Craig Wear, a CFP, explains why people with $1 million-plus IRAs often miss their real tax problem: they focus on staying in their current bracket instead of the growing liability from the IRA itself. There's a narrow window after retirement but before required minimum distributions start where Roth conversions can lock in lower tax rates.
So a lot of IRA millionaires think their biggest tax problem is their current tax bracket. Nobody wants to pay more tax than they have to. So they hear advice like, hey, just convert to the top of your tax bracket. That'll be good enough. And they assume that that's the whole game plan. But that's where people go wrong because if all you're doing is protecting your tax bracket this year and you're an IRA millionaire, I promise you, you're missing the much bigger tax problem that's built inside that large IRA.
So then what's the real problem?
Well, the bracket is not the real problem. It feels good to stay efficient year by year, but while you're worried about protecting your bracket, your IRA keeps growing. And as it grows, the future tax problem grows with it. That's why I tell clients RMDs are not the real problem. They are a symptom. The real issue started years and years ago when no one really asked you, this account too large to leave untouched?
So once the IRA gets just bigger and bigger, it creates pressure with higher RMDs? Yep.
And that's exactly right.
Man, that's a big mistake. I mean, it's hard to know when to act. I mean, at what point is it too big?
Well, look, once you've retired or you're getting close to retirement, it's easy to think that the opportunity will still be there.
Like the problem may be bigger than you thought, but there's still some time to fix it, right?
Yeah, that's what people believe. They know the IRA is large. They know taxes matter, but they think the real decision can wait. And that's the trap because the window where you have the most control is the same window people waste.
And that's before RMDs start.
Yeah. That's right. Before RMDs, you have room in your tax brackets. After RMDs, the flexibility starts disappearing year after year after year.
So the key window is between retirement, starting Social Security, and RMDs?
Yeah, that's exactly right. You've stopped earning a paycheck, but income isn't being forced on you yet, and that creates planning space that is just not going to exist later.
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, uh, you leave it all to them. Um, we've taken it a step further and we've cross-referenced that to people just like you that have been clients of ours, over 3,000 of our clients, And we want to be able to give you an idea what's possible for you to save if you get Roth conversions done right. So click the link below, take you about 2 minutes, and it'd be pretty alarming.
Take care.
