In this presentation, CFP® Craig Wear walks through a real‑world case study of John and Susan, a married couple age 68 with about $1.3 million in IRA balances. He shows how waiting even a single year to address Roth conversions would have added roughly $66,000 in avoidable taxes, and how doing nothing would have resulted in an estimated $2.3 million total tax burden over their lifetimes—including $1.5 million in taxes they would pay themselves and about $900 000 that would fall to their heirs under the SECURE Act’s 10‑year rule. Wear contrasts the common “convert only up to the top of the current tax bracket” approach (which would have saved about $459 000) with a more aggressive, “maximum‑protection” conversion strategy that slashes required minimum distributions (RMDs) from $3.5 million to a single partial RMD of $3,700, reduces their lifetime tax liability to roughly $500 000, and eliminates any tax liability for heirs, delivering a total tax saving of about $1.8 million. He emphasizes the urgency of acting within the current calendar year, warns that waiting until year‑end is the worst timing, and promotes an RMD calculator that benchmarks a client’s projected taxes against data from over 3,000 similar clients. The video’s purpose is to illustrate the massive tax cost of inaction for IRA millionaires and to motivate immediate, optimized Roth conversion planning.
Chapters
I want to just share with you a little bit about John and Susan, and let's talk about what if they'd had just waited another year. So they're both 68 years old. Um, like many of you, they've managed their own affairs for most of their married life. Uh, John assumed that his CPA had the Roth question covered. Every time he'd ask him, he got an answer and thought it was done. So they almost waited until next year, but They instead made a decision. They got a hold of one of our people and they got a game plan. And what we learned was, had they waited just even just till the beginning of the year, that decision to wait would have cost them about $66,000 of taxes they could have avoided. But now because they waited, they can't avoid them anymore. So their situation was they had about $1.3 million in IRAs. And we projected that based on that and their other income streams, they were going to have about $2.3 million in lifetime taxes, counting what would happen to their heirs if they did nothing. And, uh, but because they were able to kind of rethink their strategy, I'm going to show you how they saved over $1.8 million compared to just leaving alone. And I'm going to do that hopefully in a way where we cover those 9 most common reasons that people actually miss those savings. I hope this is making some sense to you. Okay, so in their case, in John and Susan's case, if they did nothing, they had a, they had total income over their lifetime, you can see down at the bottom left, is going to be about $2.2 million. The combined total of their projected required minimum distributions is going to be about $3.5 million. Put all that together, do some projections about tax rates and tax brackets and, and the way that things inflate, their estimated tax during their lifetime is going to be about $1.4 million, $1.5 million, and they were going to leave enough in the IRAs that their heirs were still going to have almost $900,000 of taxes to pay. That's where I came up with the $2.3 million. So, I don't know what your situation is, how many millions you have, but this is not a hypothetical situation I'm laying out. This is their actual projection. $2.3 million that the IRS will collect if nothing changes. And the tax bill just grows every single month as you get older, as the RMD factors go up, and as balances go up. As well. So, doing nothing was not a great situation, but that's where they were going to be. So, what happened is a lot of investment managers and do-it-yourselfers and custodians default to, well, I'll just go to the top of my current tax bracket. And that feels safe and it feels, oh, responsible. But the taxes you don't convert don't go away. Your heirs are going to get the result of those. And as you probably are aware, the SECURE Act gives them just 10 years to pay the bill. And what we found and seen in practice is often that happens to your heirs when they're at their peak earning years, or they've already got their retirement tax plan, and all of a sudden all this money is dumped in. And I mean, I guess one attitude is, well, they'll just have to deal with it, it's free money. But the other is, well, why Why couldn't I just take care of it ahead of time, as long as it kind of still benefits me? Well, going to the top of their current tax bracket for John and Susan, it gave them an estimated tax savings about $459,000. Not bad. In my world, I would call that a golf clap. You know, no big deal, no raving fans over it, but at least they got it done. And this is where most people stop. And this is where most of the financial information in the financial media stop. And if you were not an IRA millionaire, that probably would be good advice. Not always. I have, I have seen illustrations we've done where staying at your own tax bracket actually costs you to pay more tax than had you just not done anything at all. But in most cases with, with people with more modest IRA balances, that doesn't mean they're financially less modest. They could have a whole lot of money sitting out in brokerage accounts and real estate and everything else. But in the IRA. So, then we went and we designed kind of a maximum protection strategy. We converted at the best tax bracket to give them the most tax avoidance and the highest net worth possible. So, their income stayed the same. Look at their RMDs, though. Their RMDs went from $3.5 million down to just 1 year of a partial RMD of $3,700. And we don't always convert everything for everybody, but in their case, it worked for them, and that's how— that's what was best for them. So now their estimated lifetime tax went from $1.5 million down to $500,000. The tax due from the heirs went from $900,000 to zero. So in total, their estimated tax savings was going to be $1.8 million. So this is the difference that one good quality decision can make. Not someday, but I mean right now while the window for getting this accomplished exists still this year. And really, I'll demonstrate as we go through that waiting to the end of the year is probably the worst way to do a Roth conversion and worst time to actually do anything about it. 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 tax is 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. It'll take you about 2 minutes and it'll be pretty alarming. Take care.
