A short YouTube transcript (Craig Wear, CFP®) providing an end-of-year checklist and strategic guidance for people with large IRAs considering Roth conversions. Key points: calculate lifetime RMD/tax impact for IRA millionaires, account for effects on Social Security taxation and Medicare premiums, project heirs’ taxable burden, and generally prefer earlier/higher conversions to minimize long-term taxes.
Chapters
Hey, my name is Craig Weir. So if you're thinking about doing Roth conversions before the end of the year comes around, there are some really critical things that you need to understand and have already thought through and maybe already have a game plan for. And if you haven't gone through them, you're going to waste a lot of money and potentially subject yourself to a lot more money and income tax. So I took a few minutes and created a video that kind of just leads you through an end of the year checklist for those of you that are IRA millionaires and you, you are strongly considering getting a Roth conversion strategy done or you already have a game plan, you just need to make sure you get it right. So hope this video is of help to you. Take care.
Step number one, how do you, how do you get ahead of where you need to be in by the end of the year? And many of you may have already done this or some version of this. Me not seeing what you actually were given by somebody else. I don't know how thorough it was. We'll assume it's good enough. If what they gave you was a quick printout from a piece of software, they maybe are doing their best. But in the all, we, we like to stay up to date with what's available in software. Generally speaking, there are limitations that are built into the software assumptions where you can't really, can't really get to the point. You know, you can't really find out what's really there. So the first thing you need to do is determine what your lifetime and your legacy financial impact is going to be for that large ira. And the way you do that is you calculate what your total lifetime or require minimum distributions are going to be. You know, for most people, let's say you're age 65, you got a million bucks in your IRA. If you're earning 5 or 6%, your lifetime require minimum distributions are going to be two and a half to three times with the value of your IRA is today at age 65. And that varies with rate to return in that. But if you use a 5 or 6% number. So if you got a million bucks, your total lifetime required minimum distributions, taxable income to you is going to be two and a half to three million for every one million that you have over in your ira. So a lot of people ask, well, how can you save people over a million dollars in taxes? And the reason is we got all these things that are kind of cascading down to be a big deal. Some people you're going to have a potential impact on your RMDs because of your Social Security income. The RMDs may cause your Social Security to be from instead of 50% to 85% taxable. Now there are going to be a lot of people on this that you already are going to have to suffer through that the rest of your life. And congratulations, you got enough income where that happens. But for others it's um, it's going to cause an extra taxation. And then there's always the cost of your Medicare premiums. Part B and D in Medicare are premium, I mean are income based premiums. And so the more money you show on your return, the higher your premiums are going to be over your lifetime. And if you do conversions, they're also going to go up in the early years. But as soon as those conversions go down and you got a year or two waiting period, then those premiums are going to come down from the rest of your life. And I'm going to share with you in just a couple of minutes what the impact and the net savings can be if you get this really right and doing your conversions. Another thing to do before the end of the year is also get a projection of what the taxable consequences are going to be to your heirs. You know, a lot of people that we work with, I mean everybody we work with, are what I call IRA millionaires. And they tend to not use a lot of money under their IRAs over their lifetime. Some more than less, I mean some more than others. But generally speaking, they don't use it a lot. They got enough income to their other assets. The IRA is just there basically cause a tax problem. And so by kicking the can down the road for taxes and leaving it to your heirs, there's going to be a higher balance. And you got to kind of think about what's that going to do for them. And is most of my future estate going to be by them having to take out money to pay the taxman? And then obviously the other reason that this is a big deal to get the answer to these on the front end very quickly before the end of the year is to also figure out so you can figure out what your right game plan is going to be to also understand the exposure that you're going to have to future tax changes, whether they go up or down or sideways. But understand that if you leave the money in the Iraq, you're going to have exposure to future tax changes. Whether rates go up or down is not as big a determiner of whether you should convert now, as you might think, we do run a lot of cases that show a higher tax rate or a lower tax rate, but really we just like to run our analysis based on what we know exists in the law today. And of course, we've got an election coming up, and each candidate, I mean, they couldn't be more polar opposites about how they're going to deal with taxes. And so that's something that we're going to be watching. But it's not a reason to wait. It's a reason to get started now while you know what the deal is. And we even know that 2025 is going to be the same as it is today. So at least you can get started and get this year and next year taken care of. But. But I believe you need to consider the cost on the front end, which is why I put together this checklist. And the key for IRA millionaires is really to convert early. And I like to say the only way. And I like to say it because we've proven it to be true, because we're running thousands of iterations. The only way to beat the tax main is to convert sooner than you have been told and at a higher tax bracket than you're currently comfortable with. And so if you've done your own spreadsheets and your own spreadsheets tell you that you need to convert at just to the top of your current tax bracket, then either you have less than a million in your IRA or you're spending a lot of money out of your ira or there's something wrong in some of your assumptions. And maybe I can help you with that as this time goes on. And if not, then maybe we can help you with your own game plan. But if you want to optimize your Roth conversion strategy, it really makes sense and you end up saving a lot of money to get even.
If you got to pay a higher.
Tax rate now than later, you're better off to get that done.
Okay, well, I hope that was useful to you. There were some good tips and tricks in there, things that we've come to realize after 14 years of specializing and doing nothing but Roth conversions. If you like the video, hit the subscribe button for me. Hit the like button and the subscribe will make sure that anytime other information like this comes out, you'll be one of the first to know. If you have some interest in getting some professional help, there'll be a link in the bottom of the notes, then you can click through and talk to one of our people. Take care Have a great day. God bless.
