Hello everybody and welcome to my webinar this evening. We’ve still got a couple more minutes before the top of the hour, but I thought I would open it up here. Uh I do want Well, I’ll I’ll mention this coming up here. I have a pretty nasty uh thunderstorm going on outside and uh typically I don’t get affected by thunderstorms, meaning my power doesn’t go out uh or anything like that. But this is not your normal uh uh western rain shower going on, the thunderstorm. Uh this is a good old good Midwestern rainstorm. uh there’s a lot coming down right now. So, for some reason, if uh I just drop off and everything cuts out, it’s because the power is out. Like I said, I it I typically don’t have that happen, but you just never know. I live in Utah. I work out of my house and I’ve got a uh I live in this big valley and I swear there’s one power cord that comes up over the mountain and every once in a while a squirrel will chew on that power cord and for no reason at all whatsoever it can be sunny out and everything and for no reason at all the power will cut out for hours. Uh, again, it happens only a couple times a year, so it’s not like it happens on a regular basis, but uh, like I said, I’ve got a pretty nasty thunderstorm going on out here, which we which we need it because Utah, Wyoming, Colorado, we all got almost no snow this last winter. And so, uh, we we desperately need this rain, but because it’s down coming down so heavy, it’s al going to wash out a lot of things. But anyway, it’s at the top of the hour. So, let’s go ahead and get started with that. And again, typically, uh, when I do these webinars, my dogs are outside, but as of right now, they are hanging out with me because I don’t want them all wet and, uh, and, um, you know, having that wet dog smell uh, for the rest of the evening. So, again, let’s go ahead and get started. Thank you so much. Uh, let me share my screen here as we get started here. Here we go. Okay, perfect. Um, let me set this up. Okay, so again, my name is Bernell Baker. I’m a financial consultant with Alliant Retirement and Investment Services. Um before we get started, let me uh just say that as I go along here, you may have some questions that pop up and um I I strongly encourage you to write those questions down as we go along in either the chat or the Q&A and then I will get to all the questions at the very end. Um I do encourage everybody to stay to the very end so that um you know somebody else may have a question that you hadn’t thought of that might pertain to you as well. So with that let’s go ahead and get started. Um there we go. So this is the different websites that we have here. We have our webinars. Again all of our webinars as you know uh signing up for this one is complimentary. Doesn’t cost you anything to do the the webinars. And we have a whole bunch of different topics. there’s uh quite a few of my co-workers. We all do different topics and everything. So, I’d go on to the webinars and and take a look at that. I’ll be honest with you, our p podcast, I don’t think that we’ve updated that anytime recently. So, there’s not any new uh podcast out there. Kind of the same thing with our blog. the information out there is uh is is still good but um it’s uh we have not updated anything or uploaded I should say anything recently that I’ve heard of. Uh and then also the AIS website. So again stands for Alliant Retirement and Investment Services. Uh that’s the division you know we’re all employees of the credit union here. That’s just the division that uh that I work for. Uh just a little quick thing. This presentation is intended purely for educational purposes only and it’s proprietary to uh a lang credit union. We just ask that you don’t um uh record any of this. Um just uh there’s a lot of uh regulations that we have to do and and stuff. So we just ask that you comply with that. Uh but I appreciate it. So uh getting into the Roth conversions, we’re talking about uh our future tax environment. This slide here is a little bit old. Last time that I checked, we were at $39 trillion and it just keeps rising. I just honestly don’t understand how we’re going to be able to pay that that debt off without raising taxes. Um, you know, right now, uh, our taxable portion for every single person in the United States, at least based upon these numbers here, is over $100,000. So, if you all had a cool $100,000, we could all I’m not recommending that we do it, but we could all chip in and pay down that national debt, but it would cost over $100,000 for each one of us to be able to do that. I don’t want to do it myself, but that’s just what it is. Now, our natural and national debt has been rising. Uh it’s we’ve heard it all over the news, and it’s just constantly going up. And at some point in time, our taxes that we bring in as a country is going to exceed any of the entitlement programs that we have. Our social security, our Medicare, our Medicaid, and any of the other debt instrument uh interest payments that we have to uh pay. That does not include like our national debt and any of the non-entitled program. So, at some point in time, our income is going to uh just be just enough to pay for the entitled programs and then where are we going to get the rest of the money? Unfortunately, with a government, they just kick it down the road to have somebody else deal with it. And I’m not trying to get political here or anything because both parties do it. Uh they just kick the things down the road. But we’re in a very, very low tax environment. If you take a look at the history of our taxes, it’s uh it is we’re at a very low tax environment, which I appreciate. I’m grateful uh you know, I I say pay the taxes that we owe, but there’s no reason to pay extra um on our taxes, but at some point in time, I just can’t imagine the government not having to raise taxes for whatever reason. So, to help us with the taxes, there’s a couple of different accounts that we can take a look at. So, there’s the tax now accounts, which is our savings accounts, our brokerage accounts that have stocks and bonds inside there, index funds, everything. If you have a brokerage account or a savings account or CDs as this is listed here, you’re going to be taxed on the interest and dividends that those pay out each year. There’s the tax later accounts, the traditional IAS or the uh pre-tax 401ks and any annuities. You can have non-retirement money, so money from savings account go into annuities. You’re not taxed on the principal you put into that and then you’re not taxed until the money comes out of the annuity down the road. So that’s a tax later account. And then my favorite is the tax never accounts, which is the Roth IRAs. Uh municipal bonds, not a big fan of those. You know, bonds just don’t pay a whole heck of a lot. And to have it completely taxfree, you’ve got to have specific municipal bonds. Not every municipal bond fund out there is going to be taxfree for you. And then we also have the HSA accounts that are tax never as well. So, those are the different uh tax taxations on different accounts and stuff. So, again, as we get moving into retirement, we’ve got to definitely take a look and see does a Roth conversion make sense for you? Um, and we’ll get into the Irma down the road here, but just see does a Roth conversion make sense for you. Now, this is the four different topics that we’re going to be talking about today. So let’s just get into the first one here. The basics. So the basics of a Roth IRA. So I want to make sure that we understand there is a difference between a contribution and a conversion. So, with a contribution, that is new money going into a Roth IRA that is not currently held in a retirement account, either an a traditional IRA or into a 401k or anything like that. You don’t get any deductions from your income taxes the year that you contribute into the Roth IRA. Now, the contributions that you put in there can be withdrawn at any time tax-free and penalty-free. So again, the contributions can be not the gains of it. Now, in order to take the gains out of retirement, excuse me, out of the Roth IRA, uh, without having any tax consequences or penalties at all whatsoever, there’s two requirements that have to be met. Number one, you have to be 59 a half or older. And number two, the money, the first penny that you uh that you’ve put in there has to be in there for at least 5 years. Okay, so that’s the two requirements to take this out. Any Roth uh money out, the gains of it taxfree, 59 a half and the money has to be on there for 5 years. Now, in order to be able to do a Roth contribution, there’s some requirements to do that. So, number one, you need to have an income coming in. Okay? Generally, income from a uh uh from a job or something. You can’t contribute to a Roth IRA if you don’t have an income coming in. And social security and pensions do not count towards that income. There are also Roth contribution limits. Same thing as traditional IRA. So, with a traditional IRA or a Roth IRA, there are contributions limits. If you’re 49 years old or younger, the maximum you can contribute this year is $7,500. If you’re 50 years old or older, the maximum contributions you can do is $8,600 up to whatever age. There’s no age limit where you can’t contribute to a Roth, but there are some income limits. So, I’ll take my uh example. Uh my my life for example, I’m married. So, as long as my wife and I earn less than $242,000, we can do a full contribution of $8,600 each. If we have an income coming in at 242 to 252, we can’t do the full $8,600. We can do some of that depending on what the income is in there. And if we earn more than $252,000 for the year, we cannot do any any contributions into the Roth IRA directly. You can do backdoor Roths or Roth conversions is which is what this is this is at. So um and again this is all modified adjusted gross income. So after deductions and everything like that, that’s where the income limit is. Now as I mentioned I am married. I’ve got a wife there. She does not work. But even though she does not work, we can still do a contribution into her Roth IRA based upon my income. So if you’re married, one of your spouses is not uh uh doesn’t have any income coming in, you can still do the contribution p based upon this spouse’s income that is working. Okay. Now, in order for the uh in order for my wife to be able to take out all the money, this still the 59 and a half uh and older and the um uh 5-year rule does need to apply for her to be able to do to do that. Now, again, those are all contributions. So, again, a contribution is new money going into a Roth that is not currently in a retirement account. Now, conversions are completely different. Conversions is money that’s already in a traditional IRA, a rollover IRA if you want to say, or if it’s currently in your 401k. So, those are money that’s already in retirement plans. You can do Roth conversions for any of those. Now, uh there’s no contribution limits because this is a conversion. I should say back up and say there’s no conversion limit. So you can do whatever amount of money that you want to do as a conversion. When you do the conversion, you are taxed the year that you do the conversion. So like a contribution up until when taxes are due, typically April 15th, but up until taxes are due, you can do a contribution for a prior year. You can’t do that in a conversion. If you do a conversion, you are taxed on the year that you do the conversion and you have to claim that as income and then just pay your federal and state taxes if you if you uh live in a state that has taxes. So, it counts towards your income. I’ll get into an example coming up here, but let’s say for example here, Jill Jill wants to convert $100,000 from her traditional IRA, rollover IRA or 401k. She’ll have to add that $100,000 to her income and then that may bump her up to a new tax bracket depending on what her other income is. So that be uh you got to be careful about that here. So again, tax-free Roth distributions. So now, let me back up and say your conversion, again, coming from a traditional to a Roth, for your conversion to be able to be taken out tax-free, it has to be in there until you’re 59 and a half or older. And uh it’s got to be in there for the 5 years. Okay? With a contribution, you can take out your contributions, but when you do a conversion, you cannot take out your conversions and unless you met these meet these two requirements here. So, who can do a Roth conversion? Pretty much anybody can. There’s no age limit, there’s no income limits, and there’s no requirement to be working. But just as I mentioned earlier, you have to claim it as income and pay taxes on it. Now, I’ll get into the story here after this one here. So, my story is prior I’ve been working with Alliant now for about 13 years. And prior to Alliant, I worked for a big nationwide bank and I was a financial consultant there as well. Um, uh, one day a husband and wife came into me all kind of in a panic. Uh the wife had lost her job and the husband thought he was doing the right thing and he converted her traditional or her pre-tax 401k directly over into a Roth IRA. When they went to do their taxes again, they had to claim that as income. Their accountant said, “Congratulations, you owe the government $40,000.” So that’s when they came in to me all in a panic and said, “What can we do about not having to pay the government 40 grand?” So, I was able to work with their old 401k company, get the money moved back into the 401k company, and then we were able to roll that over into a traditional IRA, so they didn’t have that um that tax burden. You could do that prior to 2018, and that’s when it was since the uh tax cuts and job act of 2018. You cannot roll it back out again. Once you do the Roth conversion, you’re stuck with it. I couldn’t do the same thing that I did back then by rolling it back into the 401k and then into a traditional. Nope. Once you do a Roth conversion, you’re going to have to pay taxes on that money when it uh when your taxes are due. Okay. So now the cool thing about Roth conversions is in retirement is there’s no RMD. There’s no uh required minimum distribution. So like there is in a traditional IRA. So currently right now the RMD age is at 73. If you are not 73 by the year 2033 then it jumped up to 75. Okay. So, at 73 or younger or older, uh, you’re doing RMDs every year. And the RMDs is the required minimum distribution coming out of a traditional or a rollover IRA because when you added money to that while you were working, typically through your 401k or whatever, each year that you contributed to that type of an account, you got that amount of money deducted from your income for the year. So the government says, “Well, since you got a deduction off your income, you have to start paying the taxes on it at some point in time.” So then again, at 73 or 75, you have to start doing RMDs. With a Roth since the since you’ve already paid taxes on the principal going into it, and there is no taxes on the amount of money coming out of it, then the government says there’s no requirement to take money out of a Roth IRA. So that’s kind of the bene one of the many benefits of doing a Roth IRA. Oops, I there we go. Now again, talking about taxes, because of our national debt is so high, having a Roth IRA may help us hedge towards increases in taxes down the road. Because again, when you take money out of the Roth IRA, it does not count towards taxes or your towards your income. So you’re not uh uh having to pay taxes on it. We just don’t know what the taxes are down the road. Uh so by doing it into a Roth IRA, it uh it it may help you out with taxes down the road. And then also there’s something called Irma, IR MA. Basically what that means is in retirement if you make enough money uh on an annual basis you may have to pay more money uh towards your Medicare part B and Medicare part B D insurance. So for a single person that income limit is $109,000. So, if your income is $ 109,000 or less than $109,000, you don’t have to pay anything extra. But once you start doing your RMDs, if you’ve got enough in a traditional IRA, your RMDs are going to kick it may kick you above that $109,000. So like at 109,000 to 127 I want to say it is if you earn that amount of money in in uh retirement you’re going to have to pay like $86 more for Medicare part B and another 14 I think it’s like 1450 $14.50 extra for part D. The next bracket up, you’re going to have to pay an extra $22 extra for Medicare Part B and I want to say $64 extra for Part D. So again, those Medicare premiums may increase because of your income, your RMDs in retirement. Again, if you take money out of a Roth IRA, they do not qualify uh do not make you qualify for anything higher in uh in uh paying Medicare Part B and Part D. I like to say quite often, congratulations for being successful. Now, the government wants more of your money. So, so social security and Medicare. So if you take money out of a traditional IRA or a rollover IRA, oh 100% of that is taxable. It also gets added to your provisional income and that could greatly increase your your modified adjusted gross income for your Medicare pricing in a Roth IRA. Any distributions that you take out of that doesn’t affect any of those things at all whatsoever. So let’s take a look and see. Does a Roth IRA conversion make sense to you? So, let’s say you have $100,000 and you get an average 5% return and you’re at a low tax bracket this year for whatever reason, lost a job, maybe you’ve got a lot of deductions or whatever. So, if you do a Roth IRA without doing a Roth conversion, let’s say it’s in there for 10 years and again you’re getting the 5% return in a traditional IRA or a again a rollover for a rollover IRA. That $10,000 in 10 years is going to jump up to be 16,289. Now, let’s say that you’re doing RMDs and you’re taking a taking out more money. So, you’re at a higher tax bracket after you take out 24% just for federal of that $16,000. Your after tax value is $12,380 bucks. Now, if you had done a Roth conversion while you’re at the 12% tax bracket of $10,000, so your 12% off of that is $1,200. So, let’s say that you actually start and you take that that taxes out of that $10,000. So, you start to invest technically with8 $8,800. Same investment, 5% return for the next 10 years. Your account value will grow from $8,800 up to 14334. So, you will actually have about $2,000 more than if you did then you than if you didn’t do the Roth conversion and was at a higher tax bracket later on. So, you got to take in that into consideration. It’s actually 15% 15.8 to be exact at a greater um uh balance for you. So, one thing to consider is the future taxes. Are taxes going to rise in the future? I I again, I just can’t see us not doing it without um you know, and and trying to pay down our national debt. I don’t know how else they’re going to do it. So, we know what our tax brackets are today and our tax bracket is good until 2028 and then uh you know that’s part of the one big beautiful bill and then Congress at that time can vote to extend the taxes that we currently have or come up with different taxes or they can just let them pass. And if they let them pass, our taxes are going to go up a little bit. nothing drastic, nothing massive, but they’re going to go up a little bit if the taxes a current tax bracket is not extended out. Now, when I talk about doing it up to a tax bracket, it again, it all just depends on where income is at. And um so if you’re currently in the 22% tax bracket and you want to stay within that 22% tax bracket, I recommend that you do it towards the end of the year where you’re going to have a pretty good idea of what your income is. Again, towards the end of the year, I’m talking about late November, early December. You’ll have a pretty good idea of where your income is going to end up in. uh and then minus all your deductions and then that is what you would be able to do uh Roth conversions to fill up to the 22% tax bracket. As I mentioned earlier, the Irma, this is the cost of the Irma. So again, for an individual, if your income is 109 or less than $109,000, you don’t pay anything extra. You know, your your um you just pay the normal regular part B and part D. Now, if your your income is 109 to 137, I thought it was 127. It’s 137. Uh if your income is uh between that, you’re going to have to pay extra money. You know, again, another $82 a month extra for um uh Medicare Part B and then another $14 extra, $1450 extra for Part D. What really uh jumps up is if you’re in the 137% 137 uh dollars there, you can really see that it starts to jump up quite a bit more. You know, $400 a month extra uh because you earn extra money in income. So again, congratulations for being successful. The government wants more of your money. That’s just what it is, unfortunately. Now, you in order to do a Roth conversion, you may want to hunt for those years that are, you know, that you’re in a lower tax bracket. Not everybody can do this because if you have a a job with a regular salary, then your income’s not going to fluctuate too much. But if you’re a business owner or if you have a lot of deductions for whatever reason for a year or whatever, when you do a Roth conversion, if you’re in a lower tax bracket, you’d be able to do more money, but then still stay within uh the tax bracket that you normally are at. So, let’s say you’re at a 22% tax bracket uh normally, and then this year with uh maybe deductions or whatever, you might fall down to the 20 or the 12% tax bracket. You could stay in the 24 and just do more because of your income is at a lower amount or you could just do it into the stay within the 12% tax bracket and just do it up to that and and be safe there. Okay. Now, the original IRA owner. So again, with a traditional IRA, you do have RMDs that you have to take out. Again, if you’re 73 currently or if you’re not 73 by the year 2033, it jumps up to 75. And you’ll have to start doing RMDs uh from any any non uh Roth account. So any traditional IRA 401k. If you still work for your company full-time, you do not have to do RMDs from your 401k. But if you have an old 401k out there from a previous job, yes, you got to do your RMDs from that. But if you still work for the for that company at 73, you must love your job. Um, and and and failures to take out your RMDs, it you’re going to have to pay a penalty for that up to 25%. Now, your RMD isn’t a big big percentage of what you have to take out. Here’s how they calculated it. So, let’s say that you turn 73 next year. At the end of this year, December 31st, after the market closes for the day, you have to total up all your traditional IRAs to get your entire balance. And then next year, since you’re turning 73, you’ll have to take out 3.78% of that balance. And you can see here, every year, the percentage that you have to take out slowly increases. Not drastically, it’s slowly in most cases here, but you’re going to have to start taking money out more and more, a a higher percentage, more and more as the older you get. So again, jumping back to the Irma, you may not be at Irma at 73, 75, maybe at even 80, but if you get in, you know, again, depending on what your balances are, you may have to start paying your Irmas down the road. And it’s amazing how quickly uh your your RMDs can add up to that. Again, B, you know, if you have enough. Now, surviving spouse here. So, let’s take a look at an example here, Adam and let’s say that they want to have $110,000 uh after tax income. So, they’ve got their pensions, which a lot of people don’t have pensions anymore. They’re kind of lucky that they have it. They’ve got their social securityities, uh, checks that are coming in here and income, uh, taxes, everything. So, they’re at $110,000. So, their marginal tax bracket is 12%. Now, let’s say that Adam passes away and Ann wants to maintain that $110,000 income. Then, while Adam was alive, they were married to filing jointly. But now that Adam has passed away and is having to file as a single person if she maintains that $110,000 now obviously she’s going to lose Adam’s social security or the she’s going to lose the lesser of the two social securityities. Uh in this example here they’re dead even at $30,000. But that means that she’s going to have to take out that additional $30,000 uh from her IRA account to come up to the $110,000. And that $110,000 income is going to put her into a higher tax bracket. She’s going to be at the 24% tax bracket. But so being at the 24% tax bracket instead of being at theund or the 12% tax bracket when Adam was alive, that means that she’s going to be paying about 14% more for income uh towards taxes, which is going to reduce her overall income limit. So there’s something to be said about um you know there’s a they we kind of refer to it as a widow’s tax or widowers tax. Um if you maintain the same income your tax bracket is going to be less. Okay. So just be aware of that. now. And then that also could put her at a a single tax bracket where, you know, when Adam was alive, they may not be paying Irma, but now that Adam has passed away, if she wants to maintain that $110,000, she’s going to be have to having having to pay extra for Irma because now she’s a single person. So, just be aware of that down the road. So, beneficiaries, let’s look at an example here. So, prior to 2020, if somebody passed away, then you and you inherited a non-spouse, so let’s say from your parents, typically from a parent, um when you inherited a money prior to 2020, uh you didn’t have to take, you know, you took out about 5%. Okay? They called it a stretch rule. So, you excuse me, about 4%. You would have to take about out about 4% per year. uh as far as RMDs went. Okay. Now, uh so that if you inherited a million dollars, you’re taking out 90 $25,000 uh dollar. Now, if you and then let’s say that Carrie was earning uh $90,000 a year, you add in that uh that RMD that you have to take out. Now, her new tax bracket is going to be at a higher amount. But um
uh with the new rule here, every single penny of your traditional IRA and your Roth IRA has to come out within 10 years. So your traditional IRA, if you inherit it, you’re going to pay taxes on it. on your Roth IRA. If you inherit it, you do not have to pay taxes on it, but you still have to take it out of the IRA. Here’s the reason why. Let’s say you inherit a million dollars in Roth IRA, comes out tax-free. Most of the people are not well, you’re going to do one of basically one of two things with it. You’re going to either spend it in the economy. that’s going to, you know, help the economy grow. You may buy a new house, that’s going to help the realer. The realer is going to make money off of that. The builder may make some money off of that and down the road, whatever. It’s going to help out the economy. So, you’re either going to spend that million dollars or you’re going to save it or invest it, okay, with a Roth IRA that comes out, it comes out taxree. But now that you are investing it or saving it, now you’re going to have to start paying taxes on the dividends and the interest that you earn from that amount. It used to be prior to 2020, it used to be that you did not have to take any money out of the Roth IRAs. The government wasn’t getting any taxes when they took it out, but now they have figured out they can get taxes on it by you saving or investing it, and they’re going to get more taxes that way for a longer period of time. So, that’s why uh it um uh that’s why they changed the rule. Now, if we take a look at this and say Carrie, she’s again making uh $90,000 a year, she’s just barely into the uh uh 22% tax bracket. But if she inherits the million, and again, if it grows a 5% return, to take it out evenly each year for the next 10 years, she’s got to take out the $123,000 a year. That’s definitely going to put her into a higher tax bracket. So on that million, she’s going to pay $310,000 in taxes on that amount. So in reality, she’s really only getting about $700,000 from a traditional IRA. So just going over some things to con uh to uh consider by doing a Roth conversion. Again, there’s no income limits, there’s no age limits. You can do it at any income even no income or at any age you can do it uh when whenever uh now you cannot do a Roth conversion from a beneficiary IRA. You can’t do it. It has to be from your own IRA. Um, there’s no pre-age 59 12 additional taxes because you have to take the money out or excuse me on this on the on the conversion. So, if you’re under 59 and a half, which I am about by about a year, um, if I do a Roth conversion this year, uh, it’s a conversion, not a distribution. So, with a distribution, you have to and you’re under 59 and a half, uh, then you have to take out, uh, pay an additional 10% in taxes. If you do a conversion, you do not have to pay that additional 10%. Uh, and it’s just a it’s a great thing to do. uh the more money or excuse me the the longer of a time frame that you have for that money to be in the Roth IRA what I have found is the better it is for you because then it can grow tax-free over that lifetime. So there’s some limitations also that uh by doing a Roth conversion uh there’s no guarantee that the Roth conversion is going to achieve the same results as the traditional IRA. if you invest them in the same investment products, you’re going to get the same kind of return. Um, but and so in in theory, you’ll actually be a further ahead in the Roth IRA because now it grows tax-free versus in the um in the traditional IRA. Now, all these rules that we talked about are rules that are currently going on right now. But these rules are not written in stone. the government can change these rules if they pass a new law. I don’t think that they would or we’re going to have a lot of grandmas and grandpas marching in the street riding instead of the younger generation and that just wouldn’t be uh that wouldn’t be very good. I just don’t see them changing the rules, but they could technically. Okay. Um again, when you do a Roth conversion, you got to claim that as income the year that you do the Roth conversion. So, just be aware of it and only b only do the Roth conversion up to the tax bracket that you’re looking to do and and things like that. So, it’s um again, it’s not the best thing for everybody. Uh but here’s how we can figure out if it’s the right thing for you. We have a complimentary uh program here at uh at Alliant Credit Union where we can run a program to see if a Roth conversion is a a something that you cons you should consider. It’s actually a a a plan that we call a wealth vision. So it does more than just the Roth conversions. It looks at a lot of different things. And again, this is complimentary, so it doesn’t cost you anything. So we’ll take a look at some of the the reports of this wealth vision here. So the wealth vision will show us where our income is coming in. So for example, we’ve got Bob and Mary here. The dark blue there is you get they’ve got social security. The light blue there, the little thin line there, that’s a pension that they may have had. And then the uh the red line there, that’s their income. And then you see the orange there, that’s their RMDs. So you can see that that red line bumps up when they have to start taking out their RMDs because their expenses are going to increase because now they’ve got to pay taxes on those RMDs. You know, when we do a comparison of uh a Roth conversion, we look at the base plan first without doing any Roth conversions. So Bob and Mary here over their lifetime based upon the information that was put in here, their cumulative taxes that they would have to pay over their lifetime is $832,000.
Now their portfolio when they when this second of the two pass away is $4.2 million that they’d be able to pass on to beneficiaries. So, that’s just part of the plan that we do here is let you know, do you have enough money saved for retirement? And it’s amazing how many people just just feel comfortable once they know that they have enough. Then it’s just a it’s a great uh uh relief off of their shoulders worrying about it. Now, when we do Roth conversions, we can do it a couple of different ways. If we want to program it to say, okay, well, let’s do a Roth conversion over the next 8 years and let’s say you’re going to retire in 8 years and we want to do a Roth conversion during that time and so that it’s all done and over with by the time that we retire, we can figure that out and put that in here and say, okay, so here the red would be the increase in taxes because they’re doing Roth conversions for those eight years. And then you can see down here at the bottom, by doing the Roth conversion, it would save Bob and Mary $140,000 taxes over their lifetime. But by but by doing a Roth conversion, they don’t have to do RMDs later on, it would actually increase their portfolio to pass on to beneficiaries by $828,000. So, that’s those are the two things really that we look at to see does a Roth conversion make sense for you. Is it going to save you money over your lifetime and is there going to be more money to pass on to beneficiaries? Now, it might not be that it’s going to have more money to pass on to beneficiaries total, but again, going back to the example of, you know, paying taxes on it, they may have a little bit less money overall, but the majority of it now is in Roth IRAs, which they don’t have to pay taxes on it. So, we take a look at a lot of those different things here. Uh here’s their uh assets uh as well and where their income is going to be coming from. So they got their social security uh they’ve got other other income coming in and then the again the red line is their is their expenses and then in this example here for Dave and Sarah their income is not enough to uh exceed their expenses. So they may have to take some money out. This is an example where their mortgage, they may have a mortgage a few years into retirement, six or seven years into retirement. So, they would have to take money out of out of savings or whatever to pay for that mortgage or whatever the extra expense is. But, we can see that once that expense goes away, it can it’ll show us, you know, what the what the uh balances are and and how it will benefit uh or hurt somebody depending on if they do the Roth IRA. we can see that if their assets are going to continue to grow and again the biggest thing here is do you have enough money to last through your lifetime that’s the one thing that most people just want to know now if uh again one of the things that I talked about here is doing a Roth conversion to fill up to a a bucket strategy say for five years in a row here and they want to do that we can take a look at and just change all different types of things around we can see that okay if we do a Roth conversion for five years. What how is that going to affect us? And in this example here, they would save $116,000 overall on their lifetime in taxes and then uh increase their portfolio when the second of the two passes away at uh $250,000 in this example here. Now we can take a look and see how is it going to reduce our taxes uh again by doing a Roth conversion upfront then you don’t have to do RMDs for so long in retirement especially have if you have a long lifestyle um based not not lifestyle life expectancy uh based upon your uh family history and how long they typically live. My mom’s side of the family typically lives until the mid80s, 85, give or take a few years. My dad’s side of the family typically lives until their mid 90s or even later. Uh my grandfather was 3 weeks away from his 100th birth on his 99th birthday. So he was three weeks away from that. My grandmother was 94 when she passed. So, uh, I’ve got, uh, kind of a, excuse me, I’ve kind of got a an average life expectancy on my mom’s side, but then my dad’s site uh, lives much longer than average. So, I’m I’m looking at 90ish or something like that, give or take, somewhere around there. Now, that’s all that we have here. So, I appreciate everybody’s time here. Let me give you uh, so we’re here to help here. Any questions that you have on Roth conversions, I’ll be glad to help you out and answer any questions that you have. Again, write them down there in the Q&A is typically the best, but either the Q&A or the chat and I’ll be able to take care answer the questions that we have here. So, we’re here to help in any any way that we possibly can. And how can we help you here at Alliance? There’s so many different uh things that we have here. We have complimentary foundational financing financial plans. Uh that’s this wealth vision. We have we have estate plans. We have uh all kinds of investment options that we have here. And we’ve got some investment options that I didn’t even have when I worked for the n national bank. We’ve got some really neat ones here that are very uh protected, very safe, but can also give you a great a great return. But why Aerys? Why Alliant Retirement and Investment Services? So number one, we want to get to know you and devise a plan specifically for your situation. Everybody’s situation is a little bit different. We use a team approach where we gather the information and talk about a team if we need to and come up with a situation that’s specifically for you. And then we also want to create a lifetime um a relationship with all of our members here at the credit union. The cool thing with Alliant is there’s not a a toll-free number to call up and ask for anybody and everybody for the investments. Uh for any of my clients, they know that they can call me directly and get answers directly from me. That way when I know your situation, I can help you out in any way. Um I do reviews consistently depending on the type of plan that we have. Uh sometimes it’s 6 months, sometimes it’s once a year. Uh but again, I’m always uh able to be uh reached by phone or me or my assistant. So any questions? Here’s my contact information. Uh and and uh my my direct phone number here at Alliant is 773462
- I like to joke and say that Alliant pays me to talk on the phone and I do a very good job of that. So, you may get my uh voicemail. Please leave a message and I promise I will call you back as soon as I possibly can. Let me launch this before we get into the questions here. If you would have like to have a one-on-one conversation with me or maybe to do that wealth vision plan that I went over at the very end here, just answer yes to this question here and I will reach out to you and um and we will uh set a time. I’ll call you. Uh first of all, I will uh try and give you a call. If I get your voicemail, I’ll still leave a message, but then I’ll shoot you over an email and uh with my email, you uh have access to schedule a Zoom meeting directly with me. So, with that being said, let me get into some of the questions here. Uh how are Roth IRAs different from Roth 401ks when offered by my employer? So, with a with an IRA, Roth or traditional, it’s an individual retirement plan. With a 401k, Roth or pre-tax or Roth 401k or or a traditional or post tax Roth 401k, excuse me. Uh, the difference is in your 401k, you typically have a lot lot fewer options to be able to invest in. Um, in a 401k you typically have, yeah, 20 maybe 30 different mutual funds to pick and choose from. In an IRA account, you have so many more options. In a we went over contributions into Roth IRA. So, if you’re under uh 49 and a 49 years old or younger, it’s contribution limit is 7,500 uh uh uh 8,600 if you’re 50 or older. In a 401k, your contributions are a lot greater. I don’t do 401ks. I want to say 23 $24,000 a year is your contribution limit into a 401k. Um, but again, your biggest difference is the investment options that are available in a Roth versus a 401k. Hopefully that answers your question there. Uh, do I have to wait the 5 years for the conversion? If my conversion goes into my rollover 401k Roth IRA that I’ve had for uh 5 years, as long as you are over 59 a half, you don’t have to wait the 5 years. Uh but if you’re under 59 and a half, you need to do a conversion. You still got to wait the 5 years for that. Yes. Uh I am 41. I only do Roth. That’s awesome. Congratulations. Any disadvantage for only doing Roth for the rest of my life? none that I can see. Well, technically the only disadvantage is you don’t get a tax deduction now. But uh but all that money grows taxree and especially since you’re 41, I see no disadvantages by doing a Roth 401k or a Roth IRA. You’re on the right track. That is awesome. Uh any comments on doing a Roth conversion from a 401k account after retirement? Um, yeah, I do them all the time. Again, it all really that that wealth vision plan that I talked about could really uh help us know how much to do or is it a benefit for you or not. Um, again, the longer the money is in the Roth IRA account that it can continue to grow, the better it’s going to be for you and then also for your beneficiaries. But also take into consideration that your beneficiaries are receiving all that Roth tax-free. Now they still have to take it out in 10 years, but it can stay in there for that additional 10 years and grow taxfree for them so that it hopefully it’s at a higher amount after the 10 years as well. How to keep track of all their Roth. I was told IRS don’t keep track of Roth for me unlike income history. in social security. I don’t want to I don’t want IRS to turn 30 years later and said they think my IRA is not host tax. So, it just all depends on the account that you set up. If you set up a Roth IRA account, then the money going in into there is is money you’ve already saved or excuse me, money you’ve already paid taxes on it. It’s like money that has come out of a savings account. So, that’s a contribution. Uh I’ve never heard of the IRS auditing somebody and and making them prove that the money was uh post taxing money. I’ve not had that. Again, I don’t do taxes, so I maybe I’ve not heard all the stories, but that’s honestly that’s not a concern that I would have about that. Uh, how can I get the complimentary scenario you showed? I have lots of IRAs waiting to be converted. Just uh Aaron, just schedule a time with me. I’ll reach out. If you answered yes to the um that you wanted the um Roth conversion or that wealth vision done, I’ll reach out to you. If you didn’t, either shoot me an email uh with that email on the screen there or give me a call and we’ll schedule to do um look at the uh the wealth vision plan for you. Uh, do most of these rule apply to 401ks as well as traditional IRAs as far as conversions goes? Absolutely. 401ks or traditional pre-tax 401ks or traditional IRAs, all the rules apply the the exact same. Uh, is it true you can’t take an RMD for a 401k from an IRA? What about an annuity in a retirement plan? So Howard, here’s how the RMDs are calculated. As I mentioned earlier, let’s say you turn 73 next year. At the end of this year, after the market closes on December 31st, you add up all your traditional IRA accounts or pre-tax 401k accounts. It doesn’t matter if it’s what the type of investment is. So, it can be an annuity, it can be stocks, it can be a CD. You just have to add up all your traditional IRA accounts or your pre-tax 401k and then with that balance based upon your age next year, let’s say you turning 73 next year, uh was it 3.87% I think is what you have to take out. So you just have to add them all up. Each one of your accounts should tell you what your RMD is for that account. So next year, usually after a week or two into the following year, you would be able to call up those each one of those accounts that ask what your RMD balance is.
Now, can you uh is it true you can’t take an RMD for a 401k from an IRA? Incorrect. It doesn’t matter if it doesn’t matter if it’s a 401k or a traditional IRA or a rollover IRA. As long as you you can take let’s say you have five different accounts. You have to figure out what your RMD amount is. And let’s just say hypothetically it’s $20,000. The government doesn’t care if you take out that $20,000 from one of your accounts or if you take out each amount from each of your four accounts. they’re still going to get their taxes either way. So, it’s the RMD is the m required minimum distribution. Doesn’t matter from what account it comes out of. It’s going to be taxed the exact same way. Are there any scenarios where you eliminate the tax bill when converting? Not legally. No, you have to do uh you have to pay your taxes. So, there’s no scenarios legally that I can think of uh where you don’t have to pay your bills. I’m not going to talk about the illegal ones. Does it pay to make uh Roth conversions after you have to begin taking RMDs, especially when you’re living off of your IAS and annuity income?
Uh again, the longer the money has to be into the Roth IRA, the better of a situation is going to be for you. So, because again, the money then can stay in the Roth IRA, grow tax-free, and if you need the money, you can take it out without any tax consequences or anything. So, it is, you know, if you’re already taking RMDs, you can’t go back and change the past. It still might be more beneficial for you to do it. But if you’re not doing RMDs, I highly encourage you to look at the Roth conversions before you have to start doing your RMDs because then again, if you can do Roth conversions before that, it might eliminate that Irma uh down the road for you as well. Um, better late than never in most situations, but I would say look at it as soon as you can. Uh, do you only advise on IRAs held with Alliant or is your uh, consultation available to an Alliant member who has an IRA and 401k and another organization. So legally any financial consultant whether it’s here at Alliant or at the big bank that I used to work for or an independent legally we cannot offer you any advice on it on accounts that we are not directly responsible for. So in your 401k legally I cannot tell you buy this, sell that, change it around. What I can do is maybe break down the type of investment that you have. You know, for example, if you have a mutual fund, the name of the mutual fund doesn’t may not give you an indication how that mutual fund is. Is it aggressive? Is it conservative? Is it balanced? Does it do whatever. So, I can I can break down the investments for you. Anybody can but nobody no financial consultant can give you advice on an account that they are not directly responsible for. Uh can we use the wealth vision tool on our own or do we need to work through you uh and my staff? Unfortunately, it is only through us. There is not a tool out there that I know of that you can do on your own. I’ve had many people say that they have tried to look for one and this is the only one that they have found. But you have to work through us to do it. That doesn’t mean you have to do an investment here, but you have to do it through us. Uh I’m 69 and retiring at the end of the year. Congratulations. That’s awesome. Uh thinking about starting to do Roth conversions starting in 2027 to reduce future RMDs. Absolutely. The wealth vision tool would be great for you to see does it make sense and if it does to what amount or what tax bracket you should do to optimize any Roth conversions. Uh what about when traditional IRA monies were non-deductible amounts and time to begin conversions? Is it still recommended when they are pre-tax 401k SE and non-deductible IRAs? Um, most of the time, yes. But again, that wealth vision tool will tell us. I mean, there’s so there’s so much that goes into calculating if a Roth conversion is good for you, more so than just your dollar amount that’s in there. There’s so many things that it takes into consideration other income, takes in consideration your age, it takes into consideration your longevity. So I would have to run the plan to see if I would recommend a Roth conversion for you. And if it does make sense, which tax bracket is the best tax bracket to optimize your Roth conversions. So that is all the questions that I have here. Um I appreciate it. So for anybody who answered yes to the questionnaire, I will reach out to you. Uh I will try and give you a call again. If I get your voicemail uh then I will shoot you an email as well. And my email you’ll be able to you can give me a call back or we might be playing phone tag back and forth for a little while. Um, but uh you could just schedule a Zoom call with me and that way it’s on both of our calendars. We know that uh there’s a set time for us to speak. So hopefully this was helpful for everybody. Uh again, another question here. Are the slides available? Unfortunately, they are not uh they are not available. We don’t record on our end. We don’t record uh these slides or anything, but they are not available. I’ve got a bunch of thank yous. Um you’re sure you’re welcome. Glad to do this for you. Got another one. To be clear, can you do a wealth vision tool for someone whose IRA is outside of uh Alliance who is in outside alliance? Yeah, we can do a wealth vision tool. That’s not that’s not telling or giving you advice as to what you should do with that alliance or anything. But yeah, we can definitely do a wealth vision tool uh plan for you even without any investment here directly with Alliant. Um so uh yeah, again I got a bunch of thank yous. You’re so welcome. I am glad to uh be able to do this for you. Uh so we’re in the evening of hump day Wednesday. So we’ve only got a couple of more weeks left, excuse me, a couple more days left for the uh for the rest of this week. And I’m so glad that we made it through here without uh my power going out. So I hope everybody has a wonderful evening and uh we’ll talk again soon. Take care. Bye.