Podcast Summary: "Roth Conversions: When to Make 'Em, When to Take 'Em" (Ep. 547)

Podcast: Your Money, Your Wealth
Hosts: Joe Anderson, CFP® and Alan "Big Al" Clopine, CPA
Date: September 16, 2025

Overview

This episode dives deep into advanced retirement planning topics, focusing on Roth IRA conversions—when to make them, when not to, and the intricacies of withdrawal rules. The hosts, known for their humorous banter, also answer listener questions about long-term care insurance, inherited IRAs post-SECURE Act, capital gains strategies, and the interplay between HSAs and HRAs. True to form, Joe and Big Al turn numbers-heavy topics into approachable, sometimes laugh-out-loud conversations, sharing insights that both entertain and educate.

Key Discussion Points & Insights

1. Listener Case Study: "Koozie/Cuzzy"—Should Retirees Keep Converting to Roth?

[01:10–12:59]

• Situation:

  • Missouri listener (pronunciation of his handle, "Koozie"/"Cuzzy," is debated) and wife, retired at 69 and 67.
  • ~$2M in combined assets, $100K fixed income (Social Security + pensions), spending ~$110K/year.
  • Strong Roth balance ($850K), additional pre-tax assets, annuities (MYGA, QLAC), some brokerage money.
  • Is continuing Roth conversions in the 22% bracket smart, or should he stop?

• Insights:

  • Their robust fixed income puts them in a strong financial position.
  • Joe and Al argue that with so much of the "heavy lifting" already done via Roth conversions, any further conversion should be limited to the 12% bracket.
  • Social Security taxability threshold explained: Once you're at the level where 85% of SS is taxed, further conversions don’t hike your effective rate dramatically.
  • On annuities: The hosts muse on the logic behind buying MYGAs and QLACs within IRAs, questioning the strategy unless the goal is guaranteed income and risk minimization.
  • On long-term care insurance:
    • Koozie owns a traditional LTC policy (covers 50% of costs)—unusual structure, but if affordable and already in place, keeping it is reasonable.
    • Asset-based LTC vs. self-funding discussed; "The key is not just how much you have, but how much you spend relative to what you have." – Big Al [12:21]

• Notable Quote:

  • "If you can convert and still stay in the 12% bracket…maybe do that. But I wouldn’t convert into the 22%. You don’t need to." — Big Al (08:15)

2. Peggy Hill in Minnesota: Roth Conversion 5-Year Rule Clarified

[13:08–21:48]

• Question:

  • Does Peggy need to wait 5 years after a Roth conversion to access the amount, or just the earnings? How does this differ between Roth IRAs and Roth 401(k)s?

• Insights:

  • There are two separate 5-year clocks:
    • Roth IRA contributions: Funds (contributions) can always be withdrawn penalty-free. Earnings require account to be open 5 years and owner to be 59½.
    • Roth conversions: Each conversion has its own 5-year clock (for those under 59½). Purpose: To prevent penalty-free early withdrawal of pre-tax money.
    • Roth 401(k): Each plan has its own 5-year clock. On rolling to a Roth IRA (open >5 years), IRA clock "trumps" the 401(k) clock, making post-retirement consolidation smart.
  • Practical tip: For maximizing simplicity and flexibility, roll retirement plan Roth accounts to a Roth IRA after retiring.

• Notable Quotes:

  • "If you're over 59½ and you already have a Roth IRA established for five years, then don’t worry about the second 5-year clock. It's all tax-free." — Joe (16:50)
  • "If you have five 401(k)s, they all have their own 5-year clock. It's not like IRAs where they're aggregated." — Big Al (19:44)

3. "Skipper": Should He Buy Additional Retirement Credit? Internal Rate of Return Math

[22:44–27:53]

• Situation:

  • Retiree can pay $45,000 (from IRA rollover) for 5 extra years of service credit, boosting pension by $12,000/year for life.
  • Wonders if the deal is as good as it looks and how to calculate the true rate of return.

• Insights:

  • Both hosts affirm it’s a "killer deal"—payback in less than four years, everything after is "house money."
  • Net present value and internal rate of return (IRR) calculations show the return greatly exceeds conservative investment assumptions.
  • Caveat: Only makes sense if significant lifespan is expected.

• Notable Quotes:

  • "Anytime you can pay $45,000 to get $12,000 a year for life—do it." — Big Al (24:35)

4. Jeff in Dallas: Capital Gains Minimization When Retiring Without a W2

[28:09–32:44]

• Situation:

  • 50-year-old retiree, $3M in single tech stock, $1M 401(k), some dividend and interest income, occasional eBay sales.

• Insights:

  • Long-term capital gains have a 0% bracket up to ~$48K single/~$97K married (2025 figures), with standard deduction raising the effective threshold (~$130K for married filers).
  • Suggests multi-year "tax gain harvesting"—selling shares each year up to the 0% limit to minimize overall tax.
  • Strong reminder not to "let the tax tail wag the dog": Don't try to save taxes if the underlying investment is falling in value.

• Notable Quotes:

  • "Don’t try to save a dollar in tax and lose $10 in stock value." — Big Al (30:38)

5. Dolly: Inherited IRAs and the SECURE Act’s 10-Year Rule

[33:38–37:52]

• Question:

  • If Dolly inherits her husband's inherited IRA (originated pre-SECURE Act), can she continue RMDs, or does the 10-year rule force her to empty it?

• Insights:

  • Since the original IRA was inherited pre-SECURE Act (2018) and she is a spouse, she is likely allowed to continue the RMDs based on her husband's stretch period (rather than being forced into the 10-year depletion rule).
  • They caution rules can get complicated for non-spouse beneficiaries.

• Notable Quotes:

  • "I’m pretty sure you can take over your husband’s position… That’s what we think." — Big Al (37:14)

6. Larry in Rhode Island: Transition from HSA to HRA

[37:52–40:44]

• Situation:

  • Switching jobs midyear; first half includes HSA contributions, second half will provide an HRA. Wants to know if both benefits can be "maxed" in one calendar year.

• Insights:

  • Yes: He can max the HSA with his first employer (while on a high-deductible plan), then switch to using only the HRA with the new employer for the remainder of the year.
  • Caution: Once on the HRA (and no longer on high-deductible coverage), should not make further HSA contributions for that year.

• Notable Quotes:

  • "You'll basically have two plans in one year, and that's okay because you cut off employers. But just to be on the safe side, don’t use any of your HSA funds for the rest of the year." — Big Al (39:52)

Notable Quotes & Memorable Moments

• On naming conventions:

  • “Reminds me of beer. You need a koozie.” — Joe (01:44)

• Banter about financial calculators:

  • “I wonder if he’s got like a Hotmail email account…” — Joe on Jeff in Dallas’s eBay mention (29:04)

• On five-year Roth rules:

  • “God, who’s on first?” — Joe (18:28), after a whirlwind explanation of the rules

• Humor after a metaphor gone awry:

  • “You don’t want to wag the tax dog tail to do to eat the beans.” — Joe (32:02)
    “Now, what kind of beans are those?” — Big Al (32:21)

• Listener interaction appreciation:

  • “Those who don’t find this funny have no sense of humor.” — Dolly, listener (34:19)

Additional Resources Mentioned

• YMYW Whitepaper: Five-Year Rules for Roth Withdrawals ([16:03])
• 2025 Key Financial Data Guide ([32:44])
• New TV episode: "What to Do When Markets Get Crazy" ([32:44])

Takeaways

• Roth Conversion Timing: Once you’ve built a large Roth balance and your future RMDs only push you into a moderate bracket, stop converting above the 12% bracket.
• Five-Year Rules: Know that contributions and conversions are treated differently. The rules are more nuanced for those under 59½ and get easier—though still bureaucratic—after retirement.
• Capital Gains Harvesting: Use your low tax years to realize gains, but don’t let the pursuit of tax avoidance override good investment behavior.
• Inheritance Post-SECURE Act: Spouses have more favorable options than other beneficiaries; pre-act stretch rules can persist in some cases.

For anyone facing similar financial decisions, this episode provides not only the facts but also the real-world wisdom—and the laughs—to make informed choices.