When the Roth IRA was created in 1997, it was a small footnote in the world of Pensions and 401(k)s. Fast forward 20 years, and the Roth is on everyone’s mind. The big question: Should I convert my Traditional IRA to a Roth?
There are 3 main questions not ask yourself about conversion. First, when will you need the money? The second involves taxes. And finally, should you convert all at once or spread the conversion over a few years?
David Babinski addresses the questions you need to ask yourself when considering a conversion and more.
Transcript (edited for clarity)
Welcome, everyone. This is David Babinski with TrueNorth Resources and a member of your Family Office Team. Today we’re going to talk about the Roth IRA. We’re going to cover a lot of ground but before we get into it, let me tell you a little bit about myself. I have 26 plus years in financial services.
The first part of my career was working exclusively with people who are retired or about to retire. So I’ve got a lot of experience of actual planning in retirement, not for retirement. And I think there’s a big distinction there. I’ve seen pretty much every mistake that could be made and over and over and over, I’ve always said, “Boy! I wish I met you 15 years ago, and we maybe could have put some things in order ahead of time.” And now I find myself with the opportunity to do just that.
A couple of things I want you to keep in mind before we dive in. The goal is to get as much money into the Roth IRA as possible. And why? Well, the Roth is so beneficial that the government severely limits the amount that you can put in. They they cap the amount of contributions and then they prevent high-income earners from contributing at all. But hopefully I’m going to show you a couple of ways we could go beyond these limits. After the presentation is over, you should realize that the Roth is the best option for retirement savings. A couple of folks have even given me feedback, “Wow! All my money should be in Roth. How do we do that?”
It would be great if we could do it. And maybe that should be the goal. You’ll see through the case studies that I’m going to present that you’ll have more spendable income in retirement with the Roth IRA.
We’re going to cover a 30,000-foot view of what a Roth is, who can contribute, and what the limits are. We’re also going to talk briefly about something called the backdoor Roth. Then we’re going to go into Roth conversions, because that’s really what the presentation is really about. Through that process we’re going to talk about self-directed IRAs and then I’m going to go through four case studies.
So what is a Roth IRA?
Contributions are made to a Roth IRA on an after-tax basis, so there’s no upfront tax deduction. There’s two big differences between a traditional and a Roth IRA. The biggest is on the front side. You’re not getting that deduction when you make a contribution. Another way to say it is it’s an after-tax contribution. There’s no deduction.
Your contribution in both a traditional and Roth IRA can be up to $6,000 and then there’s what they call a catch up. If you’re over 50, you can put in an extra $1,000.
Now, the next difference between traditional and Roth is that withdrawals from a Roth are tax-free. They accumulate tax-deferred just like all the other retirement plans, but, when you take the money out, it is not a taxable event. There are also no required minimum distribution. Any other type of traditional plan, once you get to age 70 and a half, depending on if you’re still working or not and there are some other caveats, but you’ve got to start taking something called an RMD, required minimum distribution. With the Roth, as long as you have it for at least 5 years and you’re 59 and a half, there’s no tax on those distributions and there is no required minimum distribution.
The contribution limits for the Roth are phased out. If you’re single and you have taxable income above $137,000, or just adjustable gross income I should say, or you are married filing joint with AGI about $203,000, you are prohibited from making a contribution directly into a Roth. That’s why the concept of the back door came in, because once you are earning a certain amount of income the ability to contribute phases out. One of the first thing I hear a lot of people say is, “But my CPA says I make too much money for a Roth IRA.” But things have changed.
The contribution, yes, you make too much, but what we’re going to focus on is on converting to a Roth, not on contributing. The rules used to be if you had over $100,000 in adjusted gross income, you were prohibited from making a conversion; you were not allowed to enter the Roth Arena. If you made too much money, you couldn’t contribute. And if you made too much money, you couldn’t convert. Those rules have changed.
You can now convert an unlimited amount into the Roth, regardless of what your income is. This has opened the door for some advanced planning strategies. Now, the one thing I do want to say is the rules are very technical and they really do require specialization. So, I’m going to move fairly quickly. And of course, you know it really is customizable to each individual person.
Ed Slott, one of the prominent IRA gurus and New York Times best-selling author, had a quote in one of his books, “The Roth IRA is the single best gift Congress has ever presented to the American taxpayer. It allows us to build retirement accounts that over the long haul will grow to incredible size and remain tax free of income tax forever.” That is the case, and that is one of the reasons why we’re focusing on Roths.
Let’s compare and contrast just as a summary. When I say traditional IRA, I mean 401(k), your SEP, your 457, your 403(b). These are the traditional, deductible IRAs that you’re accumulating your capital in, they are growing tax deferred, but someday you’re going to have to pay tax when the money comes out. That’s the traditional IRA. Tax deductible, growing tax-deferred, but the withdrawals are going to be taxed at ordinary income tax rates, the taxed later as I call it.
They also have required minimum distributions. In the Roth you don’t get that upfront deduction; you don’t get the upfront hit. The account still grows tax-deferred, but those qualified withdrawals are completely tax- free and you’re not subject to RMD.
Now, the traditional IRA, the taxed later, there really is no income limit to make a contribution. This is an important concept to understand: anyone can make a contribution to a traditional IRA.
Let’s say you make too much money and you max out your employer’s plan, your plan if you’re the employer, it’s the deductibility that phases out on the traditional IRA. Why is that an important distinction? Because you can make the contribution to a traditional IRA, it’s not going to give you the deduction that it normally would if you didn’t have those income, but if you then turn around and convert that non-deductible traditional IRA to a Roth, well, you have basis because you didn’t deduct it. It basically can convert to the Roth for zero cost.
Think about it. You make the $6,000 contribution. You’re not allowed to deduct it because you’re phased out. And then you turn around and say, “Well, I want to convert this to a Roth IRA.” What’s your basis? Well, because you didn’t deduct it your basis is the $6,000 and you owe nothing. Therein lies the backdoor Roth IRA. You make a non-deductible traditional IRA contribution, then you convert to a Roth. The conversion is tax free since you didn’t take a deduction to begin with and there’s no income limits.
Basically, net effect, you’re phased out for making a Roth contribution, but with one extra step, you’ve now effectively made a Roth contribution. People have said, “It’s only $6,000 a year, or $7,000 when you over 50 and can contribute the extra $1,000, but if you just run that at 6, 7, 8%, it can add up to a significant amount of money.
The other place where we see this work is when business owners use the strategy of hiring their kids. With the rules of the exemptions and the standard deduction, you could pass a lot of money on to an individual and they don’t have to pay any tax. Then you turn around and those kids that are now making $6,000 or $12,000 a year put that into a Roth and they could basically be a Roth millionaire by the time they’re 40, just by putting in these $6,000 contributions. So it’s very, very powerful and I don’t want to gloss over the fact that it’s only $6,000 per year. That could add up over time for sure. And the fact that it’s tax free is fantastic.
So, we’ve got this window of opportunity. You already have an IRA or 401(k) and now we’re talking conversion. A Roth conversion refers to taking all or part of your traditional IRA and moving it to a Roth. It goes from the taxed later – it’s growing, growing, growing; someday I’ll pay the tax – to the you pay the tax now. There are no income limits. The converted amount will be added to the current year’s tax, but then the accounts are going to grow tax free forever and not subject to RMD.
My personal feeling is taxes are the lowest we’re likely to see in a generation. Why? Well, first of all, the current tax law, the Tax Cut and Jobs Act of 2017 is set to revert back to those higher tax levels in 2026.
So, what does Congress have to do for taxes to go up? Well, they have to do nothing. It’s already the law of the land that taxes are going up and we know it. This is the first time in my career when I can definitively say taxes are going up. And my personal feeling is they’re probably going to go up before 2026, as soon as the administration changes. There are already some grumblings from a congresswoman in New York that 70% wouldn’t be the highest tax rate tax bracket they would agree with. Right now, it’s 37%.
But forget politics. The national debt is almost $23 trillion. It’s incomprehensible, but somebody is going to pay for that. And I say it all the time; there are two places where the government knows to get money: from the people who have it or from someone who’s dead. You can pass away and leave $12 million to your heirs with no federal estate tax. When I started in this business, it was $600,000. By the stroke of a pen, that can come back. Everyone in the industry has taken their eye off of estate planning because the number is so high, but it could come back. It was a million dollars for a decade and then the government started taxing that. We can’t lose sight of that.
Now the tax brackets themselves. Here’s the good news about IRAs. When a recession started in 1972, and the Act that allowed for retirement savings came into play, the top tax rate was much, much higher: 70%, 72%, 48%. Think about it. For every dollar that you were able to put into your own retirement account and save it for your retirement, you were saving 70 cents on the dollar. You know, you put in $10,000 and you got a $7,000 refund. It made a ridiculous amount. Of course you would do that. Anyone would do that. Rates were much higher. But someone’s got to take a little bit of a higher view of things and say, “Wait a second, tax rates are only 37% right now. Maybe this is an opportunity for us to harvest some of those earnings, slide them over into the taxed never bucket and let them continue to accumulate where we will never have to pay tax again.” So, you deducted it when it was 70 and 72 cents and now you can slide it over at 37% and then have a double and double again from here. That’s what we’re talking about here. And then on top of that, if you can combine the Roth conversion with some advanced strategies, you are going to see why it’s very, very compelling to at least go through the exercise to see how you might be able to benefit from a conversion.
Let’s go through a couple of case studies, the first one I call the great IRA myth: you will be in a lower tax bracket in retirement. I say that’s absolutely false. I’ve worked with hundreds and hundreds and hundreds of retirees, and the only ones that were in a lower tax bracket in retirement are the ones that dropped their standard of living. If all of your money has been accumulating in your 401(k) and your IRA and you need to have the same or maybe even better standard of living – you want to do some traveling, you want to help grandkids, whatever – every time you touch a dollar, it’s taxed. You are very likely to be in a higher tax bracket, notwithstanding the fact that taxes are absolutely going to go higher. We know because that’s the current law. So, I say that’s a myth. You will be in at least the same tax bracket in retirement. And my point is, why not pay tax now on the seeds, not the harvest.
Think about that analogy. Imagine a farmer who’s about to plant his back 40 acres and he’s got $10,000 worth of seeds sitting on his truck. He can pay the tax to the government now on that $10,000, or he can wait until that 40 acres grows out and have $4 million worth of crops and pay the tax on the $4 million. It just it just doesn’t make sense to keep accumulating these accounts knowing the tax rates. Even if they stay the same, you’re going to pay a lot more. Here’s the case study:
From 1972, when tax rates were 70%, all the way through 2012, you saved $15,000 a year. And it’s a deduction. I assume you’re in the highest tax bracket every year and you’re able to deduct the whole $15,000, so there’s a couple assumptions there. And I said it’s going to compound at 8%. You’ve invested 41 payments of $15,000, that’s $615,000, and you’ve saved $281,000 in taxes. That’s the amount that you would have paid if you didn’t have the deduction, which comes out to an average of 45% tax bracket. So, you can see taxes were much, much higher in the past. Your IRA account is now worth $4.5 million. But if you were to just take it all, and I know you’d say I would never take it all but just apples to apples at today’s tax rate, you would owe $1.6 million in taxes.
You basically you contributed $615,000. It grew at 8%. It’s now worth $4.5 million, but a 100% of that, $4.5 million is taxable. At your 37% tax bracket and your account would now be worth $3.2 million. And again, that assumes that we’re only going to be in the 37% tax bracket during your retirement. So you’ve paid $1.2 million too in tax. Again, this is pretty simplistic, but I want you to see the point. You saved $218,000 while you were making those contributions, but now you owe $1.2 million. Even though the account accumulated and grew nicely and it’s worth a lot more, the amount that you owe on the tax also grew and accumulated, and it’s worth a lot more because your deduction is only on the amount you contribute.
You put in the fifteen thousand, you take the deduction. But as the account grows, the taxes are going to be due on the entire amount, which is millions. And then if you just say, “Well, I don’t even need the money,” you can let it continue to grow until April 1st of the year after which you turn 70 and a half, you have to start taking these required minimum distributions. And boy, do they start adding up. One way or another, the government’s going to get their taxes on these accounts. Tax rates are set to go higher. RMDs come in. They caused Social Security to be taxable – some people don’t realize it, but up to 85% of Social Security could be taxable. And then once you get to certain high-income limits – the IRS and Medicare’s high-income limits are like $75,000 for an individual and $100,000 for a joint – the government starts surcharging your Medicare premiums and your Part D drug premiums in retirement.
The other caveat is the Secure Act. There’s a law going through Congress right now and it’s expected to pass. And the president has alluded that he’s going to sign it. It’s going to basically unwind 25 years of financial planning. One of the big downsides of this Act is, if you leave an IRA to a to a beneficiary, instead of having the stretch option to take it over their entire lives, they have to cash it out over 10 years. And that’s a game changer because we’ve been making assumptions for folks that they’re going to be able to leave these massive IRAs and not have to pay the tax. Again, it’s just another sign. The government needs their tax and they’re going to get it some way somehow. And by the stroke of a pen, they could change the rates or they could change how quickly you have to take it.
Here’s another pitfall I’ve seen. Again, I’ve worked with hundreds and hundreds of couples in retirement. We set up a plan. They’re getting their income. They’re doing what they want to do in retirement. And, lo and behold, one of the spouses passes away. Overnight the surviving spouse goes from being in the 12% or 22% tax bracket, maybe the 24%, to as high as the 32% tax bracket, simply because they went from being a joint filer to being an individual filer. I had someone call in recent memory who said, “I owe the government $12,000. They lowered my Social Security payment. I don’t know what’s happening. Nothing’s changed. As a matter of fact, our income is down a little because the smaller Social Security goes away.”
If you’re making, say, $200,000 per year married filing joint with the standard deduction, you owe about $36,000 in taxes, the same exact amount of money for someone who’s filing single. It’s like $45,000 in taxes. And they’re going to surcharge your Social Security. They’re going to surcharge your Medicaid. There are a lot of pitfalls once you get into retirement and once you start filing single when you’ve been used to filing as joint.
The concept of a Roth IRA conversion is unique to each and every person. And the basic strategy, if you search this in the blogosphere, they’re going to say take your current tax bracket and just kind of maxed that out. So, if you’re earning $150,000 and convert $18,000 and get up to $168,000, which is the top of that tax bracket, on a basic level that’s a strategy. But there’s definitely more advanced strategies, especially as you get into having millions and millions of dollars in your IRA. You need more than that. We absolutely are setting up plans that plan on converting each year until the tax rates are set to go up. So we do have some time to spread it out. We don’t have to take the hit all at once. And then, if you do have a very large IRA, we can couple those basic strategies with some advanced reduction strategies. ]
Lt me go through a quick case study here of a couple age 52. They’ve got $2 million in their IRA and they are adding $25,000 per year up until age 62. They say, “We don’t need this money. We’re just going to keep it for emergencies or leave it to our heirs and just let it grow.” If you take those parameters, the IRA value at 70 and a half, which is when RMDs start, is $6.3 million. And that first year RMD requires you to take 3.65% or divisors 27.4, which is $310,000. But right then, they’re going to owe 37% of that or $114,000 in taxes. When I run out to life expectancy, the IRA would have $885,000 left. Why? the RMDs increase every year. That’s the other thing some people don’t realize: they start under 4%, but by the time you’re 80, they want 5% of your account. By the time you’re in your 90s, they want 10% or more per year. So it depletes very quickly and pushes you up into higher tax brackets, especially now that you’re single.
I can leave unlimited amounts in my IRA to my spouse. Yes, but they’re still subject to RMDs and they’re going to push up those tax brackets much quicker than they would for a joint filer. Now, we didn’t need the money. That’s what this hypothetical example says and so all those required minimum distributions were reinvested. We’ve accumulated that on the side, $5 million. But over the lifetime of this person who’s here today with the $2 million IRA, they’ve paid over $2 million in taxes to the government.
That’s why I keep calling it a joint account with the government. If you’ve got a traditional deferring IRA, you’ve got a joint account with the government. The net estate to the heirs is $5.8 million.
That same exact situation. If we were to convert to a Roth, and here’s one thing that we wouldn’t do, but I’m going to be more conservative in my in my illustration, we’re going to pay the tax out of the actual IRA. Think of it. I’m going to move a $100,000 over to the Roth, tax is due on that, and I’m going to pull it out of that $100,000 and only roll over the difference. We wouldn’t do that. I’m going to show you a way to pay it from outside your account, but let’s just say that that’s your only option. This is the only money you have and you can’t come up with it. Your IRA at 70 and a half would be $4.1 million. Using the exact same 6% growth rate, at life expectancy you’ve got $12 million to spend yourself for long term care, nursing care if you need it, or leave it to your heirs, and it’s going to continue to grow tax free.
Again, apples to apples, not being forced to take the money out and then save it after tax, instead of having $6.3 million, yes, you only have $4.1 million because you paid the taxes out of the IRA. I’m going to show you in a couple of minutes how to pay it from outside the IRA at a discount. The value of the IRA at age 89, that’s life expectancy, is $885,000 for the traditional and it’s up to $12 million for the Roth because it’s able to compound and compound and compound.
Of course, those distributions have been reinvested. There’s still a little bit of tax due at death on that $885,000 assuming you pay it all at once. But the total net value to heirs is $5.8 million net net on the traditional side, $12.54 million on the Roth side. Plus, you paid $1.6 million less in taxes. It’s just so compelling at 37% to convert.
What happens if we can convert at a discount? Let’s look at that real quick. You have an extra $6.7 million tax-free to spend yourself or for your heirs and you’ve paid $1.6 million less in taxes. Someone says to me, “Well, that’s good for an academic exercise, but I need income. I’m saving all this money so I can stop working and I can spend some cash. What does it look like if I need to take that cash?”
I put up the same scenario: they are 52 today and have $2 million in an IRA which they are adding to until they stop working at age 62. They’re going to start the required minimum distributions at 70. So, inside the traditional IRA, it’s worth the same $6 million. The first year’s RMD is $310,000, but they’re going to be in the highest tax bracket, say 37%. They would have $195,000 to spend.
For the Roth IRA, again, it only grew to $4 million because we depleted the money to pay the tax and there are ways around that, but let’s just assume it’s only $4 million. They need $195,000 to spend. Well, that’s all they need to pull out, because in a traditional IRA, when you withdraw $310,000, you’re only going to get $195,000 after tax. In the Roth if you need $195,000, all you need to take out is the $195,000 because the tax has already been paid. It’s sitting there for you to spend and there’s no effect on your income taxes whatsoever when you make that qualified withdrawal from your Roth.
If I put it in a chart, you would see that there’s a lot more income coming out of the traditional because we then have to pay the tax on it, but that net retirement income to spend is exactly the same. The traditional IRA is basically depleted but your Roth IRA still has $6.9 million in it for emergencies, to have a higher quality of living, or to leave it to your family if that’s what you end up doing. Taxes still need to be paid on that residual IRA and the Roth continues to grow tax free.
I always say retirement is about income, not net worth. The popular press gets me every time I see an article that says, “How much you need to save to retire if you’re 40, if you’re 50, if you’re 60.” The numbers are irrelevant. It’s how much income do you need to live. That’s the number that we need to start focusing on. That’s after taxes, what can you spend and not worry about running out of money? So, the converted Roth provides the exact same after-tax income in my example, but you have an extra $6 million to spend to increase your standard of living or to leave your family. And it’s still growing tax-free. And you’re not going to be subject to that 10-year drawdown with the Secure Act. Even if you have to draw it down, it’s still tax-free.
Those are the two case studies I wanted to show to prove the point that at 37%, it still makes mathematical sense to put a plan together to start to convert some or all of your traditional IRAs to Roths. Now, I’m going to show you something that we put together called the double discount method. With this example, I have to start with a little bit of a caveat. I want to talk about the concept of what’s called the self-directed IRA. It’s sometimes also called a checkbook IRA. It’s still under the umbrella of IRAs so it’s still a qualified plan, but instead of Fidelity or Vanguard or TD Ameritrade, you have to find one of these custodians that are considered self-directed. Whether they give you a checkbook or not is irrelevant. It’s just under self-directed and it allows you to do some extra things. You can buy alternative assets, for instance, rental property, raw land, you can invest in real estate deals – a lot of the self-directed IRA experience I have was buying mortgage notes, lending money to fix and flip and the notes would go into the self-directed IRA – privately held company stock or private placements, gold and silver coins, tax lien certificates, even cryptocurrency. There’s almost an endless list of what you can invest in inside of a self-directed IRA with the one carveout being what’s called self-feeling: for instance, you cannot buy your own primary residence and call it an investment inside your IRA, you cannot buy a beach house and stay in it more than two weeks per year, no wine collection.
So, why did I bring this up? Because we’ve got a strategy. And my experience with self-directed IRAs has led me to discover something that happens when you invest some of these alternative assets, because every year inside your self-directed IRA, the custodian calls out to the sponsor and says, “We need a valuation once a year.”
If you’re in Fidelity or Vanguard and you’ve got the S&P five hundred every day, they know what that’s worth. They’re getting a value. But if you invest in a 7-Eleven or some kind of business, the custodian is not going to have any idea what that value is. But once a year, they need to report to the government. So once a year they ask the sponsors to report to them what the investment is worth. And in many cases, when we’re doing ground up real estate developments, the deal will actually drop in value the first year.
Imagine that you open up a self-directed IRA and you move $500,000 from your traditional to your self-directed. This is called the trustee-to-trustee transfer and is not a taxable event. We take that money and we invest it, say in assisted living facility, and it’s a ground up development. And say the total budget to get the project ready is $4 million. Here’s what happens:
That $4 million goes into the sponsor and it pays for the land, but it also pays for architecture, surveys, engineering. They do core hole drilling. They do all kinds of things referred to as soft costs, the cost to set the project up. Time goes by and it’s now towards the end of the year. The custodian sends a notice and says, “Hey, we need a valuation to report to the government on what these folk’s IRAs are worth.” In our experience, that first valuation comes in and says, “Here’s what the land is worth, but the appraiser is not going to give us the value for the money we spent for the architect. They’re not going to give us the value we spent on the engineering because their thought process is, “what if you sell the property and the person’s not going to do exactly the project you’ve started down the road with? It’s not going to have the value.”
So, in that first appraisal, when it comes in and the soft costs are basically excluded or discounted, we’ve had experience where the appraisal comes back at 60 cents on the dollar. Now, believe me, when it first happens, people are picking up the phone and saying that they just lost $200,000 and we say, “No, no, no. It’s just what the appraiser had to do. That’s all he could justify that this is worth at this point in time. It’s a legitimate market-based appraisal of the project.” You now have a discount inside your traditional IRA but it didn’t take long for us to realize, “Wait a second. That’s the perfect time to convert.”
We invested in the project. The project went about its business and paid its bills. The appraisal happened to come in at a point in time. It’s less than we put in. Boom! Now we call up the custodian and say, “Transfer that asset from the traditional self-directed to a Roth self-directed.” that is a taxable event, but the taxable event is going to be based on the market price, which is $300,000.
You get a K-1 or you get a 1099 R for the $300,000 and assume you’re in the highest tax bracket. You’re going to owe $111,000. Keep that number in mind. If you think about the original $500,000 that you transferred over, that’s like a 22% effective tax rate. You owe $111,000 and you now have the equivalent of $500,000 in the Roth, even though at this moment in time it’s at a discount. That’s the first discount.
Another analogy would be, very simply, you buy some shares of Tesla, there’s a bad announcement, and it goes down 10%, 20%, 50%. That’s the day you convert. Well, that’s what it’s worth at that time. You’re going to hold it until it goes up to $500 a share. But if it goes down under $200 and you convert it, you may as well have it sit in the Roth and then all that growth happens tax free.
That’s exactly what we’re doing here. We’ve got a $500,000 investment. We expect it to be $1 million or $1.2 million someday once the project is up and running, but at that one little point in time, we have a discounted valuation, a perfectly legitimate valuation, because that’s what it’s worth. That’s when we’re going to convert to a Roth. You get your 1099 R that shows the $300,000 of taxable income. Now you can use an alternative real estate investment to reduce your taxable income.
So, the Roth to the conversion transactions over with. It’s the next year. It’s March, April. You’re looking at your 1099s and you say, “OK, I know this is coming, an addition to my income. I need to do an additional or an original real estate investment. How does that work?”
You have $300,000 in additional income, the projects that we’re familiar with give a deduction of $4.50 for every $1 that you put in, what’s called the ratio. If you invest $67,000 into a project that has a land conservation easement option, that will result in a $300,000 charitable deduction. Now you’ve effectively wiped out that 1099R that showed that you converted to a Roth, not for 37% of $500,000. Not even for the $111,000, but for $67,000.
Think about that. You’re now paying $67,000 to convert that $500,000 traditional IRA we started with in the beginning to a Roth. You crunch the numbers on that. That’s like a 13% effective tax rate. That’s the second discount in our double discount method.
Everyone’s situation is unique. This must be customized on a case-by-case basis because there are adjusted gross income limits and there’s a lot of work underneath the surface. But you need to know the concept of you can convert to the Roth and not just think you’re going to add dollar for dollar to your taxable income. We’ve got some scenarios that can show how you can move that over at a discount or even a double-discount, which is better.
Think of it this way. Would you pay 13% to convert your IRA accounts to a tax-free income and tax-free inheritance? Remember the first two examples were at the full tax rate of 37%. Imagine if you could pay it out of pocket and not have to pull it out of the IRA and just let those things run and run.
To learn more about whether about Roth conversions and how you could benefit from them, call TSP Family Office today at (772) 257-7888.