Craig Wear explains which assets to convert first when moving money from a traditional IRA to a Roth. Convert high-growth stocks and income-producing investments first so future gains compound tax-free. Save cash, money market funds, and bonds for last.
Hey, well, look, if you're an IRA millionaire and you're thinking about doing some pretty serious Roth conversions, at some point, it's going to occur to you that you really need to give some thought to what your investment transition game plan is going to be. Which investments do you use first from your IRA to get over to the, to the Roth? Which ones do you save for last? How do you make a decision? Which one do you use? All those kinds of things. So I created a video for you to kind of be able to think through that. And I'm not saying I got all the answers. I'm just saying in 14 years, we've done this hundreds and hundreds, if not thousands of times and advised a lot of clients. And maybe something in here will be of some value to you that'll help you with your own investment plan for your Roth conversions. All right, take care.
All right, so that's the first thing. Get us get a head start on the end of the year. The second thing is to consider what your investment transition plan is going to be. So decide on the order in which you convert your holdings. It really does matter. So a lot of times, well, understand this. Whatever you convert is going to grow tax free until you want the money or until your heirs are forced to distribute it because there are no required distributions. So then it becomes, you get to be in charge of when you want it, and when you get it, there's no tax. But from an investment standpoint, it's going to grow totally free of any tax. So you need to ask yourself, which of my holdings will benefit most from time to or timing? By that, I mean, what are going to be the best performers over the future? And you want to convert those first or which ones maybe you believe are really going to come back and do great? Because. But they're currently depressed, and if you convert them when the prices are lower, when they come back, you get the benefit of that. So the order in which you convert your holdings is really important. You want to start with, there's this, there's this asset conversion hierarchy that we talk about and that we display and we, we talk through with our clients. You want to, you want to do the High Flyers or the Income Producers, Right? And I was going to have you put this in the chat, but I already gave away the answer by my explanation, so no reason to put it in the chat. You want to use the High Flyers because you want to get all the possible gain out of those tax free as you possibly can. Or I know a lot of people have real estate that they put into trust that are IRAs, and they're getting income off of that real estate where they're getting, or they're flipping it and doing, doing different gains. And yes, there are IRA accounts that you actually can own real estate in. And those are really great assets to convert also sooner rather than later because they tend to outproduce a lot of other things out there. And I also, as I also mentioned, if you have a high flyer that maybe is just at a, just at a little bit of a low point right now, you maybe want to convert them first also because they maybe are down 10, 15%. You know, you believe they're gonna come back, do that, get, get those over there as quick as you can. But your bonds and your money markets and cash, you wanna do last, you wanna keep them for the end because they're not gonna grow a whole lot. Now, bonds have done well short term, but they're probably not gonna outperform some of the other things that we talked about. But regardless, I mean, you may be in junk bonds and believe they're going to do 30% this year or something like that. And if you believe that, then they would fall under the high flyer category, and that's what you would want to do. But the biggest thing for the, there was a minority view that when we talked about the risk, there were about 25% of you that you weren't real.
Sure whether it was going to go.
Up or go down in terms of risk. And I'll say this to you, don't change your risk tolerance as you do your conversions. And this is part of the art of Roth conversion implementation. You want to leave, you want to leave your total risk the same. And then there's no need to start selling positions because you can move them in kind from your IRA to your Roth. And there's no need to even change investment advisors unless they're not doing a great job for you. But what your investment firm is going to want to do is as you open up that Roth IRA account, they're going to want to take an equal proportion of, of each of your holdings and move them over, because it makes the pie chart look right. They can look at it and they see that you're balanced, and you can see that you're balanced. So don't get hung up on keeping the part, the pie chart look in the same. You want, you're actually going to want to move those, those High Flyers or those small stocks or some of that other stuff over first. And so that pie chart might look askew a little bit if you look at it individually. If you look at your Roth pie chart, your IRA pie chart, they're not going to look like what you're used to, but if you combine them all into one, you still have got the same allocation.
So hopefully that makes sense to all you guys.
It's. And it's an important point. It's not one that people think about until they're actually ready to start pulling the trigger on doing conversions. And then we get the phone calls of, okay, now what should I do? Which one should I go with?
So it sounds like a lot of.
You guys already understand what you're doing, and so you got that part taken care of, so good for you. But for those that didn't, I want to just arm you with some information, as you call your custodian or your financial advisor to know what you're doing a little bit. All right.
It takes a little bit of kind.
Of noodling on it to make it work, but it works out fine.
Hey, I hope that was of some value to you. I tried to give it to you straight and put the cookies on the bottom shelf, as they say. There may be some things in there that are unique for your situation, and that's cool, but, you know, we're trying to just create a lot of education out there for folks who have the large IRAs and maybe just need a little bit of ideas of the more efficient way to get it all transitioned over. So. And you may have some of your own things that you're doing great, and that's great, too. But I hope it was some help. Hey, hit the like button for me and subscribe to the channel if you like information like this. As you probably know by now from watching other of my videos, we don't sell financial products. We don't want to manage your investment accounts. We just simply try to help people with Roth conversion strategy and comprehensive financial planning on a fee basis. So if you want some help with any of that, you can click the links below and you can be led to one of our guys and to our website to learn more about what's going on. Take care. Have a great day. God bless.
