Show Notes

• 00:00 – Intro: This Week on the YMYW Podcast
• 00:55 – We Have Over $7M. Capital Gains are Huge. Are Roth Conversions Worth It? (TJ in PA)
• 12:37 – Too Late for Roth Conversions at Age 70+? (Rebels Without a Gauze, CT)
• 23:19 – Am I Spending Too Much or Not Enough in Retirement? How Much Should I Convert? (Biking Barnsey, Arkansas)
• 33:37 – We have $18M. Are We Doing Too Many Roth Conversions Before Age 75? (Zisi)
• 41:14 – Outro: Next Week on the YMYW Podcast
• 42:16 – The Derails: Big Al’s New Jacket

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Transcription

(NOTE: Transcriptions are an approximation and may not be entirely correct)

Intro: This Week on the YMYW Podcast

Andi: Are Roth conversions worth it? We’ll find out, today on Your Money, Your Wealth® podcast number 576.  TJ in PA is gonna have huge capital gains. Joe and Big Al spitball on whether it’s worth it for him to convert? Rebels Without a Gauze in New England are over 70. Is it too late for them to convert? How much should Biking Barnsey convert from his tax-deferred accounts to Roth each year, and are there any single ladies in the YMYW audience that would like to help him spend his retirement money? Finally, the fellas spitball on whether Zisi and his wife are being too aggressive with their conversion strategy. By the way, every time you leave your honest ratings and reviews for YMYW in Apple Podcasts or any of the other apps that let you do that, you’re helping someone escape those boring money podcasts. I’m Executive Producer Andi Last, and here are the hosts of Your Money, Your Wealth®, Joe Anderson, CFP® and Big Al Clopine, CPA.

We Have Over $7M. Capital Gains are Huge. Are Roth Conversions Worth It? (TJ in PA)

Joe: Let’s go to TJ from PA. Have been listening to your podcast for about three years. congratulations. Wow, that’s longer than most.

Al: That’s, is that’s gonna be in the top 10, right?

Joe: It could be. we don’t drink that much. If we do, it’s a rose red wine will be the choice We drive. 2015 Honda C RV in a 2023 Lexus RX 350. Question: is Roth conversions worth it? In our situation, here’s our finances. We have an IRA account of two and a half million dollars. We got $700,000 in a Roth and $4 million plus in a taxable account.

Al: Okay.

Joe: I’m going to just take a high flyer here.

Al: Say, that’d be okay.

Joe: It’d probably say yeah, we’re, I think you’re looking pretty good.

Andi: Spit ball back of the envelope, you’re probably fine?

Joe: Yeah. Does conversion make sense? Yeah, I’m guessing it probably does.

Al: Yep, me too.

Joe: let’s continue reading, shall we? Retiring in 2026, our expenses will be $200,000 for our basic needs.

Al: Okay.

Joe: And extensive travels. Basic needs, but throwing a little extensive,

Al: basic needs plus travel I think I, that’s how I read it.

Joe: Got it. But no other luxury items. It’s just travel and basic. Ramen noodles, but they’re going to

Al: it’s economy. They’re, staying every country.

Andi: Driving a 1979 Datsun.

Al: Yes. Every country that has a Motel six. Oh, but they’re staying.

Joe: But the extensive travel, they’re just, they’re traveling,

Al: or better yet, they’re staying at hostels. Youth hostels.

Joe: We got our investments in the taxable account. They have capital gains of a what? All right. Our investments in taxable account have cap gains of 150% or more.

Al: Wow. Okay,

Joe: good. Right. If we have to sell taxable investments to pay Roth conversion, tax, capital gains tax will be large. Also, we will need to pay capital gain tax for $200,000 expense withdrawal from the taxable account. Is it still worth to do Roth conversions or should we just sell the IRA investments for the expense? This way we pay capital gain tax for taxable accounts for the IRA withdrawals. Okay.

Al: Okay. So is it,

Joe: how old is this individual?

Al: We don’t know

Joe: TJ from PA. How old are you?

Al: So he, didn’t tell us how old he is. but I’m gonna assume between 62 and 67 ’cause they’re retiring.

Joe: All right.

Al: I could be wrong, but it is helpful to know how old you are then. That would kinda. Could change our spitball a little bit.

Joe: Right. Give you a little bit of a range,

Al: right?

Joe: What, I don’t know what his fixed income is today,

Al: but I’m gonna, I’m gonna answer this as though he’s 62 to 67, which is a common retirement ages for P or in between.

Joe: Okay.

Al: Yeah. So, right off the bat got 7.2 million, 4% of that is 288,000 plus Social Security, which he didn’t tell us. So you wanna spend 200? Yeah, this looks fine. It looks, pretty good. Right. But Roth conversions, should he still do that given that he is got a lot of capital gain? high, capital gain taxes if he sells the, capital gain stock to pay for the Roth conversions?  What do you think?

Joe: he needs an income distribution strategy and a tax plan.

Al: Yeah.

Joe: I don’t know. How is he managing the risk in his taxable account? It doesn’t sound like he is, it sounds like he bought a couple stocks, mutual funds, ETFs

Al: bought the right ones,

Joe: and they have just ran up. Yeah. 150% over the years.

Al: That’s what I would agree.

Joe: And so it’s like there’s no rebalancing, there’s no tax management, there’s no tax loss harvesting. I don’t know what type of investments he in. He hasn’t been very tax conscious in the taxable account, which is fine because he’s had a lot of growth in the account and I’m not sure how long that those accounts have been sitting there.

Al: Right, right.

Joe: so that’s one thing. You got two and a half million dollars of tax deferred accounts. Those are gonna continue to grow and they’re gonna be a force out and you’re gonna have to pay the tax regardless.

Al: Yeah. And the two and a half million in tax deferred, depending upon how old they are, that could double.

Joe: Exactly. So let’s say it’s $5 million

Al: and four, that’s what,

Joe: couple hundred,

Al: 200,000 RMD to start. And it goes up from there,

Joe: which was so. you, have to look at this, not year by year. You have to forecast the years out and then come back to present day.  And then you wanna figure out the strategy. That is a, gonna give you the, best chance of success for your overall financial goals. Pay the least amount of tax, and then three, lead the most to the next generation, if that’s part of your goals.

Al: If that’s part of the goals.

Joe: Right.

Al: Which we don’t know, but

Joe: Yep. But he is not gonna spend this all, he is only spending $200,000 on, seven and a half million dollars liquid estate here. Yeah.

Al: Yeah, that’s right. Now we might have a different answer if he’s 50, because then I don’t want a 4% distribution rate, and maybe this gets a little tighter, but. for the age of 62 to 67, I, yeah, he’s just fine. I, guess if it were me personally, I would do Roth conversions, but I’d be careful what capital gains stocks I sold I’d.

I’d look at all my holdings and see which ones had the highest gains versus the lowest. And realize you don’t have to do a blended rate. If you have single stock, you can do lots, right? So maybe the le, the latest lots that you bought might have the least amount of gain, the earliest ones most gain.

So maybe you sell the ones that have less gain for less of a tax problem while you’re doing Roth conversions. But that, I would wanna look at that.

Joe: we can flip flop. Some years you sell and pay 0% capital gains if you stay in that a hundred thousand dollars. that’s a good point.

Al: Taxable income, right?

Joe: So you’re diversifying out of whatever holdings that you are, or if you love the holdings, you can tax gain harvest. What that means is that you’re selling the stock and if you can stay, it sounds like he’s, he doesn’t have any other income and if he wants to live off of his taxable account, he’s got $4 million there. You could sell that up to a hundred thousand dollars. Right of taxable income.

Al: That’s right.

Joe: And then buy the stock back. So you’re just increasing your basis year after year. But you do that one year, you do Roth conversions the next, you do that one year. I mean, there’s all sorts of different

Al: Yeah, that’s true.

Joe: Tax strategies that you can look at and, you gotta figure out the combination and then map it out over a 20 year time period to see what is going to give them, you know, the, best I guess tax a little

Al: and that’s assuming he’s married. He does say we, but he could be living with someone. So it could be in a single bracket. So either there’s a lot we don’t know here.

Joe: Yeah. But it’s, I think that the crux is, Hey, I have. A lot of gains in my taxable account. I’m gonna have to pay the tax of my taxable account to do the Roth conversion. Does that make sense?  The answer is yes, because sometimes it even makes sense to pay the tax out of a tax deferred account to pay the tax on a Roth conversion.

Al: particularly when you have required minimum distributions slated.

Joe: Yeah. When you have huge RMDs that are gonna pop you up into a higher tax bracket, your cap gains rate is gonna be lower than your ordinary income rate.

Al: Yeah. And actually I think some people kind of. They sort of forget that this is sort of a good thing, right?

Joe: No, you made 150% on your stock.

Al: Not only did you make 150%, but most of your assets are in capital gains, which means when you sell them, you’re in a lower bracket. So congrats. Instead of worrying about this, is a great thing. So there’s all kinds of strategies, as Joe mentioned, you just have to pick what’s the best one for you and your goals. Depending upon your age and Yeah, a bunch of things we don’t know, right?

Joe: I don’t know. You could put, let’s say you put a couple million dollars into a tax exempt trust.

Al: Oh wow. You’re, oh, you’re going deep down.

Joe: Then you steal stock without any tax.

Al: Yeah. You couldn’t get that.

Joe: You get a charitable deduction by doing that.

Al: Have a lifetime,

Joe: your lifetime income,

Al: and it’d be most of the capital gain,

Joe: right?

Al: Yep. Yeah.

Joe: And then you could, with that tax deduction that you get, then you could do a Roth conversion and that tax deduction would upset the conversion tax.

Al: Look at you. Look at that, Joseph. That is an excellent strategy.

Andi: Sophisticated, complicated.

Joe: Yeah.

Andi: It requires actually a sit down.

Al: Yeah. Also known as a charitable remainder trust in case you try to Google it.

Joe: Yeah. He is gonna be like, I don’t want that, but I, want that tax exempt trust.

Al: That one sounds better than the charitable remainder trust.

Joe: It does. It does. It’s the same thing.

Al: It is actually, I will tell you that sometimes the charitable remainder trust is actually, it’s good for charity, but it’s even, it can be even better for you than not doing it. So anyway, I’ll just, that’s all I’ll say right now.

Joe: Yep. lot of different planning opportunities I think for young, TJ from PA.

Al: Yep. Agreed.

Joe: very well done on the accumulation of your net worth. And now it’s, I mean, this is the issue. I think this is why, Accumulating wealth and distributing wealth are two totally different types of things.  And some people will use like an accumulation type strategy as they’re thinking about taking distributions. Right? Yeah. I don’t want to pay this tax or that or whatever. You’re gonna pay tax regardless. Yeah. Yeah. How much do you wanna pay? You wanna mitigate that tax bill over your lifetime. Sometimes you have to, you know, buy the tax. On today’s rate to save a lot more taxes in the future.

Al: And I mean, just to follow that point, you and I have met with people, Joe, that have $10 million and they ask us, can I spend 200,000? Right. And it’s like, yes. that seems, I don’t know. I’ve never sprint the principle. I, you know, that’s what I heard. Right. and then you and I, remember an attorney had, he was gonna retire, wanted to spend 250,000 a year, which now is in. Current dollar is probably at least 400 or more.  And he had about 500,000.

Joe: Yep.

Al: He goes, Joe, now what do you think? Can am I good? no, unless you’re gonna die in two years from now.

Joe: You got a good two years. Alright, very good.

Andi: Like I was saying, sophisticated strategies like this one require more than a spitball – did you hear all those variables Joe and Big Al mentioned? It’s a good idea to sit down with a human, one on one, to map out a plan that’s right for your unique situation, for your future needs and goals. Schedule a free financial assessment with one of the experienced professionals on Joe and Big Al’s team at Pure Financial Advisors. Like a spitball, an assessment doesn’t cost anything, but the major difference is that this is comprehensive analysis is 100% just for you and your family, not the entire YMYW audience. The Pure team will review where you are now, where you want to be in retirement, and help you develop a plan to get you there. Can you avoid paying a bunch of taxes in retirement by converting some of your 401k or IRA to Roth? They’ll help you figure it out. Are you feeling confident in your investments, or is this recent market volatility freaking you out? They’ll make sure the assets you own are aligned with your tolerance for risk. Click or tap the Financial Assessment link in the episode description or call 888-994-6257 and schedule yours now. You can meet in person at one of our offices in San Diego, Woodland Hills, Irvine, Brea, or Davis California, Mercer Island or Redmond in Seattle, Greenwood Village in Denver, Lehi in Salt Lake City, Franklin in Nashville, or Wheaton or Northbrook in Chicago. Or you can meet with the Pure team online via Zoom no matter where you are. The Free Assessment link is sitting there in the episode description just waiting for you to decide that now is the time to get your financial life in order.

Too Late for Roth Conversions at Age 70+? (Rebels Without a Gauze, CT)

Joe: Let’s keep motoring on here. We got happy Autumn from New England. Happy autumn.

Al: October 27th.

Joe: Okay, we’re in Happy spring. Happy Easter.

Al: We missed it. We missed winter, didn’t we?

Joe: Yeah, we missed winter. we’re jumping right from autumn to spring.

Al: winter’s no good anyway, so,

Joe: okay. New England to you, Andi. Joe, Big Al. Two retired nurses here Rebels Without a Gauze.

Al: That is, clever as heck,

Joe: Rebels Without a Gauze. I wonder how many times they’ve said that

Al: a lot.

Andi: They sign off on it. They really like this one

Al: and you know what? I’m guessing it never gets old to them.

Joe: Oh, they’re giggling to themselves right now

Al: as they listen to this and listening to you Read this, Joe.

Andi: I’ll prepare you. There is actually more of these puns throughout this email.

Joe: They waiting since. Autumn.

Al: I know.

Joe: Yes.

Al: They’re getting impatient. When is Joe gonna say Rebels Without a Gauze?

Joe: We’ve always, been financial DIYers, to which you might say.

Andi: Suit yourself.

Al: I think it suture. I think it’s suit your self.

Joe: Suit yourself.

Al: suit yourself. But they did suture self.

Andi: Suture, yes.

Al: But I guess that sounds like suit yourself.

Joe: Oh, suture self.

Andi: Sutures are stitches, you know?

Al: Yes. So yes. Yeah. Right. Oh yeah.

Joe: Okay. Thank you Andi. You’re gonna have help me out on all of this. Doing it on my own makes us wonder if we messed up the Roth conversions. I don’t know.

Al: We’ll see.

Joe: Keep breathing. Let’s call the doctor.

Andi: That would be you, Dr. Roth.

Al: Dr. Roth. Okay.

Joe: In our younger days, before Roth came along, we stepped out traditional IRAs as full as we could.

As our four kids got older, our expenses made it impossible to save for maybe 15 years. And once we caught up, we started saving into Roth IRAs. So we have most of our savings in traditional IRA accounts. And our question is, should we start doing Roth conversions at this advanced age?

Al: Okay.

Joe: Alright. Is 72 70 advanced age?

Al: I don’t think so. I, think I, and I mean, here’s the stats. Joey, as you know, a couple age 65 and older, 50%, is 50% likelihood that at least one of you is gonna make it to 92. So we’re talking about over a 20 year span here of planning.

Joe: They’re nurses. Come on. They’re Rebels Without a Gauze.

Al: Yeah. And they know how to take care of themselves.

Right. So

Joe: yeah,

Al: we’re probably talking 25 year

or, more, 25 years.

Joe: Yeah. And who knows where. so anyway, I don’t know. Advanced age at 72. I’m not there yet,

Al: but a lot of people think that, Joe,

Joe: I wouldn’t say 82 would be an advanced age.

Al: Yeah. Yeah. Or 87.

Joe: Okay. Sure.

Al: 82 might qualify.

Joe: All right. All right. She’s 72 and he’s 70.

Al: Okay.

Joe: All right. Both are retired, but. He still enjoys working with patients, so has a couple of side gigs that bring in about $25,000 a year. She

Al: cool.

Joe: she’s a white wine gal and he enjoys a truly over the top IPA.

Al: Oh, that’s one of those happy ones.

Joe: Okay.

Al: Maybe double hop.

Joe: It takes great exception to your recent dissing of.

Sip of Sunshine Beer. I was dissing Sip of Sunshine Beer.

Al: I don’t remember that.

Andi: It’s, its an IPA, so it might’ve just been based on the fact that it’s an IPA. But does this look familiar to you?

Joe: no it doesn’t.

Al: That’s

Andi: Sunshine

Al: beer.

Andi: Yeah. we had a conversation about this few weeks, actually, we won’t have had a conversation about this a few months ago since they, they wrote this email in October.

Al: Yeah. But. I have to remember, Joe, you don’t like I do. I do. You’re not gonna like any IPA

Joe: No,

Al: and especially not a

Joe: double,

hopper. IPA, it’s, not gonna be a sip of sunshine for me.

Al: Would that be like winter for you?

Joe: Oh, yeah. All right. We have a fleet of minivans in a, Mazda Miata. She’s a gardener.

He makes telescopes for fun. Telescopes, how do you make a telescope? And that’s,

Andi: that is some serious science that’s got a lot of technology and a lot of moving parts in. It’s, this is a very technical person,

Al: has an interest in physics and the universe.

Joe: Yes. And both spend an in inordinate amount of time going to the seven grandkids soccer games.

We take a couple of big trips to Europe and South Pacific every year. Andi Australia’s on our bucket list.

Andi: Ah, come on down.

Joe: Alright, our after tax retirement income is $210,000 a year. We were both career Navy nurses and are taking Social Security. We are spending about 135 and the rest goes to savings.

Even if we end up spending on the kids and grandchildren, we don’t really need our savings to live off of. Thus, we’re wondering about Roth conversion. Is it worth it to move those traditional accounts over being DIYers? Our savings are lopsided. We have $620,000 in cash, $101.3 million in stock funds.

$220,000 in bond funds. Of that 446,000 is in a taxable account, not including all that cash, 1.1 million in traditional IRAs and $180,000 in Roth IRAs.

Al: Yeah.

Joe: okay. They said that little interesting. All right, so they got 500, 450 in brokerage, 1.1 in deferred, 180 in tax free. The house may be $500,000 as paid.

we have no other debt. She starts RMDs of about $26,000 a year in January in his RMD is about the same amount kick in two years from then. Right. Who the hell’s writing this?

is it him or her?

Al: Yeah. Or is it their financial plan

Joe: or is it someone or is it a third party?

Al: Not sure. ’cause it goes back and forth.

Joe: No, I’m confused. Our tax bracket is a little weird because of our military retirements, our tax differently than most annuities. Okay. No they’re not. You probably have some that are taxed and you got a va. That’s tax free.

Al: Yeah, probably

Joe: a 2024 taxable income was $170,000 putting this in the 22% tax bracket.

Our state Connecticut doesn’t tax our military retirement and only taxes 25% of our Social Security. So we paid no state income tax last year. We think we’ll be in the 22 to 24% tax brackets for the next few years, which gives us some room up to the 32% tax bracket for Roth conversion. But is it worth it for these nurses to convert?

Maybe the RNs ready.

Andi: Maybe they aren’t ready.

Joe: Maybe they

Al: trn

right at the end. Oh, and then you get another chance to say the name again.

Joe: Thank you. Rebels Without a Gauze

Andi: suit yourself?

Joe: Yes. Okay. Yes, do conversions. You’re not advanced stage. You don’t need the income. The RMDs are only gonna go up. If one of you were to pass away, then the tax brackets get cut in half. You’ll end up losing more money to tax. You already told us a few times you don’t need the money. Get it out of the deferred account, at least to the 22% tax bracket.

Then go to the 20, or to the top of the 24. yeah, this is easy.

Al: You won’t believe this, but. Check. Agreed.

Joe: Yep.

Al: I think the reason you do this is to lower your taxes in the future, right? While you’re in a lower bracket. I wouldn’t go to the 32 top of the 24 tops, right? then number two, you’re doing it for your kids.

You got four kids. You’d rather pass along a tax free asset to them than a taxable one. So, and Joe, you’re right. I mean, that’s the, widower’s tax, right? And here’s what that means. It means that. If one spouse passes the other survives, then the surviving spouse will then be in a single tax bracket, and the single tax bracket is the same tax percentages, but you hit those higher percentages in about half the time.

So in other words, the top of the 12% bracket for. Married

a hundred grand,

50 grand for single. So that’s what I’m talking about. So all of a sudden this will be taxed in higher bracket. It’s because of the widower’s tax.

Joe: Yep. Top of 22 is 200,000.

Al: Yeah. 200 to 400. Yep. Yep.

Joe: And then you, someone passes.

Now that 200 goes to, 24.

Al: Correct.

Joe: Just like that.

Al: Yeah, just like that.

Joe: Yep. And then,

Al: yep.

Joe: it’s, only gonna go higher because of the amount of money that they have in retirement accounts. So, yep. Get it out of the, retirement accounts, you don’t necessarily need the money. Paying the tax is gonna be a little bit of a pain in the ass, you know?

but I think you’re going to pay the tax regardless. You’re just buying your partnership on of the IRSA little bit early. And then having all that money grow tax free, and then you take on a little bit more risk in that Roth account because you don’t need the money anyway, and that money’s gonna grow for 10, 20, 30 years.

Then the kids are the grandkids name, the grandkids. Right. the beneficiary of the Roth.

Al: Yeah.

Joe: Talk about, leaving a legacy to the grandkids that you’re, you know, I don’t know if they’re going to, make it to like Ronaldo’s status or, but this will help them. have a good footing as they get into their adulthood.

So,

Al: yeah. Agreed. Yeah. A lot of reasons.

Joe: Yeah. So then you know, if you think about what this can do for the, grandkids, ’cause it’s tax free for them and then it can parlay even longer, so then they can hold it in the Roth when they inherit it. for 10 more years.

Al: 10 more

Joe: years, tax free,

Al: 10 more years of growth,

Joe: right?

Al: Yep.

Joe: So if, I was in that advanced age. but you’re young, you guys are spring chickens.

Al: I think so too. Especially as I get closer to that age.

Joe: Yeah.

Al: Seems younger than I

Joe: thought. I know. You just, you’re knocking on that seventies door,

Al: getting, kinda getting a little bit closer than I like.

Joe: you look 50 al.

Al: thank you. I’ll take that.

Joe: All right. But that new jacket

Al: Oh

Joe: yeah. you don’t love it. I love it. Alright. We cut.

Al: How’d you know? It was new.

Joe: I could just, no, I could smell the freeze

right off the rack.

Al: Yeah, that’s exactly right.

Am I Spending Too Much or Not Enough in Retirement? How Much Should I Convert? (Biking Barnsey, Arkansas)

Joe: we got Biking Barnsey.

Al: Biking Barnsey. Okay.

Joe: In Arkansas.

Al: And what I especially like about this is half a page.

Joe: Oh,

Al: perfect. Instead of a page and a half.

Joe: Yeah. alright. I wonder, we’re in Arkansas. I go to Arkansas in a couple weeks.

Al: Yeah. It’s kind of one of your regular spots.

Joe: It is, yeah. The in-laws I gotta played in the, the old four ball golfer in a minute. At Mom l. Country Club.

Al: I bet you before you got married, you never guessed Arkansas. I’d be going there a

Joe: couple times a year. No,

Al: not that there’s anything wrong with Arkansas.

don’t get me wrong, if it’s, got great beaches. It’s a great place.

Joe: yeah. I, enjoy going salt of the other people.

Al: Yeah.

Joe: All right. I’m just a retired guy doing the math. I’m 62, retired from the military in Anheuser Busch. It’s 60. All right. Okay. Monthly pensions are about 1200, $1,300 a year or $1,300 a month.

That’s from his military. 850 from FedEx. So I thought he worked for Anheuser Busch.

Al: both maybe.

Joe: And then FedEx,

Al: I guess

Andi: he’s 62. He is. Had a number of careers, apparently.

Al: Yeah, that’s what it looks like.

Joe: All right. So military, eight 50 FedEx. I’m sorry, 1300 from the military. Eight 50 from FedEx?

Al: Yeah.

Joe: 23.

300,

Al: yeah.

Joe: From Social Security?

Al: Yeah. Yeah.

Joe: All right. Down a rental that net’s $500. After expenses, I owe, two 50 on it. At two and a half percent on that property. Don only at four 80. 350 at 6% on my primary, which I hate. Love the house. Hate the interest rate. Value of that is 500,000 sitting on about $1.7 million in a taxable account, $44,000 in a Roth.

I’m not using an advisor pulling $5,500 a month from the taxable side.

Al: Okay?

Joe: Now I’m wondering, will my money last at this withdrawal amount or should I fly business class more often? My main question is how much should I convert to a Roth a year without feeling like I just volunteered upon the IRS’s golf Hing riding this from Munich Airport after a fantastic 20 day stay at Elwise Lodge.

Al: A

Joe: Edelweiss

That’s what I meant to say.

Al: Yep.

Joe: You’ve been there. You’ve been to Edelweiss Wa Lodge?

Al: No, but I’ve been to, I’ve been to Munich like three times and I’ve been to Austria where Sound of Music was filmed, so yeah.

Joe: Oh, got it.

Al: You bet.

Joe: I treated myself to a Polaris class back to Arkansas.

Al: I did that for the first time, coming home from Tahiti,

Joe: what is

Al: it, in November.

Never heard of it. It’s like a business class. It’s, a life flat. You go to sleep on a flat surface.

Joe: I’ve never been in a plane that had that.

Al: Yeah, you need to start traveling more than Arkansas.

anyway, it was, pretty nice, I have to say.

Joe: Okay, just left the airport lounge where those mix your own screwdrivers are way more dangerous than they look.

Yes, I’m single and adventurous gals out there who like to travel, good humor, and slightly questionable financial timing. Let’s meet before my next Roth conversion. Look at this. Look at Bikey Barnsey.

Al: I like it.

Joe: Trying to get set up here on their money or wealth.

Al: Yeah.

Joe: Guys, for the football,

Al: we’re a, a matching,

Joe: matching service.

Al: Yeah, we do.

Joe: Who wouldn’t wanna date Biking Barnsey?

Al: with this, he’s

Joe: got pension dollars, $1,200, 8

Al: 50,

Joe: 27.

Al: He’s got, 52,000 in fixed income, plus 6,000 coming from his rental. So that’s 58 just right there.

Joe: There.

Al: And then, you

Joe: have to spend 66 and then he is got close to 2 million bucks.

Al: I I would, I think what he meant to say is the, he says 1.7 in taxable accounts.

I think he means. IRA 401(k).

Joe: Yes.

Al: So he doesn’t, I don’t, I’m not sure if he has anything in what we call taxable. So another way of, we call taxable what you would think of as a non-retirement account. We, because it’s tax, as you receive that money, that’s why we call it that it’s already been taxed.

Right. We call it tax deferred money into an IRA, 401(k). ’cause you already got, you didn’t get the. Tax deduction. It went in pre-tax and when you pull the money out, you have to pay the tax deferred. Anyway. It’s okay. We, I know.

Joe: Yeah. People call taxable ’cause it’s taxable on the way out.

Al: I, get it. I, you know what, when I got into the industry, Joe,

Joe: you know, you called everything a pension.

Al: I, I, that’s, that seems so dumb to me. Taxable. that’s a non-retirement account. It’s a brokerage account. Say it’s anyway, whatever. But so if, you look at it that way, Joe, I think he’s spending 124,000 ’cause I think he’s got 58,000 of fixed income and then he is pulling another 5,500 a month from his.

401(k)s. Okay. So he’s spending, I think he’s spending 1 24 minus the, pension, and, Social Security. And,

Joe: where does the spend of $66,000 come from?

Al: That’s, when if you assume the 5,500 is always spending,

Joe: oh,

Al: got it, Yeah, but I don’t think that’s right.

Joe: Okay.

Al: I, think, I think he’s spending 1 24, I think his fixed income is 58 shortfall.

66, divided it into 1.74 million in assets, 3.8% distribution. Yeah, I’m okay. I’m okay with that. I think you’re spending about the right amount, so I don’t mind occasional players, but don’t do that every trip. Maybe that’s what I would say.

Joe: Geez. That’s who care. Keep polarising it up.

Al: but, Roth conversions.

Yeah.

Joe: I don’t know. Do you wanna pay the tax on the Roth conversions or does he wanna have to find a little honey to go on the Polaris way?

Al: that’s a good point.

Joe: okay, let’s gonna happen to him is that he’s spending six. 55. So he’s spending $66,000 a year from the retirement account. He’s 62.

Al: Yep. Yep,

Joe: alright. The RMD is gonna be the same as what he’s making. I know.

Al: that’s a good way to think about it. ’cause it’s not like he’s gonna get extra money, right?

Joe: No.

Al: So, so that maybe that’s a good point to make. Joe. What? So make that point.

Joe: he’s taking money out of the retirement account to live off of, which is $66,000 a year.

Right. His RMD. At $1.7 million, let’s assume the 66, he keeps that deferred account flat.

his RM D’s gonna be 60, $70,000. It’s almost the same as what he’s spending.

Al: Same. Same. So it’s not like he’ll be in a higher bracket.

Joe: RDA lot of times when you look at Roth conversions, you want to convert to get it out of the retirement account at lower tax brackets, but he’s gonna be in the same bracket, so it still makes sense to maximize the bracket that he’s in.

so you take the, what, does he have a taxable income? $52,000. but some of that’s military, so I’m not sure how much of that is ba versus not.

Al: It’s hard to know. Yeah.

Joe: I would say is taxable income is gonna be I in it, 70, I don’t know, call it 70,000. He’s in a 22% bracket.

Al: Yeah. Yeah. I think it’ll be 70 to a hundred depending upon how much of the military.

Joe: Yeah. But to the top of the 22, that’s what I would do if I was,

Al: I, would

Joe: Biking Barnsey.

Al: I, agree with you. And, the reason I would, is you’re gonna be in that bracket anyway. But Joe, I think there’s a big caveat. We don’t know how much money he has in a brokerage account to pay the tax. So if he doesn’t have any, he didn’t tell us.

Right. That it’d be hard to, it’d be hard to convert and go on all these trips.

Joe: Yeah, yeah. Yeah.

Al: Anyway,

I, would, I, agree with you, Joe. I think you,

Joe: there’s some advanced planning here.

Al: yeah.

Joe: That, that he would wanna look in to maximize everything. To do a conversion, it’s probably yes, but it’s probably not gonna be anything huge.

Al: Yeah. Yeah.

I don’t

disagree with that.

Joe: Yeah. When you get your taxes done, find out what tax bracket that you’re in. And then do a conversion to the top of that bracket.

Al: I like that. That’s, well said. If you can afford the tax.

Joe: But he, I wonder if he’s withholding,

Al: maybe

Joe: if he’s withholding out of the, dollars that he is taking now just withhold a little bit more.

Al: Yeah. Yeah. that’s true. And maybe that’s, maybe here’s one of the few cases where maybe that could make sense if there’s no money outside of retirement to pay the, tax.

Joe: Yeah. All right. yeah, hopefully, yeah, if anyone’s interested in dating Biking Barnsley of Arkansas.

Al: So he likes to travel.

Joe: He likes to travel.

Al: He likes biking.

Joe: Yeah.

Al: He likes to stay in, in hotels for like 20 days. Like Edelweiss Hotel.

Joe: Yeah. what does he drink in?

he

Al: doesn’t say that.

Joe: He’s former military. He’s probably rugged, handsome

Al: probably. Yeah.

Joe: Yeah.

Al: Yeah. Probably jacked. Huh? Jacked.

Joe: He’s biking. Bar Barnsley.

Al: Yeah, he’s, yeah.

Joe: In shape.

Al: He’s in great shape. He’s got 1.7 million. Yeah. The phone lines will be ringing off the hook.

Joe: Yeah. Just right, right into Andi. She’ll, connect the two of you. Alright,

Andi: send me a picture, Barnsey.

Andi: Contributing to a Roth account, or converting money from your retirement accounts to your Roth, can mean big tax savings, but only if you know the rules. Do it wrong and you could be handing the IRS a bunch of money for no good reason. The Complete Roth Papers Package is a free bundle of guides that covers everything you need to know: how Roth contributions and conversions work, the Backdoor Roth strategy for high earners who can’t contribute directly, the 5-year withdrawal rules, and how a Roth IRA compares to a traditional IRA and a Roth 401(k). Find out how to get decades of tax-free growth in your portfolio without costly surprises. Click or tap the link in the episode description and download it for free – make sure to choose “podcast” in the “how did you hear about us” drop down. And do a friend a favor and share the podcast and the free financial resources with them.

We have $18M. Are We Doing Too Many Roth Conversions Before Age 75? (Zisi)

Joe: We got Zizi. Zeeza.

Andi: Zisi. So thinking in terms of just the letter Z and C and just pronounce it

that way.

Joe: ZC. There ya go.

Al: That’s good.

Joe: Hello, Joe, Big Al in Andi, my wife and I are 59. 59 and a half respectively. We both retire in 2024. All of our current expenses right now include taxes in our about $270,000 a year. Here’s a combined assets cash, six 50 401(k), 2.6, Roth 3.1 taxable account. 12.5.

Al: If you’re keeping score, it’s 18.7 million.

Joe: Geez.

All right. He’s got $2.9 million. That’s his basis. 9.6 unrealized gains.

Al: Okay.

Joe: So

Al: again, as we said before, that’s, a good thing.

Joe: Yeah.

Al: Because that money comes out. First of all, the cost basis is tax free and the rest of it is taxed at a low capital gains rate. So congrats.

Joe: Alright. So far this year, 2025 dividends collected are $75,000 in interest.

15,000. I expect the dividends to be about $90,000 by the end of the year. Okay. We have converted $360,000 into Roth this year, and our plan is to convert the 300,000 in 26, 27, 28 and reduce that amount further after 2029. We’re keeping an eye on that Evil IRMAA and NIIT. Net investment income tax is not a concern for the moment because we can’t avoid it.

We realize long-term capital gains at $250,000 and we want to keep getting the same long-term capital gains for the next five to six years. Washington State has a 7% tax on any gains above 250, so we wanna stay below that threshold. The goal is to convert as much as possible by the time we reach RMD age of 75.

We want to earmark the Roth assets for the inheritance. Our two boys are doing pretty well, so leaving them pre-tax money is not a good idea. Our combined Social Security of full retirement age is a hundred grand and around $123,000 at 70. Are we being too aggressive with the conversion strategy? We don’t drink a drive.

A 2026 GMC Sierra ev when the white drives a 2025 Volvo XC 90 by the way. This is our second time writing the show. Oh. My first time was in 2019. You guys helped me a lot. of course we did 2019. It’s 2026. You got $20 million. You see 2019, you have like

Al: 500,000.

Joe: We had like, I don’t know, 250 grand.

Al: Wow.

Okay. No promises there.

Joe: yeah, no, there’s no guarantees of anything, of any kind. wow. They’ve done quite well.

Al: Yeah. They have.

Joe: I don’t think you’re being too aggressive.

Al: Me neither.

Joe: You got two? hold on. $2.6 million. Wait a minute. How old are they? They’re 60.

you want to get the RMD here?

I can’t do this off the top of my head, but I don’t think it’s like, it’s close, but I would just use it. An expected rate of return on what you think that the, retirement plan is gonna grow? I would forecast that out to each 75. Right. And then it, then I would look at my other income sources and then say, what tax bracket do I wanna be in?

And then I would work backwards to say, here’s how much money I want to convert over the next 15 years.

Al: Yeah, I like that. I have a couple. Points here. If my, my, for my calculations, Joe, on what they said, taxable income is about 300,000 and I get that from 90,000 dividends, two 50 of capital gains and a standard deduction of 32.

Okay. But as you know, 250,000 is capital gains, which is taxed at a capital gain. So you can take that off your, taxable income without capital gains is 58,000, and that means you could convert about 350,000 to state in the top of the 24. So I think their calculations are, you know, 360, 300.

They’re right in the right ballpark. I would at least do that for three years at a minimum, because it’s, you’ve got the money to pay the tax. You’re in a good bracket. You, there is no IRMAA. anyway, there’d be a little net investment income tax, but they’re gonna, there’s gonna be that anyway.

Joe: Right?

Al: Right.

So that’s what I would do. And then I would, after you reach age 63 Right, that’s when IRMAA kicks in and you may not have to be as aggressive, right? Because I mean, if

Joe: that’s what he’s seeing here, right? He is gonna do these conversions until age 63, that I think that’s 2029.

Al: Yeah. And I, would do more than that.

’cause and the reason Joe is because they’re in IRMAA. They’ll be in IRMAA already.

Joe: Yeah.

Al: at 63 without, doing any conversion. So bite the bullet, get more of this money in a tax free environment, I think you’ll be happy.

Joe: Yeah. I think there’s other strategies that he could think about too, with that large of a gain in a taxable account.

Al: Ooh, are we gonna go tax exempt trust again,

Joe: do that. Or, I don’t know. You could do an exchange fund because he’s got, you know, so much money in, a, taxable account. So you’re deferring taxes, you’re not avoiding taxes In some of the, In most of these strategies. So you’re, trying to get diversified, you’re deferring some of the taxes.

and you’re making the tax by. Less, painful.

I don’t know. There’s these long, short funds that are really interesting or SMAs That can create losses. there’s direct indexing that they, could do as well.

that could,

Al: to get more diversified.

Joe: More diversified, and then also your tax loss harvesting, you know?

Maybe a little more that burst

Al: kick in.

Joe: Yeah.

Al: Yeah, yeah,

Good. Yeah. Good point. All good

Joe: point. So, yeah, there’s, things that you can do. to mitigate some of this tax. but you’re in a great spot.

Al: Oh yeah,

Joe: for sure. but yeah, I want IRMAA’s the least of my words.

Al: And Joe, since we’re on the topic today, I wanna make one more point here.

Joe: Okay.

Al: which is this. So if you think about, if you only have two accounts, you got a brokerage account, non-retirement. Which we call taxable or you have a non or qual, a tax deferred account, which means that’s money that you put in tax deferred, that’s your IRA, 401(k). Would you rather have your growth in your tax deferred or your brokerage account?

the answer. It might surprise you is in your brokerage account because in this particular case, there’s big gains and when the stock is sold, assuming this is a stock, when the stock is sold, 25% of what’s sold is the tax basis. So there’s no tax on that. So the other. Three quarters will be taxed at a capital gains rate, which is fantastic.

Let’s say you’ve done this in your retirement account, now you got like, you got what, 13 million in a retirement account? It is a hundred percent ordinary income. Now you’ve got a huge tax problem. So the fact that you have a lot of gains in a capital gain account is actually the goal a lot of people get so afraid.

I don’t wanna pay any capital gains. I’m thinking that you did it just right. That’s the goal.

Joe: Yep. okay. That’s it for us today. Andi, thank you very much for getting up so early and, running the ship here.

Andi: No worries. Thank you. Thanks, for, getting us more content, getting some questions from October answered.

It’s pretty good.

Al: Yeah, it’s so fun. It’s working.

Joe: Catching up.

Al: Yeah, I got to show off my new jacket.

Joe: Yeah, you look great Al.

Al: It’s,

Joe: you look great.

Andi: That’s going into derail, I promise you.

Joe: we’ll see you next time. Shows come your money wall.

Outro: Next Week on the YMYW Podcast

Andi: Next week on YMYW, Joe and Big Al spitball for Red and Kitty and Jimmy Billy Bob on using the 72(t) tax election to take substantially equal periodic payments in early retirement, and they help executives Steve and Sharon figure out what to do with all of Steve’s employment incentives – and their 8 million dollars – before Steve gets laid off.

If you got something out of today’s episode, or if it sounds like next week’s show will be useful, why not text the link to a friend who’s asking the same questions? The more people we can help plan smarter for retirement while we make fun of finance, the better. Because Your Money, Your Wealth is your podcast, and the show wouldn’t be a show without you.

Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.

The Derails: Big Al’s New Jacket

_______

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