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When Roth Conversions Might Not Be the Right Move · 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. Alright.
• 0:06
  So Jenny Jenny submitted here. I think I'm not a candidate for all the Roth conversion hype. I appreciate the word hype by the way. Yeah. Because it's just loud people sending it off to the ether, creating all sorts of FOMO.
• 0:22
  One of the best ways to figure out it's a product pitch or over generalized advice is if it's, well, this is what the wealthy is doing so you should too. Well, no. No. That's ridiculous.
• 0:33
  David: I mean, just sounds good on paper. Right? Doesn't it feel good? Oh, now my now it's all like tax free now.
• 0:39
  Mike: Yeah. Like, when people say, oh, I'm doing what the wealthy is doing. No, you're not. You're not doing eyelets and irrevocable trust that you can borrow against and leverage position to try and lower your taxes and still generational wealth. No, you're you're not doing that.
• 0:53
  Right. Let's stop kidding ourselves. But anyway, okay. So jump back to Jenny. At least for several years, but maybe you can use my details.
• 1:01
  I'm not gonna I'm gonna kind of gloss over some of the details so it's not too personal. But so 66 years old, wants to retire at the end of twenty twenty eight. K? Good position. We're in retirement range.
• 1:11
  And retire on time is not as soon as possible. It's when it's right for you. Yep. K. So income and tell them is I'm just gonna say very high.
• 1:21
  Yeah. K. So we're we're talking in the thirty second to thirty seventh brackets or so. So we're in the high brackets for a while until 2030. Husband's retired.
• 1:32
  K. Four okay balance, which is in the seven figures as well. Okay. So with Social Security, take it at seven, about 80,000 or so a year. Yeah.
• 1:45
  So this is a classic example of look at your next dollars. It may be more prudent for you to just not do any IRA to Roth conversions. In fact, if your income is that high, you might actually wanna continue doing pretax contributions.
• 1:57
  David: Mhmm.
• 1:58
  Mike: Because you're taking income at one of highest tax brackets. That's inefficient. Yep. And then you can slowly work it into your plan at a potentially lower bracket in perpetuity.
• 2:11
  David: Oh, right.
• 2:12
  Mike: The long play typically works better than the short. Just get it done. Yeah. You know, in tax planning, it's not ripping off a band aid. It's letting that thing heal.
• 2:23
  David: Right. Right. Right.
• 2:24
  Mike: Okay. Couple of things to just consider here. When you're when you're in the, I'll say the higher net worth, so $5.10, 20,000,000 plus category. Okay? There are other things you could consider, like qualified opportunity zones.
• 2:42
  There are certain hedge funds that will not do tax loss harvesting from capital gains, but do it as a partnership to try and offset your income with income. That's a whole thing on itself. It's a very gray area of the tax code. There are some people that do like oil and gas partnerships. And oil and gas partnership is where you basically invest into a partnership, and then they spend all the money on drilling, and all the losses past you, and that helps offset it.
• 3:08
  There are things out there that do exist. There are some people that will, if they're young enough, they'll do like an IUL, they'll fund it, and then they'll borrow against the IUL, kind of leverage it a little bit to pay the taxes because in IUL, you never actually take the cash out. You borrow against it and if the cash grows greater than the the loan against it, then you can actually make your money back on the taxes you spent. These are all strategies, but here's the problem. Every single one of them has a detriment.
• 3:34
  An oil and gas partnership has higher risk. Are you okay with the risk? If you are, no problem. If you aren't, then just let it lie. You could do the insurance play, but you're gonna lose a lot of flex building the plan, you're committing to that strategy for life, it's not good or bad, it just is.
• 3:53
  David: Is it more illiquid? If it's not
• 3:55
  Mike: You can borrow against it, but you can't cancel the policy unless you wanna take the tax penalty.
• 3:59
  David: Oh, okay.
• 4:01
  Mike: And there's some nuance with that. That's a very simple explanation of a complicated situation. Yeah. Okay. You gotta be careful with those things.
• 4:08
  You've got the qualified opportunity zones. In essence, you're investing in distressed parts of the country. Yeah. That's increased risk. Right.
• 4:18
  It doesn't make them wrong. You just need to understand what it is and be okay saying the benefits outweigh the detriments for my specific situation. Because too often on social media, well, if you're a high income earner, then you should be doing this. Mhmm. How many people in retirement really want to become a real estate agent and operate off of the real estate?
• 4:41
  You're you're selling your IRA assets to reinvest it and become a landlord on something you've never done before, and you're working over seven hundred hours at least to qualify for this with your real estate license. Like, I get that it's it's appealing to say, well, this is what the wealthy do, or this is the tax smart way. There's always a cost, or a trade, or something you're giving up. It doesn't make it wrong, it just means that a lot of people have been manipulated into thinking, well the wealthy are just smarter. No.
• 5:10
  They're choosing a path based on the risks that they're comfortable taking. Mhmm. We do qualified opportunity zones. We're able to work with the oil and gas partnerships, the stuff that you can't get on your own. But Jenny and for those that are here, look, put your plan together first, then identify the leaks, the strategies, and run the numbers until you feel comfortable with those calculations, and then find the right investments or products, the right tools in the tool box.
• 5:38
  That's how it needs to work. I agree with your assessment right now, and would invite you to come in. Yeah. And go through the planning process because you're at a point where you do need to start preparing with the different investments that I'm not quoting here on the on the show, but Yeah. Things that you've typed in here and be respectful to your privacy.
• 5:57
  There are some things you're gonna wanna probably look at from a long term planning standpoint. Hope that helps.