In this presentation Craig Wear, CFP®, walks through a detailed case study of a couple, John and Susan, who hold $1.3 million in traditional IRAs. He first establishes a baseline scenario where no action is taken: required minimum distributions (RMDs) grow to $3.5 million, total lifetime income reaches $5.7 million, and projected lifetime taxes total about $2.3 million (including $900 k that would fall to heirs). He then compares three strategies: 1. Conventional advice – stop at the top of the current tax bracket – reduces RMDs to $1.3 million and cuts lifetime taxes by only ~$459 k. 2. Optimized multi‑bracket Roth conversion – accelerates conversions across two or three tax brackets, shrinking RMDs to $3.7 k and slashing lifetime taxes to $0.5 million, eliminating heirs’ tax liability and delivering ~$1.8 million in savings. 3. Consideration of Medicare IRMAA – higher‑bracket conversions can actually lower future Medicare premiums because later‑life income (RMDs) is minimized. Wear emphasizes that many advisors’ simple “stop at current bracket” guidance leaves massive money on the table and can even increase taxes for some clients. He warns against procrastination, quantifying the tax drag of $66 k per $1 million of IRA assets per year, which compounds to $300 k+ if delayed five years. The talk concludes with a call to action: use their RMD calculator (benchmarked against 3,000+ clients) to assess personal tax‑saving potential and schedule a quick assessment. The overall message is that high‑balance IRA owners should act early, employ a calibrated, multi‑year Roth conversion plan, and factor in Medicare implications to avoid a multi‑million‑dollar tax burden.
Chapters
By way of explanation, I want to give you a case study. So, we're going to take John and Susan, right? And they had like $1.3 million in their IRA. And we projected about $2.3 million in lifetime taxes for them if they did nothing. But because they came to us early in the year, they were able to rethink their strategy that they had saved, and they were able to save over or avoid over $1.8 million of taxes. So, the first thing that we like to do is start from a baseline. If you don't do anything, If you just kind of let RMDs run their full course, then we want to know kind of where you're going to be. And so, for them, they were going to have all their other incomes over both of their lifetimes was going to be about $2.2 million. And all the required minimum distributions at, I think they wanted us to use like a 5.5% rate of return. It could have been 6%. It was like $3.5 million. So, you take the $2.2 plus the $3.5. And that's the total income they were going to have over their lifetime. So we estimated that over their lifetime, they were going to pay taxes of about $1,456,000, as you can see there on your screen. And when the last of their— of the last spouse died, they were still going to have enough money sitting in IRAs that the kids were going to have another $900,000 of taxes that were going to be owed to the IRS. So, that's a total of about $2.3 million of taxes over their lifetime if tax rates don't go up or go down, if they just stay where they are. And we like to approach it from a conservative standpoint. We can make some assumptions about whether taxes are going to go up or down, but what we know is what's written in the law, and so that's what we use. So, if they were to go out and they followed the advice that most investment advisors give or most of the pundits that I see all over the different social medias, they would tell you that, you just need to stop at the top of your current tax bracket. And that's not a bad idea, it's just leaving a lot of money on the table, and I'll show you that. So if they did that, if they just went to the top of their current tax bracket, their income obviously at $2.2 million didn't change just because they converted. Their RMDs went down from $3.5 million down to $1.3 million. So that sounds good, right? But their estimated lifetime taxes only, only went down by a couple hundred thousand dollars, went down to like $1.2 million. Their heirs saved another couple hundred thousand dollars of taxes, so they did save about $459,000 of taxes by going to the top of their current tax bracket. Now I'll stop here. If you're in like the 22% bracket or well into the 24% bracket, we've seen many times we've done analyses, and if you, if you just go to the top of your current tax bracket, In many occasions, you'll actually pay more tax by doing that type of Roth conversion than if you did no conversion at all. And so that's why it's really important to get this right, especially if you think you're going to just stop at the top of the tax bracket. There are circumstances that, that exist that we see often where those people would actually pay more tax by doing it that way. So we don't want you to do that. And I'm not going to minimize, you know, saving $450,000. No. That's a good thing. And probably if you did that, you would wake up the next day and say, good, I got a game plan. I'm going to save some money. Life is great. And that's probably all you'll ever know. So, one of the truck driver guys I used to know used to have a saying. He'd say, you know, the scariest thing in the world is that you don't know what you don't know. And so, people come to us and we like to optimize that tax strategy. And so, when we optimize it, we figure out how much higher should we go? How much faster should we go? And what's the impact on this person on their taxes, on their net worth, all those kinds of things. So if they went and they optimized, if they went up a couple tax brackets, and sometimes it's 2, sometimes it's 3, sometimes it's more, sometimes it's a different glide path where you use different brackets at different times. But if they found the optimal strategy, you'll notice here that their RMDs went from $3.5 million down to just $3,700, which just implies the first year they had to do RMDs, they had a little bit of RMD to pay. Just because it wasn't in their best interest to do it any faster. Well, now look what happens. Now their lifetime taxes went from $1.4 million down to $500,000. Their heirs had $900,000 in taxes that got to zero because all the money was in a Roth. So their estimated tax savings was $1.8 million. $1.8 million instead of $459,000. But you know, if all they did was they just stopped at the tax bracket, and they were one that actually benefited from it, they would never know that there was all this other money left on the table. The other thing we see often is people say, well, I'm not going to go up higher than what the next Medicare bracket is, the IRMAA bracket. And what we see in what we calculate is that by going to higher and higher brackets, you actually save more and more Medicare premiums. Now, you pay a lot more in the first several years, but then you go down to the minimum and it stays that way the rest of your life because you don't have the higher modified adjusted gross income from all the RMDs over the rest of your lifetime. So some people come to us, like I referred earlier, and they say, you know, I'm going to retire in a year, I'm just going to wait. Or, you know, my life situation is such, I'm going to wait till next year to go do this. I've got a— I got one of my dearest friends is a guy that's got a lot of money sitting in an IRA. And I've been telling him this for like 3 years and he keeps waiting. Because he just doesn't want to pay the tax. He wants to hold on. But in his— in the rest of his life, he pays a lot of taxes. So he just can't stomach doing the other. And what I know is for every million bucks he's got, he's costing himself another $66,000 a year of taxes that he can never go back and recoup. And he's a fairly young guy. So you can see if John and Susan waited 1 year, their projected estimated lifetime taxes were going to be $1.7 million. Instead of the, the higher number. So their tax cost to wait was going to be about $66,000. If they wait 5 years, then their— the cost to wait was going to be over $300,000. So don't wait. Even just don't wait till January. Don't even wait till December. Get the job done. Get after getting this taken care of. The faster you get this done, The sooner the money gets into a tax-free state for the rest of your lifetime. Hey, if you've got $1 million or more in your IRAs, the IRS already has scheduled one of the biggest tax bills of your entire lifetime. It starts at 73 or 75 years old. The problem is most people just haven't seen the number yet. We have an RMD calculator that we've put together that'll give you an idea what the taxes are going to be over your lifetime, as well as maybe what's going to be left for your heirs if if you leave it all to them. We've taken it a step further and we've cross-referenced that to people just like you that have been clients of ours, of over 3,000 of our clients. And we want to be able to give you an idea of what's possible for you to save if you get Roth conversions done right. So click the link below. It'll take you about 2 minutes and it'll be pretty alarming. Take care.
