Episode #29: The Trouble With Roth Conversions


The Principle:

Roth conversions might not be for everyone. There is no one-size-fits-all retirement strategy. Discover how Roth conversions might impact your retirement.

(Click the featured times below to jump forward in the episode)

Honest Takes:

[00:31] – Ed Slott Warns Roth Conversions Aren’t For Everyone.  

  • Ed Slott is an expert on IRAs. In an interview with Morningstar, he suggested Roth conversions aren’t the best investment strategy for everyone. He suggests if you’re over 70, you might not get the benefit of a Roth conversion in your lifetime.

[2:03] – The Problems With A Fragmented Financial Industry.  

  • To determine whether certain investment strategies make sense for you, you need to see how they’d affect the other areas of your financial life. To use an example, Roth conversions can be effective, but they usually come with large tax consequences. To determine whether a Roth conversion makes sense for you, you need to consider the tax implications alongside the investing implications of this move. Unfortunately, we tend to look at one piece or another of our investing life, rather than trying to see each piece as part of a bigger puzzle.

[2:41] – Roth Conversions And Required Minimum Distributions. 

  • Brian suggests a Roth Conversion can lessen the amount you’ll have to withdraw at age 70 and 1/2 in required minimum distributions. This in turn can in fact lower your tax bill. He uses the story of an existing client to illustrate this concept.

[5:39] – IRAs Are A Debt To The IRS.

  • IRAs function as tax-deferred accounts. This means while your contributions to these accounts won’t be taxed up-front, the IRS will be waiting to collect their cut once it’s time for you to withdraw your investments later on.

[7:11] – Invest For The Future.

  • Perhaps you’d like to leave an inheritance for your children or grandchildren. If so, you need to consider the tax implications of your investments now. Otherwise, your heirs could wind up with that hefty tax bill. Tax planning should absolutely factor into your legacy planning process, and that’s why it’s important to work each element of your retirement together into a comprehensive plan.

Today’s Truth:

Other Virtues:

The host: Brian Bowen – Contact

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