YMYW Podcast Episode 558 Summary

Roth IRA vs. Traditional IRA: Which is Better for Retirement Savings?

Hosts: Joe Anderson, CFP® & “Big Al” Clopine, CPA | Air Date: December 2, 2025

Episode Overview

This episode tackles the age-old personal finance debate: Should you prioritize Roth IRA or Traditional IRA contributions (or conversions) for retirement? Joe and Big Al draw on listener questions and real-life scenarios to illuminate the tax, timing, subsidy, and legacy considerations that make this decision so complex. Throughout, they layer education with the irreverent humor and banter YMYW is known for.

The guys field some meaty listener questions touching on Roth conversions at a very high tax bracket, navigating the “ACA cliff” during early retirement, and strategies for pre-tax vs. post-tax contributions for high earners and soon-to-retire couples. The through-line: There may not be a universal best answer, but understanding your numbers and tax situation is critical.

Key Discussion Points & Insights

1. Roth Conversions for High Earners: Does It Ever Make Sense?

Case: “McDreamy Dempsey” (55, $3.5M+ pretax, $7M target, 37% tax bracket)

• Situation: Huge tax-deferred assets, top tax bracket, lucrative real estate income expected in retirement. Asks if converting to Roth in the 37% bracket ever makes sense and to what bracket he should aim.
• Analysis:
  • Converting at 37%? Both hosts say not advisable unless you have no other choice. Wait until retirement, when income drops, and convert in lower brackets.
  • Use current years to max Roth contributions for diversification, but don't force big conversions now.
  • Start conversions after retiring (age 65–75), when RMDs will force up income, but you may still have some lower-bracket room.
• Notable Quote:
  • “I don't think I would convert at 37. …But then when I retire at 65, then I'd be doing conversions for 10 years till I hit 75. That's what I would do.” – Big Al (04:00)

2. The ‘Roth Conversion Lag’ and Paying Taxes from IRA Assets

Comment from Gary in La Crosse, WI

• Observation: Most financial advisors ignore the “lag” created if you pay conversion taxes via IRA withdrawals, not outside funds. This can take 15–20 years to break even at moderate growth/tax rates.
• Discussion:
  • Joe and Big Al agree: Paying conversion taxes from your IRA (not taxable funds) generally makes conversions unattractive.
  • Exceptions: Only makes sense if you have huge IRA balances and no way to pay with outside money—and even then, net/spending power is what counts.
  • Don’t focus on gross balances; always look at net after-tax values and long-term impacts.
• Notable Quote:
  • “If you’re paying out of the retirement account to do the conversion, in most cases the math doesn’t pencil out because you gotta pay the tax to pay the tax.” – Joe (10:48)
• Memorable Moment:
  • The “Roth Lag” gets a pub-worthy debate, with both hosts agreeing the issue is misunderstood and that they’d love to argue it further “over a beer at the Bodega Pub.” (09:45)

3. ACA Subsidy Cliff vs. Roth Conversions in Early Retirement

Case: “Wine Guy and Gal” (58/56, $1.7M brokerage, $2.5M tax-deferred, retired, facing ACA health coverage income limits)

• Situation: Retired early, covering expenses from brokerage, worried that Roth conversions will push income above the ACA subsidy cliff (~$84,000 MAGI), triggering $15K+ higher annual premiums.
• Analysis:
  • While on COBRA: Yes, do as much conversion as feasible, up to the 24% bracket if possible.
  • While on ACA: Once dependent on ACA coverage and subsidies, be careful—not worth forfeiting a $15K subsidy for moderate conversions.
  • Future Law Uncertainty: If subsidies go away (current law: expire after 2025), might be wise to convert again; otherwise, wait until on Medicare at 65 to resume conversions.
  • Go big or hold off: If you’re going to lose the whole subsidy, do a larger conversion so the effective “tax” rate is diluted.
• Notable Quotes:
  • “If you think about should they do Roth conversions this year while they're on COBRA? Yes, of course… Then next year you probably won’t do conversions because of the ACA Premium Credit.” – Big Al (23:03)
  • “Either you don’t do any or you go big is what I would say.” – Big Al (24:11)
• Memorable Moment:
  • “The Affordable Care Act, Al…was it really meant for people with $4 million?” – Joe (21:21); Al notes the subsidy’s design flaw (based strictly on income, not assets).

4. Traditional vs. Roth Contributions: Case-by-Case Spitballs

a. Robert from Napa (50/49, $425K household income, $4M assets, planning to move to lower-cost state)

• Situation: High earners, significant pretax and Roth assets, wants to know how to split contributions.
• Advice:
  • Both should maximize Roth 401k contributions now, plus after-tax to mega backdoor if possible.
  • Continue some pre-tax via 457b or SEP IRA for additional diversification.
  • At their income (top of 24% bracket), more Roth “tilts the scales.”
• Notable Quote:
  • “I would do as much Roth as possible…as far as conversions, I probably wouldn't convert much because they're already at the top of the 24.” – Big Al (29:05)

b. Luke & Lorelei (42/39, $220K income, aiming for $120K/year retirement, four kids, military/VA/disability income)

• Situation: Wants to know if making all contributions Roth is smart, and if they’re saving enough.
• Advice:
  • Yes, switch 401k contributions to Roth—at 22% bracket, it likely makes sense, especially with pension and Social Security coming.
  • Coast mode is okay, but consider increasing savings as debts are paid down if the goal is early retirement or more travel; balance fun and savings.
• Notable Quote:
  • “It's a good tax rate and you're young enough that you'll probably make more money later, maybe be in higher tax brackets. So yeah, I would definitely go the Roth option.” – Big Al (39:54)

c. Phil & Claire (48, $395K income, $1.9M assets, $150K/year retirement target)

• Situation: Stable/high income, saving $100K/yr, concerned about optimal Roth vs. pre-tax mix for retirement.
• Advice:
  • At income (24% bracket), switch to Roth 401k/403b contributions to build more tax-free income in retirement.
  • When retired at 60, with gap years before RMDs and pension/Social Security, can do strategic conversions to further optimize taxes.
• Notable Quote:
  • “At age 60, you got a lot of time to convert the rest of your dollars into a Roth IRA at lower tax brackets.”—Big Al (46:00)

Notable Quotes & Memorable Moments

| Timestamp | Speaker | Quote/Note | |-----------|---------|------------| | 04:00 | Big Al | “I don't think I would convert at 37. …But then when I retire at 65, then I'd be doing conversions for 10 years till I hit 75. That's what I would do.” | | 10:48 | Joe | “If you’re paying out of the retirement account to do the conversion, in most cases the math doesn’t pencil out because you gotta pay the tax to pay the tax.” | | 23:03 | Big Al | “If you think about should they do Roth conversions this year while they're on COBRA? Yes, of course… Then next year you probably won’t do conversions because of the ACA Premium Credit." | | 24:11 | Big Al | "Either you don’t do any or you go big is what I would say.” | | 29:05 | Big Al | “I would do as much Roth as possible…as far as conversions, I probably wouldn't convert much because they're already at the top of the 24.” | | 39:54 | Big Al | “It's a good tax rate and you're young enough that you'll probably make more money later, maybe be in higher tax brackets. So yeah, I would definitely go the Roth option.” | | 46:00 | Big Al | “At age 60, you got a lot of time to convert the rest of your dollars into a Roth IRA at lower tax brackets.” | | 21:21 | Joe | “The Affordable Care Act, Al…was it really meant for people with $4 million?” |

Memorable moments:

• Running gags about listener nicknames (“McDreamy”, “Wine Guy”, “Luke & Lorelei”, “Phil & Claire”) and sitcom references—humor lightens the technical talk.
• “Roth Lag” at the Bodega Pub—listeners are encouraged to challenge the experts' take, especially Gary from La Crosse!

Segment Timestamps

• [00:57] McDreamy Dempsey’s high-earner Roth conversion dilemma
• [06:58] Roth conversion lag: Gary from La Crosse’s challenge
• [18:03] Wine Guy & Gal: ACA cliff, Roth conversions, and health insurance subsidies
• [26:31] Robert from Napa: Pre-tax vs. Roth for high-earning couple
• [33:09] Luke & Lorelei: Early 40s, military/VA, Roth savings vs. coast mode
• [42:10] Phil & Claire: High earners with pension, Roth vs. pre-tax in the final stretch

YMYW’s General Roth vs. Traditional Insights

• Don’t blindly convert: Always examine YOUR current and future tax brackets, expected income, and how you’d pay conversion tax.
• Pay conversion taxes with outside (non-IRA) funds only; “Unless you have no choices, paying with IRA assets is almost never optimal” (10:48).
• Watch for subsidy cliffs: ACA, IRMAA, credits can make conversions cost-prohibitive in some years.
• Roth contributions make sense when: 1) tax rate is low, 2) you expect higher rates later, 3) you want flexibility/hedge future uncertainty, or 4) you value tax-free legacy.
• Conversions in ‘gap years’ (after retiring, before RMDs or Social Security) tend to be ideal.
• Balance fun and savings: Coast mode is OK if you’re on track, but supercharging savings buys flexibility for earlier retirement or more travel.

Final Takeaways

• “Traditional vs. Roth is never one-size-fits-all. Play out your actual numbers.”
• Make Roth decisions with a sharp eye on tax brackets, expected future income, and ancillary impacts (subsidies, IRMAA, capital gains).
• The best approach often mixes pre-tax and Roth for diversification and flexibility.
• “Have the conversation—ideally with a professional, and maybe a beer at a good pub!”

For full guidance: Check the timestamps above to jump to scenarios most like yours—or visit YourMoneyYourWealth.com for more spitball retirement analyses and download their Roth IRA guide.