In this presentation, CFP® Craig Wear explains how recent tax law changes (the OBD bill) create both opportunities and a trap for individuals with $1 million or more in IRAs/401(k)s. He outlines five new deductions (senior deduction, expanded SALT cap, extended standard deduction) and emphasizes that focusing on preserving these deductions can lead to massive future tax liabilities. Wear advocates an aggressive Roth conversion strategy—paying higher tax rates now to eliminate required minimum distributions (RMDs), reduce IRMAA penalties, and protect heirs from inheritance taxes. He supports his argument with aggregate client data showing average tax savings of $3–4.6 million and a projected $9 billion in lifetime tax avoidance across his client base. A detailed case study of a couple in their 60s with $1.3 million in IRAs illustrates three scenarios (do nothing, modest conversion, optimal conversion) and demonstrates how the optimal strategy can cut lifetime tax from $2.3 million to $0.5 million, saving $1.8 million and leaving heirs tax‑free Roth assets. The talk concludes with a call to action for viewers to schedule a consultation to assess their own situation before the window for these strategies closes.
Chapters
Hey there. Look, if you've got $1 million or more sitting in your IRAs or 401(k)s and you're thinking about doing Roth conversions, then the new tax laws really just made it a lot easier for you. But it also created a trap. A lot of IRA millionaires are going to be really focused on the wrong thing. They're going to be focused on a lot of the deductions that have been made available through the new law. And what's going to happen is they're quietly going to be led astray into leaving a lot of money on the table. Today, I want to show you the big mistake that people are going to make. And maybe give you some ideas on how to think differently about it so that you can have a lot different outcome than most people are going to have by just following the deductions. Why don't we just jump right in? So let's imagine this future scenario for you. Number 1, all your required minimum distributions are offset by deductions. Imagine that. Imagine that you've avoided millions of dollars of total tax by actually paying a higher tax rate today. And let's say that you have simplified income tax returns for the rest of your life and your heirs are left with a really simple plan to initiate without not having to worry about a bunch of taxes. All right. So the way we get there is through the agenda for today. I want to talk to you about 5 opportunities that the new tax law has created. I want to show you the trap that most people are going to fall into because of those opportunities. And I want to show you why our strategy works better than the deductions that you're going to get out of the new OBDB bill. And then I want to show you what the typical results are that you can expect if you get Roth conversions right. So I want you to understand also why it's important to take action, but I want you to understand how to take action before this window that's been reopened closes for you. Conventional advice may work if you have smaller IRA balances, and that's because the RMDs will probably not grow to be a tax problem or a Medicare problem, and that the lifetime income tax bracket for those people usually stays between 10% and 12%. So that's somebody that was in a particular income bracket that they weren't able to get those IRAs to large numbers or didn't invest invest heavily to get there. And so what you read in the news and what your advisor or tax person is normally telling you about tax brackets and that kind of stuff probably is correct. But when you get to that IRA millionaire status, everything changes. So the OBD had a few basic changes that impacted your daily life. If you're 65 and older, you get a $6,000 senior deduction per person. That's 2025 through 2028. The SALT cap is lifted to $40,000 between 2025 2029. And your standard deduction now is extended. It didn't sunset like it was going to before. And as has been in a lot of these recent tax-impacted laws, the Roth conversions are untouched. You're still allowed, still no caps, and it's still a very powerful way to move money over to a tax-free status. So if you look at it and you add all those together, your typical standard deduction for somebody that's a senior, so that means you got total deductions of $45,000, which is great. In the real world, example, let's take a married couple that are in California. These new deductions are like $25,000 to $35,000 more Roth income is shielded every year. So that's $25,000 or $35,000 more that you could actually convert if you wanted to hit a particular bracket. A lot of these deductions are phased out based on your income. You got to your senior deduction is phased out between $150,000 and $250,000 for a married couple. The expanded SALT has a threshold of $500,000 $1,000, and then it tapers 30% for every dollar above that. So remember, Roth conversions create a taxable income for you, and that taxable income is going to force you out of those deductions. So if you haven't thought about that before, you need to think about that and decide kind of, now, where do I sit on that? Nobody likes to lose deductions, right? Well, I'm going to show you why that's probably exactly what you need to do. Everyone is going to get focused on the wrong thing. Some people are actually going to lose sleep at night trying to protect $3,000 of savings while their IRA quietly becomes a $2 million tax bomb. So if you take that senior deduction times 2 is $12,000 at a 24% marginal tax bracket, it's going to save them $2,880. Well, hey, that's real tax money. That's real savings, right? But if you do that, you're going to cost yourself a lot of money. You simply have to convert at a higher tax bracket than you're probably comfortable with. And if you wait or you go small or you go slow, your RMDs are going to explode your taxable income when you get into your 70s. The annual growth alone on your IRAs is going to add significant future total tax that can't be overcome at a possible lower rate later. Your heirs are going to be forced into 10-year distributions and it's all taxable. You got higher IRMAA penalties in retirement due to higher taxable income from RMDs. And look, waiting feels safe, but it's a trap. And I don't want you to fall into the trap. Your focus should not be on deductions. Your focus needs to be on how do I get the most tax benefit and the highest net worth, right? The data that we have on all of our clients collectively, they have between a $1 and a $4 million financial net worth, and the average tax savings is about $3 million. They avoid about $80,000 plus in IRMAA premiums by doing more aggressive conversions, and 100% of them have had substantial long-term benefit. Our clients that are the top 50 at the time I developed this data, their average tax saving is $4.6 million. They had an average of $11 million in financial net worth. Their IRMAA avoided was actually a whole lot more. In total, all of those clients together have a little over $9 billion of projected total tax avoidance over their lifetime by getting the right kind of Roth conversion strategy set up. Let me show you how this might impact. So the question is, hey, we're in our 60s. We got about $1.3 million in IRAs. Should we convert and how quickly? If that couple with the $1.3 million in IRAs in their mid-60s did nothing, they were going to have about $2.2 million of other income through Social Security and maybe a small pension I think they had. And their IRAs were going to generate about $3.5 million in RMDs over their lifetime. Put those two together and the estimated tax over their lifetime was about $1.4 million. When they both died, they were going to have enough left in the IRAs to pass on to the kids that the kids were now going to have almost $900,000 of taxes to pay over the next 10 years in a best-case scenario. So that means their projected total tax is going to be about $2.3 million. All right. So that's if they don't do anything. Well, let's say they took the advice of the guy on the golf course who said, oh, just stop at your current tax bracket. Well, there is some benefit there. Their income, the $2.3 $1,200,000 never changed. Them deciding to do conversions didn't change their Social Security check, right? But their RMDs went down from the $3.4 or $5 million to $1.3 million. And that changes now their estimated lifetime income from $1.4 million to $1.2 million and the tax due from their heirs from $890,000 to $650,000. So golf clap, they did save some money, $459,000. Good for them. But what about optimal? What about finding the best game plan for them? So the best game plan for them, got everything converted up until the year that they started RMDs. So they had RMDs of just $3,700. Their estimated lifetime tax dropped even further down to just $500,000, and it totally eliminated all the tax to their heirs. Their heirs are going to get all Roth IRAs with no taxes to it. That estimated tax savings is $1.8 million. Well, I'll ask you, would you rather avoid $1.8 million or $459,000? Look, now the important thing to understand is that the numbers are going to be different for everybody. And if you want to see how this kind of strategy could maybe line sign up for you, schedule a call with one of our orthologists, and maybe they'll be able to show you kind of how something like this could work out, what kind of money you're talking about being able to avoid in taxes for yourself and for your family.
