When Roth Conversions Don't Make Sense (And When They're a No-Brainer) - 576

Summary

Podcast Summary: When Roth Conversions Don't Make Sense (And When They're a No-Brainer)

Your Money, Your Wealth – Episode 576
Hosts: Joe Anderson, CFP® & Alan “Big Al” Clopine, CPA
Release Date: April 7, 2026

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Episode Overview

This episode dives deep into the ever-popular question of Roth conversions: when do they make financial sense and when might you want to steer clear? Joe and Big Al review real listener situations, spitballing various scenarios from multi-million dollar portfolios with hefty capital gains, to retirees considering conversions in their 70s, to working-class folks mapping their own conversions. Whether you’re a DIY retiree, a high net worth accumulator, or just wondering about your own family’s strategy, this episode uses humor and practical advice to demystify the notoriously complex landscape of Roth conversions, taxable accounts, and tax mitigation.

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1. Roth Conversions & Capital Gains: "TJ from PA"

[00:55 – 10:20]

Scenario:

• Listener: TJ from Pennsylvania, about to retire in 2026
• Portfolio: ~$2.5M IRA, $700k Roth, $4M taxable w/ 150%+ capital gains
• Spending needs: $200k/year (basic + extensive travel)
• Concern: Selling taxable assets to pay Roth conversion taxes would generate huge capital gains. Is it still worth it to convert?

Key Discussion Points:

• Comprehensive Planning Required:
  Joe points out, “He needs an income distribution strategy and a tax plan.” ([04:16])
• Tax Management Gaps:
  Joe notes lack of prior tax-reduction strategies, e.g., “It sounds like he bought a couple stocks, mutual funds, ETFs…no rebalancing, no tax management, no tax loss harvesting.” ([04:22–04:38])
• Future RMDs Looming:
  $2.5M in the IRA could double, leading to very large Required Minimum Distributions (RMDs) and tax exposure in later years ([05:09–05:22])
• Strategic Tax Opportunity:
  Despite capital gains from selling, Roth conversions can prevent higher future taxes if RMDs force withdrawals.
  “Sometimes it even makes sense to pay the tax out of a tax-deferred account to pay the tax on a Roth conversion.” (Joe, [07:41])
• Solutions Discussed:
  • Be selective with what you sell: Target assets/lots with lower gains to minimize realized taxes ([05:57–06:42], Big Al).
  • Alternate-year strategy: Alternate Roth conversions and capital gains harvesting, “map it out over a 20 year period.” (Joe, [07:03])
  • Charitable Remainder Trust/Tax-Exempt Trust: Use deductions to offset Roth conversion. “Sometimes the charitable remainder trust…can be even better for you than not doing it.” ([08:44–09:40], Joe & Big Al)

Notable Quotes:

“You made 150% on your stock…most of your assets are in capital gains, which means when you sell them, you’re in a lower [tax] bracket. So congrats.”
— Big Al ([08:20])

“Now…distributing wealth [is] totally different. Sometimes you have to eat the tax at today’s rate to save a lot more taxes in the future.”
— Joe ([10:06])

Conclusion:
Yes, Roth conversions can still make sense when faced with large capital gains, but execution and timing are crucial. Professional, customized planning is advised!

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2. “Rebels Without a Gauze” – Is It Too Late for Roth Conversions in Your 70s?

[12:37 – 22:45]

Scenario:

• Listeners: Two retired nurses, 70 & 72, Navy vets
• Assets: $1.1M IRA, $180k Roth, $620k cash, $446k taxable, house paid off
• Retirement Income: $210k/year; spend $135k, save the rest
• Concern: Are we too old for Roth conversions? Should we bother now?

Key Discussion Points:

• Not “Advanced Age”!:
  “A couple age 65 and older: 50% chance at least one lives to 92. With 20+ years of planning, 70s is not ‘advanced’.” ([14:53–15:09], Big Al)
• Future-Proofing Against Widow(er)’s Tax:
  If one spouse passes, the survivor’s brackets get much worse. Convert now to protect the survivor and reduce future taxes.
• Tax Bracket Philosophy:
  Stay in the 22% or 24% bracket for conversions, avoid paying in the 32% ([20:16], Big Al).
• Legacy Planning:
  “You’d rather pass along a tax-free asset to the kids than a taxable one.” ([20:16], Big Al)

Notable Quotes:

“Get it out of the retirement accounts…You’re just buying your partnership out of the IRS a little bit early and having all that money grow tax-free.”
— Joe ([21:29])

“All of a sudden this [IRA] will be taxed in higher brackets because of the widower’s tax.”
— Big Al ([21:13])

Conclusion:
Converting in your early 70s still often makes sense, especially for those who don’t rely on the IRA for income and want to simplify future tax outcomes for their spouse/family.

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3. Biking Barnsy: Roth Conversion for a Single Retiree with Pensions and Withdrawals

[23:09 – 32:32]

Scenario:

• Listener: “Biking Barnsy,” 62, Arkansas, military/FedEx retiree
• Income: Multiple pensions (~$2,150/month), rental income
• Withdrawals: $5,500/mo from ~1.7M IRA/401k (“taxable account” was likely a mislabel as retirement account)
• Debt: Mortgage and rental property loan
• Concern: How much to convert each year—don’t want to “fund the IRS’s golf outing”! Is he spending safely? And… can the YMYW audience help find him a travel buddy?

Key Discussion Points:

• Sustainable Withdrawal Rate: 3.8% withdrawal is “about the right amount.” ([28:36], Big Al)
• Match Roth Conversions to Tax Bracket: Since withdrawals and eventual RMDs will land in the same bracket, “maximize the bracket that he’s in” for conversions ([30:43], Joe).
• Practicality Check: Only convert what you can pay the tax on without sacrificing lifestyle or travel. If no taxable (non-retirement) cash, be careful about committing to large conversions ([31:39], Big Al).
• Humorous Call for Dates: “Who wouldn’t want to date Biking Barnsy?” ([26:48], Joe), acknowledging the lively and personal touch listeners bring.

Notable Quotes:

“Maybe here’s one of the few cases where [paying Roth conversion tax from the IRA] could make sense if there’s no money outside of retirement to pay the tax.”
— Big Al ([31:51])

Conclusion:
For retirees living on their IRAs, match conversions to your bracket, and don’t sacrifice lifestyle. Be smart about tax drag, and if you’ve got a stable plan, enjoy the ride (and maybe meet a fellow adventurer along the way).

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4. ZC & Wife: Are Massive Roth Conversions Too Aggressive?

[33:37 – 40:45]

Scenario:

• Listeners: ZC & wife, both 59/59.5, retiring imminently
• Assets: $2.6M 401k, $3.1M Roth, $12.5M taxable (with $9.6M as unrealized gains), $650k cash
• Expenses: $270k/year, $75k in dividends, $250k/yr realized capital gains (keeping below WA state’s $250k threshold)
• Conversion Plan: $360k converted to Roth in 2025 and $300k/year in 2026-28, then less; goal is maximum conversion before RMDs, leave Roth to heirs
• Concern: Are we being too aggressive? Is there a tax trap?

Key Discussion Points:

• Smart Use of Brackets and Local Taxes:
  They thoughtfully limit capital gains to avoid the WA state cap, and pair conversions with their tax bracket ceilings ([36:07], Joe reads email).
• Calculations Confirm Strategy:
  Big Al runs numbers and finds they’re keeping taxable income within the 24% bracket ([37:01]); Conversion pace is appropriate.
• Get Ahead of IRMAA:
  Medicare premium surcharges loom after 63; ZC is wise to accelerate conversions beforehand ([37:53], Big Al).
• Further Strategies for Taxable Account:
  With such a large taxable balance, direct indexing, exchange funds, and charitable tools could further optimize taxes ([38:35–39:22], Joe).

Notable Quotes:

“In this case, there’s a big gain, and when stock is sold…25% of what’s sold is tax free, rest is capital gains rate. If this [growth] happened inside a retirement account, it’s 100% ordinary income. So the fact you have a lot of gains in a capital gain account is actually the goal.”
— Big Al ([39:39–40:45])

Conclusion:
Converting aggressively before RMD age, and within planned capital gains limits, is actually optimal given size and structure of their portfolio. Consider even more sophisticated tax-loss and legacy planning to tune further.

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5. Humorous & Memorable Moments

• Listener Nicknames: Standouts like “Rebels without a Gauze” (New England nurses) and “Biking Barnsy” bring recurring character and levity.
• Ongoing Puns and Banter:
  “Suit yourself—suture self—“ ([13:47],[13:51]) and jabs about “sip of Sunshine Beer” ([15:58]), plus the ever-present wardrobe gags about Big Al’s jackets.
• Joe on Financial Planning Philosophy:
  “Accumulating wealth and distributing wealth are two totally different things” ([09:40]) reminds listeners that post-retirement planning is a new ballgame.

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6. Key Takeaways & Actionable Advice

• Don’t Let Taxes Alone Drive Your Roth Conversion Decisions: Look at your lifetime tax exposure, not just this year’s.
• Consider Your Legacy: Especially for high net worth investors, Roth conversions are often a bigger gift to heirs than to yourself.
• Widow(er)’s Tax Is Real: Plan conversions while you can use married brackets.
• Capital Gains Are (Usually) Good: Having growth in taxable accounts gives tax flexibility; don’t be afraid to realize some gains, especially at 0–15% rates.

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7. Timestamps for Major Segments

• [00:55] – TJ from PA: Roth + Cap Gains dilemma
• [12:37] – Rebels Without a Gauze: Converting in your 70s
• [23:09] – Biking Barnsy: Single life, pensions, and Roth
• [33:37] – ZC: High net worth, aggressive conversions
• [various] – Memorable quotes & fun banter throughout

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Notable Quotes Recap

• "You're just buying your partnership out of the IRS a little bit early and having all that money grow tax-free." — Joe ([21:29])
• "The fact that you have a lot of gains in a capital gain account is actually the goal." — Big Al ([39:39])
• "Sometimes you have to eat the tax at today’s rate to save a lot more taxes in the future." — Joe ([10:06])
• “Who wouldn’t want to date Biking Barnsy?” — Joe ([26:48])

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Bottom Line

When do Roth conversions NOT make sense? Rarely, but especially if paying conversion taxes forces huge financial sacrifices.
And when are they a no-brainer? When you can master your tax brackets, leave a better legacy, or avoid needless future RMD pain—all without hurting your current lifestyle.

If in doubt, get professional help for a custom tax and distribution plan!

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For free Roth resources or to submit your own question, visit: YourMoneyYourWealth.com

Transcript

[Andi Last]

Are Roth conversions worth it? We'll find out today on youn Money, you, Wealth podcast. 576 TJ in PA is going to have huge capital gains Joe and Big Al spitball on whether it's worth it for him to convert. Rebels without a gauze in New England are over 70. Is it too late for them to convert? How much should Biking Barnsie convert from his tax deferred accounts to Roth each year? And are there any single ladies in the YMYW audience that would like to help him spend his retirement money? Finally, the fellows spitball on whether Zeese and his wife are being too aggressive with their conversion strategy. By the way, every time you leave your honest ratings and reviews for YMYW and Apple podcasts or any of the other apps that let you do that, you're helping someone escape those boring money podcasts. I'm executive producer Andi Last, and here are the hosts of youf Money, you, Wealth, Jill Anderson, CFP and Big Al Clopine, cpa.

[Joe]

Let's go to TJ from pa have been listening to your podcast for about three years. Well, congratulations. Wow, that's longer than most.

[Big Al]

That's going to be in the top 10, right?

[Joe]

We don't drink that much. If we do, it's a rose. Red wine will be the choice. We drive 2015 Honda CRV and a 2023 Lexus RX350. Question is Roth conversions worth it in our situation? Here's our finances. We have an IRA account of $2.5 million. We got $700,000 in a Roth and $4 million plus in a taxable account. I'm going to just take a high flyer here and say that'd be okay. It'd probably say, yeah, I think you're

[Andi Last]

looking pretty good at the back of the envelope. You're probably fine.

[Joe]

Yeah. Does conversion make sense? Yeah, I'm guessing it probably does.

[Big Al]

Yep, me too.

[Joe]

Let's continue reading, shall we? Retiring in 2026. Expenses will be $200,000 for our basic needs and extensive travels. Basic needs, but throwing a little extensive.

[Big Al]

Well, basic needs plus travel. I think that's how I read it. Got it.

[Joe]

But no other luxury items. It's just travel and basic ramen noodles.

[Big Al]

But they're going to it's economy. There's they're staying every 1979 Datsun. Every country that has a Motel 6.

[Joe]

The extensive travel, they're just. They're traveling.

[Big Al]

Or better yet, they're saying it hostels.

[Joe]

We got our investments in the taxable account. They have capital gains of what? All right, our investments in taxable account have cap gains of 150% or more. Wow. If we have to sell taxable investments to pay Roth conversion tax, capital gains tax will be large. Also, we will need to pay capital gain tax for $200,000 expense withdrawal from the taxable account. Is it still worth to do Roth conversions or should we just sell the IRA investments for the expense? This way we pay capital gain tax for taxable accounts for the IRA withdrawals. This way we pay capital gain tax for taxable accounts for the IRA withdrawals. Okay.

[Big Al]

Okay.

[Joe]

So, so is it.

[Big Al]

Is it.

[Joe]

How old is this individual?

[Big Al]

We don't know.

[Joe]

TJ from pa. How old are you?

[Big Al]

So he didn't tell us how old he is, but I'm going to assume between 62 and 67 because they're retiring. All right, I could be wrong, but it is helpful to know how old you are, then that would kind of could change our spitball a little bit.

[Joe]

Right. It'd give you a little bit of a range.

[Big Al]

Right.

[Joe]

What? I don't know what his fixed income

[Big Al]

is today, but I'm going to. I'm going to answer this as though he's 62 to 67, which is a common retirement ages or in. Okay, so right off the bat, got $7,200,000. Four percent of that is $288,000, plus Social Security, which you didn't tell us. So you want to spend $200,000. Yeah. This looks fine. Looks pretty good, right? But Roth conversions, should he still do that? Given that he's got a lot of capital gain. High, high capital gain taxes if he sells the capital gain stock to pay for the Roth conversions. What do you think?

[Joe]

Well, he needs an income distribution strategy and a tax plan.

[Big Al]

Yeah.

[Joe]

I don't know. How is he managing the risk in his taxable account? It doesn't sound like he is. It sounds like he bought a couple stocks, mutual funds, ETFs, bought the right ones, and they have just ran up 150% over the years.

[Big Al]

That's what I would agree.

[Joe]

And so it's like there's no rebalancing, there's no tax management, there's no tax loss harvesting. I don't know what type of investments he. And he hasn't been very tax conscious in the taxable account, which is fine because he's had a lot of growth in the account, and I'm not sure how long that those accounts have been sitting there.

[Big Al]

Right, right.

[Joe]

So that's one thing you got two and a half million dollars of tax deferred accounts. Those are going to continue to grow and they're going to be a force out and you're going to have to pay the tax regardless.

[Big Al]

Yeah. And the two and a half million in tax deferred, depending upon how old they are, that could double.

[Joe]

Exactly. So let's say it's $5 million.

[Big Al]

That's what, 200,000 RMD to start and it goes up from there.

[Joe]

So you have to look at this not year by year. You have to forecast the years out and then come back to present day. And then you want to figure out the strategy that is a going to give you the, the best chance of success for your overall financial goals. Pay the least amount of tax and then three, leave the most to the next generation. If that's part of your goals.

[Big Al]

If that's part of the goals, we don't know. But. Yep, yep.

[Joe]

But he's not going to spend this all. He's only spending $200,000 on $7.5 million liquid estate.

[Big Al]

Yeah, yeah, that's right. Now we might have a different answer if he's 50, because then I don't want a 4% distribution rate and maybe this gets a little tighter, but for the age of 62 to 67, I, yeah, he's just fine. I, I guess if it were me personally, I would do Roth conversions, but I'd be careful what capital gains stocks I sold. I'd, I'd look at all my holdings and see which ones had the highest gains versus the lowest. And realize you don't have to do a blended rate. If you have single stock, you can do lots, Right. So maybe the, the let the latest lots that you bought might have the least amount of gain, the earliest ones, most gain. So maybe you sell the ones that have less gain than for less of a tax problem while you're doing Roth conversions. But I would want to look at that.

[Joe]

Jerry, you could flip flop, right. Some years you sell and pay 0% capital gains if you stay in that $100,000.

[Big Al]

That's a good point.

[Joe]

Taxable income. So you're diversifying out of whatever holdings that you are. Or if you love the holdings you can tax gain harvest. What that means is that you're selling the stock. And if you can stay, it sounds like he doesn't have any other income. And if he wants to live off of his taxable account, he's got $4 million. There's, you could sell that up to $100,000 of taxable income.

[Big Al]

That's right.

[Joe]

And then buy the stock back. So you're just increasing your basis year after year. But you do that one year, you do Roth conversions the next, you do that one year. I mean, there's all sorts of different strategies that you can look at and you got to figure out the combination and then map it out over a 20 year time period to see what is going to give them, you know, the best, I guess, tax.

[Big Al]

And, and that's assuming he's married. He does say we. But it could be living with someone. Right. So it could be in a single bracket. So there's a lot we don't know here.

[Joe]

Yeah. But it's, I think that the crux is, hey, I have a lot of gains in my taxable account. I'm going to have to pay the tax of my taxable account to do the Roth conversion. Does that make sense? The answer is yes, because sometimes it even makes sense to pay the tax out of a tax deferred account to pay the tax on a Roth conversion.

[Big Al]

Particularly when you have required minimum distributions later.

[Joe]

Yeah. When you have huge RMDs that are going to pop you up into a higher tax bracket, your cap gains rate is going to be lower than your ordinary income rate.

[Big Al]

Yeah. And actually I think some people kind of, they, they sort of forget that this is sort of a good thing. Right.

[Joe]

You made 150% on your stock.

[Big Al]

Not only did you make 150%, but most of your assets are in capital gains, which means when you sell them, you're in a lower bracket. So congrats. Instead of worrying about this, this is a great thing. So there's all kinds of strategies as Joe mentioned. You just have to pick what's the best one for you and your goals, depending upon your age and a bunch of things we don't know.

[Joe]

Right. I don't know. You could put, let's say you put a couple million dollars into a tax exempt trust.

[Big Al]

Oh, wow, you're. Oh, you're going deep.

[Joe]

That you sell stock without any tax.

[Big Al]

Yeah.

[Joe]

You could get a charitable deduction by doing, have a lifetime, get a lifetime

[Big Al]

income and it'd be mostly capital gain, Right? Yep.

[Joe]

And then you could, with that tax deduction that you get, then you could do a Roth conversion and that tax deduction would upset the conversion tax.

[Big Al]

Look at you.

[Joe]

Look at that.

[Big Al]

Joseph. That is a excellent strategy or excellent, sophisticated, complicated.

[Andi Last]

It requires actually a sit down.

[Big Al]

Also known as a charitable remainder trust, in case you try to Google it. Yeah.

[Joe]

He's going to Be like, I don't want that, but I want that tax exempt trust.

[Big Al]

That one sounds better than the church. It's the same thing actually. I will tell you that sometimes the charitable maintenance trust is actually, it's good for charity, but it's even, it can be even better for you than not doing it. So anyway, I'll just, that's all I'll say right now.

[Joe]

Yep, lot of different planning opportunities, I think for young TJ from pa. Yep, agreed. Very well done on the accumulation of your net worth. Now it's, this is the issue. I think this is why accumulating wealth and distributing wealth are two totally different types of things. And some people will use like an accumulation type strategy as they're thinking about taking distributions.

[Big Al]

Right.

[Joe]

Well, I don't want to pay this tax or that or whatever. You're going to pay tax regardless. How much do you want to pay? You want to mitigate that tax bill over your lifetime. Sometimes you have to, you know, buy the tax on today's rate to save a lot more taxes in the future.

[Big Al]

And I mean, just to follow that point, you and I have met with people, Joe, that have $10 million and they ask us, Can I spend 200,000? Right? And it's like, yes, well, that seems, I don't know. I've never sprint the principal, you know, that's what I heard. And then you and I remember an attorney had, he was going to retire, wanted to spend 250,000 a year, which now is in current dollars probably at least 400 or more. And he had about 500,000. He goes, Joe and Al, what do you think? Am I good?

[Joe]

No.

[Big Al]

Unless you're going to die in two

[Joe]

years from that, you got a good two years. All right, well, very good.

[Andi Last]

Like I was saying, sophisticated strategies like this one require more than a spitball. Did you hear all those variables Joe and Big Al mentioned? It's a good idea to sit down with a human one to one to map out a plan that's right for your unique situation, for your future needs and goals. Schedule a free financial assessment with one of the experiences experienced professionals on Joe and Big Al's team at Pure Financial Advisors. Like a spitball, an assessment doesn't cost anything. But the major difference is that this comprehensive analysis is 100% just for you and your family, not the entire YMYW audience. The pure team will review where you are now, where you want to be in retirement, and they'll help you develop a plan to get you there. Can you avoid paying a bunch of taxes in retirement by converting some of your 401k or IRA to Roth, they'll help you figure it out. Are you feeling confident in your investments, or is this recent market volatility freaking you out? They'll make sure the assets you own are aligned with your tolerance for risk. Click or tap the financial assessment link in the episode Description, or call 888-994-6257 and schedule yours now. You can meet in person at one of our offices in San Diego, Woodland Hills or Irvine Brea, Davis, California, Mercer island or Redmond in Seattle, Greenwood Village in Denver, Lehigh in Salt Lake City, Franklin in Nashville, or Wheaton or Northbrook in Chicago. Or you can meet with the Pure team online via Zoom. No matter where you are, the free assessment link is sitting there in the episode description just waiting for you to decide that now is the time to get your financial life in order.

[Joe]

Let's keep motoring on here. We got Happy Autumn from New England. Happy Autumn.

[Big Al]

Oh, well. October 27th.

[Joe]

Okay, we're in. Happy spring. Happy Easter.

[Big Al]

We missed it. We missed winter, didn't we?

[Joe]

Yeah, we missed winter. We're jumping right from autumn to spring.

[Big Al]

Well, winter's no good anyway, so.

[Joe]

Okay, New England to you, Andy, Joe, Big Al, two retired nurses here. Rebels without a gauze. That's Rebels without a gauze. No wonder how many times they've said that.

[Big Al]

A lot.

[Andi Last]

They sign off on it. They really like this one.

[Big Al]

And you know what? I'm guessing it never gets old.

[Joe]

Oh, they're giggling to themselves right now

[Big Al]

and listening to you read this.

[Andi Last]

Joe, I'll prepare you. There is actually more of these puns throughout this email.

[Joe]

They've been waiting since autumn.

[Big Al]

I know.

[Andi Last]

Yes.

[Big Al]

They're getting impatient. When is Joe going to say rebels without a goddess?

[Joe]

We've always. We've always been financial DIYers. To which you might say,

[Andi Last]

suit yourself.

[Big Al]

I think it's suture.

[Joe]

Suit yourself.

[Big Al]

Suit yourself. But they did suture Suit yourself. Yes, but I guess that sounds like suit yourself.

[Andi Last]

Sutures are stitches, you know?

[Big Al]

Yeah. Yeah. Right. Oh, yeah. Okay.

[Joe]

Thank you, Andy. You're gonna help me out.

[Big Al]

All of this

[Joe]

doing it on my own. Makes us wonder if we messed up the Roth conversions. I don't know.

[Big Al]

We'll see. Keep reading.

[Joe]

Let's call the doctor.

[Andi Last]

That would be you, Dr. Roth.

[Big Al]

Dr. Roth. Okay.

[Joe]

In our younger days, before Roth came along, we stuffed out traditional IRAs as full as we could. As our four kids got older, our expenses made it impossible to save for maybe 15 years. And once we Caught up, we started saving into Roth IRAs. So we have most of our savings in traditional IRA accounts. And our question is, should we start doing Roth conversions at this advanced age?

[Big Al]

Okay.

[Joe]

All right. Is 7270 advanced age?

[Big Al]

I don't think so. I think. I mean, here's the stats, Joe. As you know, a couple age 65 and older, 50% is 50% likelihood that at least one of you is going to make it to 92. So we're talking about over a 20 year span here of planning.

[Joe]

They're nurses. Come on. They're rebels without a gauze.

[Big Al]

Yeah. And they know how to take care of themselves. Right. So, yeah, we're probably talking 25 or more years.

[Joe]

God, and who knows where. So anyway, I don't know. Advanced age at 72. I'm not there yet, but a lot

[Big Al]

of people think that, Joe.

[Joe]

I would say 82 would be an advanced age.

[Big Al]

Yeah, yeah. Or 87.

[Joe]

Okay, sure.

[Big Al]

82 might qualify.

[Joe]

All right. All right. She is 72 and he is 70.

[Big Al]

Okay.

[Joe]

All right. Both are retired, but he still enjoys working with patients, so has a couple of side gigs that bring in about $25,000 a year. She's a white wine gal. And he enjoys a truly over the top iPic.

[Big Al]

Oh, that's one of those hoppy ones. Okay, maybe double hop.

[Joe]

It takes great exception to your recent dissing of sip of Sunshine Beer. I was dissing Sip of Sunshine Beer.

[Big Al]

I don't remember that.

[Andi Last]

It's an ipa, so it might have just been based on the fact that it's an ipa. But does this look familiar to you?

[Joe]

No, it doesn't.

[Big Al]

But that's Sunshine beer.

[Andi Last]

Yeah, we had a conversation about this few weeks. Actually, we would have had a conversation about this a few months ago, since they wrote the C Mill in October.

[Big Al]

Yeah, but you have to remember, Joe, you don't like. I do that. So you're not gonna like any ipa. No. Especially not a double double hopper ipa.

[Joe]

That's. It's not going to be a sip of sunshine for me.

[Big Al]

Would that be like winter for you?

[Joe]

Yeah. All right. We have a fleet of minivans in a Mazda Miata. She's a gardener. He makes telescopes for fun. Telescopes. How do you make a telescope?

[Andi Last]

That is some serious science. That's got a lot of technology and a lot of moving parts in it. This is a very technical person.

[Big Al]

Has an interest in physics and the universe. Yes.

[Joe]

And both spend an inordinate amount of time going to the seven Grandkids soccer games. We take a Couple of big trips to Europe and South Pacific every year. Andy, Australia's on our bucket list.

[Andi Last]

All right, come on down.

[Joe]

Our after tax retirement income is $210,000 a year. We were both career Navy nurses and are taking Social Security. We are spending about 135 and the rest goes to savings. Even if we end up spending on the kids and grandchildren, we don't really need our savings to live off of. Thus, we're wondering about Roth conversion. Is it worth it to move those traditional accounts over? Being DIYers, our savings are lopsided. We have $620,000 in cash, $101.3 million in stock funds, $220,000 in bond funds. Of that, 446,000 is in a taxable account, not including all that cash. 1.1 million in traditional IRAs and $180,000 in Roth IRAs. Okay, that little. Interesting. All right, so they got $450,000 in brokerage, 1,100,000 in deferred, 180 in tax free. The house, maybe $500,000 is paid. We have no other debt. She starts RMDs of about $26,000 a year in January, and his RMD is about the same amount. Kick in two years from then. All right, who the hell's writing this? Is it him or her?

[Big Al]

Yeah. Or is it their financial plan?

[Joe]

Or is it someone? Or is it a third party?

[Big Al]

Not sure, because it goes back and forth.

[Joe]

No, I'm confused. Our tax bracket is a little weird because of our military retirements are taxed differently than most annuities. No, they're not. You probably have some that are taxed and you got a VA that's tax free. Yeah, probably a 20, 24 taxable income was $170,000 putting this in the 22% tax bracket. Our state, Connecticut, doesn't tax our military retirement and only taxes 25% of our Social Security. So we paid no state income tax last year. We think we'll be in the 22 to 24% tax brackets for the next few years, which gives us some room up to the 32% tax bracket for Roth conversion. But is it worth it for these nurses to convert? Maybe the RN is ready, maybe they aren't ready.

[Big Al]

Maybe they aren't ready right at the end. Oh, and then you get another chance to say the name again.

[Joe]

Thank you. Rebels without a gauze.

[Andi Last]

Suit yourself.

[Joe]

Yes.

[Big Al]

Okay.

[Joe]

Yes. Do conversions. You're not advanced age. You don't need the income. The RMDs are only going to go up if one of you were to pass away. Then the tax brackets get cut in half. You'll end up losing more money to tax. You already told us a few times, you don't need the money. Get it out of the deferred account, at least to the 22% tax bracket. Then go to the. Or to the top of the 24. Yeah, this is easy.

[Big Al]

You won't believe this, but check. Agreed. Yeah. I think the reason you do this is to lower your taxes in the future. Right. While you're in a lower bracket, I wouldn't go to the 32. Top of the 24 tops. Right. Then number two, you're doing it for your kids. You got four kids. You'd rather pass along a tax free asset to them than a taxable one. So. And Joe, you're right. I mean, that's the, the widower's tax. Right. And here's what that means. It means that if one spouse passes, the other survives, then the surviving spouse will then be in a single tax bracket. And the single tax bracket is the same tax percentages, but you hit those higher percentages in about half the time. So in other words, the top of the 12% bracket for, for married, 100 grand, 100 grand, 50 grand for single. So that's what I'm talking about. So all of a sudden this will be taxed in higher brackets because of the widower's tax.

[Joe]

Yep. Top of 22 is 200,000.

[Big Al]

Yeah. 200 to 400.

[Joe]

Yeah.

[Big Al]

Yeah.

[Joe]

And then someone passes now that 200 goes to 24.

[Big Al]

Correct.

[Joe]

Just like that.

[Big Al]

Yeah, just like that.

[Joe]

Then it's only going to go higher because of the amount of money that they have in retirement. So get it out of the retirement accounts. You don't necessarily need the money. Paying the tax is going to be a little bit of a pain in the ass, you know, But I think you're going to pay the tax regardless. You're just buying your partnership out of the IRS a little bit early and then having all that money grow tax free and then you take on a little bit more risk in that Roth account because you don't need the money anyway. And that money's going to grow for 10, 20, 30 years. Then the kids or the grandkids. Name the grandkids. Right. The. The beneficiary of the rock.

[Big Al]

Yeah.

[Joe]

Talk about leaving a legacy to the grandkids that you're, you know, I don't know if they're gonna make it to, like, Ronaldo's status. Or. But this will help them have a good footing as they get into their adulthood, so.

[Big Al]

Agreed. Yeah, a lot of reasons.

[Joe]

Yeah. So then, you know, if you think about what this can do for the. The grandkids because it's tax free for them, and then it can parlay even longer, so then they can hold it in the Roth when they inherit it for 10 more years.

[Big Al]

10 more years tax free. 10 more years of growth.

[Joe]

Right.

[Big Al]

Yep.

[Joe]

So if. If I was in that advanced age. But you're young. You guys are spring chickens.

[Big Al]

I think so, too, especially as I get closer to that age. Yeah, it seems younger than I thought. I know.

[Joe]

You're knocking on that 70s door, getting

[Big Al]

kind of getting a little bit closer than I like.

[Joe]

Well, you look 50, Al.

[Big Al]

Well, thank you. I'll take that.

[Joe]

All right. But that new jacket.

[Big Al]

Oh, yeah. Don't you love it?

[Joe]

I love it. All right, we got.

[Big Al]

How'd you know it was new?

[Joe]

I could just.

[Big Al]

No, no.

[Joe]

I could smell the freeze right off the rack.

[Big Al]

Yeah, that's. That's exactly right.

[Joe]

We got. We got biking. Barnsy.

[Big Al]

Viking. Barnsy.

[Joe]

Okay. In Arkansas.

[Big Al]

And what I especially like about this is it's half a page. Oh, instead of a page and a half.

[Joe]

Yeah. All right. I wonder where in Arkansas. I go to Arkansas in a couple weeks.

[Big Al]

Yeah, it's kind of one of your regular spots.

[Joe]

It is.

[Big Al]

Yeah.

[Joe]

The inlines are going to play in the little four ball golf tournament at Maumelle Country Club.

[Big Al]

I bet you before you got married, you never guessed Arkansas. I'd be going there a couple times a year. No, not that there's anything wrong with Arkansas. Don't get me wrong. It's got great beaches. It's a great place.

[Joe]

Yeah, I enjoy going. Salt of the oath, people.

[Big Al]

Yeah.

[Joe]

All right. I'm just a retired guy doing the math. I'm 62, retired from the military in Anheuser Busch at 60. All right.

[Big Al]

Okay.

[Joe]

Monthly pensions are about $1,213 a year or $1,300 a month. That's from his military. Eight hundred and fifty from FedEx, so I thought he worked for Anheuser Busch.

[Big Al]

Well, both, maybe, and then FedEx, I guess.

[Andi Last]

He's 62. He's had a number of careers, apparently.

[Big Al]

Yeah, that's what it looks like.

[Joe]

All right, so military 850. FedEx. I'm sorry. 1300 from the military, 850 from FedEx, 2300 from Social Security.

[Big Al]

Yeah, yeah. All right.

[Joe]

Down a rental then. That's $500 after expenses. I owe 250 on it at 2 1/2% on that property value at 480. 350 at 6% on my primary, which I hate. Love the house, hate the interest rate. Value of that is 500,000. Sitting on about $1.7 million in a taxable account, $44,000 in a Roth. I'm not using an advisor. Pulling $5,500 a month from the taxable side. Okay, now I'm wondering, will my money last at this withdrawal amount or should I fly business class more often? My main question is how much should I convert to a Roth a year without feeling like I just volunteered to fund the IRS's golf outing? Riding this from Munich airport after a fantastic 20 day stay at Eldewise Lodge.

[Big Al]

Edelweiss.

[Joe]

Edelweiss. That's what I meant to say. Yep, you've been there. You've been to Edelweiss Watlad.

[Big Al]

No, but I've been to. I've been to Munich like three times. And I've been to Austria where Sound of Music was filmed. So. Yeah.

[Joe]

Oh, got it.

[Big Al]

You bet.

[Joe]

I treated myself to a Polaris class back to Arkansas.

[Big Al]

I did that for the first time coming home from Tahiti. What is it in November? I've never heard of it. That's a. It's like a business class. It's. It's a life flat. You can go to sleep on a flat surface.

[Joe]

I've never been in a plane that had that.

[Big Al]

Yeah, well, you need to start traveling more than Arkansas. Anyway, it was. It was pretty nice, I have to say.

[Joe]

Okay, just left the airport lounge where those mix your own screwdrivers are way more dangerous than they look. Yes, I'm single and adventurous gals out there who like to travel. Good humor and slightly. Slightly questionable financial timing. Let's meet before my next Roth conversion. Look at this. Look at bikey Barney.

[Big Al]

I like it.

[Joe]

Trying to get set up here on your money or wealth, guys?

[Big Al]

For the football. We're a matching.

[Joe]

Matching service.

[Big Al]

Yeah, we do.

[Joe]

Who wouldn't want to date biking Barnsy? Well, with this, he's got pension dollars. $1,200. 850,800.

[Big Al]

He's got 52,000 in fixed income, plus 6,000 coming from his rental. So that's 58 just right there.

[Joe]

Yeah, yeah. And then spend 66 and then he's got close to 2 million bucks.

[Big Al]

Well, I would, I would. I think what he meant to say is the, the. The. He says 1.7 in taxable accounts. I think he means IRA 401k.

[Joe]

Yes.

[Big Al]

So he doesn't, I don't, I'm not sure if he has anything in what we call taxable. So another way of. We call taxable what you would think of as a non retirement account. We. Because it's tax as you receive money. That's why we call it that. It's already been taxed. Right. We call tax deferred money into an IRA 401K. Because you already got, you didn't get the tax deduction. It went in pre tax. And when you pull the money out, you have to pay the tax. Tax deferred. Anyway, it's okay. We.

[Joe]

I know people call taxable because it's taxable on the way.

[Big Al]

I get it. You know what, when I got in

[Joe]

the industry, Joe, you know, you called everything a pension.

[Big Al]

That seems so dumb to me. Taxable. That's a non retirement account. It's a brokerage account anyway, whatever. So if you look at it that way, Joe, I think he's spending $124,000 because I think he's got $58,000 of fixed income and then he's pulling another 5,500amonth from his 401 s. So he's spending. I think he's spending $124,000 minus the pension and Social Security.

[Joe]

What is this spend of $66,000? Come on, come from.

[Big Al]

Well, that's, that's when, if, if you assume the 5,500 is always spending.

[Joe]

Oh, got it, got it.

[Big Al]

Yeah, but I don't think that's right. Okay, I, I think, I think he's spending 124. I think his fixed income is 58, shortfall 66, divided into 1.74 million in assets, 3.8% distribution. Yeah, I'm okay, I'm okay with that. I think you're spending about the right amount. So I don't mind an occasional Polaris, but don't do that every trip. Maybe that's what I would say.

[Joe]

Geez, who cares? Keep polarising it up.

[Big Al]

But Roth conversions.

[Joe]

Yeah, well, I don't know. Do you want to pay the tax on the Roth conversions or does he want to find a little honey to go on the Polaris with?

[Big Al]

Well, that's a good point.

[Joe]

Okay, what's going to happen to him is that he's spending 55, so he's spending $66,000 a year from the retirement account. He's 62.

[Big Al]

Yep, yep, yep.

[Joe]

All right, so the RMD is going to be the same as what he's Spending.

[Big Al]

Well, that's a good way to think about it because it's not like he's going to get extra money. Right. So that. Maybe That's a good point to make, Joe. So make that point.

[Joe]

Well, he's taking money out of the retirement account to live off of, which is $66,000 a year. His RMD at $1,700,000. Let's assume the 66. He keeps that deferred account flat. His RMD is going to be 60, $70,000. It's almost the same as what he's spending.

[Big Al]

Same, same. So it's not like he'll be in a higher bracket.

[Joe]

A lot of times when you look at Roth conversions, you want to convert to get it out of the retirement account at lower tax brackets, but he's going to be in the same bracket, so it still makes sense to maximize the bracket that he's in. So you take the. What does he have a taxable income? $52,000. But some of that's military, so I'm not sure how much of that is VA versus Not.

[Big Al]

It's hard to know.

[Joe]

I would say his taxable income is going to be 70. I don't know. Call it 70,000. He's in the 22% bracket.

[Big Al]

Yeah. I think it'll be 70 to 100, depending upon how much of the military. Yeah.

[Joe]

We're to the top of the 22. That's what I would do if I was.

[Big Al]

I agree with you. And, and the reason I would. Is you're going to be in that bracket anyway. But, Joe, I think there's a big caveat. We don't know how much money he has in a brokerage account to pay the tax. So if he doesn't have any, he didn't tell us. Right. That would be hard to. It'd be hard to convert and go on all these trips.

[Joe]

Yeah, yeah.

[Big Al]

Yeah. Anyway, I would. I agree with you, Joe.

[Joe]

I think there's some advanced planning here.

[Big Al]

Yeah, yeah.

[Joe]

That, that he would want to look in to maximize everything, to do a conversion. It's probably. Yes, but it's probably not going to be anything huge.

[Big Al]

Yeah, Yeah. I don't disagree with that.

[Joe]

Yeah. When you get your taxes done, find out what tax bracket that you're in, then do a conversion to the top of that bracket.

[Big Al]

I like that. That's. That's well said if you can afford the tax.

[Joe]

But I wonder if he's withholding. Well, maybe if he's withholding out of the dollars that he's taking now. Just withhold a little bit more.

[Big Al]

Yeah, yeah. Well, that's true. And maybe that's. Maybe here's one of the few cases where maybe that could make sense if there's no money outside of retirement to pay the tax. Yeah, yeah. All right.

[Joe]

Well, yeah, hopefully. Yeah. If anyone's interested in dating. Biking Barnsley of Arkansas.

[Big Al]

So he likes to travel. He likes to travel, he likes biking. He likes to stay in. In hotels for like 20 days. Like Edelweiss Hotel.

[Joe]

Yeah. What does he. What does he drink in?

[Big Al]

It doesn't say that.

[Joe]

Maybe. Well, he's former military. He's probably Rugged hand.

[Big Al]

Probably. Yeah, yeah, yeah. Probably. Jacked.

[Joe]

Huh? Jacked. He's biking. Bart Barnsley.

[Big Al]

Yeah, he's. Yeah, he's in great shape. He's got 1.7 million. Yeah, the phone lines will be ringing off the hook.

[Joe]

Yeah, just right into Andy. She'll connect the two of you.

[Andi Last]

Send me a picture. Barnesy. Contributing to a Roth account or converting money from your retirement accounts to your Roth can mean big tax savings, but only if you know the rules. Do it wrong and you could be handing the IRS a bunch of money for no good reason. The complete Roth papers package is a free bundle of guides that covers everything you need to know how Roth contributions and conversions work, the backdoor Roth strategy for high earners who can't contribute directly, the five year withdrawal rules, and how a Roth IRA compares to a traditional IRA and a Roth 401K. Find out how to get decades of tax free growth in your portfolio without costly surprises. Click or tap the link in the episode description and download it for free. Make sure to choose podcast in the how did you hear about us? Dropdown and do a friend a favor and share the podcast and the free financial resources with them.

[Joe]

We got zc.

[Andi Last]

Zc. So think in terms of just the letter Z and C and just pronounce it that way. There you go.

[Big Al]

Cool. That's good.

[Joe]

Hello, Joe. Big Al and Annie. My wife and I are 59. 59 and a half, respectively. We both retire in 2024. All of our current expenses right now include taxes and are about $270,000 a year. Here's our combined assets. Cash, 650, 401. $2,600,000. Roth $3,100,000. Taxable account, 12.5.

[Big Al]

If you're keeping score, it's $18,700,000.

[Joe]

Geez. ZZD. All right, he's got $2,900,000. That's his basis. 9.6 unrealized gains.

[Big Al]

Okay. Again, as we said before, that's a good thing because that money comes out. First of all, the cost basis is tax free and the rest of it is taxed at a low capital gains rate. So congrats.

[Joe]

All right, so far this year, 2025 dividends collected are $75,000 and interest $15,000. I expect the dividends to be about $90,000 by the end of the year. Okay. We have converted $360,000 into Roth this year and our plan is to convert the 300,000 in 26, 27, 28 and reduce that amount further after 2029. We're keeping an eye on that evil Irma in MIT. Net investment income tax is not a concern for the moment because we can't avoid it. We realize long term capital gains of $250,000 and we want to keep getting the same long term capital gains for the next five to six years. Washington state has a 7% tax on any gains above 250, so we want to stay below that threshold. The goal is to convert as much as possible by the time we reach RMD age of 75. We want to earmark the Roth assets for the inheritance. Our two boys are doing pretty well, so leaving them pre tax money is not a good idea. Our combined Social Security at full retirement age is $100,000 and around $123,000 at $70,000. Are we being too aggressive with the conversion strategy? We don't drink. I drive a 2026 GMC Sierra EV when the wife drives a 2025 Volvo XC90, by the way, xx this is our second time writing the show. My first time was in 2019. You guys helped me a lot. Well, of course we did. 2019, it's 2026. You got $20 million ZC 2019, you have 500,000. You had like, I don't know, 250 grand.

[Big Al]

Wow. Okay. No promises there.

[Joe]

Yeah, there's no guarantees of anything of any kind. Wow, they've done quite well.

[Big Al]

Yeah, they have.

[Joe]

I don't think you're being too aggressive.

[Big Al]

Me neither.

[Joe]

You got, well, hold on. $2.6 million. Wait a minute, how old are they? They're 60. You want to get the RMD? I can't do this off the top of my head, but I don't think it's like, it's close, but I would just use it. An expected rate of return of what you think that the retirement plan is going to grow. And I would forecast that out to age 75 and then I would look at my other income sources and then say, well, what tax bracket do I want to be in? And then I would work backwards to say, here's how much money I want to convert over the next 15 years.

[Big Al]

Yeah, I like that. I have a couple points here for my calculations, Joe, on what they said. Taxable income is about $300,000. And I get that from 90,000 dividends, 250 of capital gains and a standard deduction of $32,000. Okay. But as you know, $250,000 is capital gains, which is taxed at a capital gain rate. Right. So you can take that off. Your, your taxable income without capital gains is $58,000. And that means you could convert about $350,000 to stay in the top of the 24,000. So I think their calculations are, you know, 3, 6, 300. They're right in the right ballpark. I would at least do that for three years at a minimum because it's, you got the money to pay the tax, you're in a good bracket. There is no IRMAA anyway. There'd be a little net investment income tax, but they're going to, there's going to be that anyway. Right, right. So that's what I would do. And then I would. After you reach age 63. Right. That's when IRMAA kicks in and you may not have to be as aggressive.

[Joe]

Right. Because I mean, if, well, that's what he's seeing here. Right. He's going to do these conversions until age 63. That I think that's 20, 29.

[Big Al]

Yeah. And I, and I would do more than that because, and the reason, Joe, is because they're in IRMAA. They'll be in IRMAA already at 63 without doing any conversions. So bite the bullet, get more of this money in a tax free environment. I think you'll be happy.

[Joe]

Yeah. I think there's other strategies that he could think about too, with that large of a gain in a taxable account.

[Big Al]

Oh, are we going to go tax exempt trust and do that or I

[Joe]

don't know, you could an exchange fund because he's got so much money in a taxable account. So you're deferring taxes, you're not avoiding taxes in most of these strategies. So you're trying to get diversified, you're deferring some of the taxes and you're making the tax by less painful. I don't know, there's these long short funds that are really interesting or SMAs that can create losses. There's direct indexing that they could do

[Big Al]

as well, that could to get more diversified.

[Joe]

More diversified. And then also your tax loss harvesting,

[Big Al]

you know, maybe again. Yeah, yeah, yeah, yeah. Good point.

[Joe]

So, yeah, there's, there's things that you can do to mitigate some of this tax, but you're in a great spot.

[Big Al]

Oh, yeah, for sure.

[Joe]

But yeah, I wouldn't. Irma's the least of my worries.

[Big Al]

And Joe, since we're on the topic today, I want to make one more point here.

[Joe]

Okay.

[Big Al]

Which, which is this. So if you think about if you only have two accounts, you got a brokerage account, non retirement, which we call taxable, or you have a, a non or a tax deferred account, which means that's money that you put in tax Deferred. That's your IRA 401K. Would you rather have your growth in your tax deferred or your brokerage account? Well, the answer, it might surprise you is in your brokerage account because in this particular case, there's big gains. And when the, when the stock is sold, assuming this is a stock, when the stock is sold, 25% of what's sold is the tax basis. So there's no tax on that. So the other three quarters will be taxed at the capital gains rate, which is fantastic. Let's say you've done this in your retirement account. Now you got like, you got what, 13 million in a retirement account. It is a hundred percent ordinary income. Now you've got a huge tax problem. So the fact that you have a lot of gains in a capital gain account is actually the goal. A lot of people get so afraid. I don't want to pay any capital gains. I'm thinking that you did it just right. That's the goal.

[Joe]

Yep. Okay. That's it for us today. Andy, thank you very much for getting up so early and running the ship here.

[Andi Last]

No worries. Thank you. Thanks for getting us more content getting some questions from October answered. It's pretty good.

[Big Al]

Yeah, it's fun.

[Joe]

We're just catching up.

[Big Al]

Yeah. I got to show off my new jacket.

[Joe]

Yeah. You look great, Al. You look great.

[Andi Last]

That's going into derail. I promise you.

[Joe]

We'll see you next time. Show Scott of your money you want.

[Andi Last]

Next week on ymyw, Joe and Big Al, spitball for Red and Kitty and Jiminy Billy Bob on using the 72t tax election to take substantially equal periodic payments in early retirement. And they help executives Steve and Sharon figure out what to do with all of Steve's employment incentives and their $8 million before Steve gets laid off. If you got something out of today's episode, or if it sounds like next week's show will be useful, why not text the link to a friend who's asking the same questions? The more people we can help plan smarter for retirement while we make fun of finance, the better. Because your money, you, wealth is your podcast, and this show would not be a show without you. 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.

[Joe]

Okay, let's move on. We got. Hey, my wife and I are 34 and 31.

[Big Al]

Oh, it's new.

[Joe]

Oh, Brand new jacket here, too. Really?

[Andi Last]

Mini Pearl.

[Big Al]

Didn't even notice it. What does it look like?

[Andi Last]

I'm glad Aaron noticed it. I did not see that.

[Big Al]

How funny. Okay, I probably have more. Should I open my jacket up?

[Andi Last]

It's probably one hanging out the back. Your collar.

[Big Al]

That's right. Tag coming out.

[Andi Last]

Good catch.

[Joe]

All right.

[Big Al]

I was. It's a new jacket, and I was rushing because I. I had to get

[Andi Last]

it, but it looks very nice.

[Big Al]

Thank you. Once. Once the labels are gone.

[Joe]

Yeah, right.