Should I Go All Roth? - Jill on Money with Jill Schlesinger

Summary

Podcast Summary: "Should I Go All Roth?"
Jill on Money with Jill Schlesinger
Release Date: April 24, 2025

Introduction

In the April 24, 2025 episode of Jill on Money with Jill Schlesinger, host Jill Schlesinger, CFP®, delves into the compelling question posed by listener Spencer: "Should I go all Roth?" The episode navigates through tax-advantaged retirement strategies, specifically focusing on Roth conversions, and addresses various listener inquiries related to retirement planning, investment allocations, and financial decision-making.

Main Discussion: Should I Go All Roth?

Listener Spotlight: Spencer's Dilemma [15:56]

Spencer, a 51-year-old earning $320,000 annually with his wife at 52, poses a pivotal question: "Should we go full Roth?" With a combined 401(k) balance of $600,000, no brokerage accounts, and plans to retire in approximately 10 years, Spencer is contemplating whether to convert his traditional 401(k) into a Roth account, especially given their high-income bracket of 24%.

Expert Advice:

Mark's Perspective [14:23]:
"I mean, it's a slam dunk for me. I would start using the Roth. And I don't know if you necessarily got to start, you know, converting everything that you've saved so far, but from here on out, I would make everything Roth."
Jill's Insight [14:34]:
"Yes, I think that I would go again. I think it's a way to diversify your investment so you don't have to convert... we would really appreciate and think that a 401k in a Roth version would be a better option for you guys going forward."

Key Takeaways:

Diversification Through Roth Accounts: Converting to Roth allows for tax diversification, providing flexibility in managing taxable income during retirement.
Timing of Conversions: Initiating Roth conversions now can lock in current tax rates, which may be advantageous before potential rate increases.
Affordability of Tax Bills: It's crucial to have funds available to cover the taxes incurred from conversions without dipping into retirement savings.

Listener Questions and Expert Responses

Tina's Long-Term Care Policy Consideration [00:06:30]
- Question:
  Tina, single with no children, is evaluating a work-offered long-term care policy costing $93/month for a $50,000 benefit.
- Jill's Advice:
  "As long as you can afford it, I think this is a very, very good benefit... and anyone else who's listening, if you have a long term care benefit through work, this might be a really good way to get at least some partial coverage."
Gary's Employer-Sponsored 401(k) Dilemma [04:32]
- Question:
  Gary, 62, with a $300,000 401(k) and nearing retirement, is uneasy about potential losses and considers options like opening an IRA or transferring to a PIMCO short asset fund.
- Jill's Guidance:
  "If your future pension covers a lot of your needs... we may want to look at the retirement the 401k... we need to hear more about what else is going on in your life."
Jennifer's Investment Allocation Concerns [07:45]
- Question:
  At 53, Jennifer is approaching retirement with a $1.34 million portfolio, primarily in stocks, worried about a potential recession.
- Jill's Recommendation:
  "If the $100,000 pension covers most of your needs, you don't have to go crazy with a reallocation... just be careful."
Habib's Career and Mortgage Payoff Strategy [09:16]
- Question:
  Habib, 49, weighing a state job with a pension versus a higher-paying private sector job, and considering accelerating his mortgage payoff.
- Jill's Strong Stance:
  "Do not pay off that mortgage. That thousand dollars a month is absolutely more valuable to you."
Janine's Cost of Living Adjustment for Relocation [10:02]
- Question:
  Janine and her husband are considering moving from Michigan to a more expensive Minnesota to be near family and seek advice on handling increased living costs.
- Jill's Practical Advice:
  "Maybe what you do is you rent for a little while and if you really like it, then you sell your house in Michigan."
Nancy's Portfolio Loss and Rebalancing Strategy [12:29]
- Question:
  Nancy is distressed over a 20% drop in her bond indexes after moving her 401(k) to an IRA and contemplates taking the loss or staying invested in equities.
- Jill's Counsel:
  "I would just rebalance... you're going to be investing in this account for a long time... I don't think that any of us can anticipate where the market is going next."

Insights and Conclusions

Roth Conversion as a Strategic Move: The episode underscores the benefits of Roth accounts for tax diversification and long-term financial flexibility, especially for higher-income earners contemplating retirement in the near future.
Personalized Financial Planning: Jill and Mark emphasize the importance of individualized advice, considering factors like existing pensions, risk tolerance, and overall financial goals before making significant moves like Roth conversions or altering investment allocations.
Maintaining Financial Discipline: Advice consistently points toward maintaining disciplined financial strategies, such as not hastily altering mortgage payments or investment allocations based on short-term market fluctuations.
Utilizing Employer Benefits: Leveraging work-offered benefits, such as long-term care policies, can provide valuable financial protection without significant personal expenditure.
Holistic Retirement Planning: Comprehensive retirement planning involves assessing multiple income streams (pensions, Social Security), investment portfolios, and lifestyle choices (like relocation) to ensure a secure and comfortable retirement.

Notable Quotes

Mark on Roth Conversion [14:23]:
"I mean, it's a slam dunk for me. I would start using the Roth."
Jill on Mortgage Payoff [09:08]:
"Do not pay off that mortgage. That thousand dollars a month is absolutely more valuable to you."
Jill on Rebalancing Investments [12:32]:
"I would just rebalance, and you're hold firm. ... I don't think that any of us can anticipate where the market is going next."

Conclusion

The episode "Should I Go All Roth?" provides listeners with nuanced insights into Roth conversions and broader retirement strategies. Through real-life listener questions, Jill Schlesinger and co-host Mark deliver actionable advice, emphasizing the importance of personalized financial planning and disciplined investment strategies to navigate the complexities of retirement planning successfully.

For more detailed discussions and personalized advice, listeners are encouraged to visit jillonmoney.com and explore additional resources or submit their own financial queries.

Transcript

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Jill Schlesinger (0:31)

Those workload peaks and backlog projects? You're not alone. Robert half found that 67% of companies surveyed said they will increase their use of contract talent. That's why their recruiters leverage their experience and use award winning AI to quickly find the skilled candidates you want. Learn about their specialized talent in finance, accounting, technology, marketing, legal and administrative support at Robert Half. They Know Talent. Visit roberthalf.com talent today welcome to the Jill on Money show. It's Thursday, April 24th and we are answering your financial questions. And I know it's been a crazy beginning of this year. Lots of news, a lot of things that might unnerve you. If you need some help, we are here for you. Mark and I are both certified financial planners. We love hearing from you. We love answering your questions. So if you've got something going on, go to jillonmoney.com click the contact us button, write us a note and if you'd like to join us on the air, just check the box. Mark does everything else. He's so good. While you're on the website, don't forget all of our content lives there. There's stuff you can pay for, but there's a lot of free stuff. Our free weekly newsletter, the blog, we've got other audio shows and other podcasts, another radio show, we've got videos, we've got resources. So much there it is all on the website. Jillonmoney.com we're going to do some emails because every so often we get the email box bulging and this is one of those days. So this is from Tina who writes, my company has offered a new benefit that has a guaranteed acceptance through the end of this month. I am single with no kids, but I'm worried about burdening my siblings with long term care when I get older. Okay, so we've got this possible purchase of a long term care policy through work, which by the way, gang, can often be a really good benefit. In Tina's case, The policy costs $93 a month and you get a $50,000 benefit. If I need care, the benefit would pay 6% per month, $3,000 with a maximum pay up of two times the benefit amount or $100,000. I'm not sure if this makes sense for me or not. Please help. Okay, Tina, here's the thing. I mean, if you're single, it's not the worst thing in the world to plow through all of your money. On the other hand, this is a very affordable benefit and I think it is worth considering a purchase of this policy because again, when you have this through work, it's usually a lower amount. And just find out one thing, is this policy portable? Can you take it with you if you leave your employment? That's one question to ask. But as long as you can afford it, I think this is a very, very good benefit. And anyone else who's listening, if you have a long term care benefit through work, this might be a really good way to get at least some partial coverage. Okay, next question from Gary who writes. Hi, Jill and Mark. I'm not sure what to do with my employer sponsored 401k. I have about $300,000 in it. I'm 62 years old and I hope to retire in a year or two. I also have a state pen pension with $340,000 in a target date fund 2025. Being so close to retirement, I'm concerned about losing some of the money in that employer sponsored 401k. It's a municipal 401 gang. Okay, so just so you know that, I've consulted with a cfp, a certified financial planner who is advised on using some of the funds inside of the retirement account and opening a variable annuity, which I did not feel comfortable doing. My question is, what should I do with this account? The fund has one option, a transfer to a PIMCO short asset fund they call an enhanced cash fund. It has lower risk. What about opening an IRA through one of the brokerage houses? My wife is 57. She's got a fidelity account through her employer. It's got $50,000. This is all of our funds for retirement. No other accounts. Plus, please advise. Okay, Gary, I want to know so much more about you, but the most important thing is will your future pension cover a lot of your needs? If the answer is yes, then we don't have to go to cash inside of this 401. But if you're really freaking out, we may want to look at the retirement the 401k. And I'd want to know what some of the other options are inside of it. I Agree with you. I don't feel comfortable with an annuity. Please don't do an annuity. But do get back in touch with us, because before you roll this over, before you do anything with this 401k, I really think we need to hear more about what else is going on in your life. How much money you need? Will your pension and Social Security cover what's going on? These are the real critical questions to answer before you make any move. Okay. Okay. Jennifer writes, I'm 53 years old and I'll be retiring in 3 years and I'll have a pension of $100,000 a year. I currently have a total of $1.34 million with $80,000 in a Roth. I'm concerned with an impending recession, what I should do with my allocation. I have almost everything in stocks, 8% international and just 6% in bonds. I don't intend on touching my investments for a number of years, but I am still concerned that the US Economy could implode. Okay, another question. Should I max out the 24% bracket this year with a Roth conversion or wait until after I retire? Well, you're going to still have a pension of $100,000 a year, which means that you'll be in the 22% bracket no matter what, regardless of anything. I mean, I probably would wait to do a conversion, but, you know, even I don't know. Actually, no, I wouldn't wait because once you convert, you'll be. Whatever you convert will be in the 24% bracket. So I wouldn't worry about that. I'd stay in the 24% bracket with a Roth conversion as long as you have the money to pay for the tax bill. That said, look, you're 53, and if the $100,000 pension covers most of your needs, you don't have to go crazy with a reallocation. If you really feel like you've messed this up and you feel like, oh, my gosh, I have really put too much risk out there and you want to change your risk tolerance and you really want to shift your allocation, just make sure you're not going to switch it back. You know, so many people, you're getting a great lesson in what's my risk tolerance now, you know, But I would be very worried if all of a sudden we hear from Jennifer in a few years and the market has turned around and she wants to undo the lesson that is learned. So just be careful. There's no urgency if you want to get back in touch with us. Of course you can let us know. Okay. So this is from Habib, who has a dilemma. He says, I discovered you on YouTube recently and I've enjoyed the info that you've been sharing. I'm at an interesting crossroads. I'm 49 years old. I worked in the private sector. Married. We both have 401ks, about a half a million dollars total. No kids or dependents. Our only debt is our mortgage. House is worth 850,000. The mortgage balance is 420,000. I was offered a state job that pays $95,000 a year with a pension vesting after 10 years. My current contract employer will probably offer me a permanent position at around $125,000 a year. What's the smart move if I'm trying to retire at age 64 in the year 24? I'm also trying to accelerate the payoff of my mortgage. An extra thousand dollars a month to pay it off by 2040. Is that a smart move as well, given it's just me and my wife? We do value peace of mind over risk of gain. Let's do the first thing first. Stop paying down the mortgage. That's ridiculous. You do not want to do that. I guarantee that. That I bet that mortgage is a much lower interest rate. Don't do that. Free up your cash. Mark, what do you think about the idea of a state job at 95,000 with a pension that gives you 10 years? Right? So he'll be 49 to 59. He'll have 15 years in versus private sector. What do you think?