YouTube video transcript of Craig Wear, CFP® explaining how age affects the desirability and mechanics of Roth IRA conversions. He outlines advantages and constraints in three age bands—under 59½, between 59½ and ~72, and 72+—and emphasizes tax-treatment, required minimum distributions (RMDs), cash-to-pay-taxes considerations, and benefits to heirs. The piece concludes with practical guidance: convert sooner when feasible, but conversions can still help even later in life primarily to reduce heirs' future tax burden.
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Hey there, you guys. Welcome back. So this is Craig Weir again, and I just wanted to talk to you about, you know, what does age have to do with your Roth conversions? So it has a lot to do with it, actually. You know, generally speaking, the, really, the, the primary benefit of doing Roth conversions is to eliminate or dramatically reduce your required minimum distributions when you get to age 72. So the sooner you do that, the more time you have to make up for the taxes that you paid on the front end. Now, it's not as big a deal as you might think in that we've got a lot of clients in their 70s that we're doing Roth conversions for that understand the real benefits of doing it at that point. I'll get to that in just a minute. If you're under age 59 and a half, Roth conversions can be phenomenal and create some huge benefits if you have assets outside of your IRA with which to pay the taxes. So when you do a conversion, you take a distribution from your IRA and it goes over and it's taxable, and it goes over to a Roth ira. And if you have money sitting outside of the IRA to pay the taxes with, then it's a great transaction. If you're under 59 and a half and you. And you don't have the money to pay the taxes, then you probably are better off waiting until 59 and a half or. One of the strategies I wrote about in my first book, Paying the Piper, was to forego putting Additional or extra 401k contributions and use that cash to pay the taxes to do conversions. I went through that kind of fast. But, you know, request a copy of the book and we'll send a PDF over to you where you maybe understand that better. So under age 59 and a half, it's a great deal to do Roth conversions as long as you have the money outside the ira. Or you can come up with the cash flow from not putting as much away into the 401k. And I will say that although it almost seems almost sacrilegious not to make 401k contributions, financially, it's much better for you to use those funds to get your Roth conversions done from your existing 401k. Okay, so that's under age 59 and a half. So if you're between 59 and a half and say, I don't know, 72 or so, it's really a great deal. That's probably the sweet spot of where we work with most people to do conversions. So that's an easy one 59 and a half. You now have free access or penalty free access to your IRA funds. Again, if you have money outside the ira, it's always better to use that, but we do calculation after calculation and client after client who sees seven figure tax savings by using money from their IRA to pay the taxes. So don't let that prohibit you from going in and doing what's really a great decision for you down the road. So if you're over, say 72, then things become a little bit different. Now you have to take the required minimum distribution as taxable income first before you do a conversion. You cannot take that money and put it into a Roth. So if you're going to do more, you take the RMD as taxable income, then you take more of a distribution and it works. But it's not as beneficial at that point unless you have a lot of longevity in your family. Right? So we got a lot of people, 72, 3, 4 that we're doing conversions for. The math still works out great. Their net worth doesn't suffer hardly at all along the way, if at all. But when you get into your mid-70s, then the guess my answer becomes different because then you don't have as many years in a normal lifespan to make up for the taxes that you paid on the front end. It still can work, but the biggest benefits of you doing conversions into your 70s is for your heirs. Because, see, when you leave those big IRAs to your heirs, they have up to 10 years to take the money. But the longer they wait to take the money, the, the bigger the balances are going to be and the more taxes they're going to owe. Right? So when you're in your mid-70s or older, you just got to really get your head wrapped around the fact that the real benefits are that you're making sure that your heirs don't have to pay a lot of your IRA balance to pay taxes on it. So it's kind of like you're protecting yourself, but the same way of kind of helping them. A lot of people think, gosh, I don't really care what happens when I give it to my kids, and that's fine. But if you take that approach, realize that what you've just done is you have now written the U.S. treasury into your beneficiary plan. And if you have, you know, just let's say you have two heirs for the primary ira, once you and your spouse are gone, it's very likely that the IRS becomes an equal heir. They get as much money as what each your kids get. That's the way it can work if it's a larger ira. So anyway, I don't know whether that helps at all, but I'm hoping that you'll kind of get the message that doing this sooner rather than later is a good deal. But if you have waited a little bit longer and you're maybe older what you thought, there still are some benefits there. You just got to figure out what's important to you. Alright? So take care. Look at the links below, see if there's anything down there that is of interest to you. Subscribe to the channel and that way you'll be able to see new stuff that I come up with every so often and you'll stay in the loop. Take care.
