YouTube video (Craig Wear, CFP®) arguing that over-reliance on tax-deferred 401(k)/IRA balances can create large future tax burdens via required minimum distributions (RMDs). The presenter recommends prioritizing multi-year Roth conversion plans—even if it means paying taxes now or temporarily moving into higher brackets—to reduce lifetime taxes, protect heirs, avoid RMDs, and take advantage of currently low tax rates. Practical advice: always take employer match, prefer Roth contributions after match, and consider converting large IRAs over time.
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If you've been told that maxing out your 401k is the best way to save for retirement, you might be walking into a massive tax trap. You know, for IRA millionaires, the real question isn't just about saving, it's about tax planning. So in this video I'm going to reveal why shifting dollars into Roth conversions before retirement may be the smarter move. You know, the reason that this matters a lot is that these large tax deferred accounts that you have created are going to produce a much bigger future tax burden that really destroy the efficiency of the retirement income that you have. If you're going to be depending on them, and even if you're not going to be depending on them, those required minimum distributions can push you into higher tax brackets for the rest of your life. But Roth conversions may require stepping into higher tax brackets temporarily. But it's our experience in almost 15 years of specializing in this area that it can save millions of dollars of taxes over your lifetime. So let me talk to you a little bit about the whole problem with overloading your 401k. Many of the people that we get to see as clients have got these large 401ks. They maybe have assets outside that or not. But the problem with so much of your net worth being in a 401k is really got a few dimensions to it. A lot of advisors still suggest max out your 401k, get all the tax deferred benefits that you can as quick as you can. But tax deferral is really not the same as tax savings. Tax deferral just delays the tax bill. But the reality for IRA millionaires is that these large tax deferred balances really lead to massive required minimum distributions when you get into retirement. And those RMDs force a lot of taxable income that can push you into those high brackets when you least expect it. And once you're there, there's nothing you can do about it. So one example I can think of is someone that we worked with recently that had a couple million dollars in their IRA and that meant that their RMDs were going to be pushing $100,000 a year pretty easily. And that was going to make their Social Security tax higher, going to trigger Medicare IRMAA penalties. We've discovered that the earlier you pay taxes, the more time your money has to grow tax free. And if your conversion game plan is optimized and you find the best one for you, you're usually not going to see a decrease in your tax adjusted net worth. Meaning you can save taxes and still have the same after tax amount of money or tax adjusted amount of money. I really have come to some strong opinions that Roth conversions should be a real priority before you get retired. One reason is that taxes are historically low right now because of the recent election. And we have this renewed opportunity to cash in on historic low tax rates. And if rates do increase in the future, waiting until later could cost hundreds of thousands of dollars in extra taxes. Another reason is that you really must pay some taxes now if you want to avoid a lifetime of higher taxes. Especially IRA millionaires should proactively step into willingly step into higher tax brackets today to reduce the long term overall tax burden. And so even if you're in a top tax bracket now, converting now still is probably much cheaper than paying taxes later on a higher balance. Even at lower rates. The increase in your balance over the next several years is going to put you in a position where even if you are in a lower tax bracket, you're going to end up paying more tax by waiting anyway. Not to mention, if tax rates do go higher in the future, when you put the money into a Roth, it grows tax free. So you got no future tax drag on your investment gains, no required minimum distributions, and it keeps your taxable income lower in retirement for the rest of your life. And the other I guess reason is that your heirs are really going to thank you. Heirs inheriting A tax deferred IRA have to empty the account in 10 years under the new Secure act and it potentially could put them in higher tax brackets. Oftentimes when mom and dad pass, the kids are at their peak earning years and now it's just going to throw even more taxable income to them. So leaving them a Roth IRA avoids the tax problem completely. So when does it make sense to keep funding a 401k? Well, I would say take all the employer match. That's free money, that's 100% return on what you put in. So take that. Always contribute at least enough to capture the full employer match before even considering Roth conversions. After that, prioritize the Roth contributions over the pre tax. So if you're contributing beyond your match, like if you're maxing out and doing your catch up and all that, man. Consider doing that Roth 401k option if it's available, or even divert those contributions to paying taxes to convert existing 401k money. But maxing out your 401k can actually make your tax burden worse. Every dollar that you save pre tax today creates that largeable tax problem in retirement. Some of the key takeaways from this kind of a what should you do? I've got four of them. Number one, Roth conversions should take priority over maxing out your pre tax contribution hands down tax. Number two, tax rates are on sale now, but they're likely to increase, so acting sooner is a lot better. Even if they don't increase, you're better off to take control of when you pay taxes and at what rate you choose than to let it continue to grow to a much higher amount and have to deal with that in the future. Number three IRA millionaires really just simply must embrace higher tax brackets today if you want to avoid worse tax hits later in your life. Number four, A multi year optimized conversion plan allows you to have a lot of tax efficiency while also keeping your taxable income very manageable. So if you're serious about maximizing your retirement strategy and you're tired of leaving future money on the table with unnecessary taxes, we got two options for you. First, click the link below and watch our exclusive on Demand webinar. It's packed with a lot of actionable strategies that I'm going to share with you and real world examples. It's going to help you maximize your own personal retirement strategy with a properly executed Roth conversion game plan plan. And if you're ready to take a step further, schedule a free strategy call with our team. We're going to walk you through how to apply the strategies to your unique situation, show you the exact steps to protect your wealth, minimize your tax burden, and we're going to set yourself up for long term financial success. So whether you watch the webinar, book a call, or both, don't put off this one. That's very important. Every day you delay could cost you thousands and thousands in additional income tax. So don't forget to like subscribe. Hit the bell so you don't miss our next deep dive on retirement tax planning. Take care. Have a great day.
