Craig Wear, CFP, explains why large traditional IRAs create tax bombs for you and your heirs. The SECURE Act killed the stretch IRA, forcing inherited accounts to empty in 10 years. Converting to Roth now, while tax rates are low, can cut what your family owes later.
If you've got over a million dollars in an ira, then you're staring at a tax disaster in the future, most likely. But here's the good news. You've been handed a second chance. And if you don't take it now, it may never come again. I'll never forget a gentleman named Lynn who walked into my office maybe about 15 years ago. He retired from a big petrochemical company with about a million dollars in his ira. And because he hadn't needed any of it, the balance had doubled to a little over 2 million by the time his required minimum distributions began. And that was income that he didn't need. That bumped his taxes, increased his Medicare premiums, and even taxed his Social Security at a different level. So his CPA told him, well, look, just take the RMDs, it's the law. Just time to pay the piper. But Len had done a little bit of napkin math, Sharp guy. He realized that if he converted his IRA to a Roth, even if he had to pay taxes up front, he and his heirs would come out far ahead in the future. And he challenged me to help him figure out what's going to be the best. That conversation changed the trajectory of my career because he was right. And thousands of clients later with billions of dollars of collective tax avoidance among them, I can tell you the opportunity to convert strategically is the single biggest lever you have to protect your wealth and control your future. Let me help you to understand four elements that I think are pretty significant for you to just kind of ruminate on. The Tax Cut and Job act created historically low tax brackets. Since 2017, tax rates have been as low as they've ever been in modern history. The recent OBB laws have made these rates even much more permanent. Until Congress decides to change them again, obviously. Look, if you wait to take advantage of these, your conversions are going to be taxed at higher rates and the government's going to get more of your hard earned savings. So the second point that I want to bring up to you is the SECURE act changed the rules for your heirs. And you probably already know this, but it eliminated that stretch ira. So your kids and your grandkids now have to drain the inherited IRAs within 10 years. If you end up with 4 or 5 million bucks sitting in your IRA, or even a million dollars sitting in your IRA, they inherit that large pre tax IRA, they'll likely pay taxes at some of the higher rates and maybe even during the prime of their careers. That's not a legacy. It becomes more of a burden Than it does anything El. So here's my third point. You haven't missed it. This is your second chance. A lot of IRA millionaires tell us, hey, Craig, look, I love what you're saying, but I should have done this years ago. But the reality is you still can. With the latest extension of these low rates, you have another window of opportunity. That opportunity has kind of reset itself for you. Think of this as a second chance at getting this right. If you'd have begun your conversions in 2017 when the rates first dropped, you'd have been done with it. You'd be saving yourself millions of dollars. Well, that's spilt milk, water under the bridge, all those things. Don't worry about it. You have the opportunity today. Here's my fourth point. The cost of waiting compounds every year. Your IRA doesn't stay the same normally. It grows over time, and every year it grows. So does your future tax bill and your future RMDs. In addition, for every year that an IRA millionaire waits, it represents at least $66,000 of tax avoidance that's wasted, never to be captured. So acting now isn't about this year's tax return. It's about decades of tax savings in the future. Look, if you're in your 50s, 60s, or even 70s, and have a million or more in your retirement accounts, the clock is ticking without action, you're going to watch more of your wealth flow to Washington in your 70s and 80s than you ever dreamed. And it's going to go to them instead of the family that you care about or the causes that you care about. Folks, this is your second chance. But it's. It's likely to be temporary. Don't wait for Congress to change the rules again. We've developed a very unique RMD calculator that not only helps you see how big of a problem this is going to be for your circumstances, but also shows you the amount of tax avoidance that's that the potential is for you. We've studied 1200 of our clients financial outcomes, and we've developed this RMD calculator so that you can identify with these clients that are similar to you and see what they accomplish. So not only can you see what's possible in terms of taxes you're going to pay, you're going to see what the possibility is or the amount that you can save. Click the links below, see what your personal projections are, and then see if we can help in any way that we can.
