Craig Wear, CFP® explains Roth-conversion strategy considerations for IRA millionaires around age 65. Main advice: accelerate Roth conversions (faster and possibly into higher tax brackets) rather than delaying, because faster conversions can reduce lifetime taxable RMDs, lower heirs' tax burdens, and potentially reduce Medicare Part B/D premium exposure. He offers rule-of-thumb numbers (e.g., lifetime RMDs ~2.5–3× per $1M) and warns about the widow's trap if conversions are delayed.
Questions this video answers
2.5 to 3 times the account (i.e., $2.5M–$3M per $1M).
$5,000,000 to $6,000,000.
About 60 to 75 years old (mentions 65 and '60 to 75').
Could be as much as another $1,000 per month.
Chapters
Hey there, this is Craig. Welcome back to the channel. So if you're an IRA millionaire and you're 65ish years old, you've got some unique problems that not everybody else has. You're trying to figure out what your optimal strategy is. I got a few tips for you today that I want you to take into consideration. Number one, you're probably going to need to do the conversions faster than you think. Probably you're going to need to do more than you think and you're probably going to have to pay tax at a much higher tax bracket than what you're doing currently comfortable with. But if you'll do the math and you'll go through the exercise to really understand the real impact on a tax adjusted net worth basis and a total tax avoided, it will prove to you over and over and over the things that I just said are very true. The good news is if you get it right, you're going to maximize the amount of tax that you avoid paying over your lifetime, which means you're going to leave less money just sitting at the doorstep of the IRS because you didn't have an optimal game plan. You're, you're also going to put your heirs in a position where they're not going to have to start depleting your estate you left to them because of taxes because now they've got to take these required distributions or they take out lump sums to go do something with and they got to pay taxes throws them into a higher bracket. All those kinds of things happen. And if you get it right, you're also going to lower the amount of Medicare premiums that you pay on part B and part D. But in order to do that, you're going to have to break through some paradigms that you have many people tell you you just stop converting at the top of your current tax bracket if you're an IRA millionaire. I haven't, I've never seen that to be the case. If you're a good candidate to do accelerated conversions, I've never seen that to be the right way, you are much better off to pay today a higher tax bracket to get it converted faster than to leave it alone and to just let RMDs just gradually get higher and higher and you'll creep up through the brackets. You'll pay more tax over your lifetime by sticking in a lower bracket and than if you convert faster and just get it over with. I will say this very seldom is a one and done strategy the right strategy. But occasionally we've seen that that works just fine for people. See, one of the things that I think was just groundbreaking for me early on is I realized just how much income you're going to avoid by getting conversions done correctly. If you're 65 years old, you have, for every million dollars you have in your ira, you're going to have two and a half to three times that amount of required minimum distributions over your lifetime. So that means that you're going to have forced income on your $1 million IRA of between 2.5 and $3 million over your lifetimes. If you have $2 million, you're going to have 5 to $6 million of forced taxable income come into your lifetime that you're going to pay tax on. And those RMDs can, under the current law, can cause your Social Security to all of a sudden become taxed where it was not before. It will definitely cause your Medicare Part B and Part D premiums to increase. And that could be as much as another thousand dollars a month on top of what your base amount is that you're already paying. So getting this right is really important. And understanding that you're playing the long game on this is really important too. The short game says, how do I pay less tax this year? Well, that's part of the problem that you've got yourself in by paying less tax every year is you've deferred this large account and now you have to pay the piper. It's time. And what we've discovered is that doing it faster is much better for you than doing it slower. If you're in the right age category of 65, 70 ish. 60, 60 to 75, I'll say, is probably a good, a good bracket. You want to be able to put your heirs in a position where they're not having to deplete the estate that you left to them. And the other thing that not a lot of people talk about, and it's been pointed out to me that I don't talk about it a lot, is you also avoid, by getting the conversions done sooner rather than later, you're going to avoid the potential of a widow's trap. And the widow's trap is something that we talk about in the financial community, but it's a circumst where one spouse dies, leaves the other spouse with all the money. The RMDs are the same as they were before, but now the remaining spouse is in a single taxpayer bracket, causing them to have the same RMDs but probably pay tax at a higher bracket. And now there's really not much they can do because they're maybe a little bit older and now conversions don't make sense, but you've now just forced them into a much higher tax bracket. If you want to learn more about this or other subjects like this video, I would appreciate that. If you'll subscribe to the channel, when I put out new stuff, you'll be among the first to know. But if you want to get dig deeper into this concept of do it faster than you think, higher tax bracket than you think, more money every year than you think, click below. The link leads out to our website. We've always got live webinars going on. You can plug into those to learn more details over a longer period of time. All right, take care. Have a great day. God bless.
