Should You Do a Roth IRA Conversion After Age 62?

Video Statistics and Information

Video
Captions Word Cloud
Reddit Comments
Captions
[Music] should you do a roth ira conversion after age 62 well here to chat with me about that topic is robert klein from the retirement income center robert recently wrote an article about this very topic for retirement daily robert welcome thank you bob so let's start here at the very beginning first why might ira account owners consider a roth ira conversion and why are people sometimes reluctant to do them a great question there is this is one of my favorite topics by the way roth ira conversions because it really focuses you on retirement income planning uh both before and during retirement there's a lot of issues related to roth ira conversions that can set you up nicely for retirement if they're done strategically the second part of your question you know why are people reluctant uh the the answer to that the prime of the biggest answer is because they don't want to plan for and prepay income tax attributable to the conversion which is generally required so one incentive that you mentioned in the article to do a roth ira conversion is that the tax law will change in 2026 and and not to the benefit of of those who are considering a roth conversion uh yeah and that's something you can't it behooves you to act now because you really have through 2025 to take advantage of that and first and foremost you need to recognize that the tax rates as well as the income tax brackets are favorable for doing that and what i mean by that is the tax rates are historically low the tax brackets are extraordinarily wide and so you have another five years or so to do conversions to take advantage of that and furthermore to do what are called staged roth ira conversions where you could do it over multiple years so to the extent you jump on the bandwagon now you can reduce the amount of income that you need to recognize each year during those next five years having said that though bob it does behoove you to not necessarily do even conversions each year because of these low tax rates and wide tax brackets you would want to generally speaking do higher conversion amounts than you would once 2026 rolls around um so one of the things that you mentioned in the article is the notion that you can reduce your potential medicare part b and part d surcharges uh by doing a roth conversion uh prior to uh age 65 or at least two years prior to age 65. yeah that is the focus of the article that's one of several benefits then that you can obtain by doing these conversions and uh because medicare part b and part d premiums start at age 65 depending upon the amount of ira accounts you have retirement plan accounts that you want to convert it behooves you to start your planning early generally 15 or 20 years before you turn 65 if that's possible um so that you can convert smaller chunks it's all about doing you know smaller chunks and not being so i suppose it's important to note for our viewers that if they leave the money in a traditional ira and they reach age 72 and they have to start taking required minimum distributions those rmds often will push them up into a tax bracket or a or or an income bracket where they'll be subject to the income uh to irma right exactly it's a kind of like a it's a domino effect uh you're exactly right on to the extent that you don't do the conversions you're going to have to take higher required minimum distributions starting at age 72 and that the medicare part b and part d premiums as you alluded to are income sensitive and there's a surcharge called irma an income related monthly adjustment that you're subject to as your income exceeds certain levels uh those levels start at 87 000 for an individual return and 174 000 for married filing joint and the other thing i think we should make note of is that uh medicare when it's um determining whether you're subject to irma has a look looks back uh at the previous two years tax return in torah in order to determine that so as it pertains to roth conversions if you are age 65 they'll be looking at your age 63 tax return and if you've done a roth ira conversion you may find yourself uh at age 65 being bumped up into a irma tax or income bracket uh correct and hence the title of my article should you do roth ira conversions after 62 because as you stated very well bob beginning at 63 that's when you know the changes come into play as far as the medicare part b premiums are based on your tax returns two years prior to the current year so beginning at age 63 the income that you have on your tax return the modified adjusted gross income which is basically your adjusted gross income plus tax-exempt income that's used to determine your medicare part b and part d premiums at age 65 likewise it's a year by years change when you hit when you become 66 you look back two years to 64 to determine what your premiums will be at age 66 right so in the article you talk about nine uh benefits of stage conversions do you mind outlining some of the more important benefits yeah uh perhaps the biggest one was the one that we've already talked about and that is the ability to reduce your required minimum distributions uh it's gonna cost you some tax you know in the years that you do those conversions however that'll pay off once you're 72 in the form of reduced required minimum distributions which once again it's a domino effect because that can in turn reduce your medicare part b premiums and in some situations it could also reduce your taxable social security benefits that's more difficult to do because of the low income thresholds that are used for determining the amount of your social security that's taxable it's only uh once you get over 34 000 if you're single and 44 thousand married filing joint uh their higher portion of your social security benefits are taxable however it is possible to reduce the taxation to the extent that you've done roth ira conversions that reduce your required minimum distribution so you can see there's a interaction with all these things the other nice thing that some people generally don't consider is to the extent you do the roth ira conversions it takes the pressure off of being dependent on retirement accounts uh once you're you know you're retired and so to the extent you don't have to take funds from retirement accounts which are generally taxable 100 as ordinary income you can reduce your tax liability the whole goal is to set yourself up to maximize and optimize your after tax retirement income uh once you're in a retired situation um go ahead i'm sorry no no no no i i was gonna say you know that oftentimes in an article we don't always get the chance to communicate how it how real people feel about you know being subject to irma or you know the benefits that they're about to reap from doing a stage conversion you deal with real people real clients can you just share with us like how surprised people are when they find out that they might be subject to irma or how happy they are when they realize the benefits of a stage conversion yeah um i've had situations where uh clients are generally they could be surprised if they for instance sell a house and their uh gain which it can happen in california quite a bit is above the threshold for having your the gain on your residence tax which is you know 250 000 of your single 500 000 uh for a joint return and so let's say you sell your house in uh you know 2016 and then 2018 you won't find out about that as far as the effect of irma on your tax return until 2018 so somebody who's uh you know been paying a relatively low amount of medicare premiums up until then suddenly they get a notice their medicare premiums are jumping quite a bit and it can be a jump of you know for a single person as much as four thousand five thousand dollars for a couple it could be you know double that amount so uh that's how situations come about where people are surprised you know there's other situations of course where people they have very high taxable incomes and from the get-go in retirement they're subject to irma at a high level and that continues uh throughout retirement uh in a lot of cases so in those cases they're not necessarily surprised you know they may not be happy but then you know that speaks to once again the importance of doing planning for this situation well before you're going to retire robert i want to thank you for sharing your knowledge about this topic i it's much appreciated thank you bob
Info
Channel: FINANCIALLY InKLEIN'd™
Views: 40,272
Rating: undefined out of 5
Keywords: Retirement Income Center, Robert Klein, CPA, CFP, RICP, Retirement Income Planning, Retirement Planning, Retirement, Roth IRA Conversion, Holistic Retirement Income Planning, Medicare Part B Premiums, Roth IRA, Modified Adjusted Gross Income, MAGI, Income Related Monthly Adjustment Amount, IRMAA, Medicare Part D Premiums, Staged Roth IRA Conversion Plan, Required Minimum Distribution, RMD, Social Security, Widow Income Tax Penalty, Robert Powell, Income Tax Planning
Id: g8RvYRbcSE0
Channel Id: undefined
Length: 10min 59sec (659 seconds)
Published: Mon Jan 04 2021
Related Videos
Note
Please note that this website is currently a work in progress! Lots of interesting data and statistics to come.