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B and S in Maryland are in their mid-40s with $425,000 and a couple of rental properties. Can they retire early at 62? Vee in Oregon came to the US as a refugee with nothing and built a three and three-quarter million dollar portfolio from the ground up. Is his Roth conversion plan solid? And finally, Chandler and Monica in Texas are sitting on $1.4 million and hope they can walk away from work in 3 years. Will Roth conversions keep the tax man from taking a giant bite on their way out?
What is IRMAA, and why does it matter for Roth conversions?
IRMAA, the Income-Related Monthly Adjustment Amount, is a surcharge added to Medicare Part B and Part D premiums when income rises above certain thresholds. Because Roth conversions raise taxable income in the year they happen, a large conversion can push you past an IRMAA threshold and increase your Medicare premiums about two years later, so timing conversions around those limits matters.
Frequently Asked Questions
Q: What does it mean to “cover the gap” in retirement?
A: The gap is the difference between what you want to spend each year and your guaranteed income from sources like Social Security, a pension, and rental income. Whatever those sources don’t cover has to come from your investment portfolio, and that shortfall drives how much you need saved. In the case of early retirement, “covering the gap” can also refer to how you fund the time between when you stop working and when you start drawing Social Security benefits and/or a pension.
Q: Should you make Roth or pre-tax 401(k) contributions?
A: Pre-tax contributions lower your taxable income now and are taxed when you withdraw them. Roth contributions use after-tax dollars and can come out tax-free later. Roth often makes sense when your current tax bracket is similar to or lower than the bracket you expect to be in during retirement.
Q: How can Roth conversions help reduce future required minimum distributions?
A: A Roth conversion moves money from a pre-tax IRA or 401(k) into a Roth account. Because original Roth owners have no RMDs, converting before RMD age can shrink the pre-tax balance that would otherwise be forced out and taxed as ordinary income later in retirement.
Q: Why does a surviving spouse’s tax situation matter when planning conversions?
A: When one spouse passes away, the survivor usually files taxes as single, where the same income falls into higher brackets than it did filing jointly. Converting to Roth while both spouses are alive can move money out at today’s joint-filing rates before that shift happens.
Joe and Big Al spitball for people with a small fortune sitting in pre-tax accounts, turning into a tax bomb. We’ll find out how Roth conversions and careful tax liability management can optimize their retirement income strategy. Eric in California is 72 with nearly $4M in pre-tax accounts. How much should he transfer in Roth conversions? Is borrowing against his own house to pay the tax bill brilliant or bonkers? Rick and Kiani are hoping they can quit sooner than they think. Mike just hit full retirement age. Should he claim Social Security benefits now or wait until age 70? And finally, Jeff wants to walk away at 59 with a roadmap for aggressive Roth conversions, assuming the tax cliff doesn’t get him first.
How do Roth conversions help reduce the taxes on a large pre-tax retirement account?
A Roth conversion moves money from a pre-tax IRA or 401(k) into a Roth account, where it grows tax-free and has no required minimum distributions for the original owner. Converting during lower-income years, before RMDs begin at age 73 or 75, can reduce the pre-tax balance that will later be taxed as ordinary income.
Frequently Asked Questions
Q: What is a “retirement tax bomb”?
A: A retirement tax bomb is the oversized tax bill that can come due when most of your savings sit in tax-deferred accounts like traditional IRAs and 401(k)s. Withdrawals are taxed as ordinary income, and required minimum distributions are mandatory, so a large pre-tax balance can push a retiree into higher tax brackets later in life.
Q: Can you use a home equity line of credit to pay the tax on a Roth conversion?
A: Some retirees consider borrowing against home equity to cover the tax owed on a conversion instead of pulling those dollars from the account being converted, which keeps more money invested in the Roth. It also adds debt and interest costs, so whether it works depends on your interest rate, cash flow, and overall plan.
Q: Should you claim Social Security at full retirement age or wait until 70?
A: Claiming at full retirement age, which is 67 for most people today, gives you your full benefit. Waiting increases it by roughly 8% for each year you delay, up to 124% of the full amount at age 70, and it can raise the survivor benefit for a spouse. The right timing depends on your health, other income, and how long you expect to need the money.
Q: What is the rule of 55?
A: The rule of 55 is an IRS provision that lets you take money from your current employer’s 401(k) without the 10% early-withdrawal penalty if you leave that job in the year you turn 55 or later. It applies to 401(k)s rather than IRAs, and individual plan rules can differ, so confirm the details with your plan administrator.
Q: Is it better to make Roth or pre-tax 401(k) contributions?
A: Pre-tax contributions lower your taxable income now and are taxed when you withdraw them in retirement. Roth contributions are made with after-tax dollars and can come out tax-free later. Roth often makes sense when you expect to be in a similar or higher tax bracket in retirement, which is common for diligent savers who build up large pre-tax balances.
11 rapid-fire spitballs today from Joe and Big Al on Your Money, Your Wealth® podcast number 587, on everything from Roth conversions and RMDs to whether a guy named Wayne can finally treat himself to a $75K Audi. Aaron in Syracuse just hit a million bucks in his 401(k) and realizes he needs a spitball on keeping his RMDs low. Do new Roth conversions restart the 5-year clock? 72-year-old Mike in Texas wants to know. Marion inherited a not-yet-five-year-old Roth, and an IRMAA problem along with it. Lu and Stephen each argue that the fellas’ conversion and retirement spitball math might be misleading. Teachers Tony and his wife have pensions that cover everything, so should they even keep saving? John and Peggy need a retirement spitball, Rajesh wonders if he should pay off his mortgage or convert to Roth, and Mike in San Marcos asks about funding a Roth with pension money.
Should You Do Roth Conversions Before RMDs Start?
If your tax bracket after required minimum distributions begin is likely to be higher than it is now, converting pre-tax savings to a Roth in advance may reduce the size of future RMDs and the taxes on them. Whether it makes sense also depends on your time horizon, your pre-tax balance, and other factors like your current income and available cash to pay the conversion tax. Converting during lower-income years before age 73 is often when the opportunity is largest.
Frequently Asked Questions
Q: Do new Roth conversions restart the 5-year rule if I’ve had a Roth for years?
A: For someone who is over 59½ and has held any Roth IRA for at least five years, withdrawals are already qualified, and a new conversion does not restart that clock for them. Separately, each conversion does carry its own five-year clock that applies mainly to avoiding the early-withdrawal penalty for those under 59½.
Q: Can you fund a Roth IRA with pension income?
A: A Roth IRA contribution requires earned income such as wages or self-employment income, and pension income does not count as earned income. If you have enough earned income to cover the contribution, the IRS does not track which specific dollars you deposit. For 2026, the contribution limit is $7,500, or $8,600 if you are 50 or older.
Q: Are the earnings on an inherited Roth IRA taxable?
A: If the original owner held the Roth IRA for at least five years, withdrawals including earnings are tax-free to the beneficiary. If it was held less than five years, the earnings can become taxable until that five-year period is met, and withdrawals follow the order of contributions first, then converted amounts, then earnings.
Juan and Mary in Brooklyn are 49 and 48 with $2.2 million saved. Can Juan afford to retire early, or just walk away if he gets fired? And if they get divorced, yikes – but does the math still work? That’s today on Your Money, Your Wealth® podcast number 573. But first, “Reuben Sailing Shoes” is 68, single, retired, and has $1.6 million saved, but he’s never had a budget in his life. How much can he actually spend? “Leslie and Ben” are federal retirees in their seventies with great pensions and a mix of pre-tax and Roth savings, and “Mork and Mindy” in Delaware are retired with an annuity, a pension, Social Security, and $1.3 million in an IRA. Joe Anderson, CFP®, and Big Al Clopine, CPA, spitball on how Roth conversions and RMD timing can help both couples minimize taxes and make the most of what they’ve got.
Lucky Lou is 48, burned out and wants to punch at 50. How should he bridge the gap before pensions and Social Security? Joe Anderson, CFP®, and Big Al Clopine, CPA walk through the Rule of 55, 72(t)s, and the psychological reality of spending down a taxable account, today on Your Money, Your Wealth® podcast number 565. Alexei and Anna are high earners in their mid-20s who want to save aggressively and keep taxes low. Which retirement accounts should they prioritize, and can they afford a downpayment on a house? Jay and Gloria are wrestling with the classic question of whether to save to Roth or traditional 401(k), especially since their state doesn’t tax retirement income. Is taking the deduction now and backdooring Roths the smarter move? Plus, Sleepless in Seattle wants to know, can her 28-year-old daughter afford to buy a condo in a high-cost housing market? Finally, Jennifer in Texas wonders how to invest and withdraw an inherited IRA over the 10-year rule with the least tax damage.
George in Torrance wants to know the smartest way to deal with the giant UGMA account set up by his kids’ grandparents. Suzanne in Detroit has a twist on the new 529 plan to Roth rollover rule. “Homer and Marge” need a spitball on whether they can build huge 529 plans for college savings and still retire early. Plus, Bill in Chicago just inherited a $950K IRA and needs a withdrawal plan before he triggers a tax explosion. Aaron in Cincinnati wonders whether maxing out his health savings account every year as part of his overall pre-tax contributions is a good idea. Carl in Western Maryland has questions about the required minimum distribution age and HSA rules, and wonders whether those who make the tax code are on drugs! And finally, Marc wants to know how to avoid the tax kaboom from $the 4 million sitting in his traditional IRAs at age 73.
Joe Anderson, CFP® and Big Al Clopine, CPA spitball withdrawal strategies, Roth conversion timing, and saving priorities for every stage of life, today on Your Money, Your Wealth® podcast number 555. Christine just retired at 59 and wants the smartest way to draw income before Social Security, without letting taxes take a third of it. Prickly Richard and Margarita Maggie have a plan to “pull ahead” some Roth conversions now to dodge an RMD avalanche later. Will it work? And the Michigan Queen and Mississippi Boy are wondering whether to save harder for retirement or college for three kids currently under the age of 5.
Can Beth and Rip retire early, spend more, and Die with Zero? When should they claim Social Security? Forrest and Jenny have 10 rental properties at age 31. Can they retire at age 50? (And what makes you a real estate professional from a tax perspective?) Plus, Memphis wants to know, what are the rules for spousal IRA contributions and required minimum distributions?
Will your taxes go up? Stay the same? Go down, even? Jeffrey Levine is Chief Planning Officer at Focus Partners, Professor of Practice in Taxation at the American College of Financial Services, and the Lead Financial Planning Nerd at Kitces.com. In other words, he’s one of the savviest tax minds in the country. Jeff returns to the show today on Your Money, Your Wealth® podcast number 524 with Joe Anderson, CFP® and Big Al Clopine, CPA, with his thoughts on what will happen to taxes under the new administration, saving for retirement in a Roth IRA vs. a traditional IRA, managing inherited retirement accounts, and the future viability of Social Security. Plus, what should you do with required minimum distributions (RMDs) when you don’t need the money to live on? How do you calculate the maximum amount you should convert from your retirement account to a tax-free Roth account, and how much should you convert – or not – to keep RMDs under control? Finally, how can minor beneficiaries avoid probate?
Pure’s Tax Planning Manager, Amanda Cook, CPA, Esq, teaches how to take advantage of tax-saving opportunities available to you. Outline 00:00 Intro 1:04 Tax Terms 5:45 Tax Deduction vs Tax Credit Example 8:38 2025 Taxable Income Rates 10:19 2025 Capital Gain Rates 10:43 Tax Cuts and Jobs Act Set to Expire: Changes in 2026? 15:00 […]
Now that you’ve retired, you’re transitioning from saving to spending. However, taxes remain one of the largest expenses so smart tax management is essential for preserving your wealth. Pure’s Financial Advisor, Maxwell Hacker, CFP®, AIF®, provides guidance on tax strategies designed to help you keep more of your hard-earned money. He discusses: Understand different accounts […]
Hawkeye and Elle are age 61 and in the 32% tax bracket. How should they get money into their Roth accounts for tax-free retirement income? Clark and Ellen are 69 and 68, expenses will pretty much be covered by their fixed income, but they’d like to leave Roth money to their kids. Should they keep converting to Roth, or use required minimum distributions for their living expenses? Tom and his wife are 73, and fixed income will cover their retirement spending too. Is it advantageous to them to make three huge Roth conversions beyond their marginal tax bracket to reduce future RMDs? Should they keep things simple by leaving their money in an S&P 500 Index Fund?
The single biggest retirement planning mistake to avoid, the problem with tax professionals, and answers to some of the most frequently asked retirement questions we get on YMYW: should you name a trust as beneficiary on your retirement accounts? What’s the break-even point on a Roth conversion? What if you don’t have the money to pay the tax when you convert to Roth? Plus, find out the eye-opening amount of money good tax planning can save you! Someone has to be very knowledgeable, entertaining, and special to make it as a guest on YMYW these days. Today “the IRA guru” Ed Slott, CPA from IRAHelp.com joins Joe Anderson, CFP® and Big Al Clopine, CPA to discuss all of these topics, along with changes to stretch IRAs and required minimum distributions from the SECURE Act and SECURE 2.0 Act. Finally, don’t miss your chance to get a free copy of Ed Slott’s latest book, The Retirement Savings Time Bomb Ticks Louder.
Should Mike in Virginia keep using his IRA money to pay the tax on his Roth conversions? How do you do a Roth conversion when you don’t have the money to pay the tax? That’s PeterLemonJello’s question, but is it the question he should be asking? Spitballing Roth IRA conversion strategies to reduce your taxable required minimum distributions (RMD) in retirement, today on Your Money, Your Wealth® podcast 484. Plus, Susan and Mike in Ohio are retired, in the 24% tax bracket, and considering converting $50k or $75k to Roth – should they do it? How is D-Rock and Matilda’s strategy for selling rental properties and doing Roth conversions as they bridge the gap to early retirement? And finally, how do required minimum distributions work on inherited Roth accounts?
Should Peter LemonJello, who has high income, and his wife, who is retired with zero income, file their taxes as married filing separately so they can start Roth conversions? What are the tax implications of Roth conversions for Randy in Chi-town, an early retiree in the 32% tax bracket? Caity (with a C) in SLC is self-employed and over the income max to contribute to a Roth, so now what? And Ben in Oceanside, CA wants to know what impact Roth conversions will have on required minimum distributions after age 73? Joe and Big Al spitball on all these Roth conversion tax reduction strategies, plus, does the math make sense on a company-matched Kai-Zen indexed universal life insurance policy for Kickass Seabass in New Jersey? Ed in Virginia wants to know the earnings limits for family Social Security benefits. But first, can JJ in Florida’s retirement portfolio handle withdrawals of $150,000 per year? And from the banks of the Mighty Mississippi, what should midwestfabs’ post-employment asset allocation be?
