Roth Conversion After Age 62 | Interview with Robert Klein, CPA, RICP

all right i think we're good you ready bob ready hey folks this is don graves and today my good guest is um robert klein a friend of mine president founder of the retirement income center and robert wrote an article a few months ago called should you do a roth conversion after age 62. i'm going to link to that below or above somewhere to be linked to he also in that there was a 20-minute video that he did with some folks that really unpacked it it was excellent i asked him to come on because as you all know that i'm a retirement income certified professional but my my specialty is reverse mortgages and i wanted to see where reverse mortgages retirement income and roth conversions all converge so i've invited robert to come in robert welcome today thank you don always a pleasure to talk to you you wrote this article um a few questions for you and i wrote them down so i wouldn't and where was that article featured at by the way uh that was in retirement daily great and so the article should you do a roth conversion after age 62. tell me why that was important not just should you do a roth conversion but what was it about age 62. so tell me why that was important and then unpack a little bit about why maybe people should be looking at it and and why they don't what are some of the obstacles okay uh yeah what's so special about age 62 don is when you turn 63 that's when uh the medicare part b premium determination begins even though you don't start taking medicare benefits until 65 the cost of your medicare benefits is determined two years prior to the current year so beginning at 63 that's when you need to focus on what's your modified adjusted gross income because that will directly impact your medicare part b premiums as well as your part d premiums that's what's so special about uh what happens after age 62. and so now that talk a little bit i know most of my listeners will be financial advisors but the roth uh some advisors may not be using the roth income roth ira conversions in the way that you talk about why is it important now more than ever in your opinion your article for those 62 plus to be looking at roth conversions what's coming or why are you so strong for this uh yeah it's important for everybody ideally you want to be looking at these roth ira conversions well before 62 uh you know in your 40s ideally beginning then if possible and today it's especially important because we have uh historically low tax rates which makes the uh conversion even more attractive that's one reason and then beyond that to the extent you do the conversion what a lot of people forget about is once you do the conversion all the appreciation on that converted money uh will never be taxed again and you're looking at you know the time between you do the conversion right through your retirement and then to the extent that you don't use up all your roth funds during your lifetime your beneficiaries will inherit those roths so you're looking out at it over their lifetime as well although once they inherit it they have to take it out in 10 years but that's the topic of another article other reasons i'm big on it once you get it out of your traditional ira you'll have smaller taxable distributions from your traditional ira which means smaller rmds and that in turn there's a domino effect with that to the extent you have smaller rmds you can potentially cut down on the taxation of your social security benefits although that's uh admittedly difficult to do with the low thresholds for taxation and social security uh that's one thing you can do we talked about the impact on the medicare part b premiums also there's a thing lurking out there for married individuals called the widowers tax penalty whereby when one spouse dies and the year following the year of death assuming the surviving spouse doesn't get remarried beginning in that year they're subject to single tax rates and also a standard deduction that's about 50 of the amount they were used to and the bottom line is they're going to pay more taxes so to the extent you can do roth conversions while you're married that's less taxable income that's going to be taxed at potentially higher tax rates down the line not to mention the fact i kind of glossed over with the low tax rates the current low tax rates uh those are definitely going to change in 2026 when the uh current tax law sunsets after 2025 and this could happen sooner so robert thank you for that when i want you to go back and think of your clients how do you have this conversation particularly for those over age 62. how do you introduce the subject and what are the the obstacles um most common to people doing a roth ira conversion after age 62 or you talk about the structured or staged roth ira conversion what are some of the challenges or obstacles and how do we overcome that yeah great question don um most people you know aren't thinking of you know the way that i'm looking at it from the perspective that if you do the roth ira conversion after 62 that adds uh in some cases a large lump sum of money that uh gets taxed uh that will increase their medicare part b benefits the typical obstacles are just you know in general taxation people psychologically they don't like to pre-pay tax uh that's a difficult concept for them to to grasp um you know that's so that's a stumbling block but once you get into these uh nine benefits of doing roth ira conversions uh they're more amenable to doing them and furthermore if you when you get to the part about the medicare part b premiums potentially increasing if you do a sizable roth con conversion uh that is it needs to be emphasized that that's a year by year determination and there's ways to what i call bracket manage that situation where you're doing planning and you look at the adjusted gross income that they have with and without the roth ira conversion and kind of plan around that and once again take the position that it is a year by year situation so just because you do a large conversion in the current year that causes increased medicare part b premiums two years from now that's not a a permanent situation done and that's really a great segue into the the work i've done that you know the reverse mortgages i'm 21 years that's been my my strength and specialty and i'm proud to be able to teach that and um at the american college but one of the things that people don't know and i know robert chunno and i want you to talk about that is the reverse mortgage is a federally insured loan it's also their jumbos as well for higher home values but allows those age 62 are over to convert a portion of their homes value turn it into tax-free dollars and that they can be used for a variety of planning now what some people don't know is that let's say someone's got a four hundred thousand dollar home and they turn that into a two hundred thousand dollar line of credit that line of credit has a an appreciation factor today of around four percent or eight thousand dollars a year compounding and so you can use those dollars to now one of the things uh when i wrote the books that you see in the background when i first wrote them i had nothing in there about roth conversions and then i met ed slide some other folks and we did some work and said did you know you could do that that we can use the growth on the line of credit or just the line of credit itself to pay the taxes on the structured roth ira conversion of uh staged down conversion robert how did you get involved kind of you're thinking about reverse mortgages change and how do you see them working into your practice and particularly the roth income roth ira conversions yeah it's been quite an education for me starting with uh i attended in its slot webinar which you spoke on so that's how i met you and then uh immediately the light bulb went on and i realized you know what how important it is to potentially monetize housing wealth in any rate to explore it as an option do the analysis uh and see if it makes sense in a particular situation and because i was so excited about it i enrolled in your housing wealth certificate program and got quite the education and uh and once again that led to me writing an article it was actually my first article in retirement daily about reverse mortgages and and how they work and including you know i read both your books and you know you discussed very well how one of the applications of the reverse mortgage is to use it for roth ira conversions and that can fill the gap as far as people's reluctance to pay taxes to prepay taxes because in a lot of situations people if they don't have a reverse mortgage they have to draw on taxable assets and pay taxes uh on the taxable assets to get the money to pay the taxes on the roth contribution on the roth conversions rather so to the extent you have access to a heckum the money is readily available for that purpose number one number two when you draw on it it's it's tax-free dollars um so it it really provides leverage for doing roth ira conversions that you might not have otherwise in the dollars from the reverse mortgage when you use it because we talked about um tax bracket bumping and all of that a lot of people don't know that um just one more nickel from the wrong taxable account can blow up your tax bracket can impact your irma and all that provisional income and but the dollars from a reverse mortgage when done well can keep you in the same or even a lower tax bracket um in that particular situation so there's a lot of application robert i want to kind of get her get our seats in upright position and trade tables up and ask you kind of a few landing questions because you've done the research you've been to ad slot you've looked at reverse mortgages you're incorporating it into your practice in a way is that appropriate it's not always the right tool to use what would you say to financial advisors who may be watching this and are reluctant to learn or incorporate reverse mortgages what would you say to them uh i would say you know get an education about it it's similar to i write a lot about fixed income annuities and my experiences that financial it's like anything else if you don't uh implement it in your practice you're not currently doing it uh you're reluctant to to go ahead and implement it in your practice i would say you have an obligation if you're doing retirement income planning for your clients to at a minimum learn about it so you can have a conversation with them and know the pros and cons and you know then uh you know you have more education more knowledge to form a solid opinion uh to converse with your clients because you have to realize if you're not telling your clients about reverse mortgages fixed income annuities whatever it is uh somebody else's so it behooves you to get an education about it um and you know i think there's no better place as uh you know if you want to learn about more reverse mortgages and you want to do it uh quickly uh don has some great material on it robert we did not take a moment to kind of share your practice your biography your background any designations you have um let's take a moment please tell us a little bit about who robert klein is and what your practice is and kind of a few things about that please okay thank you for asking don uh i you know once again as don said i'm president and founder of retirement income center and i i've always done financial planning for a long time then starting with the uh stock market downturn if you want to call it that back in 2007 to 2009 the need for retirement income and specifically a sustainable source of income just really made so much sense and so i began focusing on retirement income planning starting with the american college i did the ricp program that don also has that designation and teaches in the program and also began writing a blog retirement income visions that focused on retirement income strategies so and i found obviously my cpa background and tax planning has really come into play uh and i've been able to leverage that so my philosophy uh the philosophy of the firm is planning managing and protecting your retirement income so it's all about it's uh i basically i do what several other people do holistic retirement income planning that's my specialty robert klein thank you so much for being my guest today talking about um should you do a roth conversion after age 62 you can find a link to that article and video or above or below depending on how you're watching and this is don graves you can always found find me at housingwealth.net for more questions bob klein thank you so much we'll see you next time thank you don

Channel: AskDonGraves

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Length: 15min 48sec (948 seconds)

Published: Tue Dec 22 2020