea that marginal
  • 00:08:06
    tax rate and tax bracket are not
  • 00:08:09
    necessarily the same is that we need to
  • 00:08:11
    be thinking about that on both ends of
  • 00:08:14
    this analysis right we're talking about
  • 00:08:15
    pay tax now or pay tax later and we're
  • 00:08:18
    looking at the current tax rate and the
  • 00:08:20
    future tax rate in both cases we're
  • 00:08:24
    concerned with your actual marginal tax
  • 00:08:26
    rate not just the tax bracket that
  • 00:08:28
    you're in
  • 00:08:33
    another important uh complicating Factor
  • 00:08:35
    that's people often Overlook is that for
  • 00:08:37
    a married couple one thing that often
  • 00:08:40
    happens after either of the two people
  • 00:08:42
    has died is that the surviving spouse is
  • 00:08:46
    left with a higher marginal tax rate
  • 00:08:48
    going forward and the reason for that is
  • 00:08:51
    that the standard deduction for a single
  • 00:08:54
    filer is only half the size that it is
  • 00:08:57
    for a married couple filing jointly and
  • 00:08:59
    the tax brackets only have half as much
  • 00:09:01
    space in them but typically when one of
  • 00:09:04
    the two spouses dies what happens is
  • 00:09:06
    that the household's income Falls but it
  • 00:09:08
    falls by less than half because it's
  • 00:09:10
    usually the smaller of the two social
  • 00:09:12
    security benefit amounts that goes away
  • 00:09:14
    and the income from the portfolio
  • 00:09:16
    usually doesn't change at all or at
  • 00:09:17
    least not very much right it's still
  • 00:09:19
    there paying interest in dividends and
  • 00:09:20
    rmds and so on so this surviving spouse
  • 00:09:23
    they have half the standard deduction
  • 00:09:25
    and half the space in the tax brackets
  • 00:09:27
    but more than half as much income
  • 00:09:30
    and so the result is that they're often
  • 00:09:31
    left with a higher tax rate and the
  • 00:09:33
    takeaway with respect to Roth
  • 00:09:34
    conversions is that this can be a
  • 00:09:36
    compelling point in favor of doing
  • 00:09:39
    conversions while both people are still
  • 00:09:42
    alive another caveat another
  • 00:09:44
    complicating Factor here is that when
  • 00:09:47
    we're talking about that future tax rate
  • 00:09:50
    it might not be your future tax rate
  • 00:09:53
    that we're talking about for a
  • 00:09:54
    significant portion of these dollars it
  • 00:09:57
    could be the tax rate that your airs
  • 00:09:59
    your beneficiaries would be paying on
  • 00:10:01
    distributions from an inherited tax
  • 00:10:03
    deferred account and so there's a couple
  • 00:10:06
    of things we want to be thinking about
  • 00:10:07
    there but sorry one
  • 00:10:10
    moment uh the first thing we want to be
  • 00:10:13
    thinking about is how many beneficiaries
  • 00:10:15
    will there be because imagine you've got
  • 00:10:19
    one adult child and they have no kids of
  • 00:10:21
    their own and there's nobody else you're
  • 00:10:23
    planning on leaving any of these assets
  • 00:10:25
    to well then it's pretty darn likely
  • 00:10:28
    that the distributions themselves as in
  • 00:10:31
    the the distributions that this
  • 00:10:32
    beneficiary would have to take from an
  • 00:10:34
    inherited traditional IRA it's likely
  • 00:10:36
    that those distributions would be
  • 00:10:38
    pushing this person up into a higher tax
  • 00:10:40
    rate and so that would be a compelling
  • 00:10:43
    point in favor of doing conversions now
  • 00:10:46
    right pay tax at your current tax rate
  • 00:10:47
    whatever it happens to be so your
  • 00:10:49
    beneficiary doesn't have to pay a much
  • 00:10:50
    higher tax rate later but if you think
  • 00:10:53
    about a different scenario if you've got
  • 00:10:55
    10 beneficiaries four kids and six
  • 00:10:57
    grandkids or something like that and the
  • 00:10:59
    accounts are going to be split up among
  • 00:11:00
    all 10 of those people then it's a lot
  • 00:11:03
    less likely that the distributions would
  • 00:11:04
    be pushing them up into higher tax rates
  • 00:11:06
    and so this wouldn't necessarily be a
  • 00:11:08
    point in favor of conversions and could
  • 00:11:10
    be a point against doing a conversion so
  • 00:11:12
    it all depends on the
  • 00:11:14
    circumstances we also want to be
  • 00:11:15
    thinking about what are the careers or
  • 00:11:17
    just more broadly what are the earnings
  • 00:11:19
    levels of these beneficiaries right the
  • 00:11:22
    higher their level of earnings the more
  • 00:11:24
    likely it is that they're going to be
  • 00:11:25
    paying very high tax rates on
  • 00:11:27
    distributions from any inherited tax
  • 00:11:28
    defer accounts and so if all of these
  • 00:11:32
    beneficiaries have high levels of
  • 00:11:33
    earnings that's a strong point in favor
  • 00:11:35
    of doing conversions whereas if these
  • 00:11:37
    beneficiaries have more modest levels of
  • 00:11:40
    earnings that could be a point against
  • 00:11:42
    doing conversions so this all just
  • 00:11:43
    depends on the
  • 00:11:46
    circumstances and then our last caveat
  • 00:11:48
    here on this paying tax Now versus
  • 00:11:49
    paying tax later idea is that to the
  • 00:11:52
    extent that you would use qualified
  • 00:11:54
    charitable distributions qcds or to the
  • 00:11:58
    extent that you would leave tax dollars
  • 00:11:59
    to charity at your death by naming a
  • 00:12:02
    charity as the beneficiary of your IRA
  • 00:12:04
    or something like that well then to that
  • 00:12:07
    extent the future tax rate that we're
  • 00:12:09
    talking about it's actually zero because
  • 00:12:12
    nonprofit organizations are tax exempt
  • 00:12:15
    they don't have to pay tax on dollars
  • 00:12:17
    that they get from a traditional IRA or
  • 00:12:19
    401k or something like that and so if
  • 00:12:22
    you anticipate a large portion of your
  • 00:12:25
    tax deferred balances ultimately going
  • 00:12:28
    to charity well then that is a pretty
  • 00:12:31
    compelling Point against doing Roth
  • 00:12:34
    conversions because it means you're
  • 00:12:36
    paying tax now at whatever tax rate you
  • 00:12:37
    pay on the conversion when ultimately a
  • 00:12:40
    good chunk of these dollars could have
  • 00:12:41
    come out of the account later at a 0%
  • 00:12:43
    tax rate anyway and paying tax now to
  • 00:12:46
    avoid zero taxes later is not helpful so
  • 00:12:50
    that's one thing to have in mind and
  • 00:12:52
    that is the first effect of a Roth
  • 00:12:55
    conversion you pay tax now instead of
  • 00:12:57
    paying tax later and can be good or it
  • 00:13:00
    can be bad it just depends on both on
  • 00:13:02
    all the
  • 00:13:03
    circumstances the second effect of a
  • 00:13:05
    Roth conversion is that conversions let
  • 00:13:08
    you use taxable account dollars to
  • 00:13:12
    essentially buy more Roth space and
  • 00:13:15
    before getting into how that works I
  • 00:13:18
    want to make sure we're all clear on a
  • 00:13:20
    definition because I actually see this
  • 00:13:21
    misunderstanding a lot on the bogleheads
  • 00:13:23
    Forum sometimes people think that a
  • 00:13:25
    taxable account means a traditional IRA
  • 00:13:28
    meaning that it's it's taxable because
  • 00:13:30
    you take the money out and it's taxable
  • 00:13:32
    but that's not what we're talking about
  • 00:13:34
    a taxable account is anything any
  • 00:13:36
    account that doesn't have special tax
  • 00:13:38
    treatment so a taxable account is not a
  • 00:13:40
    traditional IRA it's not a Roth IRA it's
  • 00:13:43
    not a 401k or Roth 41k It's not a 403b
  • 00:13:46
    or Roth 403b It's not a 457 or a 529 or
  • 00:13:50
    an HSA or an FSA it's none of that stuff
  • 00:13:52
    it's basically a regular checking
  • 00:13:54
    account or a regular savings account or
  • 00:13:57
    if you went to Vanguard or Schwab or
  • 00:13:59
    your favorite brokerage firm and opened
  • 00:14:00
    up a new brokerage account that isn't an
  • 00:14:02
    IRA that's a taxable account those are
  • 00:14:04
    the types of accounts we're talking
  • 00:14:05
    about here and we call them taxable
  • 00:14:07
    accounts because they're the types of
  • 00:14:08
    accounts where you have to pay tax every
  • 00:14:10
    year on the interest and dividends that
  • 00:14:11
    you earn and so
  • 00:14:13
    on and the idea of effect number two
  • 00:14:16
    here is that you can use money from a
  • 00:14:21
    taxable account to pay the tax on the
  • 00:14:25
    conversion and when you do that what's
  • 00:14:27
    happening essentially is that you're
  • 00:14:28
    giving out money from a taxable account
  • 00:14:31
    and you're getting more Roth money and
  • 00:14:34
    to illustrate how that works I want to
  • 00:14:35
    run through a very quick example of a
  • 00:14:37
    Roth conversion and as we'll see this is
  • 00:14:39
    actually an example of what not to do in
  • 00:14:41
    most cases but'll get to that in just a
  • 00:14:43
    minute and so we're going to keep the
  • 00:14:45
    math easy we're going to assume it's a
  • 00:14:47
    25% tax rate and we're going to assume
  • 00:14:50
    it's a $100,000 Roth conversion right
  • 00:14:52
    easy math so we have
  • 00:14:54
    $100,000 coming out of a traditional
  • 00:14:57
    IRA and when you do a conversion you
  • 00:14:59
    have a choice you can have taxes
  • 00:15:02
    withheld if you want to at any
  • 00:15:04
    percentage you want including zero so
  • 00:15:07
    it's optional but you can have taxes
  • 00:15:09
    withheld and so in this example we're
  • 00:15:11
    going to assume that you do choose to
  • 00:15:12
    have taxes withheld and you're
  • 00:15:15
    anticipating a 25% tax rate so again
  • 00:15:18
    easy math 25% gets withheld and that
  • 00:15:21
    means that 75,000 of this conversion
  • 00:15:24
    $75,000 is what actually ends up in the
  • 00:15:27
    Roth the other 25,00 housing gets
  • 00:15:29
    withheld goes to the
  • 00:15:31
    IRS so that's one way you can do a
  • 00:15:34
    conversion or instead of doing that you
  • 00:15:37
    can do this what we have on this slide
  • 00:15:39
    here we have $100,000 coming out of the
  • 00:15:42
    traditional
  • 00:15:43
    IRA nothing gets withheld so the whole
  • 00:15:47
    100,000 goes into the Roth account but
  • 00:15:50
    you still do have to pay the tax and so
  • 00:15:52
    we're just writing a check essentially
  • 00:15:53
    to the IRS for $25,000 we're using money
  • 00:15:56
    from a taxable account to pay that tax
  • 00:15:59
    and so what has happened here is you
  • 00:16:01
    gave up money from a taxable account
  • 00:16:04
    because that's what you used to pay the
  • 00:16:05
    tax but you got more Roth money because
  • 00:16:08
    in this case 100,000 made it into the
  • 00:16:11
    Roth the whole amount made it into the
  • 00:16:12
    Roth instead of only
  • 00:16:16
    75,000 now this effect of using taxable
  • 00:16:18
    account money to pay the tax and
  • 00:16:20
    therefore essentially buy more Roth
  • 00:16:22
    space one thing to point out is that it
  • 00:16:24
    doesn't apply to everybody right if you
  • 00:16:26
    don't have taxable account dollars that
  • 00:16:28
    you could use
  • 00:16:29
    well then who really cares it's not
  • 00:16:31
    relevant you don't need to thinking
  • 00:16:32
    about it but in the cases where it is
  • 00:16:37
    applicable by definition it's a point in
  • 00:16:39
    favor of conversions this one's never a
  • 00:16:42
    point against conversions the only two
  • 00:16:44
    choices here are it does not apply or
  • 00:16:46
    it's a point in favor of conversions and
  • 00:16:49
    the reason for that is that taxable
  • 00:16:51
    accounts have what we call tax drag and
  • 00:16:54
    Roth accounts don't have that and what I
  • 00:16:57
    mean by that is that in a tax account
  • 00:16:59
    every year you have to pay tax on the
  • 00:17:01
    interest that you earn you have to pay
  • 00:17:03
    tax on the dividends that you earn you
  • 00:17:04
    have to pay tax on the capital gains
  • 00:17:05
    when you sell something and we call that
  • 00:17:08
    tax drag because it's tax is dragging
  • 00:17:11
    down your rate of return and in Roth
  • 00:17:14
    accounts we don't have that you don't
  • 00:17:17
    have to pay those taxes you get to keep
  • 00:17:19
    the whole rate of
  • 00:17:20
    return and one thing that I know you all
  • 00:17:23
    know because this is one thing that we
  • 00:17:26
    spend so much time talking about as
  • 00:17:27
    bogleheads is that
  • 00:17:29
    expense ratios of mutual funds they're
  • 00:17:32
    really important right and the reason
  • 00:17:34
    that they're so important the reason we
  • 00:17:36
    spend so much time talking about that is
  • 00:17:38
    because even a small difference in the
  • 00:17:41
    annual rate of return When You compound
  • 00:17:43
    it over many years is a really big deal
  • 00:17:47
    and that same exact math applies to tax
  • 00:17:51
    drag even a small difference in the
  • 00:17:53
    annual rate of return when we compound
  • 00:17:54
    it over many years can have a very big
  • 00:17:57
    impact and so whenever you can give up
  • 00:18:01
    taxable account money where you don't
  • 00:18:03
    keep the whole rate of return and in
  • 00:18:06
    exchange get more Roth money where you
  • 00:18:08
    do keep the whole rate of return that's
  • 00:18:11
    a good thing that's a point in favor of
  • 00:18:13
    doing a
  • 00:18:15
    conversion now exactly how beneficial it
  • 00:18:17
    turns out to be in other words how big
  • 00:18:20
    of a point this is in favor of a
  • 00:18:22
    conversion it varies based on the
  • 00:18:24
    circumstances and the most important
  • 00:18:26
    factor here is how long will the money
  • 00:18:29
    stay in the Roth account after you do
  • 00:18:31
    the
  • 00:18:32
    conversion and the longer the money
  • 00:18:33
    would be in the Roth account the more
  • 00:18:35
    beneficial this is the bigger a pointed
  • 00:18:37
    is in favor of conversion and that just
  • 00:18:39
    for the very simple reason that the
  • 00:18:41
    longer the money is in the Roth and the
  • 00:18:42
    more years you had to take advantage of
  • 00:18:44
    taxfree
  • 00:18:45
    compounding and the length of time in
  • 00:18:47
    question here it could be from the date
  • 00:18:50
    that you do the conversion until the
  • 00:18:52
    date that you take the money out to
  • 00:18:54
    spend
  • 00:18:54
    it or it could be from the date that you
  • 00:18:57
    do the conversion until the date that
  • 00:18:59
    the dollars are distributed at some
  • 00:19:01
    point after your death to your
  • 00:19:03
    beneficiaries and so under the current
  • 00:19:06
    rules uh if somebody inherits a Roth IRA
  • 00:19:09
    from someone other than their spouse
  • 00:19:11
    they have to take the money out but not
  • 00:19:13
    right away they're allowed to keep the
  • 00:19:15
    money in the Roth for up to 10 years
  • 00:19:17
    beyond the date of death so for some
  • 00:19:19
    retirees here we could be talking about
  • 00:19:22
    from the date you do the
  • 00:19:24
    conversion through the rest of your life
  • 00:19:27
    plus 10 more years
  • 00:19:29
    and so your age and your health are
  • 00:19:31
    really important factors in this
  • 00:19:33
    analysis the younger you are and the
  • 00:19:36
    better health you're in the more likely
  • 00:19:39
    it is that we're talking about a really
  • 00:19:40
    long time here and for some retirees
  • 00:19:45
    particularly those early in retirement
  • 00:19:47
    and who were in good health the rest of
  • 00:19:50
    their life plus 10 years it's not out of
  • 00:19:52
    the question that we could be talking
  • 00:19:53
    about 40 years maybe even 50 years and
  • 00:19:57
    40 or 50 years if taxfree compounding in
  • 00:19:59
    a Roth is a big deal this is just a very
  • 00:20:02
    quick back of an envelope style math
  • 00:20:05
    example if you imagine $1 invested today
  • 00:20:08
    at a 4% rate of return for 40 years at
  • 00:20:10
    the end of those 40 years it has turned
  • 00:20:12
    into
  • 00:20:12
    $480 if you instead assume a three and a
  • 00:20:15
    half percent rate of return so in other
  • 00:20:16
    words we're modeling a half percentage
  • 00:20:18
    point of tax drag then it only turns
  • 00:20:21
    into $396 in other words it would have
  • 00:20:23
    been 21% more money in the Roth account
  • 00:20:26
    if we keep all of those inputs the same
  • 00:20:28
    but crank it up to 50 years now it's 27%
  • 00:20:32
    more money in the Roth account and I
  • 00:20:34
    know that the people in this room most
  • 00:20:35
    of you could do this math and a
  • 00:20:37
    spreadsheet or using your favorite
  • 00:20:38
    calculator so the reason I took a minute
  • 00:20:40
    to put this in here is just to
  • 00:20:42
    illustrate that this is a big deal it
  • 00:20:44
    can be very impactful and in some cases
  • 00:20:48
    this is actually a bigger deal than the
  • 00:20:50
    pay tax now or pay tax later thing even
  • 00:20:53
    though that pay tax now or pay tax later
  • 00:20:55
    thing gets all of the discussion in some
  • 00:20:58
    cases this is a bigger deal and frankly
  • 00:21:01
    what ends up happening a lot of times if
  • 00:21:02
    I'm doing a Roth conversion analysis for
  • 00:21:04
    somebody is when we're doing that first
  • 00:21:07
    part we're looking at pay tax now or pay
  • 00:21:09
    tax later and we're looking at the
  • 00:21:10
    current tax rate and the future tax
  • 00:21:13
    rate the current tax rate we can
  • 00:21:16
    calculate right we have at least pretty
  • 00:21:18
    darn close we have the inputs that we
  • 00:21:20
    need to figure out what tax rate you
  • 00:21:22
    would pay on a conversion of a given
  • 00:21:24
    size this year that's easy we've got
  • 00:21:27
    software that does that very quickly for
  • 00:21:29
    us no big deal but the future tax
  • 00:21:32
    rate that is extremely uncertain because
  • 00:21:36
    we don't know what investment returns
  • 00:21:39
    you're going to get so we don't know how
  • 00:21:41
    big your tax deferred accounts will be
  • 00:21:43
    and so we don't know how big the RDS
  • 00:21:44
    will be and we don't know how long
  • 00:21:47
    anyone's going to live so we don't know
  • 00:21:48
    how long this filing status or that
  • 00:21:50
    filing status applies and we don't know
  • 00:21:52
    at what point it'll be your
  • 00:21:53
    beneficiaries taking money out rather
  • 00:21:55
    than you and we don't know exactly how
  • 00:21:57
    much you're going to spend so that also
  • 00:21:59
    compounds our uncertainty about how big
  • 00:22:01
    the accounts will be and how big the
  • 00:22:02
    rmds will
  • 00:22:03
    be and the big one we don't know what
  • 00:22:06
    tax legislation we're going to see so
  • 00:22:08
    that future tax rate that we're trying
  • 00:22:11
    to compare you know current tax rate
  • 00:22:12
    vers future tax rate the future tax rate
  • 00:22:15
    is we don't know is the short answer
  • 00:22:18
    it's extremely uncertain it's a big
  • 00:22:20
    question mark and so in a lot of cases
  • 00:22:23
    if you're comparing this known future
  • 00:22:25
    tax rate to an extremely uncertain
  • 00:22:29
    or known current tax rate to an
  • 00:22:30
    extremely uncertain future tax
  • 00:22:32
    rate if that's the only part of the
  • 00:22:34
    analysis that you look at that can make
  • 00:22:37
    a Roth conversion look like a wash right
  • 00:22:39
    how would we possibly know is this good
  • 00:22:41
    is it bad really hard to say but if we
  • 00:22:45
    account for this other Factor the one on
  • 00:22:46
    the slide where you can use money from a
  • 00:22:49
    taxable account to pay the tax on the
  • 00:22:51
    conversion and when you do that you're
  • 00:22:53
    giving up your essentially your less tax
  • 00:22:56
    efficient dollars from a taxable account
  • 00:22:58
    where you don't keep the whole rate of
  • 00:22:59
    return but you get more Roth dollars
  • 00:23:02
    where you do get to keep the whole rate
  • 00:23:03
    of
  • 00:23:04
    return and when you account for that as
  • 00:23:06
    well in many cases that's enough to take
  • 00:23:09
    this analysis that at first glance looks
  • 00:23:11
    like a who knows and let us see that oh
  • 00:23:14
    yeah actually in these circumstances
  • 00:23:16
    conversions probably are a good idea
  • 00:23:19
    that's how it ends up panning out a lot
  • 00:23:21
    of the
  • 00:23:22
    time so that's our second effect of a
  • 00:23:25
    Roth conversion they let you use taxable
  • 00:23:26
    account money to pay the tax and when
  • 00:23:28
    you do that you're giving up taxable
  • 00:23:30
    account money and you're getting more
  • 00:23:32
    Roth money and that is a good
  • 00:23:35
    thing our third effect of a Roth
  • 00:23:37
    conversion is that they will reduce your
  • 00:23:39
    future required minimum distributions
  • 00:23:41
    your future rmds and that can reduce the
  • 00:23:46
    future tax drag on the
  • 00:23:48
    portfolio and the reason that
  • 00:23:50
    conversions reduce your future rmds is
  • 00:23:52
    very straightforward it's that Roth
  • 00:23:53
    accounts don't have rmds while the
  • 00:23:55
    original owner is still alive so when
  • 00:23:58
    you do a conversion you're moving money
  • 00:24:00
    out of tax deferred and into Roth so
  • 00:24:02
    you're just reducing the portion of your
  • 00:24:03
    portfolio that is subject to rmds so
  • 00:24:06
    your rmds go
  • 00:24:09
    down now when I say that reducing the
  • 00:24:13
    rmds can reduce the future tax drag on
  • 00:24:16
    the portfolio I want to make a
  • 00:24:18
    distinction here because this is the
  • 00:24:19
    least obvious thing that we're going to
  • 00:24:21
    talk about
  • 00:24:22
    today when I say this I'm not actually
  • 00:24:25
    talking about the taxes that you would
  • 00:24:26
    pay on the rmds themselves
  • 00:24:29
    we're not talking about that and the
  • 00:24:31
    reason we're not talking about that is
  • 00:24:32
    because we already talked about it when
  • 00:24:35
    we talked about the pay tax now or pay
  • 00:24:36
    tax later the pay tax later chunk of
  • 00:24:39
    that to a significant extent that's the
  • 00:24:41
    taxes you would pay on rmds so we
  • 00:24:44
    already talked about that we already
  • 00:24:46
    accounted for it what we're talking
  • 00:24:48
    about here is something completely
  • 00:24:50
    separate what we're talking about here
  • 00:24:52
    is what happens to any unspent rmd
  • 00:24:57
    dollars
  • 00:24:59
    in other words your rmds kick in you
  • 00:25:01
    take out however much you're forced to
  • 00:25:02
    take out in a given year you spend let's
  • 00:25:04
    say half of it or whatever amount what
  • 00:25:07
    do you do with the rest of it in a lot
  • 00:25:10
    of cases the answer is that the money is
  • 00:25:12
    going to end up getting reinvested in a
  • 00:25:14
    taxable brokerage account and guess what
  • 00:25:17
    happens in taxable brokerage accounts
  • 00:25:18
    the same thing that we were just talking
  • 00:25:19
    about you have tax drag you have to pay
  • 00:25:21
    tax on interest in dividends and capital
  • 00:25:23
    gains when you sell
  • 00:25:26
    stuff whereas conversely if you you do
  • 00:25:28
    the
  • 00:25:29
    conversion then the rmd never happens
  • 00:25:32
    and so the tax drag from being in a
  • 00:25:34
    taxable account also never happens the
  • 00:25:36
    money is just allowed to stay in the
  • 00:25:38
    Roth for up to the rest of your life
  • 00:25:40
    plus up to 10
  • 00:25:42
    years now this is another one that isn't
  • 00:25:45
    necessarily applicable because if you
  • 00:25:47
    would spend your entire rmd every year
  • 00:25:50
    or if you would donate any portion that
  • 00:25:53
    you don't spend if you would have it
  • 00:25:54
    sent directly from your traditional IRA
  • 00:25:57
    to charity as what's called a qualified
  • 00:25:59
    charitable distribution then you don't
  • 00:26:01
    need to be worrying about this third
  • 00:26:02
    effect it doesn't apply to you this
  • 00:26:04
    effect is only applicable in the cases
  • 00:26:06
    where you expect that you'd be taking
  • 00:26:09
    out your rmd and then ultimately
  • 00:26:11
    reinvesting a portion of it that's what
  • 00:26:13
    we're concerned with here but if this
  • 00:26:16
    does apply if you do expect you would be
  • 00:26:18
    reinvesting a portion of your rmd this
  • 00:26:20
    is another one where by definition it's
  • 00:26:22
    a point in favor of doing conversions
  • 00:26:24
    it's never a point against doing a
  • 00:26:26
    conversion but just like with the number
  • 00:26:29
    two here same thing where how beneficial
  • 00:26:32
    it turns out to be in other words how uh
  • 00:26:35
    how strong a point it is in favor of
  • 00:26:37
    doing a conversion depends on the
  • 00:26:38
    circumstances and specifically it
  • 00:26:40
    depends on how long the money would be
  • 00:26:41
    in the Roth account now in this case the
  • 00:26:46
    oh and again the longer it's in the Roth
  • 00:26:47
    account the more beneficial this is but
  • 00:26:50
    in this case the length of time that
  • 00:26:51
    we're concerned with it's
  • 00:26:54
    essentially how long would the money be
  • 00:26:57
    in a taxable account Account incurring
  • 00:26:59
    Tax drag if you don't do the conversion
  • 00:27:02
    whereas it instead would have been in
  • 00:27:03
    the Roth account if you did do the
  • 00:27:05
    conversion so essentially it starts when
  • 00:27:07
    your rmds start which is some point in
  • 00:27:10
    your 70s depending on when you're born
  • 00:27:12
    and it goes through potentially the rest
  • 00:27:14
    of your life plus up to 10 years and so
  • 00:27:17
    this is another one where your health is
  • 00:27:19
    really important The Better Health
  • 00:27:21
    you're in the more likely it is that
  • 00:27:22
    this is a long time and for a lot of
  • 00:27:26
    retirees from the date that rmds starts
  • 00:27:29
    73 75 through the rest of their life
  • 00:27:32
    plus up to 10 years likely to be
  • 00:27:34
    multiple decades and multiple Decades of
  • 00:27:37
    compounding in a Roth taxfree can be a
  • 00:27:39
    big
  • 00:27:40
    deal so those are our three effects of a
  • 00:27:43
    Roth conversion number one you pay tax
  • 00:27:45
    now instead of later that can be good or
  • 00:27:47
    it can be bad it just depends on the tax
  • 00:27:49
    rate you pay on the conversion how that
  • 00:27:51
    compares to the tax rate that would have
  • 00:27:53
    been paid on the dollars later whenever
  • 00:27:55
    they come out of the account later if
  • 00:27:56
    you don't convert them
  • 00:27:58
    second effect is that conversions let
  • 00:28:00
    you use money from a taxable account to
  • 00:28:03
    pay the tax on the conversion and when
  • 00:28:05
    you do that you're giving up your least
  • 00:28:08
    tax efficient money where you don't keep
  • 00:28:10
    keep the whole rate of return and you're
  • 00:28:11
    getting Roth money which is your most
  • 00:28:12
    tax efficient money and the third effect
  • 00:28:15
    is that conversions are going to reduce
  • 00:28:16
    your rmds and that can reduce the future
  • 00:28:18
    tax drag on your portfolio if you expect
  • 00:28:21
    that you would be reinvesting your
  • 00:28:23
    excess rmds every year
  • 00:28:30
    so moving on to primary topic number two
  • 00:28:34
    what are the goals that we can hope to
  • 00:28:37
    achieve with a smart conversion plan or
  • 00:28:40
    another way to say this would be what
  • 00:28:41
    are the metrics that we can
  • 00:28:42
    realistically expect would be improved
  • 00:28:46
    by doing
  • 00:28:47
    conversions and to back up just a step
  • 00:28:50
    one thing that I have found in doing
  • 00:28:51
    retir tax planning for a lot of people
  • 00:28:54
    is that a tax efficient spending plan
  • 00:28:58
    usually improves Financial Security in
  • 00:29:01
    retirement and what I mean by that is
  • 00:29:02
    that it improves two metrics number one
  • 00:29:05
    makes it less likely you're going to run
  • 00:29:06
    out of money during your lifetime number
  • 00:29:09
    two is that it makes it so that in the
  • 00:29:11
    Unlucky scenarios like if we're doing
  • 00:29:13
    Monte Carlos simulations and The Unlucky
  • 00:29:15
    scenarios where you still do run out of
  • 00:29:17
    money at least it happens later in life
  • 00:29:20
    so that's still an improvement at least
  • 00:29:22
    and so when you improve both of those
  • 00:29:24
    two things together in my head I just
  • 00:29:26
    think of that as okay you're now safer
  • 00:29:29
    more financially secure now one thing
  • 00:29:32
    that honestly surprised me when I
  • 00:29:34
    started digging into this is from
  • 00:29:37
    modeling Roth conversions for a lot of
  • 00:29:41
    clients in a very very broad range of
  • 00:29:44
    financial circumstances and using a
  • 00:29:46
    bunch of different assumptions for all
  • 00:29:47
    of the various inputs is that Roth
  • 00:29:50
    conversions don't usually have those
  • 00:29:52
    effects they don't usually improve
  • 00:29:54
    Financial Security and retirement and I
  • 00:29:56
    know that surprises a lot of people and
  • 00:29:58
    in fact you're probably thinking well
  • 00:29:59
    why the heck not because we just spent
  • 00:30:01
    all that time talking about the three
  • 00:30:04
    effects of a conversion and how they can
  • 00:30:05
    be helpful right so how can that be true
  • 00:30:08
    and this can also be true it's not very
  • 00:30:11
    intuitive and the way I've come to think
  • 00:30:13
    of it is if you think about the problems
  • 00:30:16
    that Roth conversions
  • 00:30:18
    solve number one is rmds right they make
  • 00:30:21
    your rmds smaller and that has various
  • 00:30:23
    beneficial effects and number two is the
  • 00:30:25
    tax drag that occurs in taxable accounts
  • 00:30:27
    basically two things I've spent the last
  • 00:30:29
    half hour talking
  • 00:30:30
    about those are the problems Roth
  • 00:30:32
    conversions solve but if we make a list
  • 00:30:36
    what are the things that are likely to
  • 00:30:37
    cause portfolio depletion in
  • 00:30:39
    retirement those two things aren't on
  • 00:30:42
    that list right rmds they don't cause
  • 00:30:44
    people to run out of money if you
  • 00:30:46
    haven't run into that math yet that they
  • 00:30:48
    just don't uh in fact rmds are often
  • 00:30:51
    recommended as a retirement spending
  • 00:30:53
    strategy with the idea being look up
  • 00:30:55
    whatever the rmd percentage would be for
  • 00:30:56
    somebody your age and then spend that
  • 00:30:59
    percent of your whole portfolio and
  • 00:31:01
    they're recommended as a spending
  • 00:31:03
    strategy precisely because they're so
  • 00:31:05
    unlikely to cause portfolio
  • 00:31:09
    depletion and that second Factor there
  • 00:31:11
    the tax drag that occurs in a taxable
  • 00:31:14
    account if you think about how an
  • 00:31:17
    unlucky retirement scenario is likely to
  • 00:31:20
    look that problem solves itself most of
  • 00:31:24
    the time because as we'll get to a
  • 00:31:28
    minute the first dollars that you
  • 00:31:29
    usually spend in retirement are the
  • 00:31:31
    taxable account dollars and so if we're
  • 00:31:34
    thinking about an unlucky retirement
  • 00:31:35
    scenario where the portfolio is getting
  • 00:31:37
    depleted and you're spending it down
  • 00:31:38
    rapidly that's the first thing that gets
  • 00:31:40
    spent down and remember the tax drag is
  • 00:31:44
    a small small percentage it's only a big
  • 00:31:47
    deal when we're compounding that small
  • 00:31:49
    percentage over 30 40 Years of having a
  • 00:31:51
    taxable account if you're talking about
  • 00:31:54
    maybe a half percentage point of cost on
  • 00:31:57
    on an account that's only a part of your
  • 00:31:59
    portfolio and that portfolio is going to
  • 00:32:02
    or that account is going to disappear
  • 00:32:04
    within the first maybe four five or six
  • 00:32:05
    years half a percent on a part of the
  • 00:32:08
    portfolio for a handful of years wasn't
  • 00:32:11
    really the big thing that caused the
  • 00:32:13
    depletion right so the tax drag and
  • 00:32:15
    taxable accounts it doesn't cause
  • 00:32:17
    portfolio depletion and so Roth
  • 00:32:19
    conversions are solving problems they're
  • 00:32:21
    just not the things that cause people to
  • 00:32:22
    run out of money now if we think what
  • 00:32:26
    are the things that cause people to run
  • 00:32:27
    out of money
  • 00:32:29
    the first one that comes to mind for me
  • 00:32:30
    is sequence of returns risk and I know
  • 00:32:32
    many of you have heard that term the
  • 00:32:33
    idea is if you get bad investment
  • 00:32:36
    returns in your early retirement years
  • 00:32:38
    you can have this situation where the
  • 00:32:40
    portfolio you know if it's just getting
  • 00:32:42
    smashed in the stock market right and
  • 00:32:43
    you're spending from it at the same time
  • 00:32:45
    it can end up getting severely depleted
  • 00:32:48
    really quickly and so even if you get
  • 00:32:50
    good returns going forward from there it
  • 00:32:52
    might not save the day and then the
  • 00:32:54
    second thing that comes to mind for me
  • 00:32:56
    is uh the term spending shocks this is a
  • 00:32:58
    term that came from uh the late Dirk
  • 00:33:00
    cotton he was one of my favorite
  • 00:33:01
    retirement writers you ever get a chance
  • 00:33:03
    to look them up and the idea of a
  • 00:33:06
    spending shock is it is an
  • 00:33:09
    unexpected but
  • 00:33:11
    unavoidable big expense or a series of
  • 00:33:13
    expenses so it could be a healthare cost
  • 00:33:15
    that wasn't covered by insurance or
  • 00:33:18
    major house repairs or whatever it is
  • 00:33:20
    and the reason those are so problematic
  • 00:33:23
    is exactly the same reason as sequence
  • 00:33:25
    of returns risk actually it's if that
  • 00:33:27
    happens early in retirement you get hit
  • 00:33:29
    with this big expense that you hadn't
  • 00:33:30
    planned on and just you can't avoid it
  • 00:33:33
    it can result in the portfolio getting
  • 00:33:34
    depleted too severely too rapidly and
  • 00:33:37
    then even if you get good returns after
  • 00:33:39
    that it might not save the day so those
  • 00:33:43
    in my head those are the two things that
  • 00:33:45
    are the biggest problems the biggest
  • 00:33:47
    risks things that are likely to cause
  • 00:33:50
    portfolio depletion but if we think of
  • 00:33:51
    both of those things and think about
  • 00:33:53
    Roth
  • 00:33:54
    conversions Roth conversions don't solve
  • 00:33:56
    those they don't make sequence of
  • 00:33:58
    returns risk go away they don't make
  • 00:34:02
    unavoidable Healthcare expenses go away
  • 00:34:04
    that's just not what Roth conversions do
  • 00:34:06
    so they're helpful but they're just not
  • 00:34:07
    helpful in this way and so that might
  • 00:34:10
    lead somebody to ask why would I bother
  • 00:34:13
    with a Roth conversion if it's not
  • 00:34:14
    improving my Financial Security what can
  • 00:34:16
    I hope to get out of
  • 00:34:18
    it and the answer is that in a case of a
  • 00:34:21
    smart conversion plan and I specify
  • 00:34:22
    smart conversion plan because this is
  • 00:34:24
    something that we need to be putting
  • 00:34:26
    thought into right we can't we don't
  • 00:34:27
    just just want to start willy-nilly Roth
  • 00:34:29
    conversions because in most years for
  • 00:34:32
    most people conversions aren't a good
  • 00:34:33
    idea it's just in the Years where they
  • 00:34:35
    are a good idea the things that we can
  • 00:34:37
    typically hope to see from it is that
  • 00:34:40
    it's going to be increasing improving
  • 00:34:43
    the after tax bequest that is likely to
  • 00:34:45
    be left to heirs and so and they do that
  • 00:34:48
    without changing Financial Security in
  • 00:34:50
    either direction so one way to think of
  • 00:34:52
    that would be conversions don't make the
  • 00:34:55
    bad scenarios any better but they also
  • 00:34:58
    don't make them worse in a a smart
  • 00:35:00
    conversion plan but they do make the
  • 00:35:03
    like the medium to good scenarios better
  • 00:35:06
    that's typically what we can hope to get
  • 00:35:08
    out of
  • 00:35:10
    conversions now moving on to our last
  • 00:35:12
    topic topic number three of how does a
  • 00:35:14
    Roth conversion plan fit into a broader
  • 00:35:17
    overall retirement tax plan we're going
  • 00:35:19
    to move through this a little more
  • 00:35:21
    quickly and the question here is which
  • 00:35:24
    dollars do we want to spend every year
  • 00:35:26
    we can spend tax defer Roth or taxable
  • 00:35:28
    dollars in every year of retirement and
  • 00:35:31
    the plan that we want to follow and
  • 00:35:33
    again this is the very brief summary is
  • 00:35:35
    that every year the first dollars we
  • 00:35:37
    want to spend are the checking account
  • 00:35:39
    dollars so what I mean by that is
  • 00:35:41
    everything in the checking account and
  • 00:35:43
    all the stuff that automatically shows
  • 00:35:44
    up in the checking account so earned
  • 00:35:47
    income while you still have it Social
  • 00:35:49
    Security once that kicks in rmds uh
  • 00:35:52
    pension or annuity income if you have
  • 00:35:53
    either of those all those things after
  • 00:35:56
    that we go to the savings account next
  • 00:35:58
    and then after that we go to the taxable
  • 00:36:00
    brokerage accounts specifically the
  • 00:36:02
    investments in those accounts where you
  • 00:36:04
    would not have to pay any tax cost from
  • 00:36:06
    selling them so things that have
  • 00:36:08
    unrealized losses and money market funds
  • 00:36:11
    where your basis is equal to the market
  • 00:36:12
    value so you can just spend it that's
  • 00:36:15
    the first stuff we want to spend every
  • 00:36:17
    year and it's actually only when we have
  • 00:36:19
    already spent all of those dollars and
  • 00:36:21
    then still need to spend more that's
  • 00:36:23
    when we have to start making some hard
  • 00:36:25
    decisions making judgment calls where we
  • 00:36:26
    weigh the pros and cons of
  • 00:36:28
    options and in most cases the first
  • 00:36:31
    dollars to go after next are actually
  • 00:36:34
    just the other dollars in a taxable
  • 00:36:37
    account in other words the investments
  • 00:36:38
    in a taxable account where you would
  • 00:36:40
    have to pay tax if you sold them and the
  • 00:36:43
    exception there is if you expect that
  • 00:36:45
    you would be donating or bequeathing
  • 00:36:47
    those assets soon in that case you want
  • 00:36:49
    to leave them alone and the example I
  • 00:36:51
    always give here is imagine a
  • 00:36:53
    98-year-old
  • 00:36:54
    retiree and let's say she's the only
  • 00:36:56
    person in her household
  • 00:36:59
    no matter how old we get we obviously
  • 00:37:01
    don't know how many years we have left
  • 00:37:03
    but at age 98 probably fair to say that
  • 00:37:06
    her heirs will be inheriting these
  • 00:37:08
    dollars roughly soonish right like we
  • 00:37:10
    don't know exactly what that means but
  • 00:37:12
    soonish and so let's say she has a
  • 00:37:16
    mutual fund in a taxable account and she
  • 00:37:18
    bought this mutual fund like 30 or 40
  • 00:37:20
    years ago and so it has a cost basis
  • 00:37:22
    it's way down here and market value way
  • 00:37:24
    up here well for her if she sold that
  • 00:37:27
    that she'd have to pay a capital gains
  • 00:37:28
    tax and so what probably makes sense for
  • 00:37:31
    her is to leave that appreciated taxable
  • 00:37:35
    asset
  • 00:37:36
    alone spend from her retirement accounts
  • 00:37:39
    and then when her heirs do inherit these
  • 00:37:41
    dollars which again is likely to be not
  • 00:37:43
    the terribly distant future they'll get
  • 00:37:45
    a step up and cost basis and so that
  • 00:37:47
    appreciated taxable asset no one had to
  • 00:37:50
    pay tax on all of that appreciation but
  • 00:37:53
    then if you flip the example around now
  • 00:37:55
    think about the couple who are early in
  • 00:37:57
    retirement age 60 and 62 or something
  • 00:37:59
    like that statistically they have a lot
  • 00:38:02
    of years of retirement ahead of them
  • 00:38:03
    right so for them if they have a mutual
  • 00:38:08
    fund and a taxable account that has a
  • 00:38:10
    basis way down here and market value way
  • 00:38:12
    up here for them it probably does
  • 00:38:14
    actually make sense to just bite the
  • 00:38:16
    bullet and sell that when they need it
  • 00:38:18
    for spending in order to preserve the
  • 00:38:19
    retirement accounts because for them the
  • 00:38:23
    step up and cost basis is probably not
  • 00:38:25
    coming anytime soon to save the day so
  • 00:38:28
    for them we're probably selling that
  • 00:38:30
    taxable asset first and preserving the
  • 00:38:32
    retirement accounts so again just the
  • 00:38:33
    brief summary there is the younger you
  • 00:38:35
    are the more likely it is to make sense
  • 00:38:37
    to go after the appreciated taxable
  • 00:38:39
    assets to preserve the retirement
  • 00:38:41
    accounts and the older you are the more
  • 00:38:43
    likely it is to make sense to spend from
  • 00:38:46
    the retirement accounts to preserve the
  • 00:38:47
    appreciated taxable assets for the step
  • 00:38:50
    up and cost basis now whenever we do
  • 00:38:52
    have to spend from retirement accounts
  • 00:38:55
    whether we're spending from tax deferred
  • 00:38:56
    or from Roth
  • 00:38:58
    is actually just the same question that
  • 00:38:59
    we're always talking about with Roth
  • 00:39:00
    conversions it's current marginal tax
  • 00:39:03
    rate future marginal tax rate how do
  • 00:39:05
    they compare and whenever your current
  • 00:39:07
    tax rate is the lower of the two then we
  • 00:39:10
    want to spend from tax def third right
  • 00:39:11
    take advantage of the low tax rate and
  • 00:39:13
    whenever your current tax rate is the
  • 00:39:15
    higher of the two then we spend from
  • 00:39:17
    Roth now as you can see this last Point
  • 00:39:20
    here what we're actually getting at is
  • 00:39:23
    how does a Roth conversion plan fit into
  • 00:39:26
    this and the idea here is that when
  • 00:39:28
    you're following a plan like this most
  • 00:39:32
    likely in the early years of retirement
  • 00:39:35
    you're going to be spending those
  • 00:39:36
    taxable assets and so you won't be
  • 00:39:39
    spending or maybe not spending very much
  • 00:39:42
    from the tax deferred accounts and so
  • 00:39:44
    what that's going to mean is that right
  • 00:39:46
    you've retired so your income has gone
  • 00:39:48
    down we're not spending from tax
  • 00:39:50
    deferred yet Social Security probably
  • 00:39:51
    hasn't started yet so you've got some
  • 00:39:53
    years with low taxable income and low
  • 00:39:56
    tax r space available to you and so what
  • 00:39:59
    we're going to do is fill up that low
  • 00:40:02
    tax rate space with Roth conversions
  • 00:40:04
    these two ideas they fit hand inand it's
  • 00:40:06
    the tax smart spending plan that creates
  • 00:40:09
    the space for the Roth conversions they
  • 00:40:12
    fit together it's really just one broad
  • 00:40:14
    integrated retirement tax
  • 00:40:16
    plan and that's it so like we got yeah
  • 00:40:19
    we have about 10 minutes for questions
  • 00:40:36
    thanks all right when can it be worth it
  • 00:40:39
    to donate appreciated taxable assets to
  • 00:40:42
    a Donor advised fund to reduce your tax
  • 00:40:45
    bracket to enable more traditional IRA
  • 00:40:47
    401K conversions to Roth okay
  • 00:40:51
    so that's an interesting question and I
  • 00:40:54
    wouldn't
  • 00:40:59
    that's a very interesting question and
  • 00:41:00
    there's a lot going on here so donating
  • 00:41:04
    appreciated taxable assets
  • 00:41:06
    um that is
  • 00:41:10
    usually the second best way to donate
  • 00:41:14
    once you've reached age 70 and a half um
  • 00:41:17
    once you've reached 70 and a half that's
  • 00:41:18
    when qcds qualified charitable
  • 00:41:20
    distributions kick in most of the time
  • 00:41:22
    qcds are our best way to be donating
  • 00:41:24
    once you're eligible for them uh but
  • 00:41:26
    before 70 and a half your best way to be
  • 00:41:28
    doing charitable giving is by donating
  • 00:41:31
    appreciated taxable assets and the
  • 00:41:32
    reason that's such a good idea is that
  • 00:41:35
    um you get a itemized deduction for the
  • 00:41:38
    current market value and you don't have
  • 00:41:40
    to pay tax on that appreciation as long
  • 00:41:42
    as as long as you owned the investment
  • 00:41:44
    for longer than one year so don't forget
  • 00:41:46
    that bit
  • 00:41:48
    but I wouldn't necessarily say that we
  • 00:41:51
    want to be donating just to reduce the
  • 00:41:56
    tax bracket so that you can be doing
  • 00:41:59
    Roth conversions because in my mind if
  • 00:42:02
    you've got significant charitable intent
  • 00:42:05
    right we want to be doing some
  • 00:42:07
    donating that itself is a strong point
  • 00:42:11
    against the Roth conversions right
  • 00:42:13
    because we can be listing the charity as
  • 00:42:15
    the beneficiary of the IRA to begin with
  • 00:42:18
    or just you know waiting a little bit
  • 00:42:19
    and then using qcds so I would donating
  • 00:42:25
    appreciated taxable assets makes a lot
  • 00:42:26
    of sense but I wouldn't think that
  • 00:42:28
    that's a great motivation to be doing it
  • 00:42:30
    because if you have a lot of charitable
  • 00:42:32
    intent we probably don't necessarily
  • 00:42:34
    want to be doing conversions
  • 00:42:40
    anyway if you max out your employer 401K
  • 00:42:43
    contributions and pre-tax can you still
  • 00:42:46
    execute a backdoor Roth IRA
  • 00:42:49
    contribution yeah um potentially so the
  • 00:42:53
    big hangup there doesn't have anything
  • 00:42:55
    so back door Roth IRA that is is when
  • 00:42:57
    you earn too much to contribute to a
  • 00:42:59
    Roth IRA the normal way so you make a
  • 00:43:02
    non-deductible traditional IRA
  • 00:43:05
    contribution and then do an immediate
  • 00:43:07
    conversion uh the the big caveat the
  • 00:43:10
    thing you need to look out for is if you
  • 00:43:12
    have other money in a traditional IRA
  • 00:43:16
    and it doesn't even have to be this
  • 00:43:17
    traditional IRA the IRS considers them
  • 00:43:18
    all to be one Ira for this purpose so
  • 00:43:20
    even if you've got some other
  • 00:43:21
    traditional IRA some other brokerage
  • 00:43:23
    firm that's still a problem um basically
  • 00:43:26
    in order to be doing back or Roth we
  • 00:43:27
    need to make sure that the only money in
  • 00:43:31
    traditional IAS for you we don't count
  • 00:43:33
    your spouse but for you is this
  • 00:43:36
    non-deductible contribution that you
  • 00:43:38
    just made that's what we're looking to
  • 00:43:39
    do so a lot of times if you have
  • 00:43:41
    traditional IRA money and in this case
  • 00:43:42
    we have a 401k also so that's our out
  • 00:43:45
    what we're going to do is take the
  • 00:43:47
    traditional IRA that exists and has tax
  • 00:43:49
    deferred dollars roll it into the
  • 00:43:51
    401K so now we don't have any
  • 00:43:54
    traditional IRA anymore and that frees
  • 00:43:55
    us up to be doing uh non-deductible Ira
  • 00:43:58
    contributions and then immediately
  • 00:43:59
    converting
  • 00:44:02
    them if I have more money in my
  • 00:44:05
    traditional IRA than my Roth IRA do you
  • 00:44:07
    Advocate chunking a portion from
  • 00:44:09
    traditional to Roth over a period of
  • 00:44:11
    several
  • 00:44:12
    years uh I wouldn't sorry so it's not
  • 00:44:15
    necessarily a function of exactly how
  • 00:44:18
    big this account is relative to another
  • 00:44:21
    account um that's not usually the number
  • 00:44:24
    one thing we're looking at but cuz again
  • 00:44:27
    we're usually looking at exactly the
  • 00:44:28
    stuff we talked about current tax rate
  • 00:44:30
    future tax rate and so how big the
  • 00:44:32
    traditional IRA is certainly plays into
  • 00:44:35
    that future tax rate um but we're not
  • 00:44:37
    necessarily looking to get
  • 00:44:39
    um like we're not trying to say you
  • 00:44:41
    should have 50/50 tax deferred and Roth
  • 00:44:43
    there's not like a tax deferred Roth
  • 00:44:46
    allocation that is the best um but with
  • 00:44:50
    conversions in general yes chunking them
  • 00:44:53
    is usually a good idea we don't in most
  • 00:44:55
    cases want to just go whole ham and hit
  • 00:44:57
    the whole Ira in one year most of the
  • 00:44:58
    time we're spreading it out over several
  • 00:45:00
    years so that we can do it at lower tax
  • 00:45:02
    rates over
  • 00:45:03
    time um let's
  • 00:45:08
    see how do you decide the amount to
  • 00:45:10
    convert in a specific year for example
  • 00:45:13
    up to amount when next tax bracket kicks
  • 00:45:15
    in yeah exactly so in any given year
  • 00:45:17
    when you're doing a conversion we're
  • 00:45:19
    picking an income threshold and then
  • 00:45:21
    we're going to try to stay right below
  • 00:45:22
    that threshold so often it will be we're
  • 00:45:25
    going through the top of this test ta
  • 00:45:27
    bracket or it could be right below an
  • 00:45:29
    Irma threshold or it could be right
  • 00:45:31
    below the phas out for some tax credit
  • 00:45:33
    or whatever um and there isn't a rule of
  • 00:45:37
    thumb um because there isn't the sort of
  • 00:45:39
    thing where you
  • 00:45:40
    can I use software for this I like
  • 00:45:43
    trying to manually do it out in a
  • 00:45:45
    spreadsheet is going to be bordering on
  • 00:45:47
    Impossible
  • 00:46:01
    turn this mic yeah all right so there
  • 00:46:04
    isn't um I'm just going to keep saying
  • 00:46:06
    this there aren't rules of thumb for a
  • 00:46:07
    lot of this so we are usually going to
  • 00:46:10
    be picking some particular threshold and
  • 00:46:12
    usually that's a part of that is we're
  • 00:46:15
    looking at the current tax rate future
  • 00:46:17
    tax rate idea trying to get some
  • 00:46:18
    ballpark of that future tax rate um but
  • 00:46:21
    sometimes whatever we might very roughly
  • 00:46:24
    ballpark that future tax rate at it's
  • 00:46:26
    still often makes sense to do
  • 00:46:28
    conversions slightly beyond that point
  • 00:46:32
    again if we're using taxable account
  • 00:46:33
    money to pay the tax and all that stuff
  • 00:46:35
    because that's what we're getting at
  • 00:46:37
    here is that there's other benefits to
  • 00:46:39
    conversions other than just reducing
  • 00:46:40
    that future tax rate um there was
  • 00:46:42
    another piece of this question uh when
  • 00:46:45
    oh one other point by the way is that
  • 00:46:47
    sometimes it's nice if you can to pick a
  • 00:46:50
    threshold that is not a Medicare Irma
  • 00:46:53
    threshold because if we're picking a tax
  • 00:46:55
    bracket threshold and end up oops I went
  • 00:46:58
    $1,000 over not that big of a deal it
  • 00:47:01
    means $1,000 got taxed at you know a
  • 00:47:02
    couple higher percent not who cares but
  • 00:47:05
    accidentally going a dollar over an Irma
  • 00:47:07
    threshold really is not ideal so Irma
  • 00:47:09
    thresholds are less forgiving so that in
  • 00:47:11
    itself is a reason to pick a different
  • 00:47:15
    threshold because then if you mess up by
  • 00:47:16
    a little bit which does happen because
  • 00:47:19
    when we're doing the conversion we're
  • 00:47:20
    not usually doing it December 31st we're
  • 00:47:22
    usually doing it at some point somewhat
  • 00:47:24
    earlier in the year so we don't know
  • 00:47:25
    exactly
  • 00:47:27
    precisely all of the inputs so it can be
  • 00:47:29
    hard to nail it exactly so picking tax
  • 00:47:31
    brackets rather than Irma brackets often
  • 00:47:34
    makes sense just because it's more
  • 00:47:43
    forgiving if it makes sense to do a
  • 00:47:45
    conversion from Ira to Roth is the goal
  • 00:47:48
    to reduce the IRA to zero or to some
  • 00:47:50
    other value Target no there is there is
  • 00:47:54
    no no rule of thumb sorry
  • 00:47:57
    um sometimes we want to be reducing the
  • 00:48:00
    IRA to
  • 00:48:01
    zero that's almost exclusively in cases
  • 00:48:05
    where there is a big taxable account
  • 00:48:08
    because if we're reducing the IRA to
  • 00:48:10
    zero we're getting to the point where
  • 00:48:11
    we're probably making that future tax
  • 00:48:13
    rate pretty darn low and the only reason
  • 00:48:16
    that we would have kept converting all
  • 00:48:18
    the way to that point probably paying
  • 00:48:19
    taxes at a higher rate than whatever
  • 00:48:21
    we're anticipating that future tax rate
  • 00:48:23
    to be the only reason we would be doing
  • 00:48:25
    that is because we're just trying get
  • 00:48:27
    maximum value out of these taxable
  • 00:48:28
    account dollars by just using them to
  • 00:48:30
    pay this tax so some cases yep it makes
  • 00:48:33
    sense to go all the way to zero but that
  • 00:48:34
    would specifically be if we're really
  • 00:48:36
    trying to maximize that you know get the
  • 00:48:38
    value out of the taxable account sort of
  • 00:48:39
    thing for most of the time we're not
  • 00:48:41
    going to be converting the IRAs all the
  • 00:48:44
    way to zero we're usually going to be
  • 00:48:45
    picking some particular threshold
  • 00:48:47
    hitting that threshold every year and
  • 00:48:49
    then often what ends up happening is
  • 00:48:50
    social security kicks in and then rmds
  • 00:48:52
    kick in shortly thereafter and there's
  • 00:48:54
    just no more space for conversions at
  • 00:48:56
    that point so that's typically how it
  • 00:48:57
    goes um should you do the conversion all
  • 00:49:00
    in one year or overtime generally
  • 00:49:02
    overtime again it usually makes sense to
  • 00:49:03
    break it up to keep your taxable income
  • 00:49:06
    relatively lower than doing one big
  • 00:49:08
    chunk and paying a huge tax bite all at
  • 00:49:12
    once if you do a conversion on January 1
  • 00:49:14
    when do you have to pay the tax so if
  • 00:49:18
    you have taxes
  • 00:49:20
    withheld the advantage of that is that
  • 00:49:23
    whenever you do the conversion um any
  • 00:49:26
    with withholding just as a rule whether
  • 00:49:27
    it's withholding from wages or
  • 00:49:28
    withholding from a conversion or
  • 00:49:30
    anything withholding is always treated
  • 00:49:31
    as having been paid on time whereas if
  • 00:49:35
    you're paying taxes separately making
  • 00:49:37
    estimated tax payments there are
  • 00:49:39
    specific deadlines for that so
  • 00:49:43
    if you choose to have taxes withheld no
  • 00:49:45
    matter when you do the conversion you're
  • 00:49:47
    good um but again we don't usually want
  • 00:49:50
    to have taxes withheld because that
  • 00:49:52
    means we're using the IRA money and most
  • 00:49:53
    of the time we want to be using if we
  • 00:49:55
    have it taxable account money to pay the
  • 00:49:57
    tax and so in that case we're going to
  • 00:50:00
    be making an estimated tax payment and
  • 00:50:02
    estimated tax payments they're not there
  • 00:50:03
    there's four over the course of the year
  • 00:50:05
    but they're not quarterly they don't
  • 00:50:06
    happen every three months if you think
  • 00:50:08
    it's every three months you're going to
  • 00:50:09
    get one of them late
  • 00:50:11
    so you just make estimated tax payments
  • 00:50:14
    on time is basically how it works just
  • 00:50:15
    look up the regular rules for estimated
  • 00:50:16
    tax payments and it looks like we've got
  • 00:50:18
    20 seconds left let's see what this
  • 00:50:22
    is O that's not a 22nd one
  • 00:50:28
    okay I'm 62 with a number of dormant old
  • 00:50:30
    401ks kicking around from past employers
  • 00:50:33
    convert or no well so
  • 00:50:36
    likely it makes sense to be moving those
  • 00:50:39
    just for Simplicity sake all into one
  • 00:50:41
    account whether that's into an IRA or
  • 00:50:44
    into your current 401K um that's usually
  • 00:50:48
    what makes sense that's separate from
  • 00:50:49
    the conversion idea
  • 00:50:51
    um this Factor having a whole bunch of
  • 00:50:53
    different 401ks not really a factor in
  • 00:50:55
    the Roth conversion analysis right all
  • 00:50:57
    the things we talked about current tax
  • 00:50:59
    rate future tax rate they're based on
  • 00:51:01
    dollar amounts rather than number of
  • 00:51:03
    accounts so all the same stuff we said
  • 00:51:07
    it's the same even if you have a bunch
  • 00:51:08
    of old 401ks but if you do have a bunch
  • 00:51:09
    of old 401ks it's probably time to do
  • 00:51:11
    something about that so I think that's
  • 00:51:13
    it right we're over time by a minute and
  • 00:51:16
    a half now
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