Should I Go All Roth?

Summary

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

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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.

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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:

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

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Listener Questions and Expert Responses

1. 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."

2. 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."

3. 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."

4. 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."

5. 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."

6. 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."

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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.

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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."

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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.

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Transcript

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[Jill Schlesinger]

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?

[Mark]

What's the deal with his current job? Does he like it? Does he hate it? You know, that's a big factor in this. I don't know.

[Jill Schlesinger]

And I don't know either, because I want to know. Like, there is certainly a risk that you know, when you work for a state system that you really are taking a risk there. So I think it has to do with the job you have. The job that you could have. Obviously, a pension is amazing, but we wouldn't just push you into a job for the pension. I don't know. I just think that that might be a little bit extreme. I'd love to hear more about what's going on, but I'll tell you what I do know. Do not pay off that mortgage. That thousand dollars a month is absolutely more valuable to you. Especially if that's a mortgage that is under four, four and a half percent. Right, Mark?

[Mark]

It's all about the year 2040. They're retiring and they do not want.

[Jill Schlesinger]

A mortgage you betcha. I know. Okay. Jeanine says hi. Jill and Mark, you talk quite a bit about moving to a less expensive state in retirement, but I don't remember hearing you talk about moving to a more expensive state. Well, listen, Mark and I live in one of the most expensive states in the country, New York. So we're happy to have you come join us. Okay. Janine says, my husband and I live in Michigan and we would potentially like to move to be near our son and his family in Minnesota. Everything seems so much more expensive there, from taxes on Social Security, pension, state tax, to housing. How do we handle much more expensive cost of living in retirement? We've considered just renting an apartment near them and keeping our home in Michigan because all of our friends are here. Any advice is appreciated. Okay. Janine, if you can rent and not just, you know, upend your entire life, I love that idea. But you've just got to build it in. So when you're looking at your retirement scenario, can you afford to have some extra amount that you spend every single month in rent? So let me give you an example. Let's say that rent is $2,000 a month and that means that your current income needs during retirement go from 5,000amonth to $7,000 a month. You tell me, can you actually afford it? We'd need a lot more information, but I think there are a lot of folks who find themselves making decisions about retirement and it's just for, oh, I'm going to move to this low cost state. I'm going to move to Florida, I'm going to move to Texas. All well and good, but you better test it out first. So maybe what you do is you rent for a little while and if you really like it, then you sell your house in Michigan and you can just like stay with friends when you come back to Michigan to visit. I don't know. Check it out. Here we go. This is from Nancy. I retired and moved my 401k money to an IRA right before the Fed started raising interest rates. My total bond and Total International Bond index are down 20%. Any rebalancing has been into shorter term bonds where I could get a good yield without the duration risk. I'm tempted to take the loss on my intermediate bond indexes, stay short on bonds and take my risk in equities from here on out. I'd love to get your counsel. My loss would be 15 grand on an $800,000 portfolio. Eh, I don't like this idea at all. Do you, Mark?

[Mark]

Sure, if I knew exactly what was going to happen. Sure.

[Jill Schlesinger]

Exactly right. I don't like this idea, Nancy. First of all, I would just rebalance. And also, you're in an ira, so you're not even going to get a tax loss. I would stay where you are. I would rebalance, and you're hold firm. You're going to be investing in this account for a long time. I bet you're not just two minutes into retirement. So I'd like to know more about you, but I am not this kind of person who thinks that I certainly. I don't think that any of us can anticipate where the market is going next. Okay. All right. Now here we go. This is. Okay, I'm going to end this question because this is dedicated to you, Mark. It's from Spencer. Hi, guys. I just subscribed to Jill on Money Live and listened to the webinar with Ed Slott, which prompted me to ask the question, should I go all roth? Okay. Spencer's 51. My wife is 52. We earn 320 grand annually. So 320 grand. That puts them at the top bracket of 24%. Right now we have $600,000 in a 401. That's it for retirement accounts. We have no brokerage accounts yet. My Social Security at full retirement will be 3,900 bucks. My wife 30. Let's call it $3,800. Spencer has a pension. It will pay at least 7,500 bucks monthly. My company contributes 10% of my salary annually to my 401k. Oh, my God. That was 16,500 this year. My wife is just starting back up with her 401, contributing up to the match of 6%. We used her previous 401k to start a business. My question is, should we go full Roth? My company has both a Roth and a traditional. And I think there is a way to roll over to a Roth with better investment options. We're looking to retire in about 10 years. Okay, Mark, how do you want to handle this?

[Mark]

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 Schlesinger]

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. Right now. We can think about converting when you on the other side, like in 10 years, we can start that. But yes, we would really appreciate and think that a 401k in a Roth version would be a better option for you guys going forward. I'm dying to know what business they started with their 401k, so that's another question altogether. Follow up with us if you've got some add ons. And for those of you who want to watch that Ed Slot webinar, you've got to be a member of Jill on Money Live. And remember, that is a way you can access that Ed Slot webinar which was so popular it almost blew up our subscriptions. Right Mark? You get the Ed Slot webinar, audio and video content that are bonus episodes and great stuff, the back catalog, all for 45 bucks for the next 2012 months. That's Jill on Money Live. You can find that on our [e-mail] you can subscribe to us on the Odyssey app or wherever you find your favorite podcast. Please leave us a rating and review wherever you listen. And of course, do something nice for someone else today. Change your work, change your wealth, change your life. Thank you for listening. We'll talk to you tomorrow.

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