Does a Roth Conversion Make Sense?
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Welcome to the jill on money show its thursday, november fourteen th and I am full of energy because I was away for five days. You didn't know that, but I was and IT was fantastic. And now I get to come back and talk to all of you.

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Today we are talking to one of you, IT is jake, who's on the line from georgia. Hi, jack. How are you .

hi jill doing? okay.

Thank you. great. What brings you to us?

What's going on? Well, my primary thinking is whether IT would be wise for me to, uh, do a rough conversion this year. And I keep hearing when I listen to your show regularly that you recommend to many people to start depleting their uh, tax deferred retirement accounts or the equivalent of a rough conversion. I always thought that the smart move was to just wait until to use that money last, but i'm wondering about the strategy and if it's appropriate for me to take advantage of IT.

Yeah, that's called jack. How old old are you?

Seventy two will be seventy three next year. I mean, I so next months, which is relevant for this conversation?

Yes, absolutely. okay. So seventy three next month. And are you married or single?

Single OK and h .

grown kids that are OK and find and on their own? No kids. No kids.

okay. So it's just jake. Jake, how much money do you have in tax? Differing accounts about .

one point seven million.

okay. Are you still working full time?

No, i'm i'm inching toys retirement.

I like inching. How's IT been .

not quick enough?

I'd like that. When is actual retirement .

sometime self employed? All i'm doing in m in the process of retiring is selling some houses that I have left from my inventory. So i've got some left over real state to get rid of, which I will do in the next three to five years, which is also relevant to this kind.

Yeah, very interesting. So are you a real or just an investor like what you're what have you been doing?

I started buying and selling houses, and I would keep some of them and manage. And so I built up a house inventory. And as my career comes to an end and selling off my remaining in the story.

so in the next three, this is is also important. So if I look at the next three to five years, you're going to have some tax issues. Is that right? Because when you're selling off that, if their investments there is going to be some recapture of the depreciation as well as capital gains, is that what's gone to happen?

That is corrected a lot little bit? yes. And if I will have long term capital gains boosting my income over the next three to five years.

interesting who I mean, it's it's a good wrinkle, right? It's good to have money. How much money do you have outside of attacks to third environment? Do you have either um a brokerage account or a big fat savings account?

I have a broker account with about a couple of broker accounts was a total of about one and a half million. And I have a rough, I R. Ray was about nine hundred thousand.

What is do with all this money? What are you gonna do? Are you just gonna live large? Like what? How much money .

do you spend in six or seven thousand a month? I want to spend more because I want to live Better than i've been living, yes or no. So that's my goal. Um I think I had do have enough but I want to sort of maximize IT and for what well pays little taxes as I can IT cares.

You could spend all you're never going to spend all this money.

What what the remaining properties worth?

Yeah, let's get that number.

They're probably about .

a main and a half. Come on what you you're in such good shape, but you're going to to have a million and a half coming in, of which there is going to be a chunk of tax. So are you say a million and half net of your taxes?

No, that's before the taxes.

So you're going have to pay half a million dollars in taxes? No.

that is correct.

Pretty good guess though. So hh, okay, so a million box net. Here's the problem with your tax ford account, your age, your sound great and healthy, but now the government is going to a force you to start taking money out .

of that retirement account, right? That is rad. I can start this year but before the end of next month or I can push two over into next year.

I know um what's your taxable income for this year? For twenty four.

it's probable I have a house. It's going to a close next week. If IT closes my taxi ble income will probably be about two hundred. And now one hundred and fifty of that will be a long term capital game from the sale of that house. The rest is in really come and other missiles.

What do you think you will be next year?

Same IT depends on what house, what house or houses I sell. They all are different values. So that's kind of a big unknown. And that which makes this tRicky.

Yes, sure does. And I hate for us to get so freakout about taxes that you don't take the money off the table. When is there for you? Do you know, I mean, I going to want to get so free like you pay the tax as big deal like tax rates right now. I think that what we know is that your tax rates are probably onna say about the same, but is a single guy you know you're looking at the top racket of twenty four percent on that two hundred thousand about right?

The next I began .

thirty two percent bring um is at one one nine fifty one okay, you could say, look, I don't want I want to get to cute here. I'll pay at thirty two percent. I just don't know like I would tend to be able to I end to say let's take to next year. But if you're going to sell more homes next year, I mean, it's what what do we think is more likely that you'll sell the same two hundred grand you come up with, like two hundred grand, of which one fifty is long term, is do you think it's probably gonna that? Or do you think it's as likely there will be .

twice that IT? Just so happens that one of my most valuable houses is on the market. Now if IT closes next year, IT may have A I mean, it's just impossible tale, but I may have a three, three and four hundred thousand .

thousand and cheese. I mean, that's great. okay. So this what we're going to do, it's more likely that IT happens next year, right?

So I am going to take say, let's take your let's do this. I think for this year, uh, twenty twenty four, you should push into the thirty two percent racket. And that would mean the top of the twenty of the thirty two is two hundred forty three thousand seven twenty five.

So I know, let me think what is here? I got going to do a quick. I have to decide .

whether to take the R. M. D. This year. And yeah.

you're going to do IT this year. You going to do IT this year. I just wanted see whether you should do R N D this year or whether you should be doing more than your R N D.

You're gonna have to take out sixty ish. okay? That's right. right.

And so the question is, should we take out more than sixty? And I think the answer is probably, I don't know. You're gna have to just do sixty. I think otherwise you pop into thirty five percent. It's almost like I want you to take out your R M D definitely do IT for this year so that yes, but until you unload these properties and not sure I do more than your ARM d right now because then he's really popped up into a high tax bracket, can we get these dark things sold sooner rather .

than later?

I I I mean, next year you're gonna be in if you if you sell this valuable house, you're gonna be in the thirty five percent, right? It's like it's gonna be for real, okay.

But so what you're talking about taking out more is that the equivalent of doing A A rough conversion?

Pretty much the thing is that you could do a rough conversion. Okay, here's the deal. If you want to convert, you're going to be current converting at the thirty five percent bracket. Dinner saying because you take your R M D out your distribution, your R M D does not count as a conversion. It's not like that you can use that as the conversion. You have to take the R M D and pay tax on IT so that sixty and you gonna a pay tax on IT, right? Which mayor may not, you know, sort of brings you to the top .

of the thirty two percent security and assume a little how much twenty one hundred months are right?

Not too bad. So what I think is gonna a happen is if you want to convert, we are talking about converting at a thirty five percent bracket because is again, you're already at the top of thirty two because once you get that, so this year you're going to have you two hundred plus sixty right for your M D. Now not all of this is income, but still you're gonna have be you're gonna in a sizable bracket. Do work with a tax prepare or not.

Yes.

you can work with this person. I think there's two things to consider. Okay, you ready? Big picture.

These are first, you're in like the lucky club, like you ve got a bunch of money. You saved money. You can spend as much as you'd like. You're great shape. okay. Could you use either a certified financial plan or A C, P, A to help guide you on how to best manage your tax liability over the next five or ten years? Yeah, now I don't know.

Like if your cpa is like somebody who loves doing this stuff, then you might say, look, I just want your help in helping in like looking at this and thinking that from twenty four through um let's call IT for four more years. I think i'm going to have this this tax regime stays in place and maybe you guys get together and you sort of start looking at the income generated from the cell of these three over the next three to five years of these homes and layer on top of that, the R M. S.

And whether or not you want to actually convert. I just think you're going to have a lot of income for the next few years. So converting is fine, but you're converting at a high rate. And if you and again, it's just you and we're going to worry about leaving a legacy. So you know, are you charitable in any way?

Someone.

someone, do you have you ever considered A A donor advice fund?

I have I have considered red.

Yeah, I mean, there's two things to consider, a donor advice fund or a qualified charitable distribution. You can take up to a hundred grand deer out of your ira out of that tax deferred red account and send IT to a charity every year or hundred five this year. I think that's another way to kind of push. If you feel charitable, I would definitely do that.

Am I understanding you to say that there's i'm not sure I got this right that the rough conversion has a different tax consequence than just pulling out extra money and say we talk a hundred thousand one hundred thousand dollar routh is different from one hundred hundred thousand dollars strip tion from my tax to further count.

It's the same tax treatment is taxable income okay. So if you have sixty, but but the government is gonna you, you have to pull sixty grand out no matter what, that your arms a that cannot be used as a converted asset.

I understand.

okay. So anything on top of that, that we wish to convert is going to be taxable income to you that converts into your roof. That all i'm saying is once we get beyond the top of this brack at the thirty two percent bracket, you're at the thirty five percent bracket, you can convert money there. But it's unclear to me whether that's the smartest thing to do or not. You have so much money that is hard for me to like, get packed about doing one thing or the other.

Well, I was originally coming to you because you so many people, you recommend that they start depleting their attack of deferred accounts. And IT occurred to me in preparing for this conversation that i'm gonna be deleting my tax of her account automatically with the round. Yes.

yes. The reason why, the reason why a lot of we talk about that with other people, it's like if you push the clock backdating ke and you were IT was ten years ago, right? If you were sixty to seventy two, we would have said, let's start getting some of this money out because it's onna compound.

It's gonna up being one point seven million dollars. Then you're not gonna have any choice over the matter. You're gonna be forced to take sixty, seventy, eighty thousand dollars .

out every year. You're there already. If you are you, the annual growth is going to exceed your R N D. Probably .

absolutely, absolutely. And like, who cares to some extent. So I think that you should maybe talk to your cpa about this, if you'd like.

We can certainly give you the name of because I think you're talking about allocation as well as managing this tax situation with the sale of the homes. IT is a more complex situation, and we can get you some names does not a problem with that. But I do think that you would be well served by having a strategy that you feel comfortable with.

And IT doesn't have to be a forever strategy, by the way, IT really doesn't. IT could be like, hey, guess what? You know what? This is what IT is today.

And we don't have to worry about years and years in the future. Okay, so get your state ducks done. We'll send your couple names and and make you give a lot of money away.

What a fun thing. You're like boosters millions, you giving way lots of money and that's one way to reduce your arms in the future. How about that? okay.

Now if you are like jake from georgia and you have already are, you're already on the precipice of getting your distributions. IT is a moment where we might be able to help you out. But gosh, we'd love to hear from you earlier. We'd like to hear from you more in your fifty fifties because there's more time. But if you're already in your seventies and it's right here, we can help you out.

All you need to do is go to our website, jill, on money dot com, click the contact us button and write us a note, and if you'd like to join us on the program live, mark will do everything else could see the best, best executive producer in the whole wide world. Don't forget to sign up for gill and money life before the magic witching hour of for eastern time. We are going to be live at seven o'clock eastern time tonight for the gill on money live web.

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