Hey, welcome everybody. We still have a couple more minutes to go before the top of the hour. I hope everybody is having a great day. It is hump day and uh we are almost uh well, we’re halfway through the week ready for the weekend. I hope everybody’s having a great day and I hope everybody has a great weekend coming up. I uh hope everybody had a great Memorial Day last week. I got a smoker. Before we get started, I’ll talk about my smoker. I love my smoker. My other one broke. And if you’ve never had meat done on a smoker versus a grill, a smoker, hands down, is so much better than a grill. I still have my gas grill, but I’ve told my kids that my gas grill will only be turned on if my smoker is broken. And I went a month and a half before I got a new smoker, and my gas grill never turned on.
So, uh, anyway, a smoker is, uh, by far so much better in my opinion. By far so much better than a gas grill. But, uh, anyway, I, uh, I love it here. All right, so we’ve got about well, it’s just turned to the top of the hour. So, again, thank you everybody for joining me today. Uh, my name is Bernell Baker. I’m a financial consultant with Alliant uh credit union and the division I work for is Aerys Alliant Retirement and Investment Services. And before we really get into this webinar here, I know that’s the most important thing here, but let me just do a little bit of housekeeping here as we go along here. If there’s any questions that you have, please type them in right away in either the chat or the question and answer the Q&A and I will get to all the questions at the very end of this webinar here. And um I encourage everybody to uh stay for those questions because maybe somebody has an idea that might uh uh uh that you might not have thought about that might pertain to you. And with that being said, we will go ahead and get started here. Let me share my screen here with you. Uh we will go right there. Wonderful. Okay. So again, my name is Bernell Baker, financial consultant with Alliant Retirement and Investment Services here. Um all the all of us that do these webinars here, if you’ve ever go on to the website, we are actual employees of the credit union. Uh there’s many credit unions out there that the uh their financial consultants are not actually employees but we are here at Alliant. Uh let me give you this page here and these are different uh resources to go to. We have the uh top one there is a list of all the different webinars that we have and they’re all complimentary. So as you go through take a look at the different uh topics that are available there. Sign up for them. Um you know the more knowledge you have the better it is. We also have the Invest Savvy podcast that we put out podcasts every once in a while. And then there’s the Aerys website and our blog uh that we have there. So, uh with that being said, let’s go ahead and get um get into this here. Uh you know, this presentation is just intended for educational purposes only. uh and it is part of uh Alliant here and so we ask that uh no recording, reproduction or distribution uh of any of this and if you could just appreciate that um abide by that we would greatly appreciate it and we’ll continue to keep doing these. So getting into the webinar here, the future tax environment. We, you know, obviously we have our national debt that is just constantly growing and you know, who knows what our taxes are going to be in the future here. Um, I see somebody hold on a second. Somebody had a question. I see that I’ve had some issues. Uh, oh, okay. Um, in the past I’ve had some other people that have mentioned that there’s some uh echoing or something like that and it just seems like it’s oneoff. So, if you have any um any uh audio issues, you may need to log out and log back in. But, uh anyway, that’s uh that’s that now. And so, our future tax, we don’t know what our future taxes are going to be with our national debt increasing so much on a regular basis. I don’t know when this was, but it’s quite a while ago. The last time that I looked was actually about a month or so ago. We were at $39 trillion in in in debt. I don’t know how we’re going to get out of it without increase in taxes. I I just don’t know. Um hopefully somebody can figure out a way to reduce the debt, but we just don’t know what what it is. I mean, we know what our tax um uh consequences are right now. You know, we had the uh one big beautiful bill that was passed and we know what the taxes are going to be now and and those taxes are going to be through the um end of 2028. And unless they do something to extend those taxes or to come up with a different tax plan, uh if nobody if Congress doesn’t do anything, then it’s going to revert back and then our taxes are going to be a little bit higher uh than with than what they currently are. But our, you know, at the $36 trillion, that’s $106,000 for every single person here in the United States. I mean, it’s just, it’s just out of control what’s going on. And our budget deficit has been rising. It’s been growing constantly. Now if we take a look at the income that taxes do provide then at some point in time in the in the not too de not too distant future are our entitlement programs the social security Medicare Medicaid and just other debt instruments that we have here they’re going to exceed what our revenue is from our tax stream. So, you know, again, we know what our tax situation is now. It when we pay taxes, our federal tax uh situation is now. Who knows what they’re going to be in the future. Now, we currently are in a fairly low tax environment. It’s definitely been much higher in the past and primarily they raise taxes after we’ve had some wars in the past, World War I, World War II, whatever, to try and get out of the debt that those wars cost, unfortunately. Um, but we’re at a pretty low uh tax rate currently again with this one big beautiful bill. And again, I’m not going to get into politics here. Whether you like it or not, it is what it is. And it’s the same for everybody here. So, here’s how we can kind of eliminate or kind of reduce some of our taxes. It depends on what type of an account you have. We have our tax now accounts. So that’s our our index funds, our our brokerage accounts, you know, stocks, bonds, index funds, uh CDs, uh savings accounts, those are all taxed now, uh because we pay taxes on the dividends and the interest that those um uh occurras,
our traditional or pre-tax 401ks and annuities were all with all of those are going to be taxed later on. The theory behind the 401ks is that in retirement, you’re going to have a lower income level. So, your tax bracket uh should be lower then at least until you have to start doing your RMDs. And I’ll get into that here coming up here. But uh uh once you hit your RMDs, depending on what your amount is, you may be back up to the same tax bracket. And then the tax never accounts, those are the ones that I love. the Roth IRAs, municipal bonds, uh those are okay, but being MUN bonds, they don’t pay a whole heck of a lot. Typically pay a little bit better than savings accounts, but I don’t know. Our our savings accounts paying pretty good right now. And then we also have HSAs that are never taxed as well. And obviously the number one reason that we’re part here part of this is to talk about the Roth IRA and conversions that we can do in that. And I’ll get into that. Now, if you approach a Roth IRA conversion, it can be a very effective way for you to reduce the amount of taxes that you pay over time and it also can increase the the amount that you have to be able to pass on to beneficiaries. And I’ll get into that. So, here’s our agenda that we have today. And I’m going to not go over each one of these because I’ve got slides on each each one. So, let’s talk about the basics here. So, what is a Roth IRA? So, a Roth IRA, this is money that you put into a retirement account into a Roth IRA after you have already paid taxes on it. So, if you do a contribution for the year, let’s say you make $100,000 and you do a a Roth a contribution into your Roth IRA, doesn’t matter the amount that you put in, you still have to claim income and pay income off of that $100,000 a year. Now, here’s the thing with the Roth IRAs. There are certain requirements that it needs to be met in order to take that money out without any penalties. First requirement is you got to be over 59 a 12. Okay, I am currently 58. I just turned 58 a few months ago in February. So I’ve got another year and a half before I can take out. The other requirement is is the money that you contribute into a Roth IRA has to be in there for 5 years. Excuse me. So, it’s got to be in there for 5 years. Now you can take out your contributions that you do prior to 59 a half and or prior to the 5 years but any of the earnings the dividends and the earnings that it grows up to be is got to remain in there until those two uh requirements are met. And then in retirement you can take it all out. It’s not going to adjust your modified uh adjusted gross income. It’s not going to cause any tax burdens on you. It all comes out to be able to it’s it’s all able to come out taxree as long as you meet those two requirements and everything. So, in order to contribute into a Roth IRA, you do need to have some sort of an income coming in. Whether it’s a Roth or a traditional IRA, you have to have some income for a contribution. So, a contribution and a conversion are two separate things. contribution is brand new money going into your retirement accounts here. Now, there are some limits as to how much you can contribute each year for 2026 here. If you’re 49 years old or younger, you can contribute $7,500 into IRA accounts. If you are 50 years old or older, you can contribute $8,600 into IRA accounts. and into a Roth IRA. There’s no age limit, but there is some income limits. So, if you earn enough income, and for single people, if you earn under $153,000 per year, or for a married couple filing jointly, it’s under $242,000, you can contribute the entire 7500 or 86 depending on the age uh range that you are in. between the 153 and the 168 for singles or the 242 or the 252 for married, you can still contribute but only a a a certain amount and it depends on what your income is between those those uh limits there. Now there is a way to do spousal contributions. So for example, my wife doesn’t work. I still continue to work, but my wife doesn’t work. But she can do a spousal Roth IRA contribution based upon my income. And so we put money into my Roth IRA and we put money into her Roth IRA based upon my income. And that’s perfectly fine to be able to do so. Now, so those are contributions. Let’s get into the conversions. That’s a very different animal. So, with a with a Roth conversion, that is money that’s already in a traditional IRA or a pre-tax 401k, and you’re moving it from one IRA account, traditional IRA account over into a Roth IRA account. There’s no income that is required to do that. You can do it at any age. When you do that though, it is taxed. It it has to be taxed. Okay? So, go money going into a traditional IRA or a pre-tax 401k, you get a tax deduction off of your income for that year. When you do that conversion, you’re you’re going to be taxed on that amount as well. And you don’t have to do the entire amount of the traditional IRA. If your income limit is you want to stay underneath a certain tax bracket, you can do only up to that amount or whatever and you can do that. So, um, so you can do any at any age and there’s no income limits for a conversion. Now, the cool thing about that is when you do that, and again, if it stays in there for the 5 years and you’re over 59 a half when you take it out, 100% of that comes out penalty-free. It’s just awesome. And in retirement, that could make quite a bit of a difference um to be able to take money out. Say you need to buy a new car, you need to do a repair on the house or you have a big medical bill or whatever reason, you can take money out of your Roth IRA account and there’s it there will not affect your taxes or anything like that. There’s also something in retirement called Irma. I m a money and for married people, I’m pretty sure it’s married people. If you make over, you know, up to 200, 5,000, 2022,000, something like that, under $200,000, you don’t have to pay anything extra for Medicare Part B or a Part D drug plan. But if you earn enough money in retirement and part of that money is your RMDs, if you earn $200,000 or more between social security and and pension plans that you may have, annuities or your RMDs, then you may have to if you earn over the 200,000, you’ll have to pay extra for that um uh Medicare Part B and Medicare Part D. So that’s something that you have to take into consideration out of a traditional IRA. Out of a Roth IRA does not affect any of that at all whatsoever. So who can convert to a Roth IRA? As I mentioned earlier, there’s no age limit. You can do it up until whatever age you want. Again, there’s no income limits, either high or low. And there’s no requirements that you have to be working to in order to convert money from a traditional into a Roth IRA. But as I mentioned earlier, you do have to uh or whatever year you do it, that is the year that you pay taxes on it. So I’ll give you an example here, and it’s perfect for this slide here. Many years ago, prior to working for Alliant, I worked for a big nationwide bank. I was a financial consultant there. I had some people come into the office and the wife had lost her job and this was back in the mid ‘9s and uh the the husband thought he was doing a good thing and just rolled it over from the wife’s 401k pre-tax 401k into a Roth IRA. Well, when they went to do their taxes, the the accountant said, “Congratulations, you owe the government $40,000 for taxes because again, whenever you do that, you got to claim that as income and pay taxes on it.” So they came into me into a panic. I was able to work with the old 401k company, get the money pushed back into that and then we took it out and moved over over in into a traditional IRA. Now the tax cuts and jobs act eliminated that ability to do so. Okay, that was back in the ‘9s. Maybe it was early 2000. Anyway, in 2018, they changed that rule so that once you do a Roth conversion, you’re stuck with that Roth conversion. You cannot go back in. So, if you do a large amount and now have to pay taxes on it, you cannot go back in and and remove it again. You’re stuck with it. It is it is uh written in stone at that particular time. So again with Roth IAS there is no RMDs required minimum distributions. With a traditional IRA there is RMD. So if uh if you were born prior to 19 excuse me uh uh uh yeah 1960. So 1959 or earlier you have to start taking money out of a traditional IRA at age 73. If you were born in 1960 or later, it bumps your age up to uh 75 and you have to start taking money out of traditional IAS at that point in time because the government allowed you to reduce your income by the amount you contributed to a pre-tax, excuse me, a pre-tax 401k or a Roth or or a traditional IRA. they say, “Okay, now you have to start taking income out and you got to pay taxes on that.” So, with a Roth IRA, since there is no taxes that you have to pay on that, you don’t have to take money out of a Roth IRA. So, it’s kind of nice to be able to do that. And again, it won’t affect your taxes later on um when you uh file for taxes when you’re retired. you can hopefully stay at a lower uh rate, a lower tax rate by taking it out of the Roth IRA. Now, here’s the thing is we again, as I’ve mentioned beginning of this, we just don’t know what our taxes are going to be, okay, in the future to try and eliminate some of our debt. We just don’t know. And the nationwide debt, we don’t know what they’re going to be. Hopefully, they’ll still be low, but in order to uh pay some of the debt off, I just don’t see any way that uh we’re going to be able to do that without uh increasing the taxes at some point in time. Okay? And again, depending on how much your RMDs are, you may have to pay extra on um Medicare Part B and Medicare Part D if you uh if you uh have Part D. Now what affects your social security and your Medicare. Your traditional IRA is 100% taxable. So that will affect your uh your income which will which could affect your social security and your Medicare. Okay. it uh it also is 100% included on provisional income and it’s also included on your modified adjusted gross uh income for Medicare pricing that Irma that I talked about earlier. A Roth IRA does not affect any of that. It comes out tax-free and um doesn’t affect your income at all whatsoever. Now, if we take a look at doing a Roth conversion, so let’s say you’ve got $10,000 now and you’re in a pretty low tax rate now at 12%. But later on when you’re retired and maybe taking out um RMDs, you may be at a 24% tax bracket. So, if we assume a 5% annual return and if you convert your Roth IRA $10,000 over into that, if you take out the 12% from that, then you are investing 8 $8,800 assuming you take out the 12% from the Roth conversion that you do. Okay? So, if you do no conversion at all whatsoever, in 10 years, assuming a 5% return, you’ll have your $10,000 in a traditional IRA, you’ll have $16,289 in there. If you’re in a higher tax bracket at 24%. After taxes, after you take that 24% out of the 16,000, you will have $12,380 that you’ll be able to use and spend. But like I said, if you do the Roth conversion and a lower tax bracket, granted, you’re going to start out a little bit lower at $18 $8,800. And again, assuming that you get a 5% return, same return after 10 years, you’ll have 14,334. So, by doing a Roth IRA now means that you’ll have more money later on if you’re at a higher tax bracket. Now, what that does is it gives you an additional $1,945 $54, which is 15.8% more by doing a Roth conversion now, paying a lower tax rate versus doing it later on, you know, and that 12% that’s great if you uh maybe lose your job, you’re at a lower income, or maybe you have a a lower than average income year, maybe you’ve got some high expenses that you can write off on your taxes and things like that. So take a look at that if you’re ever in a in a situation for that. Now again, we just don’t know what our future taxes are going to be. So it’s not a bad situation to take a look at and do it now versus later on. Now, when I talk about filling up to a different tax bracket, okay, depending on what your income is is, you know, let’s say you have enough income coming in that, you know, before the conversion, you’re still in the 22% tax bracket, but you’ve still got some room to grow before you bump up into the 25% tax bracket. So you could fill up to that 22% income limit uh without increasing any of your taxes or jumping into the 24% tax bracket. Now our US tax is a progressive. So the amount so if you earn the income in the 10% tax bracket you pay 10% for that. Whatever you f if you fall into the 12% tax bracket you pay for the 12% that’s within that tax bracket. and then the 22% whatever money falls into that category then you pay the 22% taxes on that. So you know I I’ll get into a report that we can do later on that shows you what is the best and optimal tax bracket to be in. But when I talk into filling up a tax bracket, it’s just doing a Roth conversion, adding all your other income to stay within that current tax bracket that you’re in or whichever is the most optimal one for you. Now, as I mentioned earlier, your Irma, your Medicare Part B and Medicare Part D. So, for individuals, you know, in retirement, if you’re income is is $109,000 or less, or if you’re married filing jointly is 218. I was thinking 205 or uh 203, but it’s 218. As long as it’s underneath that amount, then you don’t have to pay anything extra, okay, for uh Medicare. But when you start taking out your RMDs, if you’ve got a decent amount of RMDs you have to do, then you can see that it can uh it can uh increase your your uh premiums for Medicare Part B and Medicare Part D as well. So, not only will it bump you up to a higher tax bracket by taking out RMDs, it could also increase your uh Medicare insurance that uh that you pay for part B and part D. Now, obviously, what you want to do is you want to hunt for those lowinccome years. You know, again, depending on what’s going on when you have a lower income year or maybe high deductibles that you can do for whatever reason, you can do a Roth conversion at that time and stay within the same tax bracket and might really benefit you later on. Okay. So, number two, the original IRA owner. So, this is talking about the person who originally set it up. So again, in a traditional IRA, if you were born 1959 or earlier, you have to do RMDs at 73. If you’re born in 1960 or later, you have to do RMDs at 75. Uh required minimum distributions. And if you don’t do RMDs, you could have pay a pretty hefty penalty. Now, here is the percentages that you need to pay based on and based upon your age. So, you can see at 73 it’s about 3.78% and then it slowly increases every single year because your age increases. Now, it doesn’t increase anything massively, but it slowly increases. the percentage that you have to take out increases and hopefully you’re getting a better than a three, four or even a 5% return so that your R your your your IRA account your traditional IRA account is still growing. So hopefully it’s still growing for you but then also the percentage that you have to take out is growing as well. That’s mandatory and you know it just may increase your RMDs that you have to take out. Now, the cool thing about it is we have a report here that we can run to see is a Roth conversion a a good plan for you. So, here is an example of a married couple, Bob and Mary. And the light or the dark blue down below is uh RM, excuse me, is your social security. The light blue there is uh maybe a pension plan. And then the orange there is their RMDs that they have to start taking out at 73 or 75. So when you do your RMDs off of your traditional IRAs, often times that is and excuse me and the red line there, excuse me, the red line is your expenses. So when you have to do your RMDs off your traditional IRA, often times that’s way more than what you have to or than what you need to survive and pay your monthly expenses. So here’s another example here of this report that we run here is it gives us your your cumulative taxes that you will pay over your lifetime. So, with Bob and Mary here, over the rest of their lifetime, they’re going to pay $832,000 in taxes, but it also gives us a a total portfolio asset when they pass away. And in this situ situation here, it’s $4.2 million. Now, we can throw in a Roth conversion in here. And there’s a couple of ways that we can do it. We can do it as a just a straight fixed amount here. So, let’s say they just want us to straight do $60,000 a year. Then, by throwing that in there, it can tell us uh after we do the Roth conversion of what their income, what their cumulative taxes will be and also their income. And in this particular situation with Bob and Mary, we can show that if they do their Roth conversions upfront, then it would save them $140,000 in taxes over their lifetime, and it would increase their assets to pass on to beneficiaries by $828,000. So, it’s really cool. This report that we can run here is really cool. And one thing um I about that report is it it it is complimentary. It doesn’t cost you anything for us to run that report for you. And it’s really cool. The report and we’ll get into some of the things uh about that report coming up here. Um but uh the report does a lot more than just Roth conversions which is kind of nice. Now their surviving spouse as I mentioned my uh I’m married and my wife um uh is here and everything but if we take a look at taxes taxes is very different in retirement especially after a spouse passes away. So if we have Adam and Annie here and they’re married and they’re filing jointly and let’s say that after all of their deductions and everything like that their income comes in at $110,000. Well, they would be at the 12% marginal tax bracket. But let’s say that Adam passes away and an then is surviving. Her RMDs are still going to be about the same. You know, given the, you know, assuming that she’s about the same age as Adam and everything,
excuse me. if she wants to have the same after tax uh income, she’s going to have to increase the amount that she takes out of her retirement accounts by 68%. But now that she’s she’s single, her tax bracket is going to be completely out of whack. Even if she still uh maintains $110,000, she’s going to be in a much higher tax bracket, the 24% tax bracket. So that’s going to reduce her income by $40,000 just because she’s at a higher tax bracket. There’s a lot of people that don’t take that into consideration in retirement. When one spouse passes away, it very well could bump up their surviving spouse into a completely different tax bracket if they maintain the same amount of income in coming in. So it is very important to be able to do the Roth IRA prior to the death of the first spouse. Okay. Number four here beneficiaries. So in the past under the old rule prior to 2020 if uh somebody passed away and and had a non-spouse as their beneficiary say a parent passed away and the child inherited a million dollars here prior to uh 2020 they could take out a small amount roughly about 4% which was considered a stretch and all they would have to do is take out about 4% every year for the rest of their life. Okay. So, let’s say Carrie here, she’s making $90,000 a year at her current job and prior to 2020, she took out $25,000 out of the uh Roth, excuse me, out of the traditional IRA. Uh that wouldn’t really be that big of an effect on her. You know, her income then would be uh up to $123,000. Okay. But under the new rule now, uh, excuse me, her income would be $115,000. But under the new rule, after 2020, every traditional IRA and Roth IRA has to be completely depleted within 10 years. So, by doing it that way and again assuming a 5% return over 10 years, she would and if she wanted to take out the same amount to not have one year crazy tax uh high in instead of taking out $25,000, she would have to take out $123,000. So, that definitely would put her into a higher tax bracket. at the $90,000 income, she was probably in about the 12% tax bracket. But if you add that $123,000 over the next 10 years, that’s going to bump her up into a much higher tax bracket. So, it’s going to cause an additional uh taxes on her for the inherited IRA of $310,000. So, instead of her getting um a million, she’s getting a little under $700,000. Now, if we take a look and see, okay, if you’re in retirement and you’re at the 12% tax bracket and you want to do a Roth conversion to save your child from paying a higher tax bracket, so let’s say we’ve got uh two people that are married here and they want to convert $50,000 because they’re in a lower tax bracket at 12% and they want to convert $50,000 annually for the next 5 years then and if they get a 7% return. They can go ahead and do that. And so what that is in the green line here is uh the amount that they would have without doing any Roth conversions. And then the beneficiary after the taxes and everything would be a a lower amount because they would have to pay taxes on it when they took it out if they were already at the 24% tax bracket here. And if you did a Roth conversion, you can see that the parents and the son, in this case, the beneficiaries, their taxes would be about the same. So the parents would be able to do the 12% tax bracket and be able to save money off of their son’s inheritance from the son paying taxes on it. So, by doing a Roth conversion, they could uh increase the benefit by $56,000 and then there would be a difference there of $110,000 if the uh if the son had to do it. So, the son would have to start paying extra money. So, again, it might be uh advantageous to take a look at that prior to the owner’s death because once the parents pass away, the son cannot do a Roth conversion. There’s no way to do a Roth conversion on an inherited or a beneficiary IRA account. So, a few things to take into consideration when you’re doing a Roth conversion. Uh there’s no income limits to do a Roth conversion. Whatever you do it, it is taxed as ordinary income. So, fill it up to a a certain tax bracket. If you want to stay within the tax bracket, you’re you’re in. Uh or again, the plan that we have here uh gives us the the best tax bracket to do it in. It deadlines October or December 31st. In a contribution, you have up until when taxes are due on average April 15th to do one for a prior year. But the day that you do that Roth conversion, it’s taxed that particular year. There’s no changing it around. There’s uh no pre So if you’re under 59 and a half and you take money out of a traditional IRA, you have to pay if you take it out to spend it for whatever you’ve got to pay an additional 10% on on income on your taxes. If you do a Roth conversion, that 10% does not apply. Okay? Now, but again, there could be un uh uh unintended consequences if you do a Roth uh IRA conversion. Again, you could bump up to an X tax bracket and pay taxes on that. Okay. Some limit uh potential limitations in risk. Again, there’s no guarantee if you invest the money. There’s no guarantee that it’s going to grow. If you put it in the exact same investments in a traditional IRA and a Roth IRA, they’re going to grow by the exact same percentage uh and everything. Uh but there’s no guarantee the Roth IRA uh rules won’t change in the future. Again, the the 5 years and over 59 a half, that’s current uh tax regulations. It can always change. It hasn’t so far since the Roth IAS came out. That hasn’t changed, but there’s no guarantee that it won’t u uh change in the future. And again, uh you don’t have any any uh uh RMDs with a Roth IRA that you do with a traditional IRA. So, getting back to the report that we can run for you, again, that’s complimentary. It really tells us uh our income. And you know, again, the red line there is uh is expenses, and it could tell us that in the beginning years, we may have to take money out of assets to pay our expenses. and then your RMDs kick in. It might still have to um take some money out, but um it’s it’s a really um really e extensive report that we can run here. And then also hopefully your assets will continue to grow, especially in a Roth IRA because you don’t have to take the RMDs out and the money can just sit in there and continue to grow. You can take it money out if you need to, but again, most of the time with RMDs that people take out way more than what they actually need. So, they take it out and put it in a savings account or maybe they put it in a brokerage account and invest it there. But, you’re going to pay taxes on both of those because of the dividends and the interest that those pay out. Now, as I talked a little bit about filling up to a tax bracket, again, this report that we can run, we can fill it up to different tax brackets. This one here is up to the 22% tax bracket, the 12%, 24, 32, 35, or we can even figure out if it’s if it’s better to do it all at one time. It really is fascinating to me every time I do the report to take a look at it to see what is the best thing to do. So again, we can look at IRA uh Roth IRA uh conversion outcomes. If we do it for the first five years, again, in this particular situation, their cumulative taxes would be $790,000. But again, by doing the Roth conversions up front, it would save them $110,000. And then again, because they’re not doing the RMDs off of this, then it can just sit inside the Roth IRA and continue to grow if they want it. and it would add an additional $250,000 into their portfolio that they could uh pass on to beneficiaries. And the report that we run actually will break it down how much is in Roth IRA accounts and how much is still in traditional IRA accounts so that you can see what the uh tax burden would be on your beneficiaries. A spouse is completely different. you know, if I were to pass away first, my wife can take inherit all of my retirement accounts, but that’s talking about more about uh being able to pass on to non-spouses. Uh so if either whichever one passes away second, it’ll go to our three children. Um now again it could tell us you know if if reducing taxes um you know how much it would reduce our taxes by and then how much it might possibly increase our net worth. And I’ve even done some plans where it would increase their taxes depending on every situation. It might increase their taxes which wouldn’t be a good thing or it might decrease their uh portfolio because of those taxes. The longer the money can that the longer the money can sit in the Roth IRA typically the better it is for everybody for you and for your beneficiaries. Um usually if you’re older and don’t have a long time frame where you expect to uh to live until usually at that point in time it’s not the best thing to do a Roth conversion. Um, but again, we don’t know that until we run the report and everything. So, again, we don’t know what our future tax burden’s going to tax laws are going to be. Uh, I I just don’t understand how we’re going to pay off that debt without raising taxes because it doesn’t seem like our government can can function within a budget, a balanced budget. We haven’t had a balanced budget for years now. A Roth IRA may be a very effective tool to diversify any tax allocations both for you and for beneficiaries. Again, Roth IAS are not subject to RMDs. When you need to take money out, you can, but you can you can only take out what you need, which is kind of nice. Now a Roth IRA may be very beneficial uh to leave to your your heirs your your children or non-spouses because then they can also take all that money out taxfree. Now again a Roth IRA after 2020 for non-spouses they have to take all the money out and the whole reason for that is taxes. They don’t pay taxes on that upfront when they take it out. But let’s say they inherit quite a large sum. They may buy a bigger house which will help the economy because that helps a realtor, it helps a construction person, you may furnish it, whatever, but if there’s any extra left over, they’re going to either as put it in a savings account or they’re going to invest it. And both of those then they will have to pay taxes on the interest and dividends that that pay that that that uh that those things pay out. So again, they have to take the money out within 10 years and it’s all because of taxes. So the government starts getting more money off of dividends and interest if they don’t spend it. And by spending it, it will help out the economy as well. And again, a Roth conversion may or may not be important to you, but it it very well could be a very good retirement strategy for you. So we’re here to help. And the great thing about Alliant Retirement Investment Services is even if you don’t have an investment account with us, I’ll be glad to answer any questions, give you 100% honest feedback. But if you’re going to do a Roth conversion, definitely take uh consider doing it before um uh before you retire and before having to start taking out Social Security because that could increase your amount. Now that’s not to say that even after you start taking social security it’s not beneficial. We just have to run the plan for you and see. Uh now with Allian Retirement Investment we are a full-fledged uh investment firm and we have all different types of products that we can offer here. And there’s a lot of products we offer here that you may have never ever heard of before. uh because everybody’s familiar with uh with uh uh mutual funds because that’s what you have in your 401ks and everything. Uh maybe some ETFs, those are kind of the same thing as mutual funds, just the newer versions of it. But we have so many other products are available that a lot of people don’t understand. We have estate planning and we have it a such a wide range of investment choices that we can offer here. But why Aerys? Why Aerys above anybody else? Number one, here at Aerys, at least especially for me, I like to get to know you and design a plan specifically for your situation. And then we use a team approach after I gather some information. Use a team approach to make sure that it is designed for you and for what you’re trying to accomplish. And lastly, we want we want to build a lasting relationship for the rest of your life. Uh so that if you have any questions, you have one phone number to call and you get the same person myself versus calling up some of these other brokerage offices where you just get the very next person and you call a toll-free number, you get the next person that just came out of training and you never know if those questions are the answers that you get are accur accurate or not. So, let me give you this is my contact information here. And if there’s anybody here on the phone on this webinar that’s on the phone, let me give you my direct phone number here. My direct phone number, excuse me, at Alliance is 7734628612.
That rings directly on my desk. Um, I like to tell people a lantern pays me to talk on the phone. So, I do a pretty good job of that. So, more than likely you, you know, very well could get my voicemail. I answer every phone call as as as you know, if I’m available to do that, I will pick up the phone and answer it. But if you get my voicemail, please leave me a message. I will call you back as soon as I possibly can. So let’s get into some of the questions here. So uh let me well before we do that let me launch this here. If you would like to have that complimentary uh Roth conversion report ran for you I would be glad to do it. Uh just answer this question. And if you answer yes on here, I will reach out to you and uh and we will go over the report, the information that I need. Uh I’ll be honest with you, uh the Roth conversions is one of the hottest topics that we have here. Depending on how many of you answer yes, I may just have to send out an email. But if there’s not that many, then I will make a phone call. And if I don’t get you on the phone, then I will I will answer. or I’ll shoot you an email. Uh so uh first question here is how much each year can I convert from my 457 to a Roth and are there any fees? Uh you can convert anything. There’s no limit as to how much to convert per year and if there’s any fees typically it’s a very minimal fee. um you know at Alliant if you have a traditional IRA savings account and a traditional IRA Roth account you want to move the traditional to the excuse me if you have a traditional IRA account savings account at Alliant and a Roth IRA savings account at Alliant I think we charge like 25 bucks to do the Roth conversion usually the fee is pretty pretty small it’s usually not very much uh does rental income count in order to open a Roth IRA Um, you know, that’s a good question.
Uh, that is a question I’ve never had before. I don’t know. I’m not a CPA. I don’t do taxes. Um, I don’t know that. I don’t want to I I don’t want to give you a yes or no. Um, so I I don’t know what that uh if that will count to open up a Roth IRA or not. I’ll have to look into that and see. Uh, can I have both Roth and traditional at the same time? Absolutely. Absolutely you can. But again, contributions is total. So, $8,600 total. So, if you want to put money into each one, and let’s say you’re over 50 like myself, $8,600. If you put $4,000 into one Roth or traditional, doesn’t matter, then the maximum you can put into the other one is is 4,600. So, it’s it’s uh total contribution, but you can absolutely have Roth and traditional and contribute to both up to a maximum of 86 for the year or 7500 if you’re under uh 50. If doing a partial conversion, does a 5-year Clark start clock start from the date of each conversion? Uh yes, as long as it’s if you’re under 59 and a half. If you’re over 59 and a half and do the Roth conversion, then no, it does not restart. If I am a married filing
separately, I MFS, I’m guessing that’s married filing separately filer. I can’t contribute to a Roth due to the 10,000 income. Correct. that if you’re married filing separately, your taxes are completely out of whack. Uh, can I do a backdoor Roth? Can I do a Roth conversion? Absolutely. So, whether you’re married filing separately or if your income is higher than the uhund was 156 for single, you can always contribute to a traditional IRA and then convert that into a Roth IRA. Uh at the previous big nationwide bank that I worked at, I had a client of mine that was a anesthesiologist for two different hospitals. Buku money made way more than what he was allowed to make to to made way more money than than uh what he was allowed to in order to convert in order to contribute directly into a Roth IRA. So he would come in every year, we would make a contribution into his traditional IRA, and then we would do a Roth conversion all within the same year. So it kind of washed each other out. Can an RMD from a 403b be added to an already existing established Roth to avoid taxes? Absolutely not. An RMD has to come out of a traditional IRA and go into a nonretirement account. So, if you’re in a situation where you have to do RMDs, you have to take that out and put it into a savings checking or a regular brokerage account. Doing a Roth conversion does not uh eliminate you from taking out the RMDs. Um, should you consider combining IRA and 401k or individual for the married couple for conversions or Roth? Well, first of all, whenever you leave a company, I always recommend that you take the 401k out and move it into an IRA. In an IRA, you have so many more options that are available to you, and you can tailor a plan specifically for what you’re looking for in an IRA with other products besides just mutual funds. Now when you’re doing it as a Roth conversion um then yes you should take into consideration all your income and do it in a Roth conversion. So you what whether you take one spouse and reduce their traditional IRA and then start working on this other spouse that doesn’t matter uh because your taxes are going to be the exact same you know it doesn’t matter whether you take out so but yeah I I definitely recommend that you take uh you combine IAS and 401ks and and then start doing Roth conversions. Yeah. Um I meant to avoid taxes from additional income due to the 401 uh RMD. No. Yeah. So again, if you have RMDs that does and do a Roth conversion, that does not eliminate the need to do the RMD still. Uh how is social security impacted with Roth conversions or IRA withdrawals? So it’s so when you do a Roth conversion, you have to claim that as income. Same thing as as an IRA withdrawal, you have to claim that it’s income. And depending on what your income is, uh you know, after your all your deductions and everything, it could impact uh your social security and or your uh premiums for Medicare Part B and D. Do you have a tax attorneys to answer any questions I may have? Sorry, we do not. We do not have tax attorneys here at Alliance. Instead of having a Roth set up through an employer, can I have one with Alliant and just transfer one large sum uh once a year? Yes, you can. You can have it add Alliance and transfer the money over into it. Yeah. Uh married couples can contribute 17,20 a year. Yeah. So each couple each if you’re married, each person can do 8,600. So, um, that would be the 17,200. Yeah. So, my wife does 8,600. I do 8,600 and we’re good. Um, uh, Tracy, yes, please contact me. Okay, I will, Tracy. Um, I have a large traditional IRA as well as a large brokerage fund full of taxable mutual funds. Yes, these mutual funds don’t report their capital gains dividends until the very end of the calendar year. Yeah, sorry. My challenge is how to figure out the maximum amount that I can roll over from my traditional IRA to a Roth IRA without uh hold on a second. Um
uh without uh going up multiple Irma levels or even federal tax levels. I failed to mention that my wife and I are 70 years old and retired. Uh Mary finally joined me good and with adequate income. Thanks. Yeah. So unfortunately with that uh those mutual funds paying out capital gains that’s hard to predict. Uh and there’s really not much you can do about predicting that. I mean, the benefit is again with our our tax system, if you go over, say you’re at the 22% tax bracket, you fill up to that, if you go over a,000 or 2,000 or 3,000 or whatever into the 24% tax bracket, you’re only filing uh the 24% on that amount that’s within that tax bracket. It’s not like all of your income then is at the 24% tax. uh level. It’s just that portion that’s within that tax bracket. But if you’ve got mutual funds and there’s no rhyme or reason how they pay dividends, it’s going to be hard unfortunately to to figure that out. Uh another one, our income level is teetering around the threshold for the next tax bracket. Can you do a back door just in case or do you have to wait until you’re physically past the threshold? How should I change my strategy when I’m so close every year? Um, you can do a back door anytime. It’s no big deal. Um, you know, again, whenever you do a backdoor when either a backdoor or a Roth conversion, they’re both the exact same thing. whatever your modified gross uh uh adjusted gross income is for the year, whatever tax bracket you fall in, um that’s you’re going to be tax bracket for that amount or whatever. So again, if you go over a little bit, you’ll just pay the higher taxes for that amount that’s within that. Um but yeah, you you can do it. And again, I would say that report that I run is really fantastic to help you out with that. Um, there was a second part of that, but where did it go? Uh, hold on a second. Uh, did you go over how to calculate your modified address gross MAGI so I know how much I can convert to fill the bucket? Uh, looking online gives you all different definitions. Can you use specific boxes on W2? So your modified adjusted gross income is going to be different for every single person because of the deductions that you can take. So there’s no way for me to do that in this type of a a situation to figure that out. But do both married but do both married people have to have income to contribute 7,200 for a year? What if only one of the two have earned income? That’s my situation. I have earned income. We can do $17,200. My wife can do it based upon my income. Now, let’s say that I’m I’m lazy. I’m just working part-time somewhere. And all I earn is say $10,000. I’m relaxed. I got no big deal. Then $10,000 is the maximum you can contribute. the government, you have to earn more than $17,200 or have your MAGI more than $17,200 in order to do that. If I have all kinds of deductions and everything and I’m down to the $10,000 limit income limit, then that is the limit that I can contribute to a Roth. I can do uh $8,600, but then would only be able to do $1,400 for my wife. Uh, revising my part question, can the taxes that I pay on an RMD of a 403b cover the taxes of the contribution from those funds to already existing Roth? Is it’s the same money. So, when you do a Roth conversion, they will allow you and it depends on where you where the accounts are at and everything, but most places will allow you to take out a percentage and pay taxes upfront on it. I’m thinking that’s what your question is. Um, uh, no. Revising my program. Can the taxes that I pay on an RMD of a 403b cover the taxes of the contribution from those funds to already existing Roth. Uh if you’re doing RMDs either at 73 or 75 depending on if you’re born prior to 1960 or not. I hope you’re not working still. So, and again, if you’re not working, then you can’t do a contribution. Social Security pensions do not count towards income to do a contribution. Um,
and then if I’m paying taxes on the RMD and again taxes on the Roth, it just seems redundant. So in the Roth, you’re not if if you’re doing a conversion, you’re taking money out of a traditional IRA. You have to pay taxes. Anytime money comes out of a traditional IRA, you have to pay taxes on it. Once it goes into the Roth, then you can take the money out of the Roth and you’re not paying any taxes on that Roth. So hopefully that is the question. Uh I have a large traditional IRA as well as a large brokerage fund full of taxable mutual funds. The mut Oh, this is I got the same thing here. Okay. Um I was reading the chat questions. Now I’m over the Q&A questions and it looks like the same question there. Uh, when does a 403b get taxed? When you take it out of the 403b. 403bs. So a 403b just means that you work for a nonprofit organization. So technically, as I mentioned earlier, I work for a big nationwide bank. A for-profit organization, like a bank or most businesses, you have a 401k. A 403b means that you work for a nonprofit organization. Technically, credit unions are nonprofit. So, at the big bank, I had a 401k. Here at at Alliance, I have a 403b function the exact same way. So, uh, uh, anytime you take money out of a 403b, 401k, or a traditional IRA and move it over into a non-retirement account, well, anytime you take it out of that, then you pay taxes on it at that time. I understand that HSAs are tax-free for health care expenses and that HSAs can also act as a pseudo retirement account. Yeah. Once I start withdrawing from an HSA in retirement, is it taxed? No, it’s not. As long as you use it for uh health care uh things. Does the Roth account just need to be open for at least 5 years or does the new money put into a Roth account have to stay in there for 5 years? If you’re prior to 59 12, every time that you add money to it, that starts the 5-year for that portion. Does not change any prior contributions that you’ve done. So, for example, my Roth IRA account was opened uh over 15 years ago, but I am contributing uh but I still contribute. So, does the new money need to stay in for at least 5 years? If you’re under 59 and a half, yes, it does. If you’re over 59 12, no, it doesn’t. Uh I failed to mention that my wife and I are 70 years old and retired, married filing jointly with adequate income. I think that was on the other thing as well. Does a 5year start from the time you do the conversion for each conversion? Again, depending on your age under 59 and a half, yes, it does. Over 59 and a half, it doesn’t. For a spousal Roth IRA, my husband is retired but works part-time and makes around $10,000 per year. I am retired with no earned income. Am I correct in assuming we can only con only put in a total of 10,000 between both of our Roths? Yes. For instance, if we put 5,000 in
uh for him 86. Correct? Yeah. So, if your income is $10,000, that’s all you can contribute to your IRA accounts. So, if he does $8,600, then all you can do is $1,400. Correct. That is correct. I want to convert 25,000 per year to stay in a certain tax rate. Does it make sense to roll over 100,000 from my 401k to a traditional IRA and then convert uh the said 25 into a Roth for 4 years or should I leave the 100,000 in my 401k and just roll over 25,000 every year for my 401k? Well, whether you do it if you roll over the 100,000 into a traditional IRA and then do 25,000 a year, that’s the same as if you do 25,000 a year directly from your from your 401k. It’s still $25,000 a year. The government doesn’t care if it if it comes from a traditional IRA or a pre-tax 401k, it’s just $25,000. So, where it comes from, it it doesn’t matter. But again, depending on your age and a lot of other things, again, this report would really be really beneficial. It might even be better for you if you did the entire 100,000 upfront. Again, until I run the report, I wouldn’t know. So, uh, generally speaking, will a single person take a hit no matter what because they are likely to be in a higher tax bracket based on the example you gave where you’re doing the conversion before one spouse dies. Uh yes, a single person is typically going to well their tax brackets are much lower uh as far as income goes. So yes, a single person is probably going to be in a higher tax bracket if you take out the same amount versus single versus married filing jointly. Should you consider combining IRA and 401k or individual for a married couple conversion or RMD? Well, you
for each so for me and my my wife, we can’t combine our IRA accounts. They are individual retirement accounts. What’s in her accounts, I cannot combine into mine or add into mine until she passes away, then I can take it. But as long as we’re both alive, we can’t combine our two accounts into one account. But you should consider combining them for the dollar amount. Okay? So if I, for example, I have a 200,000 and my wife has a 100,000 in hers, our total dollar amount is 300,000. That’s what you need to consider when doing Roth. But I we can’t combine the two together. uh again until she passes away or I pass away first. Whoever passed away first as a spouse, you can just roll everything into your own. Aren’t there eligible designated beneficiaries since the newer rule was imposed where the
uh recipient of an inherited IRA can still stretch? No. No. After 2020, a non-spouse has to take all the money out within 10 years. Since I am working and earning less this year, this is a great time to do a Roth conversion. Correct. Yes. As long as you’re at a lower tax bracket. Absolutely. Can you also convert a 401k? Yes. Or do I need to roll it into an IRA first? No, you can do it directly from a 401k into a Roth IRA. Yeah, you can do that. Uh, hi Bernell. Thanks for the presentation. I am retired and am wondering what amount to contribute to convert to a Roth IRA without triggering Irma Social Security and Medicare. Is there a way to calculate? Uh, yeah, there is. So, if you just type in Irma in a Google search, uh, it will tell you what the income limits are and the different dollar amounts. if you reach those income limits, what the different dollar amounts will be that you will have to pay extra. So, just Google search IRMA Irma and you can come up with the uh amounts that you need. I missed a part about the 5-year uh clock. I apologize, but I am at work. Uh no problem. What is a So, the 5-year clock, hopefully I’ve answered it, but I’ll answer it again here. If you’re under 59 and a half, the rules to be able to take out a a Roth IRA without acrewing any taxes or penalties is the money has to be in there for 5 years. You have to reach 59 12 or over. Now, the 5-year uh the 5-year clock starts clock starts January 1st of the year that you do the contribution. So, we’re here in June already. If you excuse me if you start a brand new Roth IRA or just do a contribution and you’re under 59 12 the 5-year clock actually started January 1st of this year. It doesn’t start January 2nd. Are we in January 2nd now?
Oh, I needed my glasses. Whatever. January 2nd or 3rd, whatever we’re at right now. Uh if you take an RMDS, does that count as income? That means you can now contribute uh to an a Roth IRA even if you’re no Nope. Sorry. It does not. Tanya, that would be great. But unfortunately, that does not count as income. The government’s not that kind to us. My MGI puts me above the limit that I can contribute to an IRA, a Roth IRA. And there there’s no limit on traditional, but to a Roth IRA, I max out my 401k. Fantastic. and make after tax contributions into the 401k. Okay. What is required to convert the after tax contributions into a Roth or the 401k into a Roth? I have a an IRA account with a brokerage and my company does not allow a transfer in into the 401k from the IRA.
So in in or so you could open up a traditional IRA, contribute to the traditional IRA and then do a Roth conversion. As I mentioned that previous um client of mine um anesthesiologist for two hospitals, that’s what he would do every year. He would do a Roth conver a a contribution into his traditional IRA because there’s no income limits to do that. and then we would do a Roth conversion uh after that. So that’s how you get around if your income limit is is such that you can contribute directly into a Roth IRA, you can put it into a traditional IRA and then convert it. Okay, with that being said, that is all the in all the questions. Um and we’re at an hour 9 minutes, so I appreciate everybody’s uh time and attention here. Hopefully this was helpful to everybody. And then and for those of you that answered that you wanted to maybe do that Roth conversion, uh I I may have to just shoot you an email. I have a spreadsheet that I put together with the information that I need. I may just have to send that to you because we have quite a few people that want to do that and I know my schedule is just super busy. I won’t be able to make phone calls like I usually try to do. Uh, but I will shoot you out an email probably tomorrow and uh with that spreadsheet when you fill that out and send it back to me with all that information, I’ll be able to the Roth uh IRA, excuse me, the Roth um uh uh conversion and we can go over that then in the future. For the rest of you, thank you so much for joining me today. For everybody, I hope you have a great rest of your day and great uh great evening and have a wonderful weekend coming up in a couple of days. Thanks so much. Take care.