9 Misconceptions About Roth Conversions

06/25/24 • 18 min

In this episode, Kolin and Kyle discuss nine misconceptions about Roth conversions. They debunk the idea that Roth IRAs are always better than IRAs, explaining that the choice depends on individual circumstances. They also emphasize the importance of comprehensive tax planning and caution against winging it or converting large amounts without a strategy. The hosts address the misconception that Roth conversions prevent contributions to a Roth IRA and clarify that conversions do not count against modified adjusted gross income. They also discuss the misconception that paying the tax bill from savings is the only option and explain the potential penalties for underpayment. The hosts highlight the need for flexibility and multiple strategies when it comes to Roth conversions, cautioning against chasing a completely tax-free retirement. Finally, they debunk the idea that Roth conversions must be completed before required minimum distributions (RMDs) kick in, explaining that conversions can still be done after RMDs to lower future distributions.
Takeaways

The choice between Roth IRAs and IRAs depends on individual circumstances and tax planning.
Comprehensive tax planning is crucial when considering Roth conversions.
Converting large amounts without a strategy can lead to overpaying in taxes.
Roth conversions do not prevent contributions to a Roth IRA.
Paying the tax bill from savings is not the only option for Roth conversions.
Multiple strategies and flexibility are important when planning Roth conversions.
Chasing a completely tax-free retirement may not be optimal for most individuals.
Roth conversions can still be done after required minimum distributions (RMDs) to lower future distributions.

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Disclosure: You should always consult a financial, tax, or legal professional familiar with your unique circumstances before making any financial decisions. This podcast is intended for educational purposes only. Nothing in this podcast constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. Past performance does not guarantee future performance. Future returns may be lower or higher. Investments involve risk. Investment values will fluctuate with market conditions, and security positions, when sold, may be worth less or more than their original cost. MOKAN Wealth Management is a registered investment adviser with the SEC. Registration of an investment adviser does not imply a certain level of skill or training.

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The choice between Roth IRAs and IRAs depends on individual circumstances and tax planning.
Comprehensive tax planning is crucial when considering Roth conversions.
Converting large amounts without a strategy can lead to overpaying in taxes.
Roth conversions do not prevent contributions to a Roth IRA.
Paying the tax bill from savings is not the only option for Roth conversions.
Multiple strategies and flexibility are important when planning Roth conversions.
Chasing a completely tax-free retirement may not be optimal for most individuals.
Roth conversions can still be done after required minimum distributions (RMDs) to lower future distributions.

Previous Episode

We Have $1.7 Million, How Much Can We Spend In Retirement?

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In this episode, Kyle and Kolin discuss a case study of a married couple near retirement. The couple plans to retire in 12 months and has a planning life expectancy of 90 for the wife and 85 for the husband. Their primary insurance amount for Social Security is $2,800 and $2,200 per month. They have a net essential spending goal of $6,000 per month with a 4% cost of living adjustment. The couple has a total asset value of $1.7 million, with a heavy emphasis on tax-deferred accounts. Their concerns include maximizing spending early in retirement, tax planning, and investment strategies for the fragile decade. The solutions discussed include Roth conversions, tax-efficient planning, and adjusting income based on portfolio performance.
Takeaways

Plan for retirement by considering life expectancy, Social Security benefits, and essential spending goals.
Maximize spending early in retirement without sacrificing the longevity of savings.
Implement tax-efficient strategies such as Roth conversions and understanding the impact of taxes on retirement income.
Consider investment strategies to protect against market volatility during the fragile decade of retirement.
Regularly review and adjust income based on portfolio performance and market conditions.

Next Episode

We Have $1.9 Million & Retiring In 3 Years, How Much Can We Spend?

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Summary
In this episode, Kolin and Kyle walk through a retirement income plan for a couple who are planning to retire in the next few years. They discuss the couple's income levels, assets, and spending capabilities. They also explore different strategies for maximizing social security, tax planning, and investment planning. The episode emphasizes the importance of spending more early in retirement and optimizing tax smart planning. The hosts also highlight the need to address sequence of returns risk and create a comprehensive retirement plan.
Takeaways

A retirement income plan should consider income levels, assets, and spending capabilities.
Maximizing social security, tax planning, and investment planning are important aspects of retirement planning.
Spending more early in retirement and optimizing tax smart planning can lead to a more comfortable retirement.
Addressing sequence of returns risk is crucial to ensure the success of a retirement plan.
Creating a comprehensive retirement plan involves considering all aspects of financial planning.