A short YouTube video by Craig Wear, CFP® arguing that paying taxes now via Roth IRA conversions can produce large long-term tax savings and greater retirement freedom. He contrasts tax-deferred traditional IRAs (which trigger required minimum distributions that can increase taxable income, affect Social Security/Medicare costs, and leave heirs with tax liabilities) with Roth conversions that lock in today's tax rates, eliminate RMDs, and provide tax-free withdrawals. A client case study (ages 65 and 63) and concrete dollar examples (e.g., $1,750,000 IRA, $2–3M projected taxable RMDs) illustrate potential multi-hundred-thousand to million-dollar savings; the video closes with recommended next steps (evaluate IRA/RMD impact, consult a specialist planner, convert strategically).
Questions this video answers
$1,750,000
About $2 to $3 million
About $875,000
$750,000
He was 65; she was 63
Chapters
Why would you ever pay taxes now in the case of Roth conversions? Hey, welcome back to the channel. This is Craig Weir again, glad that you're here with us. So by the end of this short video, I promise I'm going to reveal how paying taxes now can lead to millions of dollars in savings and a lot greater financial freedom for you in retirement. So a lot of people say to me, I see a lot of comments on our social media and YouTube posts that say, look, why would anybody willingly pay taxes today when you could defer them for years? And they, they kind of wear that as a badge of honor. Well, I've learned this and it's worked for me my whole life. And I'm never going to pay taxes earlier. I'm going to always just wait and pay them at the last possible time. I remember one guy saying, you know, there's this misconception that deferring taxes in an IRA is always better. And to get to the point where you're ready to start transitioning to a different phase of your life, then I would say, yeah, tax deferral is always great. I don't know that I would suggest it over a Roth. If you could start all over and do it all over again. But that's the common misconception is that you should always defer and leave it deferred. I would say tax free is better, Tax free, and deferred is better than just deferred. Let's first remember that when you have an ira, the problem is exists because you make these contributions year after year after year and they grow and they're tax deferred and taxes are due on every dollar that you withdraw. And if you don't withdraw them, then they force you withdraw them through these things called required minimum distributions. So I call that kind of a tax domino effect. So you got these RMDs that begin when you're 73 and they grow each year. That increases your taxable income, pushing you into a higher bracket. Now your Social Security becomes more taxable and your Medicare premiums, through something called irmaa, also rise for part B and Part D. And at the end of the day, then it ends up leaving your heirs with this huge tax bill as they receive their inheritance. Recent client had about 1,750,000 in an IRA and they were going to have like 2 to 3 million dollars in taxable RMDs over their lifetime. But there's a big advantage when you do these Roth conversions. A Roth conversion is you take money from the traditional IRA to a Roth ira, you pay taxes upfront, which is kind of the angst of a lot of people. And you do it at today's rates. Once those funds are converted, they're going to grow tax free, tax deferred, with no requirement of distributions. And any withdrawals that you make are totally tax free. Now, there are some five year rules that I'll caveat here so I don't get beat up in the, in the comments below. But as long as you're 59 and a half years old, when you do the conversions, 100% of the amount you converted is immediately available for withdrawal without any tax or penalty. The earnings on that conversion can't be withdrawn until five years later. But if you convert a million dollars today, let's say more realistically, you convert $200,000 a day, you can turn around and next week you can pull out 200,000 with no penalty or any problems as long as you're at least 59 and a half years old when you did the conversions. So the big opportunity right now is you get to lock in today's rates. We, up until the most recent election, we had this risk that rates were going to go back up. President Elect Trump has said he's going to extend that tax cut Job Act. So we know for maybe at least another four years anyway, we got these lower rates. So converting now instead of waiting for what happens in the next administration is probably a really big deal. But the bigger deal is the long term benefits that come to you. You eliminate your required minimum distribution so you have no forced distributions or added taxable income that your tax free Social Security and Medicare premiums remain lower. You create a tax free inheritance for your kids and you get a lot more control over your retirement income. You can choose to take it from a Roth, you can choose to take it from other assets, but you don't, you no longer have to worry about the taxation. When you want to go buy a new car and it's 50,000, you got to take out 70,000 to be able to pay the 50,000. All those things that I've just watched for 40 years almost, I've watched people not do the things in retirement that they could have done and that they plan to do, all because they had taxes that were due on those IRAs. So I'll give you a real quick case study that'll make my point. This is a couple. He was 65, she's 63 years old. They came in, they had some other assets in brokerage accounts that were pretty significant. They had 1.75 million in an IRA. Unless I think we assumed it was going to grow at 6 or 7% a year or something like that. Whatever they said that they thought it would grow at is the number that we used. On one hand, they could do, um, no conversions, receive that 2 to 3 million dollars in requirement of distributions of taxable income and leave their heirs a tax liability of another 875,000. Or they could convert strategically at an optimal tax bracket for them, pay the taxes up front at a controlled rate that they decided was best for them and calculated what's best for them. The result for them is they saved $750,000 in tax during their lifetime and, and they saved another 875,000 from their estate having to pay the taxes or their heirs having to pay taxes out of their inheritance. And some people say, I don't care about my heirs whatever, but I mean, do you really not care about your heirs so much that it's okay that the IRS gets it instead? I mean, that doesn't make any sense, right, but the key takeaway from all this is, look, paying taxes upfront unlocks massive long term benefits, but you have to look beyond this year's tax return to really grasp that. And some of our clients, I mean, they got some really hefty tax bills that they're paying for a few years, but the big picture is they end up saving millions of dollars over their lifetime. Or avoiding millions of dollars of taxes over their lifetime is probably a better way to say it. But there's also kind of an emotional financial impact, right? So you get to kind of reframe your decisions about pay tax now is really kind of an investment in your future. It's that the last big investment you make as you round the corner and you start that third quarter of your life, so to speak. And it's really all about control, freedom of being able to make decision without taxes and also just leaving a lasting legacy. I mean, imagine no requirement, no requirement of distribution surprises in retirement. Imagine lower taxes that you leave for your kids and your grandkids have to pay out of what you saved your whole life for and more. I think, as importantly, peace of mind, knowing that your wealth is protected from just whatever happens crazy up in the, up in Congress that pushes you into different tax situations. You get it, you get it protected and you're in, you're in great shape. And I know there's some of the doomsdayers out there that say, well, I'm just going to convert it and Then they're going to start taxing my Roth IRA gains. And I mean, I understand that it could happen, but there's so much preponderance of evidence going against that as a possibility that it's pretty ridiculous to think that that really could happen. Theoretically, yes. But from a practical standpoint, I, you know, I wouldn't, I don't, if nothing else, I don't think any politician alive has the political will to make sure they don't get elected by the largest voting block, which is your age group of people that get out. And if somebody did that, they'd be out of office tomorrow. But yeah. So anyway, so step one, here's three things to really kind of think about. Evaluate your IRA balance in your future requirement of distributions. Figure out if they're going to cause a problem. Number two, consult with a financial planner. My suggestion is you meet with one of our certified financial planners that really specialize in this one thing. We don't sell any financial products. We don't manage any assets. Get somebody to calculate what that optimal conversion amount is for you. What's the amount you should convert? What's the right time frame you could convert? And if they know what they're doing, they can show you this in black and white. The problem is a lot of software that financial advisors use have built in assumptions that you should only convert up to your current tax bracket. A lot of these online calculators also have that built in. And a lot of financial advisors, investment advisors, normally focus on investments and they don't do a lot of planning. And a lot of other regular financial advisors, if they, especially if they work for a larger firm, the firm doesn't want them to get into this tax area. So you really got to ferret out are they really giving you a fiduciary look like, say they're a fiduciary. But in our world, fiduciary means I can still have conflicts of interest. And really I just want to sell you annuities or life insurance or get assets under management. So find somebody that that's all that they do, which is what we do, obviously. But every year that you delay, cost you more in taxes. Over time, waiting only costs you more in taxes. I have rarely seen it work out for anybody, no matter what their income level, what their tax brackets. I have. It is a anomaly that there's any circumstance that you could lay out that we could put on paper, put the math and say, yeah, you're better to wait. Here's in summary, pay taxes now on Roth conversion. It may feel a hit, but it's, it's, it's really a hit worth taking for huge savings. And remember that the key to financial success isn't avoiding taxes. It's managing them strategically under your time frame and under your rules and under your decision. So if you like this kind of stuff, give me a like on the video. If you aren't subscribed already, subscribe. New stuff comes out, we'll push it out to. You'll be among the first to know. So hope this was some help. Have a great day and God bless you.
