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Why Some People Don't Need to Do Roth Conversions · How to Retire on Time

• 0:00
  Mike: Hey. Thanks for joining. Here's a question I was recently asked on my show, how to retire on time. Take a look.
• 0:12
  David: How can you say some people don't need to do IRA to Roth conversions when taxes, speaking of that, when they are expected to go up?
• 0:22
  Mike: Yeah. The reason why I don't think some people need to do IRA to Roth conversions is because sometimes they have already funded enough in their Roth and their brokerage account. They just have extra money in there, so they can just slowly and deliberately drain their IRA assets within certain thresholds targeting an effective tax rate to be more efficient with their money. Why would you convert $1 over from IRA to Roth and pay 22% 22¢ on every dollar that was converted when you could slowly and deliberately move money out, let's say, a 12% effective tax rate or a 15% effective tax rate. Now I know I just use two different metrics in different ways.
• 1:00
  That's not a logical or a sound argument, but where I am going with it is if tax brackets change in the future, if tax thresholds change in the future, the real number you need to look at is your effective tax rate. Mhmm. And politics don't really work if you increase taxes on the poor. Yeah. I don't think it's very likely so you know about like people talking about how they want socialism.
• 1:23
  Mhmm. A lot of young people want socialism in America. Mhmm. But what's interesting is they point to countries like Sweden or Switzerland or no. I think Sweden's like the common one.
• 1:34
  David: Yeah. Those Scandinavian countries are
• 1:37
  Mike: heavy in Do you know how their taxes are done? So Swiss tax rates are pretty high.
• 1:43
  David: That doesn't surprise me.
• 1:46
  Mike: But I mean, they pay for a lot of it. So like, if you wanna be paying well, I don't wanna like I don't wanna slander the the country or anything like that. Here's where I'm going with that. I'm trying to make this as as nice as possible. In America, we have an extremely progressive tax law.
• 2:04
  Yeah. About 40% of Americans really don't pay taxes.
• 2:09
  David: Right. Because the income is is is taxed on different rates.
• 2:13
  Mike: And the standard deduction and so on.
• 2:14
  David: Yeah. Like so if you made a $100,000, that all the 100,000 isn't getting taxed.
• 2:20
  Mike: Only a part of it is.
• 2:21
  David: Yeah. Only a part of it. And each little part is taxed at a different rate.
• 2:25
  Mike: It disproportionately favors those who make 60,000 or
• 2:29
  David: less. I
• 2:31
  Mike: don't think that Congress is ever going to raise significantly the taxes on people making 60 to 70,000. Mhmm. I really don't.
• 2:40
  David: Right.
• 2:41
  Mike: And so if you think, if you understand that, you look at tax brackets historically, ten, twelve, 15% is kinda where it is. So I don't think it really ever makes sense for a lot of people to really try to push past 15% effective tax rate.
• 2:57
  David: Oh, right.
• 2:58
  Mike: I don't think it makes sense for a lot of people to have assets elsewhere. You got a social security income stream. You've got you've got your Roth that you've already converted. You've got some brokerage account that you've got saved in there. I don't think you need to rush it.
• 3:10
  Now, however, there's a lot of people that only have savings in an IRA. Okay. Now you've got to divide and conquer. Maybe you need to start doing some IRA to Roth conversions for a while, blend the differences, and then pull back on the conversions, and then slowly finish the rest. It's a complicated thing, which is why you can't do blanket statement advice.
• 3:31
  Yeah. You just can't do it. So and this is why we highly encourage people to sign up for our planning process. Plan first, strategy second, then the products third. The tools in the toolbox.
• 3:44
  What tools go in your toolbox? For your the strategies you wanna implement, and the plan you wanna follow. Go to retireontime.com/call, call, to get started. Schedule a call. Start that conversation.
• 3:57
  It doesn't cost you anything to get the first version of the plan, see the projections, and explore a couple of strategies before you have to commit to anything. And then if you do commit, it's a one time fee to finish the entire planning process. That's it. We teach you how to fish. And if at the end of the day, you've been taught how to fish, and you don't want to fish, then you can hire us to do the fishing for you.
• 4:18
  We'll take care of your plan for you if you want, but you don't have to. That's the point. Yeah. So, appreciate you all being here. Let me know the comments.
• 4:26
  Just any I appreciate the comments so far, but if you've got some feedback, love to hear it. As always, we will be here every week Tuesday at noon central time. Just taking random questions, answering them, having a fun conversation. Tonight at 06:30 central time, we do have a Retire On Time workshop. If you haven't already RSVP'd to that, you can do so by going to retireontime.com/workshops.
• 4:48
  I believe there's an s at the end. So workshops Yeah. Slash workshops. Yes. And then we also do have annuity math night, Thursday.
• 4:56
  Annuities are a funny thing. People wanna know, should I buy one? Should I not? It's too soon. So we're gonna we're gonna do the math.
• 5:03
  We're gonna show you how the tool should be measured, and then encourage you to do your plan first strategy second, and then you can explore the different types of annuities, whether it's fixed growth, whether it's a CD replacement, whether it's an income stream replacement, whether it's a bond fund replacement, or whatever it might be. A lot of different types of annuities. So we'll talk about that. That's Thursday as well. You can go to retireontime.com/class to see all the classes coming up in the near future.