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Ep 28: Understanding Roth Conversions as a Planning Strategy

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Ep 28: Understanding Roth Conversions as a Planning Strategy

The Concept:

With taxes at historically low levels, many people have turned to Roth conversions as a planning strategy. Is this a smart option for you? What all should you consider when it comes to conversions? Let’s breakdown the pros and cons and explain how the process would work for you.

The Reality of the Matter:

Every person that we work with on retirement planning will learn about Roth conversions and we’ll evaluate the strategy, but there’s still a lot that people don’t know about the Roth option.

That’s partly because the conversions haven’t always been available, and taxes haven’t been this low in quite some time. This particular strategy really takes advantage of current tax rates by allowing investors to pay them now rather than when they make withdrawals later in life. The assumption is that taxes will likely go up from where they are currently so it might be best to convert your retirement accounts now.

But is that always the best strategy? As you can probably guess, it depends on you situation. For some of our clients, a Roth conversion makes a lot of sense and we highly recommend it. For others, it wouldn’t benefit them much so they should keep their accounts in place.

So how do you know where you fall? First, you should always meet with a financial advisor and let that person evaluate your plan. But we will spend time on this episode of the Retirement Reality Podcast giving some general guidelines on which situations will benefit and who might not. We’ll also give you a clear definition of the Roth conversion and the process that you’ll go through as you move your money.

Mike will take you through everything you should know and lay out the considerations we discuss with our clients. Whether or not you decide to go this route, it’s important to be aware that this option exists. We have a lot of clients that come to us and say their biggest regret is not putting more into Roths when they had the chance. But it’s not too late to take advantage because this could be one of the best legacy gifts you pass along to your family

1:18 – Roth conversions are a topic we talk about a lot in the planning process.  

2:37 – What is a Roth conversion?

3:33 – Why might this be especially helpful for high-income earners?

5:04 – Mike explains tax considerations for a Roth conversion?

6:09 – What are the common mistakes people make with a Roth conversion?

7:25 – Who is someone that might benefit from this strategy?

8:48 – This is a great way for people wanting to leave money to their kids through a retirement account.

9:39 – Who else should not consider a Roth conversion?

10:49 – A common mistake we see people make relating to RMDs.                                                       

11:48 – Every situation is different and you need a personal plan.

13:16 – Mailbag question: I have several thousand in company stock that I want to cash in and put towards land to build a vacation home. Is there any reason I shouldn’t do that?

Thanks for checking out the Retirement Reality Podcast. We’ll talk to you again next week.


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