June 28, 2023; Duration: 11:08
Quick answer: A Roth conversion in retirement moves pre-tax retirement assets into a Roth account and makes the converted amount taxable in the conversion year. Whether it makes sense, and how much to convert, depends on current and expected future tax brackets, cash flow, required distributions, Medicare costs, and the broader retirement plan. It is not a one-size-fits-all decision. A qualified tax and financial professional can help evaluate the tradeoffs.
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The biggest issue with Dave Ramsey’s view on Roth Conversions, and most of his advice in general, is his one-size-fits-all approach which costs his listeners hundreds of thousands of dollars. Dave starts off on the right foot by recommending people pay the taxes up front for a Roth Conversion but then veers off the track pretty quick. Dave breaks down a hypothetical married couple filing in 2020 doing a Roth Conversion, but makes the mistake of conflating the 24% tax bracket as a trap of the Roth Conversion strategy. If you have more than a million dollars in your IRA, you will never convert to Roth before tax rates go up for good without taking advantage of the 24% bracket. Dave then goes on to say that you should never do a Roth Conversion unless you have money sitting in cash to pay the taxes. If Dave’s advice were taken by everyone, only 5% of people would realistically be able to take advantage of the Roth Conversion. Some scenarios require you to pay cash for your Roth Conversio…
