Is Now the Time for Roth Conversions?

Summary

Podcast Summary: "Is Now the Time for Roth Conversions?"

Introduction

In the February 13, 2025 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, along with co-host Mark T. O'Connor, delves into the timely and often complex topic of Roth conversions. The episode features a series of listener questions, each addressing unique financial scenarios related to retirement planning, investment strategies, and tax implications. Through their expert guidance, Jill and Mark aim to provide actionable insights to help listeners navigate their financial journeys effectively.

Listener Questions and Expert Advice

1. Mary’s Dilemma: Converting Deferred Compensation to a Roth

   Question: Mary and her husband, both retired with substantial savings in a 457 deferred compensation plan, sought advice on whether to convert their deferred compensation to a Roth IRA given their combined annual income of approximately $150,000.

   Discussion: Mark suggests a gradual approach to conversions, especially considering their current high tax bracket. He mentions, “[04:29] Jill Schlesinger: It would be great if you could... [04:30] Mark T. O'Connor: Convert if you were in a slightly lower tax bracket than you're in right now.” This indicates the importance of timing conversions to optimize tax benefits, potentially waiting until they reduce their part-time income to lower their tax bracket.

2. George’s Trust Management Concerns

   Question: George inquired about managing a trust intended to support his sister in assisted living, questioning the future of trusteeship should he pass away.

   Discussion: Mark advises consulting with a financial advisor to explore trust services and suggests considering local banks or family members as potential successor trustees. He emphasizes the practicality of having a younger family member take over the role, stating, “[04:56] Mark T. O'Connor: ...you are asking them to do what you're doing... sort of generally administer the trust on behalf of your sister.”

3. Paul’s Investment Anxiety: Overcoming Risk Aversion

   Question: At 69, Paul faces the challenge of investing a million dollars with a strong aversion to risk, unsure how to proceed without the fear of losing money.

   Discussion: Jill and Mark discuss the importance of asset allocation tailored to risk tolerance. Mark suggests, “[07:28] Jill Schlesinger: 50 portfolio 50 higher risk, 50 lower risk... maybe 70, 30,” highlighting diversified portfolios as a strategy to mitigate risk. Additionally, they recommend dollar-cost averaging to alleviate the fear of market timing, ensuring steady investment over time.

4. Laura’s Pension Rollover Decision

   Question: Laura, at 46, weighs the options of rolling over her pension from a previous employer versus leaving it intact, given her family's diverse investment accounts and modest pension amounts at different ages.

   Discussion: Mark advises simplicity, recommending rolling over the pension to a traditional IRA to consolidate her accounts. He explains, “[10:07] Jill Schlesinger: Is a better way to proceed... [10:09] Mark T. O'Connor: So I think I'm going to keep it simple, roll it over, and then invest it according to that risk tolerance that you have in place.”

5. Charles’s Mortgage Quandary: Waiting to Sell His Home

   Question: Charles, 75 and debt-free, plans to downsize his home but is contemplating whether to take out a mortgage before selling his current house.

   Discussion: Mark strongly advises against increasing liabilities, suggesting patience until the house sale is confirmed. He states, “[10:09] Mark T. O'Connor: So I think I'm going to keep it simple, roll it over...”

   (Note: The transcript appears to have a repetition here; the advice should logically extend based on his question. Assuming based on context, Mark encourages waiting to avoid unnecessary debt.)

6. Carter’s Tax Filing Mishap: Missing Required Minimum Distributions

   Question: Carter missed filing two years of 1099s connected to his required minimum distributions and seeks guidance on the best course of action.

   Discussion: Mark recommends filing amended tax returns with professional assistance, saying, “[11:37] Jill Schlesinger: CPA or a tax expert... [11:39] Mark T. O'Connor: Maybe not do it myself if that feels a little too confusing.”

Key Insights and Conclusions

Throughout the episode, Jill and Mark emphasize the importance of personalized financial planning, considering individual circumstances such as tax brackets, risk tolerance, and long-term goals. They advocate for:

• Strategic Roth Conversions: Timing conversions to align with lower tax brackets can maximize benefits and minimize tax liabilities.

• Trust Management: Ensuring there are clear successor trustees to manage trusts effectively and maintain their intended purpose.

• Diversified Investment Portfolios: Tailoring asset allocation to match risk tolerance can help mitigate investment anxiety and promote steady growth.

• Simplified Financial Consolidation: Rolling over pensions into IRAs can streamline financial management and enhance investment strategies.

• Prudent Debt Management: Avoiding unnecessary liabilities, especially in retirement, to maintain financial stability.

• Timely Tax Compliance: Addressing missed tax filings promptly with professional assistance to avoid penalties and ensure compliance.

Notable Quotes

• “[04:30] Mark T. O'Connor: Convert if you were in a slightly lower tax bracket than you're in right now.”

• “[07:32] Mark T. O'Connor: Maybe you would go 60, 40, maybe you'd have 60% in bonds and 40% in stocks or even 70, 30.”

• “[08:03] Mark T. O'Connor: To understand how is your money going to last you throughout these years.”

Conclusion

In this episode of Jill on Money, Jill Schlesinger and Mark T. O'Connor provide thoughtful, actionable advice on Roth conversions and related financial strategies. By addressing real-life listener scenarios, they offer valuable insights into managing retirement accounts, investment risks, and financial planning. Their guidance underscores the importance of personalized financial strategies and the benefits of consulting with financial professionals to achieve long-term financial security.

For more information and personalized advice, listeners are encouraged to visit jillonmoney.com and explore their resources or reach out directly with their financial questions.

Transcript

[Jill Schlesinger]

For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easyall the benefits of owning real tangible assets without all the complexity and expense. That's the power of the fundrise flagship real estate fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as$10.4700 single family rental homes spread across the booming Sun Belt, 3.3 million square feet of highly sought after industrial facilities. Thanks to the e commerce wave, the Flagship fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com jillonmoney to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the fundrise flagship fund before investing. This and other information can be found in the Fund's [e-mail] Flagship this is a paid advertisement. And now a word from our sponsors at Betterment when investing your money starts to feel like a second job, Betterment steps in with a little work life balance. They're an automated investing and savings app, which means they do the work when they build and manage your portfolio. You build and manage your weekend plans. While they make it easy to invest for what matters, you just get to enjoy what matters. Their automated tools simplify the complex and put your money to work optimizing day after day and again and again. So go ahead, take your time to rest and recharge. Because while your money doesn't need a work life balance, you do make your money hustle with Betterment. Get [e-mail] that's B E T T E R M E N T.com investing involves risk Performance not guaranteed.

[Mark T. O'Connor]

Welcome to the Jill on Money show. It's Thursday, February 13, day before Valentine's Day. Very exciting. Go get yourself some cards. Don't overpay for a dinner out, please. It's just not worth it, I promise you. If you've got a financial question though, I promise you that we are here to help you out. Both Mark and I are certified financial planners. We don't do it for a living, but we just use it to kind of help us guide you through this process called your financial journey. So if, if you've got a question, go to our website, jillonmoney.com, click the contact us button and of course, let us know if you would be willing to come on the air live by checking the box. Don't forget to sign up for the free weekly newsletter while you're on. The website comes out every Friday. An excellent way to catch up on those issues that maybe you might have missed during the week. And you should also consider subscribing to Jill on Money Live. That is where you have access to quarterly live webinars, bonus audio and video content, and the entire back catalog, all for $45 for the next 12 months. And our next session is coming up fast. Our next webinar is with the one, the only, Ed Slott. He is a CPA and an IRA expert, the head cheerleader for the Roth. He will be joining us on Thursday, March 6th at 7 Eastern Time. But again, that is only available if you are a member of Jill on Money Live. So go sign up right now. Do it. Okay, let's do some emails. This is from Mary who writes, My husband and I are both retired, but I went back to my old job part time. We both have Roths. Each account is worth about $140,000. Our annual income between our pensions, Social Security and my part time salary is about $150,000. The bulk of our savings is in a 457 deferred compensation plan and, and the value is about $900,000. Our home is paid for. It's worth about $725,000 and no debt. Should we be converting our deferred compensation to a Roth? Thanks very much. Well, listen, I think if you could slowly but surely start to convert and you have money outside of your retirement accounts that could be really great for you. Your tax bracket's not going to go down substantially because obviously you have this pension income, Social Security and your part time salary is pretty high. But eventually, maybe after you're done with the part time work, maybe that's when I might start converting.

[Jill Schlesinger]

It would be great if you could.

[Mark T. O'Connor]

Convert if you were in a slightly lower tax bracket than you're in right now. But again, if you are going to convert, I might do it after you're done with your part time salary. This is a great situation though. You're in wonderful shape. And by the way, if you don't want to convert, you can just wait till you're done working and then start pulling some of the money out of the 457 plan. Kind of depends on how much money you spend also. So get back in touch with us. I'd love to have you on the air.

[Jill Schlesinger]

This is a Great case to talk about.

[Mark T. O'Connor]

George writes that his mother passed away a few years ago and he said she left a small trust of about $200,000 that has grown to about $400,000 today. The trust was intended to help support my sister who resides in an assisted living environment. The money has been invested in a diversified bunch of mutual funds with the assistance of a financial advisor. I am the trustee and distribute some money periodically to enhance my sister's quality of life. My question is, if my sister were to survive me, I have nobody able to step into the role of trustee. What resources may be available to assist with the trust after I pass? Well, first of all, George, I would talk to the financial advisor that you're working with and see if there are some trust services that could be available to you through wherever you clear this account. Otherwise, you may want to talk to a local bank and they could serve as the successor trustee to you. Or I'm just wondering, are there any kids, anyone else in your life that you think could do this? You're not asking someone to manage the money, but you are asking them to do what you're doing doing, which is, you know, sort of generally administer the trust on behalf of your sister. So there are organizations that will do it, but it will cost money, of course. But otherwise, maybe there's someone else in the family that could help take over. Hopefully somebody who's in a younger generation. Okay, next up, a note from Paul who says he loves the show. He writes, I'm 69 years old, still working, but will at least semi retire soon. We have about a million dollars in cash that needs to be invested. We don't need the money for five years, probably even longer before we need to use it, if ever. What do you recommend? I'm risk averse. So it has led to this money never being invested at this point. How does one get past the worry about losing money when investing it? Thank you. I'm not sure anyone gets over this, Paul. So we're all in this together. We all have this regret about our timing, but we're never gonna time the market really well. And if you are investing for the long term and you don't, There are two parts of this conversation. One is the asset allocation. How much would you be putting in stocks versus bonds versus cash versus other asset categories? And if you really hate risk, then I would encourage you to consider a portfolio that doesn't put as much money in risky assets like stocks. So maybe if for somebody who is 69, we would think about a 50.

[Jill Schlesinger]

50 portfolio 50 higher risk, 50 lower risk.

[Mark T. O'Connor]

Maybe you would go 60, 40, maybe you'd have 60% in bonds and 40% in stocks or even 70, 30. And the other aspect of this is the fear of putting all your money into the market at the exact wrong time, which is market timing. But we all are fearful of that. So in that case you might dollar cost average and put a little bit of money to work every month until you get the million dollars invested. I think to really help you with the process of retirement or semi retirement.

[Jill Schlesinger]

It would really be helpful for you.

[Mark T. O'Connor]

To understand how is your money going to last you throughout these years. Do you have a source of income besides Social Security? What other assets have you saved? Do you have pensions? All these things might make you feel better because maybe you're in better shape than you even really think. Maybe you even want to get in touch with a financial planner. You can go to letsmakeaplan.org for a CFP or the National association of Personal Financial Advisors. That's napa.org this next note is from Laura who says, I'm looking for help with a pension. A previous employer has offered former employees to roll over our pension or leave it be. I'm just not sure about what I should do. Currently the Investment accounts are a 401k worth $105,000. A traditional IRA, it's worth $179,000. A Roth IRA of $40,000, $8,000 in a brokerage account and $2,000 in T bills and savings bonds. I've got about $10,000 in checking and savings. Our investment accounts are 85% in the S&P 500 index, 10% in bond funds, and then the rest in a mix of international, extended, small cap. Okay, so here are the pension options. The pension at age 46 would be a lump sum of $38,000. At age 62 would be a lump sum of $93,000 or monthly payments of 488 to $607 a month and goes on and on. So Laura's married, 46 years old husband also has a Roth with about $4,000 in it. Do you happen to have a recommendation on whether to keep this pension or roll it over to a traditional ira? I appreciate any input and thank you in advance. Well, Laura, you know what, I'm just thinking that this is not a huge amount of money. So I think just to keep things easy, I might take the pension, roll it over to a traditional IRA and move on the dollars. In the future they may be Actually, mathematically better for you, but maybe having the money today consolidated in one account.

[Jill Schlesinger]

Is a better way to proceed.

[Mark T. O'Connor]

So I think I'm going to keep it simple, roll it over, and then invest it according to that risk tolerance that you have in place. This is from Charles. I'm 75 years old, completely debt free. I'm going to downsize my house. Last spring, the house was valued at $550,000. I have $600,000 in regular and Roth IRAs combined. My annual income, which is Social Security and a pension, is at $82,000. My credit rating is wow high, 796 to 800. My current house is on the market for $575,000. If I can't wait until my current house is sold, should I take out a mortgage of $400,000 and pay that mortgage off after I've sold my house? Eek. I don't love this. Let's just wait till your house sells because I don't think you need to do this. I really don't love the idea of having lots of liability mortgage or two houses at the same time. At this point in your life, I would just wait and play it safe. I know other people would do it differently, but not me. I'm a wimp. I'm sorry. And this last note is from Carter, who says two years of 1099s connected to my required minimum distributions were not filed in 2022 and 2023. What is the best course of action? Ah, this is an easy one. The best course of action is to file amended returns. And I might do that with a.

[Jill Schlesinger]

CPA or a tax expert.

[Mark T. O'Connor]

Maybe not do it myself if that feels a little too confusing.

[Jill Schlesinger]

But. But it's very easy to do and.

[Mark T. O'Connor]

I'm sure it's not going to be a big change for you.

[Jill Schlesinger]

Okay.

[Mark T. O'Connor]

All right, that's it. That's the program. If you have a question, don't forget, you can always find [e-mail] that is our website. You click the contact us button, write us a note, and if you want to join us on the air live, just click the box and Mark will do everything else. While you're on the website, check out all the content that lives there. We love when you do that. Send us notes no matter what day or night. You can subscribe to us on the Odysee app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen and of course, lift someone up. Change your work, change your wealth, change your life. Thanks for listening. We'll talk to you tomorrow.

[Jill Schlesinger]

For decades, real estate has been a cornerstone of the world's largest portfolios. But it's also historically been complex, time consuming and expensive. But imagine if real estate investing was suddenly easyall the benefits of owning real, tangible assets without all the complexity and expense. That's the power of the Fundrise Flagship Real Estate Fund. Now you can invest in a $1.1 billion portfolio of real estate starting with as little as $10 4700 single family rental homes spread across the booming Sunbelt 3.3 million square feet of highly sought after industrial facilities. Thanks to the E commerce wave, the Flagship Fund is one of the largest of its kind, well diversified and managed by a team of professionals. And now it's available to you. Visit fundrise.com jillonmoney to explore the fund's full portfolio, check out historical returns and start investing in just minutes. Carefully consider the investment objectives, risks, charges and expenses of the Fundrise Flagship Fund before investing. This and other information can be found in the Fund's [e-mail] Flagship this is a paid Advertisement Every week on the.

[Mark T. O'Connor]

Moff Podcast, we share stories that are funny, strange, heartbreaking and above all, true. I myself have been married for 56.

[Jill Schlesinger]

Years, unfortunately to four different women.

[Mark T. O'Connor]

It turns out the people I was looking for all my life is what you people would call nerds. Follow and listen to the moth on the free Odyssey app or wherever you get your podcasts.