Roth Conversions vs. 0% Capital Gains Rate: a Retirement Tax Trap? - 556

Summary

Your Money, Your Wealth – Episode 556

Title: Roth Conversions vs. 0% Capital Gains Rate: a Retirement Tax Trap?
Date: November 18, 2025
Hosts: Joe Anderson, CFP®, & Alan “Big Al” Clopine, CPA

Episode Overview

In episode #556, Joe and Big Al tackle real-life retirement tax planning dilemmas with their signature wit and straight talk. The main theme centers around the delicate tax balancing act between making Roth IRA conversions and taking advantage of the 0% long-term capital gains tax rate. They answer listener questions about trusting financial advisors, Roth conversion strategies (and whether to convert both spouses’ IRAs), the actual mechanics of spending from a Roth, and what to do with $3.5 million in your 50s. Throughout, they highlight potential “tax traps” waiting in retirement, bringing technical expertise to bear in practical, actionable ways.

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Key Discussion Points & Insights

1. Joe Mama in Virginia: Roth Conversions vs. 0% Cap Gains

• Scenario:
  Joe and his wife (ages 57 & 58, both retired) have $4M in investments, with $2M in brokerage, $1.6M in traditional IRA, and $150K in Roth. Annual spending is $216,000, with income sources including pension, rental, and dividends.
• Current Plan: Avoids using retirement accounts to maintain a $95K AGI, ensuring $30K in annual capital gains are taxed at 0%. Hesitant to do Roth conversions or withdraw from 401(k) due to "losing" the 0% cap gains bracket.
• Concerns: His advisor is nudging him toward Roth conversions and more assets under advisory, but Joe Mama is wary of increased taxes from losing the 0% capital gains benefit.

Hosts’ Analysis & Spitball

• High Burn Rate Warning:
  “That’s a 5% distribution rate at 57, Joe Mama, you’re right. I think that’s a little rich for your age." – Big Al (05:22)
• Understanding the 'Tax Trap':
  “When you do a Roth conversion and push up your ordinary income, you push capital gains out of the 0% rate and into the 15%. We’ve seen so many tax projections where people are in a 27% bracket and don’t even realize it.” – Big Al (06:05)
• Strategy Recommendations:
  • Short-Term: Consider a 2-3 year window of large Roth conversions to the top of the 22% or even 24% bracket ($300K/year), even if it means forgoing the 0% cap gain temporarily.
  • Medium-Term: After conversions, revert to the 0% capital gains harvesting.
  • Tax Diversification Matters: Early Roth conversions significantly boost future flexibility and reduce unknown tax risks:
    “The sooner you can get money in Roth, the sooner you take tax uncertainty off the table.” – Joe (08:42)
  • Tax Loss Harvesting: Consider more active tax management in the brokerage account, including harvesting losses to offset gains.
  • SS Claiming Age: Don’t rush; waiting till FRA or later makes sense with this asset base.

Memorable Moments

• “There’s no way he’s going to do that.” – Joe, on pausing all brokerage sales for a couple years to maximize Roth conversions (10:36)
• “It’s not the RMDs, it’s the high spending that’s the issue.” – Joe (07:30)

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2. David & Shannon: Which Spouse to Convert? And the IRS Rule 55

• Scenario: David and Shannon, early retirees, have only converted David’s IRA for simplicity. David clarifies a subtlety on the IRS Rule 55 (penalty-free withdrawals for those who retire at 55): It applies if you turn 55 in the same calendar year you retire.
• Question: Should Roth conversions be done in both spouses’ IRAs?

Hosts’ Answer

• Age is the Key Factor: If one spouse is older, convert from their IRA first (due to earlier RMD age). Otherwise, it doesn’t matter, as accounts consolidate for beneficiaries.
  “The older person should do the conversions first.” – Joe (17:12)
• Appreciation for Listener Clarifications:
  “David, you are correct. That’s the correct statement.” – Big Al, on the IRS Rule 55 technicality (13:21)

Lighthearted Moment

• Playgroups: Joe’s total confusion about neighborhood “playgroups” (15:32–16:59) brings a comic interlude.

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3. Thomas: When to Spend Down Your Roth IRA?

• Scenario: At 66, Thomas has been carefully converting to Roth, staying under IRMAA/22% brackets. He wonders when and why he should tap Roth money, rather than just admiring its growth.

Key Clarifications

• Misunderstood Rule: Thomas worried about the “rolling five-year rule” on Roth conversion access.
  “There’s no rolling five-year because you’re over 59½.” – Joe (19:06)
  Once over 59½ and past the initial five-year clock, Roth conversion amounts can be withdrawn tax/penalty-free.

Strategies for Roth Withdrawals

• Only Tap Roth for Needs Above Low Bracket:
  “Why waste a Roth to replace income that is taxed at the lowest rate? Exactly. So you’re right on point.” – Joe (21:28)

• Main Uses:

  • Large purchases that would otherwise force traditional IRA withdrawals into higher tax brackets
  • Smoothing income after a spouse’s death (when tax brackets shrink)
  • As a legacy asset

• Hosts’ Big Picture: Use Roth money to keep yourself out of higher brackets and as a source of tax-free flexibility—don’t spend it just because it’s there.

Memorable (and Frugal) Moment

• Thomas drives a 2005 Buick LeSabre with 230K miles—“Take some money out of your Roth and buy a better [car]!” – Big Al (23:15)

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4. Lizzie & Billy in Texas: Is $3.5M Enough? When to Convert?

• Scenario: Ages 55 & 58, $3.5M total ($2.8M pre-tax, $720K taxable, $8K Roth), two kids (almost off payroll), want to retire in 7 years (ages 62/65) and spend $120K/yr.
• Question: Is their plan robust, and when should they start Roth conversions?

Hosts’ Spitball

• Distribution Rate Checks Out: “That’s a 3.1–3.5% distribution rate. I think you’re fine. As soon as the kids are off the payroll, you can retire.” – Big Al (28:35)
• On Roth Conversions: The earlier, the better—especially before RMDs and Social Security spike their income.
• No Panic Needed: With their current savings rate and ages, and if expenses drop as kids launch, they're in the clear.

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Notable Quotes & Memorable Moments

• “What makes this nice is there’s so much in a non-retirement account… I’d just like to see a little more balance in tax deferred versus tax free.”
  – Big Al, on Joe Mama’s flexibility (11:03)
• “Forget the 0% capital gains rate for two or three years, convert even to the top of the 22 or 24% bracket… then go back.” – Big Al, on timing large Roth conversions (08:14)
• “Why waste a Roth to replace income taxed at the lowest rate?” – Joe (21:28)
• “Take some money out of your Roth and buy a better [car]!” – Big Al, to Thomas (23:15)
• “Everything’s a poodle nowadays.” – Big Al, discussing hybrid dog breeds (26:27)
• “Show’s called you Money. You’re welcome.” – Joe Anderson, classic sendoff (29:30)

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Timestamps for Key Segments

• 00:46 – Joe Mama in Virginia: Roth vs. 0% Cap Gains
• 6:02 – The “Tax Sandwich” effect of Roth conversions plus realized gains
• 8:14 – Suggested Roth conversion window strategy
• 12:03 – David & Shannon: Which spouse to convert? IRS Rule 55 technicality
• 17:07 – Why (and for whom) convert each spouse’s IRA
• 18:13 – Thomas: “How and when do I actually use my Roth?” (Five-year rule confusion addressed and Roth spending strategies)
• 25:47 – Lizzie and Billy in Texas: Is $3.5M enough? Plus Roth conversion timing

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Summary Table – Listener “Spitballs”

| Listener | Core Dilemma | Hosts' Advice/Takeaway | |----------------------|-------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------| | Joe Mama (VA) | Roth vs 0% cap gains; advisor nudge | Run the numbers: Large Roth conversions for a few years, don’t get tunnel vision on 0% gains, consider tax-lot harvesting | | David & Shannon (CA) | Only converting husband’s IRA | If one spouse is older, convert theirs first; if same age, it doesn’t matter; David correct on Rule 55 nuance | | Thomas | When/why to tap Roth | Only use Roth to avoid higher brackets, large one-time purchases, or as legacy—don’t withdraw just because it’s there | | Lizzie & Billy (TX) | Is $3.5M enough? When to convert to Roth? | Spending level is safe, Roth conversions should start pre-retirement and before RMDs/SS, kids off payroll = green light |

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Tone & Style Notes

• The podcast maintains a fun, approachable tone while delivering sophisticated financial advice.
• Banter about “playgroups,” dog breeds, and old cars adds warmth and relatability.
• Technical explanations are sandwiched between jokes and plain-English analogies.

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Final Takeaways

• Don’t Let the 0% Cap Gains Rate Trap You: Sometimes it pays to forego temporarily for long-term tax diversification and Roth growth.
• Who Should Convert? Go with the older spouse (earlier RMDs), otherwise, it’s a toss-up.
• Roth Spending Strategy: Only tap Roth when you’d otherwise hit high brackets, or for flexibility/legacy—not for routine expenses taxed at low rates.
• Retiring on $3.5M (in your 50s): Looks solid if withdrawal rates are low and expenses drop as kids become independent.
• Professional Guidance Matters: Each scenario hinges on detailed number-crunching—don’t navigate tax planning in isolation.

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For more, get a free financial assessment or check out the podcast’s resource links at YourMoneyYourWealth.com.

Transcript

[Andi Last]

Joe and Big Al spitball on Roth conversions, capital gains and retirement readiness from every angle. Today on youn Money, you, wealth podcast number 556, Joe Mama from Virginia wants to know if his zero percent capital gains strategy is too good to be true, if he can trust his advisor, and if it's time to finally start converting to Roth. David Mpowe is already converting his ira, but should they convert his wife Shannon's too? Thomas wonders when to finally start using that Roth money instead of just admiring it. And Lizzie and Billy from Texas want to know if $3.5 million is enough for them to retire in seven years. At ages 62 and 65, I'm executive producer Andi Last, and here are the hosts of the youe Money, you, Wealth playgroup. Joe Anderson, cfp and Big Al Clopine, cpa.

[Joe Anderson]

We got Joe Mama, Joe Mama in Virginia, Cam. All right, Joe, Big Al, Andy Love the show. Started listening about six months ago. Binge while in the car, just binging away. I mean, he must have a commute.

[Big Al Clopine]

It must be a long one, huh?

[Joe Anderson]

Wife's 58, I'm 57. Both retired. Yes, I married an older woman.

[Andi Last]

One year.

[Joe Anderson]

When I say that you call yourself Joe Mama. I bet she hates a lot of things that he Sundays.

[Big Al Clopine]

We're already two sentences in.

[Joe Anderson]

Guaranteed.

[Big Al Clopine]

I've already got a sense of what's going on here.

[Joe Anderson]

Guaranteed. Yeah, Married an old hag. Wife stopped teaching during COVID and I was able to convince her to let me stop working at the beginning of 2023. My BMW driving W enjoys the occasional glass of white and I partake in a Negroni. Like how he kind of worded that wordsmith. The two things here.

[Big Al Clopine]

Yeah, right, right.

[Joe Anderson]

He likes a little Negroni. Maybe a Manhattan or tequila neat with the wedge of lime. Not when I'm driving my new Porsche.

[Big Al Clopine]

Well, that's good. I'm glad you clarified.

[Joe Anderson]

Yeah. These are the first luxury cars we have ever owned. As our entire marriage, we have droned used cars until the wheels fell off. I wonder if he rotated those wheels every didn't.

[Big Al Clopine]

That's why the wheels fell out.

[Joe Anderson]

The kids are grown and self sufficient. So we spoil our one year old. Cavapoo. Here's the scenario. $1,100,000. House paid off, $250,000. Rental property paid off. Investments, 4 million bucks. Wow. Okay, very good. Brokerage account, $2,000,000 retirement, $1,075,000. Of that we got 1,000,600 in a traditional IRA, 150 in a Roth cash of 200,000 we spent $18,000 a month. Wife's pension is $1,800. Rental income is $1,200. Income from investments, $15,000. The income from investments is broken down to $2,500. Dividends from alternatives REITs and 1250 from dividends in the sale of index funds. My capital gains are 30% of proceeds. I can hear Big Al in my head. It's way too rich of a burn rate at your age. I know, but I don't see that changing.

[Big Al Clopine]

We'll have to see if that's what I say.

[Joe Anderson]

All right. We have about 30% of our money with a financial advisor. One of the reasons for this is so we will have people my wife trusts to assist her with the finances if anything happens to me. The financial advisor suggested that I begin taking a portion of my income from my 401. I'm extremely reluctant as the taxes I would have incurred and are too much to stomach. This is why adjusted gross income is about $95,000 a year. After the standard deduction, we have $65,000 of taxable income. That means the first $30,000 of capital gains is taxed at zero. Very good, Joe Mama.

[Big Al Clopine]

Yeah, that's true.

[Joe Anderson]

If I begin taking some of that money from that 401, I would lose $30,000 capital gain treatment at 0%. I would still need to take some money from the brokerage account, and that would all be taxed at 15% capital gains. The 401 money would be taxed at $12,000 on the first $30,000 and $22,000 after that. The way I see it, the first $30,000 would cost me 27%. 22,000. $15,000. Am I thinking about this correctly? The financial advisor also wants me to do Roth conversions and transfer more money to to the financial advisors firm for a similar reason. I'm apprehensive the 0% capital gains rate is too good to pass up once my wife and I start taking Social Security or if our taxable income increases. Perhaps the Roth conversion numbers will make sense if I lose that 0% capital gains. But right now, I just don't see it. What are your thoughts? Thanks, Joe Mama in Virginia?

[Big Al Clopine]

India.

[Joe Anderson]

Okay, so he's got one point. How old is Joe Mama? 57.

[Big Al Clopine]

57?

[Joe Anderson]

Yeah, he married the old lady.

[Big Al Clopine]

Older lady. 58? Yep.

[Joe Anderson]

Okay, 1,700,000. $58,000. So he doesn't want to touch any of the retirement accounts. He's going to take everything from the brokerage account at 1,900,000. He's taking $30,000 from the $1,900,000. So 30%, or is he taking 30% of the $2,000,000? Is that what he's doing? I don't understand the 30% number.

[Big Al Clopine]

I think he's saying whatever he sells as capital gains, 30% is taxable.

[Joe Anderson]

My capital gains are 30%.

[Big Al Clopine]

I think that's what he means. So you sell $100,000, you get tax on 30 because 70,000 basis. I think that's what he's saying. Well, let me do a little math first of all, before you get too deep into this. So they want to spend about 216,000 before Social Security. Joe. Fixed incomes, 22,000 shortfall is 194 into 3.9 million. That's a 5% distribution rate at 57, Joe. Mama, you're right. I think that's a little rich for your age. But you predicted I would say that. So anyway. But hey, but I said it.

[Joe Anderson]

I know, but I don't see that changing.

[Big Al Clopine]

Well. Yep. So anyway, that's, that's okay. The second point I would make is your thinking is exactly correct. That's exactly how it works. When you're in the 12% bracket and you have 0% capital gains and you do a Roth conversion. Yeah. You'll have to pay that 15% tax on the Roth conversion or 12% to get up to the top of the 12% bracket. But it pushes the capital gains into taxable, which is 15%. And Joe, you and I have seen so many tax projections where that's happened, where people are in the 27% bracket not realizing it because their capital gains are now taxable and the Roth conversion is taxable at two different rates. You add them together, it's 27%. So that's a correct statement. So what do you do?

[Joe Anderson]

I mean, I agree with them. I mean, so you have to be thinking about. You have to run the numbers a little bit more here. He's got $2 million. I'm just going to rough call it $2 million in retirement accounts at 57, he's taking. I don't know. He might burn through his brokerage account by the time he reaches RMD age.

[Big Al Clopine]

Yeah. If he needs 200,000 a year, $2 million, that'd be growth. But that is that same number. Right.

[Joe Anderson]

So he's going to pay zero tax. What he's going to do, let's say if he did. If he loves that 0% bracket.

[Big Al Clopine]

Right.

[Joe Anderson]

So he's going to pay zero tax and he's going to run that brokerage account down to a pretty low number over the next several years. Yeah, right. And then the only dollars that he's going to have Left is this $2 million in today's value in $150,000. Roth. I think he'll still have enough capital. But that $2 million Roth is. I mean, that $2 million retirement account is now 4 million, 4 1/2 million. He's spending 200. I don't think the RMD is the issue. I think the spending number is the. To come out at ordinary income. So you think the 27% rate's bad? I don't know what tax rates are going to be. Yeah, I don't know. This is an interesting case.

[Big Al Clopine]

I think what I might do, Joe, is maybe two or three years, forget the 0% capital gains, convert even to the top of the 22 or even the 24% bracket, which he could do about 300,000 of conversions, maybe a couple years, get a lot of it done and then go back to that 0% capital gains rate. Maybe try not to sell any stocks over those couple years. But I think that's what I might do.

[Joe Anderson]

Yeah, I like that idea quite a bit because he's only 57. They're really young. And the sooner that you can get the money into the retirement account or in the Roth account, you take the, the uncertainty of taxes off the table, you're going to have compounding tax free growth.

[Big Al Clopine]

Right. Gives them more flexibility.

[Joe Anderson]

Get a ton of flexibility and have a lot more tax diversification down the road. Because if I spend on that brokerage and just let the retirement account blow up, I don't know, I guess he's thinking maybe when I take Social Security, that 0% bracket won't be there and then so be it.

[Big Al Clopine]

Yeah, which is true.

[Joe Anderson]

But I would want to see how he's managing that brokerage account as well. Are you doing any type of tax strategy from a tax loss harvesting perspective? Because that also creates a 0% tax bracket, even if you're not in the 12% bracket, because those losses will offset gains. You got $2 million in a brokerage account. There's a lot of cool tax strategies from an investment perspective that you can do that we've talked about quite a bit today. But you know, again, I think some people just pick their stocks or pick their ETFs, and they don't necessarily do anything with them, which is not a bad move. Right. A lot of people kind of play with their money too much. And if your situation, you kind of set it and forget it and then you're just kind of carving out this 30% gains, you might want to be a little bit more tax savvy or tax tactical with the brokerage account. That could potentially create 0% income even if you're over that 12% by offsetting losses with G. Right.

[Big Al Clopine]

But yeah, wouldn't it be cool to get two or three years of $300,000 out of the IRA into the Roth and then you're set up well for life. You can manage the capital gains exactly how you said, how you want to try to avoid selling capital gain stock as much as you can over that two or three year period.

[Joe Anderson]

There's no way he's going to do that.

[Big Al Clopine]

No, I know, but I'm saying as much as you can. Right. I mean I get he's going to.

[Joe Anderson]

Wait until they claim Social Security, but I don't think claiming Social Security at 62 is probably the right answer.

[Big Al Clopine]

No, I don't think so either.

[Joe Anderson]

Probably claiming 62, full retirement age or pushing that thing off as long as you can.

[Big Al Clopine]

Yeah. And once he claims Social Security with future RMDs without doing anything, he's going.

[Joe Anderson]

To be in that 24, 24% tax bracket. Right. I mean that's assuming that tax rate. See right where they're at.

[Big Al Clopine]

Yeah. Right. So that, yeah, it's, it's a little tricky but the. What makes this kind of nice is there's so much in a non retirement account.

[Joe Anderson]

Right, right.

[Big Al Clopine]

Which. So there's a lot to work with. I would just like to see a little more balance in the tax deferred, which versus tax free. I think that would be really cool to do that.

[Joe Anderson]

Yeah. I got nothing left for you, Joe Mama. Thanks for the question.

[Andi Last]

Whether to keep that sweet 0% capital gains window or to dive into a Roth conversion is just one tax trap. But there are so many others that could be waiting for you in retirement. Watch youh Money, you Wealth TV this week to learn to escape these 11 tax traps and save in retirement. You'll see how to dodge RMDs, outsmart Irma, avoid rollover mistakes and even turn charitable giving into a tax free power move. And don't miss the Free Tax Planning Guide. Click or tap the links in the episode description to watch escape these 11 tax traps and to download the 2025 tax planning guide. Unless you actually like paying more tax. But that would be weird.

[Joe Anderson]

David and Shannon in Poway, California. Hey Andy. Joe, Big Al. Here's a simple Question. This is a simple question. It's like four pages long.

[Big Al Clopine]

No, it's just one. One page.

[Joe Anderson]

Okay.

[Big Al Clopine]

All right, that's another question.

[Joe Anderson]

Hey, Andy, Joe and Al. Here's a simple question and also a subtle correction that I hope you believe are worthy of included in ymyw. My wife and I have been doing strategic Roth conversions. However, they all have been done within my IRA accounts since my broker makes it much easier to do. Okay, so here's my question. Is there ever a reason why we should be doing Roth conversions in my wife's IRA accounts as well? We are both fully each other's beneficiary. That is no TODs to anyone else. So I'm thinking it doesn't matter. But what say you? Also, here's a little subtle correction. I've heard you say a few times that you must be 55 years old or older when you retire to take advantage of the IRS Rule 55, but that's not exactly true. I am certain that you need only turn 55 years old in the same calendar year as the year you retire. Isn't that the same thing?

[Big Al Clopine]

No, because you could be 54 and retire and be 55 later. We probably have said that just to simplify it, but, David, you are correct. That's the correct statement.

[Joe Anderson]

Right? It's like the rule of 55. You just turn 55 in the year. They.

[Big Al Clopine]

Okay, yeah, yeah.

[Joe Anderson]

Splitting here. It is subtle. Thank you.

[Big Al Clopine]

Yes, that's what he said. It's subtle.

[Joe Anderson]

I got it. I'm certain because I did it. All right, very good. We retired at 54 in early 2021 and have successfully utilized the IRS Rule 55 with no 10% penalties given. I left funds in the 401 of the employer I retired from and I turn 55 later in that same calendar year. That distinction. Sorry, Joe. Might help someone early retirement. Eyeing early retirement as much as a year if their birthday comes later in the year. All right, cool. Thank you, David.

[Big Al Clopine]

Yeah, well, that's true.

[Joe Anderson]

Now for the important stuff. We're empty nesters with all five kiddos fully launched in thriving, still driving a 2016 Mazdas. And we added a Frisbee catching puppy last year to our super lazy cat and box turtle. We survived the sequence of withdrawal return risk of our first full year in retirement of 2022. That was a tough year to retire.

[Big Al Clopine]

It was.

[Joe Anderson]

You got stocks and bonds totally going.

[Big Al Clopine]

Down at the same time.

[Joe Anderson]

Yeah. So then. So they. They did that by switching from Michelob Ultra to Coors latte. And now we learn from your money or wealth. But now we're back to throttling our longevity with Mick Golden Ultras. You all are the best. Cheers. To keep up the great work. David and Shannon, very cool. Condolences. Big Al in the fam. To the loss of your mother.

[Big Al Clopine]

Yeah, appreciate that.

[Joe Anderson]

And no, no. It's been a while, but I caught the episode with the news. Good friends with Todd and Donna.

[Big Al Clopine]

Yeah. My brother, sister in law.

[Joe Anderson]

All right. Many years ago, our kids grew up.

[Big Al Clopine]

In a playground playgroup.

[Joe Anderson]

A playgroup?

[Big Al Clopine]

Yeah. You know, kids. Don't you do that?

[Joe Anderson]

You.

[Big Al Clopine]

Your wife does. You probably don't.

[Joe Anderson]

I've never heard of a playgroup.

[Big Al Clopine]

Oh, my gosh. We've done that a million times.

[Joe Anderson]

A playgroup.

[Big Al Clopine]

When the kids. When the kids. When the kids are little.

[Joe Anderson]

No, there's no playgroup.

[Big Al Clopine]

You get together with other kids in the neighborhood. That's called a playgroup.

[Joe Anderson]

Yeah. No, I don't think Aaron was involved in any playgroups.

[Big Al Clopine]

And look how great he turned out. It's not required. I'm just telling you, that's a common thing.

[Joe Anderson]

Got it. Got it. Playgroups. Andy, were you involved in any playgroups?

[Andi Last]

I think I was, yes. I was in a swimming group and yeah, there was all kinds of. I was put in all the groups.

[Big Al Clopine]

But see, when we were younger, they didn't call it that. That's what current parents. Somehow you missed this whole thing.

[Joe Anderson]

Yeah. No, we don't have playgroups.

[Big Al Clopine]

What do you. What do you call it? You don't call it anything.

[Joe Anderson]

I don't call it anything.

[Big Al Clopine]

Get together with neighborhood kids.

[Joe Anderson]

No.

[Big Al Clopine]

And they play.

[Joe Anderson]

Yeah, we don't really have a lot of kids in the old neighborhood.

[Big Al Clopine]

Oh, yeah. You're in one of those, like, exclusive.

[Joe Anderson]

No.

[Andi Last]

You're in a senior community.

[Joe Anderson]

No, it's just I live in an.

[Big Al Clopine]

Old.

[Joe Anderson]

Retirement home across the street from a nursing home.

[Big Al Clopine]

Got it.

[Joe Anderson]

I mean, the kids go to the nursing home and they think they're kids, but 85.

[Big Al Clopine]

That's the playgroup.

[Joe Anderson]

That's the playgroup.

[Big Al Clopine]

Got it. Okay.

[Joe Anderson]

What. So what. What's the.

[Big Al Clopine]

Oh, the question. Is there ever a reason why we should be doing Roth conversions in my wife's IRAs as well?

[Joe Anderson]

Yeah, if your wife is older than you. That's the only reason.

[Big Al Clopine]

That's all I got, too. And the reason you think about it that way is if your wife's older or you're older, you want to get the years first because you're going to hit RMD age sooner. But otherwise it doesn't really make that much difference.

[Joe Anderson]

Yeah, because hers will roll into his and his will roll into hers. But yeah, the older person should do the conversions first.

[Big Al Clopine]

Yep.

[Joe Anderson]

Let's go to Thomas. Have been building up a Roth IRA with annual conversions for my conversional conventional IRA each year, staying within the 22 IRS tax brackets and under the first IRMAA threshold. I hear much about the importance of building up Roth ira or Roth 401, but I haven't heard much about how to eventually use the funds in the Roth ira. That is when and why you take distributions other than to save in the Roth ira. To pass my heirs. Thomas. All right, we can straighten you out here.

[Big Al Clopine]

Okay.

[Joe Anderson]

Background. I'm currently 66 and retired and we are living off of distributions from my traditional ira with Social Security benefits soon to be added. I expect that my IRAs will last until age 95 to 100. I note that the Tax Cut and Jobs act tax rates will be in effect for the foreseeable future. I understand that in the case of a demise or either me or my wife, the surviving spouse, would have to pay tax on one half of the current tax rate thresholds, which would put us in the 32% marginal tax rate. Understand that my Roth IRA conversions have a rolling five year limitation on withdrawal for each conversion. My thoughts on distributions from the Roth IRA during my or my wife's lifetime. All right. First, Thomas. There's no rolling five year because you're over 59 and a half.

[Big Al Clopine]

Yeah. And that's. A lot of people don't get that. So if you're under 59 and a half. Yes. Every conversion you got to wait five years to access that principal. But when it comes to being over 59 and a half, you're good as gold. Right.

[Joe Anderson]

There's as long as you've had a Roth IRA for five years.

[Big Al Clopine]

Yeah, let's put that in there.

[Joe Anderson]

There's no rolling five year. No, it's just one five years. As long as you satisfy the five year clock on the Roth. On any Roth IRA, the conversions after 59 and a half don't apply to the second five year clock.

[Big Al Clopine]

That's right.

[Joe Anderson]

All right, so. And I bet all these questions have to deal with that. Number one, save the Roth IRA for. So here's his question about when to spend the Roth.

[Big Al Clopine]

This is what he's thinking on how to spend the Roth.

[Joe Anderson]

Okay. All right, let's go.

[Big Al Clopine]

Okay.

[Joe Anderson]

Save the Roth IRA for potential large purchases such as real estate or motor vehicles or recreational vehicles, which we could otherwise require taking A large distribution from my traditional IRA in a single tax year, causing my taxable income tax to cross the higher marginal tax rate. None of these really apply to us, so why the hell even.

[Big Al Clopine]

Well, he's thinking out loud.

[Joe Anderson]

I buy a couple RVs and a boat. You know what, I would never ever do that.

[Big Al Clopine]

So I, I don't know about that, Joe. I mean, what if you want to go on a big trip and he doesn't talk about family members, but what.

[Joe Anderson]

If you want to pay creational vehicles.

[Big Al Clopine]

Recreational but motor vehicle. But what if he wants to go on a big cruise and invite the whole family? So that, that would be an extra.

[Joe Anderson]

That's a Big Al move.

[Big Al Clopine]

I know, but that's, that could be expensive is what.

[Joe Anderson]

Oh, yeah, you know from.

[Big Al Clopine]

Is what I'm saying.

[Joe Anderson]

It's got.

[Big Al Clopine]

Or what if you move into like a retirement home? Not a, not a nursing home, retirement home.

[Joe Anderson]

You could be my neighbor.

[Big Al Clopine]

Yeah, you could be your neighbor. And you know, the, the, you know, there's independent living, assisted living and long term care. And independent living. There's very little medical deductions, but it's increased costs. So maybe you want the Roth for that. There's a couple of. There.

[Joe Anderson]

All right. Save the Roth IRA for possible future time of increased taxes, including a surviving spouse paying tax based on a single taxpayer income threshold. The way to handle this would be take distributions from my conventional IRA through the 10 and 12% tax bracket each year and then take Roth distributions for needs above that amount. Why waste a Roth to replace income that is taxed at the lowest rate. Exactly. So you're right on point.

[Big Al Clopine]

Yeah, I agree.

[Joe Anderson]

That's perfect. That's exactly why you want the Roth.

[Big Al Clopine]

Yes.

[Joe Anderson]

You want to keep yourself out of those higher brackets as you're creating income. You want control over your taxes as you're creating income from the different pools of money that you've accumulated over the years. So he has how much in the Roth currently even tell us?

[Big Al Clopine]

He doesn't say.

[Joe Anderson]

So he's got a lot of money in the Roth and he doesn't know because he's in the 32% tax bracket.

[Big Al Clopine]

Well, he will be if. Yeah, yeah.

[Joe Anderson]

So, yes, you don't want to take money out of the Roth if you're in the 12 or 10, 12 or 22. But if you want more income or if you want to go on the trip or if you want to do other things that will push you up into those higher brackets, that's when you start taking dollars from the Roth to keep that tax rate, even instead of spiking up.

[Big Al Clopine]

Right.

[Joe Anderson]

You want to also do the conversions to keep your income level as well. What we see is that if they don't do the conversions, it's going to spike their income later in life. So you're trying to just even out or control your tax brackets as much as you possibly can by looking at where rates today, where rates are going to be in the future, and using some assumptions in regards to growth rates and what the demand for the portfolio is. So I think that is the best reason that he comes up with. So please comment if this is correct or good. No, you're right on point there. Agreed. So, for your podcast chatter, he drives a 2005 Buick LeSabre.

[Big Al Clopine]

Wow.

[Joe Anderson]

When's the last time you've seen a Buick LeSabre?

[Big Al Clopine]

Probably the Buick Open. It was 20 years ago.

[Joe Anderson]

With 230,000 miles on it. Yeah. Good for you. A little Buick.

[Big Al Clopine]

Yeah. Yeah, that's pretty good.

[Joe Anderson]

Plan to keep it to the end. I paid $1,500 for it three years ago.

[Big Al Clopine]

Well, take some money out of your Roth and buy a better.

[Joe Anderson]

My wife drives a 2015 Toyota RAV4, and since she thinks that it's old, we'll replace it within a couple of years with what we hope to be the last vehicle that will ever buy.

[Big Al Clopine]

Wow. You're 66. You're. That's it.

[Joe Anderson]

That's it, man. He's got to build the saber. That thing's a beast.

[Big Al Clopine]

Well, I can think of another reason why you do the Roth IRAs. It's because it's for your kids. Right. It's a beneficiary account for your kids. It's not your withdrawal, but it's for your kids.

[Joe Anderson]

Yeah, that's what he kind of mentioned, that beginning. He's like, is there any other reasons for. Yeah, leave it to the beneficiaries. Yeah, Yeah.

[Big Al Clopine]

I mean, that would be the third one.

[Joe Anderson]

Neither my wife nor I drink enough to have developed any preferences or ability to distinguish between drinks. Okay, so he could have a French 75 or.

[Big Al Clopine]

And drive something else out of Buick or a.

[Joe Anderson]

Like a whiskey sour and he wouldn't be able to tell the difference.

[Big Al Clopine]

No. Yeah. A bitter beer or a sweet wine or French 75. Like you say.

[Joe Anderson]

French 75. Yeah.

[Andi Last]

Let's talk about your year end game plan. Thomas was wondering when he'll actually use all that Roth money he's been carefully converting, which is a great question for anyone thinking, wait, am I doing all this in the right order? The truth is the calendar is winding down and your window for 2025 tax moves is closing fast. So now's the perfect time to figure out whether your strategy still fits. Get your free financial assessment with Joanna's team of experienced professionals at Pure Financial Advisors. They'll walk you through your income taxes and retirement goals to help you spot opportunities unique to your specific situation before December 31st. If you're not quite ready to meet, try our Financial Blueprint. It's a free, self guided tool that shows how close you are to your retirement target. Either way, make sure you head into 2026 with clarity, confidence and zero Roth confusion. Click or tap the financial Assessment link or the Financial Blueprint link in the episode description to get started. Yours free courtesy of your money, you, wealth and Pure Financial Advisors. I will say at the top of this one, I didn't think you guys were going to get to this email today, so I didn't give you a recap. They're 55 and 58. They got $3.5 million, 2.8 million in tax deferred, 720 in taxable and 8K in their Roth. As you were.

[Joe Anderson]

Oh, good. Hello.

[Big Al Clopine]

Great.

[Joe Anderson]

Al, Joe, Andy, Love your show. You guys make retirement planning entertaining. We are Lizzie and Billy from Texas.

[Big Al Clopine]

Texas. All right.

[Joe Anderson]

Ages 55 and 58. We have two kids. 20, 22. 22 year old is almost off the payroll, but the 21 or the 20 year old is on the slow roll train. The slow train, the slow train. Six years or so of college undergrad plan. All right, six years or so. It could be more, could be, could.

[Big Al Clopine]

Be less, could be more.

[Joe Anderson]

We have five cats in a snooky.

[Big Al Clopine]

Doodle schnoodle, whatever the hell that is.

[Andi Last]

It's a schnauzer poodle.

[Joe Anderson]

Okay? Everything's a poodle nowadays.

[Big Al Clopine]

Everything. Everything including our dog. We have a Cavapoo.

[Joe Anderson]

Cavapoo? Yeah.

[Big Al Clopine]

There's such a Cavalier poodle. Actually one of two questions ago they had a Cavapoo.

[Joe Anderson]

All right, we don't really drink, but can always be convinced to drink a margarita or two when the occasion calls for it. I drive a 2014 Honda Accord and Billy drives a 2025 MX7 hardtop convertible. Okay, what is that? MX? Is that a Mazda hardtop convertible?

[Big Al Clopine]

That'd be my guess, but I don't know.

[Joe Anderson]

My question is, can we comfortably retire at age 62 and 65? And when should we start our Roth conversions? You would like to spend $120,000 a year in today's dollars? All right, so Lizzie, she's got 175. Billy's got 175. That's what they're making right now.

[Big Al Clopine]

Yep.

[Joe Anderson]

Annual spending now is $168,000. Includes spending $48,000 to support the kids. Okay. Savings, pre tax, 2.7. 401k for Lizzie is 120, all pre tax except for 8,000. Roth got a brokerage account, 700,000. They got cash of 20,529. Plan is 90,000. House 700,000 paid off. No plans to move. All right, annual retirement income, Lizzie's going to have a pension of 12. Social Security is going to be 50. That's 67. Billy's Social Security is going to be roughly 50 at 67. Not sure when to pull the trigger on Social Security. Depends on how we are doing once we retire. Thanks for your thoughts. All right, so let's just go to 67 to start. Big Al, when do they want to retire?

[Big Al Clopine]

So they want to.

[Joe Anderson]

They want to retire at 62.

[Big Al Clopine]

Her 62, his 65. All right, seven years.

[Joe Anderson]

Seven years. They want to spend.

[Big Al Clopine]

120 in today's dollars. Actually, here's what I did just to make it super simple, okay? Like, what if they retired today? Just. Does it even work today?

[Joe Anderson]

All right.

[Big Al Clopine]

Without doing a lot of math here, okay, Because I think it looks pretty good. They want to spend $120,000. Pension's 12. That's before Social Security. So the shortfall is 108. They got three and a half. Three and a half. 108 to three and a half. It's. That is what, 3.5% ish distribution rate. So I think they're fine. Of course, right now there's 3.1. 3.1. They're spending more than that because of the kids. So I would put it this way. You could retire when the kids are off the payroll. How about that? I don't really care if they're off the payroll right now. I think you can retire. So in seven years from now, with more savings and the kids off the payroll, I think this looks gold.

[Joe Anderson]

Yep. All right. I would agree with that. Way to go, Lizzy.

[Big Al Clopine]

Yeah, Good job.

[Joe Anderson]

All right.

[Big Al Clopine]

Okay.

[Joe Anderson]

Well, good day then, mate.

[Andi Last]

Yes, thanks very much.

[Joe Anderson]

And we'll. We'll see you all next time. Show's called you'd Money. You're welcome.

[Andi Last]

Next week's YMYW isn't even recorded yet, but I'm pretty sure we're gonna get into tax planning around UGMA and 529plan accounts for education for George in Torrance, California and Suzanne in Detroit, Michigan respectively. The role of a health savings account in your overall pre tax contribution strategy and at RMD Age for Erin in Cincinnati and Carl in Maryland, respectively. And there may be more too. Just make sure you subscribe so you don't miss it. Your money, you, wealth is your podcast. We just make it for you. So let's grow this thing. Leave your honest reviews or ratings anywhere that accepts them, including Apple Podcasts. Subscribe, ring the bell and join the conversation in the in the comments on our YouTube channel and save someone you know from making yet another tax mistake. Share the show and if today's spitball's got you thinking about whether to make that Roth move, or if your savings are actually enough to hit your retirement target, now's the time to find out. With a free financial assessment from Joe and Big Al's team at Pure Financial Advisors, you don't have to navigate this alone. The experienced professionals at Pure will help you to see exactly where you stand today, find hidden tax traps, and design a plan to get you where you want to be before the end of the year. Click or tap the financial assessment link in the episode description to book yours. You can meet in person at one of our nationwide offices or online via Zoom, whichever fits your life best. There is no cost and there is no obligation, so stop guessing and start planning with confidence. Pure Financial Advisors is a registered investment advisor. This show does not intend to provide personalized investment advice through this podcast and does not represent that the securities or services discussed are suitable for any investor. As rules and regulations change, podcast content may become outdated. Investors are advised not to rely on any information contained in the podcast in the process of making a full and informed investment decision.