You’ve got 11 weeks to make a decision that could literally save you hundreds of thousands of dollars in taxes. One couple that we worked with just realized that they could save $742,000 in taxes over their retirement, not by picking better stocks, not by cutting expenses, but by making one strategic move before the year ends, but only if they start to act before December 31st.

What if that same thing could happen to you? Stay with us, because that’s what we’re going to talk about through this entire show. How can you save a huge amount of money in taxes over your lifetime? My name is Anthony Saccaro. Thank you for taking time out of your day to join us. You’re listening to the Providence Financial Retirement Show, where it truly is all about the income.

We are your retirement income source, and this is the place where retirees come for income. How is it, you ask, that someone can save so much tax over their lifetime? What’s the strategy? Well, the answer is by potentially doing Roth conversions. That’s where we’re gonna spend our time together today. And of course, we have quite a few listener questions along those lines.

So we’ve taken a few of them that we’re gonna answer on this show as well. And if you’re over 59 and a half years old or you’re newly retired, you’re really gonna wanna pay attention because this show could be worth hundreds of thousands of dollars to you. Let’s start by talking about that $742,000 of savings that this one particular couple could have.

How did they do that? Well, first of all, let’s set the stage. This is a couple that is both early in retirement. He is 64 years old. She is 60 years old. They have $1.5 million in their traditional IRA, and that’s it. So they’re not super wealthy. They’re just your typical average couple, and they’re not taking anything out yet.

They’re just living on other income. But they know that required minimum distributions are coming, and for them, the RMD age is 75 years old, so it’s about 15 years away for the younger spouse. And here’s the move that’s potentially gonna save them $742,000 in taxes over their lifetime. They start doing Roth conversions now while their income is low, and they continue doing Roth conversions strategically over the next 18 years.

This is not a one-time move. This is a move that’s gonna last them through their 70s. But over those 18 years of conversions, conversions that are strategically set up for them, conversions that don’t take them into a higher tax bracket or don’t cause them to pay more IRMA tax than necessary, a conversion set up specifically for them and their situation could save them $742,000 in tax over their retirement Well, how is that?

It’s because they’re choosing to pay the taxes now at a lower average rate instead of waiting for RMDs to kick in, which would potentially cause them to be taxed in a much higher bracket. And as a result of that strategy, the math says that over their lifetime, their average income tax rate is gonna drop by 5.7%, which compounds into a $742,000 in savings.

We’re not talking about just five or $10,000 over your lifetime. For this particular couple, $742,000 of savings by setting up a Roth conversion strategy, and that’s only on a million and a half dollars. For you, it might be more or might not be as much. And to be clear, Roth conversions aren’t right for everybody.

Your situation may be the opposite. It may be that if you do Roth conversions, it may cost you more money than it’s worth. But many of you have poo-pooed it, and I just don’t want you to do that either. If you’ve thought about Roth conversions, but something you’ve never really dug into, but you wanna learn more, you’re gonna wanna get this free report that we’ve put together.

And all the report does is discuss Roth conversions. You’ll learn what it is, how it works, some different strategies, and who they’re right for potentially, and who they’re definitely not right for. And I wanna send you this report absolutely free of charge. You just have to let us know you want it. You can do that by going to providencefinancialradio.com/report.

Again, it’s providencefinancialradio.com/report. Leave us your information, and we’ll email the report to you shortly. But you’re gonna learn a ton by reading it, and most importantly, you’ll get the information you need to consider whether or not Roth conversions might make sense for you. To get your free Roth conversion report, just go to providencefinancialradio.com/report and we’ll get it right out.

I’m Anthony Saccaro. Thank you for joining us for the Providence Financial Retirement show. We’re talking about taxes and specifically with regards to Roth conversions. Many of you have heard of them, and a lot of you have decided that no, they’re not something you wanna do because you’ve got to pay the tax.

And I think that’s a mistake not looking at it a little deeper than that. And you just heard how one particular couple could actually save $742,000 by doing conversions over the next 18 years. That’s $742,000 less of tax that they would pay to the government by being strategic and not just following the government’s rules.

What a lot of retirees miss though, is that there’s a window, a sweet spot where it really makes sense to start doing required minimum distributions, and many of you are in that sweet spot and still haven’t considered it. What is that sweet spot? Well, it’s from the time you retire until the time you turn your required minimum distribution age.

And depending on when you were born, your RMD age is either gonna be 73 or 75 years old. If you were born before 1960, then your RMD age is 73. If you were born 1960 or after, then your RMD age is gonna be 75 years old. But from the time that you retire until the time that your RMDs kick in, your income generally is gonna be a little bit lower.

Why? ‘Cause you’re retired. You’re not working. And of course, that’s not true for all of you, but generally speaking, your income goes down, especially if you haven’t filed for Social Security yet. That’s the sweet spot, the window between the time you retire and the time you turn RMD age. And it’s during this time period that it’s usually the most beneficial to consider Roth conversions.

Your income is typically at its lowest. You don’t have any more W-2 income. You haven’t started Social Security yet. There’s no forced distributions from your IRA. And this is the tax valley, the single best time to do RMDs, and yet most of you don’t even know that this window exists, and by the time you find out, it’s already closed.

The reason that this window matters is because once you hit RMD age, you cannot convert your required minimum distributions into a Roth IRA. Oh my gosh, I wish you could do that. That would be absolutely fantastic, but it doesn’t work that way. The government won’t let you do that. And when you get to your RMD age and now you have to start taking required minimum distributions, it’s gonna act as a huge headwind towards Roth IRA conversions.

Why? Because you have to take your RMD, you have to claim it as income. It’s going to cause your income tax to go up for sure And if you wanna do conversions, you can only do conversions of any amount over and above your RMD, not your RMD itself. The RMD is then acting as a major headwind in that situation, and you just can’t be as effective in Roth conversions if you’re taking RMDs than if you’re not required to take them.

Kazuki in Carpinteria wrote in a question that’s very much in line with this, “I’m 62, just retired. My advisor hasn’t mentioned anything about Roth conversions at all. Should I be thinking about this now before I hit RMD age?” Well, Kazuki, thanks for taking the time to write in the question for sure, and it almost sounds like you heard the show before it came out.

But this is the type of question that we get all the time, which is why we’re talking about it. And of course now you know that the answer is absolutely yes. This is your window. You just retired, you’re 62 years old, you have until 75. You have 13 years to be strategic with your Roth conversions. And once your RMDs kick in, that opportunity at worst goes away, or at best becomes less attractive.

Thank you, Kazuki, for writing in the question. Yes, you should now consider the opportunity to do Roth conversions

I’m Anthony Saccaro. Thank you for joining us. You’re listening to the Providence Financial Retirement Show. We’re talking about how you can use Roth conversions to potentially save hundreds of thousands of dollars over your lifetime, and whether or not Roth conversions make sense for you. If you were with us before the break, then you heard the story of the couple that we recently met with that if they were to do Roth conversions on their million and a half dollars of retirement accounts, they could essentially save $742,000 of taxes over their lifetime.

If they did not do Roth conversions and did not set up that strategy, then they would be giving the government $742,000 more than they needed to. Why? Because they weren’t being proactive. And that kind of savings might be available for you as well. Conversions aren’t certainly right for everybody, but if you just kind of poo-poo them like a lot of people do, then you would never even know.

And conversions are really just a type of arbitrage. Arbitrage is really simple. It’s just buying low and selling high and pocketing the difference, or buying from someplace that’s a little cheaper than someplace else. So think about this. If you wanna buy an airline flight, you might find that one carrier charges you 400 bucks and the next carrier charges you $450.

And by buying the lower ticket, you’re essentially arbitraging Think about ticket companies like StubHub or Ticketmaster. They use arbitrage to their favor. They buy a block of tickets at a lower price, and then they turn around to sell them to you at a huge markup and make a profit. That’s arbitrage.

When it comes to Roth conversions and saving taxes, you can actually use arbitrage in your favor. From the time you retire until the time you turn required minimum distribution age, your effective tax rate is probably gonna be much lower than it is when you get to RMD age. If your effective tax rate, say, is 10% or 12%, that might be good for 12 to 15 years until you get to your RMD age.

But then when RMDs kick in, you start being taxed on Social Security, your income jumps significantly, your effective tax rate’s probably gonna spike, and it might spike to over 30% or more. And if that’s not bad enough, here’s the killer. Not only do your taxes potentially spike, but your IRA balance has probably grown significantly over those 12 to 15 years as well, which means now you’re paying higher taxes on a much larger balance for the rest of your life.

If you follow the government’s plan, you’re probably gonna have a low effective tax rate from the time you retire until the time you turn RMD age, and then your taxes are going to spike, and they’re gonna stay high forever. Because you were reactive, you didn’t do anything to change that. Through Roth conversions, it allows you to either flip that or level your taxes out.

So instead of being at 10% for the first 15 years of retirement and at 30% for the next 15 years, maybe you’re at 18% to 20% for the entire time period, for your entire retirement, and you pay a little more upfront, but you save a lot on the back end. That’s arbitrage, and that’s what Roth IRA conversions allow you to do.

And there’s usually two scenarios. Roth conversions oftentimes allow you to level out the tax, so you’re in the same effective tax rate throughout your entire retirement. Or in some of your situations, Roth conversions allow you to pay a higher tax rate now through the conversions, and that might go on for the first decade or decade and a half.

And then the last decade or decade and a half of your retirement, your retirement might be completely tax-free, and that’s very advantageous when that can happen. But it does depend on your situation When it comes to conversions though, the first thing you have to do is you’ve gotta become familiar with them.

I wanna offer you a report that we’ve put together just for you that talks all about conversions, what it is, how it works. It gives you some sample dollar amounts, and you’ll even learn who they are not right for, ’cause they’re certainly not right for everybody. I wanna send you this report free of charge.

We’ll just email it to you, but you have to request it, and you can do that by going to providencefinancialradio.com/report. Again, it’s providencefinancialradio.com/report. Leave us your information, and we’ll email that report right on to you, but you’ll have it. You’ll be able to learn what you need to know about Roth conversions to even consider whether or not they make sense in your situation.

To get your free report about Roth conversions, it’s simple. Go to providencefinancialradio.com/report and you’ll have it soon. I’m Anthony Saccaro. Thank you for staying with us here for the Providence Financial Retirement show. We’re talking about Roth conversions and the incredible amount of taxes that you can save over your lifetime if conversions are right for you and if you set up a conversion strategy.

We’ve already talked about the fact that you have a window of opportunity from the time you retire to the time you turn required minimum distribution age, and it’s really during this window that you have the best opportunity to do Roth conversions. Your income is lower ’cause you’re not working, you don’t have to take required minimum distributions yet, and you haven’t filed for Social Security yet.

And all of that equals a great opportunity for conversions to be just very tax efficient and to use tax arbitrage in your favor as we just talked about. What if you’re already of RMD age, though? What if you’re 73 years old, you’re starting to take required minimum distributions, you’re hearing this show, and you’re wishing you would’ve done this 10 years ago, but now that window is gone?

What then? Well, the good news is it doesn’t mean that the opportunity is gone. You can still do conversions. It’s just not gonna be as advantageous for you. If you’re 73 years old and you have to do a $20,000 conversion, you’re gonna have to do that. You’re gonna have to claim it as income. You’re gonna have to pay tax on that money.

But you can convert any amount over and above that. So what if you convert $10,000 more? That’s not a huge amount, and it’s certainly not gonna kill you on taxes. And if you were to do that for the next five or 10 years, you’re gonna see your IRA balance gradually start shifting lower and your Roth IRA balance gradually start shifting higher, and that’s going to lower your future RMDs.

It’s also gonna potentially lower your future taxes as well. Once that money’s in a Roth IRA, it’s gonna sit there and it’s gonna grow tax-free forever and never be subject to RMDs Now here’s something to think about it. Maybe just another twist or another angle since you have to take RMDs anyway.

You’ve taken out $20,000 of RMDs. You gotta pay tax on it anyway ’cause that’s what the government says. If you don’t need that money or you don’t need all of that money, why not use some of that money to pay the tax on the conversion for that additional $10,000? Oh my gosh, you do that, that’s a smart strategy.

And over time, you’ll wind up saving a bunch of money in taxes too, just because you were smart enough to put that in play. And that’s an advantage actually, if you do Roth conversions while you are already forced to take your required minimum distributions. So I don’t want you to overlook that. I don’t want you to think that just because you’re of RMD age that this window’s gone.

It’s not as advantageous as if you maximize the window when you were younger, but the opportunity is still there. And depending on your situation, the size of your IRA, the amount of the conversions, it may not hurt you at all. But of course, you wouldn’t know that unless you have some type of analysis done

Welcome back. Thank you for joining in for the Providence Financial Retirement Show. My name is Anthony Saccaro. We are your retirement income source, and this is the place where retirees come for income, because in retirement, it’s all about the income. We’re talking today about Roth conversions, and specifically exactly how much tax it can save you by thinking about Roth conversions or by doing Roth conversions.

We’ve already talked, uh, about a sample client where they could save $742,000 over their lifetime by doing Roth conversions, and this is on a portfolio balance, an IRA balance, of one and a half million dollars. But think about that. Three-quarters of a million dollars of tax savings by setting up a lifetime Roth conversion strategy?

If that was something that was available to you, would you wanna know about it? I mean, I would think you would. I just find that most people tend to poo-poo Roth conversions because you got to pay the taxes. Well, here’s a newsflash for you. You’re gonna have to pay the taxes anyway, and it’s usually better to be proactive than it is to be reactive, and that’s where Roth conversions come into play.

They allow you to be proactive. For some of you, though, there’s a potential trap that is called the pro rata rule And I have to thank Raul from Rancho Santa Fe for reminding me to talk about this because he wrote in a question that is directly relevant to the pro rata rule. He says this: “I have about $500,000 in a traditional IRA and another $100,000 I’ve been building up in an after-tax IRA account.

I wanna do Roth conversions, but I’m confused about whether the pro rata rule applies to me since I have both types. Will I get hit with a big tax bill on the after-tax money that I’ve already been saving?” Well, thank you, Raul, for asking the question, and this is very confusing for those of you that are gonna be subject to the pro rata rule.

That means you have some money in a pre-tax IRA. This is money that you’ve never paid taxes on. But it is also possible that you can have some money in an after-tax IRA, meaning that you’ve already paid tax on that money. And if you’re wondering how you can do that, well, there’s some rules that if you happen to have an employer-sponsored plan and you make too much money, and you make a contribution to the IRA, some of that contribution might not be deductible.

So it is possible to have money in an IRA that is post-tax. You’ve already paid the tax on it, and that’s the situation that we have here with Raul. He’s got $500,000 in a traditional IRA and another $100,000 that is in a post-tax IRA, and he’s thinking about doing conversions, and it gets confusing. The reason is because there are two different types of IRA money that are sitting together, and it creates potentially a hidden tax trap.

That tax trap is called the pro rata rule, and it is really misunderstood, one of the most misunderstood parts of Roth conversions. What a lot of people that are in that situation think is, “I will just convert my after-tax $100,000 to a Roth IRA, and that way I won’t pay any tax at all because it comes from the post-tax account.

I’ve already paid tax on that money.” No, that’s not how it works. The pro rata rule says that if you wanna convert any of that post-tax money, they’re going to take a direct proportion of that in combination with your other IRAs, and whatever that portion is, whatever that ratio is, they’re gonna use the pro rata rule to determine how much of that’s gonna be taxable So let me give you some numbers that make it easier to follow ’cause I know this can be confusing.

And Raul’s numbers were a little bit off. They might make it a little hard to follow, so let’s change it a little bit. Let’s say that you have $300,000 in a pre-tax IRA. You’ve never paid tax on that money. And you have $100,000 in a post-tax IRA, meaning that you’ve already paid tax on that money. Well, the two IRAs combined are $400,000.

If you convert $100,000, which is 25% of the total, then only 25% of that $100,000 is going to be tax-free, and the other $75,000 is going to be taxable as part of the conversion because of the pro rata rule. And that’s how the pro rata rule works. But if you’re not aware of that and you try to convert the entire $100,000 to a Roth IRA thinking it’s gonna be tax-free, you’re gonna be in for a big tax surprise when you find out that you’re wrong.

And that’s a trap that if you have pre-tax and post-tax money in IRAs, you could easily fall into Baba Wool, thank you for bringing that up so I didn’t forget to talk about it in the show. If you’re subject to the pro rata rule or you have money in pre-tax and post-tax IRAs, or even if you don’t and you just wanna learn more about Roth conversions, we’ve put together a white paper.

It’s really a commission report that talks about Roth IRAs and how they work, how much money you could save. It gives you some examples, and it even talks about who they are not right for. And I wanna make it available to you absolutely free of charge. If you wanna get that report, we’ll email it to you.

Just go to providencefinancialradio.com/report. Again, it’s providencefinancialradio.com/report. Leave us your information and we will get it right out. One more time, to get your free report to learn what you need to know about Roth conversions, go to providencefinancialradio.com/report and you will have it shortly.

We’ll email it to you, and I know you’re gonna be really glad that you got it. Tons of information. I’m Anthony Saccaro. Thank you for joining us for the Providence Financial Retirement Show. We’re talking about Roth conversions and the significant amount of money that you can just save in taxes over your lifetime if they are something that’s right for you.

We’ve already walked through the tax window. We’ve talked about the arbitrage opportunity, and we’ve even just discussed how the pro rata rule works. But the real question is, what do you actually do about it? And there are three different paths that you can take. Each one has different outcomes, and I wanna just discuss those with you so you can decide what path makes the most sense.

And let’s start with path number one. This is by far the most common path. It’s the path that most people choose by default, and that is just doing nothing. If you have a sizable IRA, you just wait till you get to required minimum distribution age. You take the RMD, you pay the tax on that RMD, you file your return, and you don’t do anything else, and this is it.

This is the strategy that most of you are gonna follow, and certainly if you’re not proactive, this is the strategy that’s gonna be best for you. And it doesn’t mean that it’s the wrong strategy. This strategy tends to work for you if you’re already in a higher tax bracket, maybe a conversion would cost too much.

Maybe you don’t have the cash flow to pay the conversion taxes out of pocket. Maybe you need every dollar of the required minimum distribution to live on, so you gotta pay the tax anyway. Maybe a conversion would cause your Medicare premiums to spike and you don’t wanna pay that. And maybe you have a small IRA balance.

Maybe it’s small enough to where RMDs don’t affect you anyway And these are just some scenarios where following the default just makes sense. The real problem though is that your pre-tax money is gonna keep growing. Every year it’s gonna get bigger, your RMDs are gonna get bigger, your tax brackets are probably gonna climb, and you’re not in control, the government is.

This is essentially like saying, “I will let taxes happen to me instead of planning for them.” And that’s one of the reasons I’m not a big fan of the default. The government has set up the rules, and usually the person that sets up the rules sets them up in their favor, and that’s exactly what required minimum distributions do.

They’re in the favor of the government. If your required minimum distribution age is 73 years old and you have a million and a half dollar IRA, your RMD is gonna be like $20,000. But if your IRA keeps growing, by the time you’re 80, that required minimum distribution might be $50,000. Because of the growth and because your RMD gets bigger every year, the government’s forcing you into a higher and higher tax bracket whether you like it or not.

And if taxes go up between now and then, as is likely, you’re gonna pay a higher tax percentage on a higher balance, and that’s just usually not good. Here’s the kicker, though. Had you have done conversions during your lower income years, you could have reduced what you owe now. For most of you, this is the path of least resistance, the default.

It’s not the path of least taxes, and the IRS has set it up that way intentionally. They know human behavior, they know that you’re generally not gonna be proactive, and they know that not being proactive and following the rules is generally gonna be better for them and worse for you. And this is path one of three

I’m Anthony Saccaro. Thank you for staying with us here for the Providence Financial Retirement Show. We are your retirement income source, and this is the place where retirees come for income. We’re spending our time talking about Roth conversions and the significant amount of taxes that it can save you.

We gave an example earlier about a couple that could save $742,000 on their conversion strategy on a $1.5 million IRA. Let’s get back to our Roth conversation, though. We’re talking about three paths that most of you are gonna follow when it comes to Roth conversions. We talked about path number one before the break, and that is a lot of you are just not gonna do anything.

That’s the default path. And we discussed that if you follow the default, it could actually be the right move or it could be a catastrophic mistake when it comes to taxes. I want to move on, though, and talk about path number two and path number three. Number two is where we’re gonna go right now, and that is that you’re retired and you’re either in that window of opportunity before your RMDs kick in or maybe you’re already paying RMDs.

But in path number two, you decide that you want to do Roth conversions And in this path, you do targeted Roth conversions over a period of time to strategically fill up the lower tax bracket. You’re not waiting for RMDs to force the conversation. You’re being proactive. You’re locking in low tax rates now instead of waiting until you’re forced to take distributions later.

Let me give you an example. Let’s say you’re married, you’re both sixty-three, you’re retired, you have one point two million dollars in your pre-tax retirement accounts, and maybe you have three or four hundred thousand in other savings. You’re living on sixty thousand dollars a year from other sources.

Maybe some of it’s coming out of your savings, rental income, whatever, but you’re living on sixty thousand dollars a year, and your effective tax rate in this scenario might be ten percent or less. And you’ve got a lot of room to do conversions. You could probably do fifty thousand dollars of conversions and never pay more than twelve percent tax on that money, which means that you convert fifty thousand dollars, you pay six thousand dollars in tax to move that fifty thousand dollars into a Roth IRA permanently.

And now that fifty thousand dollars is gonna grow tax-free forever. And that’s an opportunity that you might be in. You’re using a year where your income is artificially low, and you’re doing this before you turn on Social Security, and you’re doing it before your required minimum distributions kick in.

And if you’re sixty-three years old and you have twelve years until your RMDs, you could do this for twelve years. In this situation, you could convert over half of your IRA over that time and dramatically reduce your RMDs in the future, which means dramatically reducing your taxes. And that’s path number two, which is doing Roth conversions strategically over a longer period of time.

And for most of you, that’s the path that generally makes the most sense. Usually, it’s the path that’s gonna give you the most options, give you the most flexibility later in life, and lower your overall effective lifetime tax rate. If this sounds good and you wanna learn more about Roth conversions, maybe you just wanna read up on it a little bit.

Well, we’ve put together a Roth conversion report that talks about what a conversion is, how it works. It gives you some examples, and it talks about who a conversion is proper for and who it’s wrong for as well. I wanna email you this report free of charge, no cost, but you have to ask for it. You can do that by going to providencefinancialradio.com/report.

Again, it’s providencefinancialradio.com/report. Leave us your information, and you’ll have that report shortly. But you’ll be able to read about Roth conversions and get the information you need to decide what path you wanna go down. One more time, to get your free report about Roth conversions, go to providencefinancialradio.com/report and you’ll have it soon in your inbox.

I’m Anthony Saccaro, really glad that you’ve joined us today for the Providence Financial Retirement show. We are your retirement income source, and this is the place where retirees come for income. A part of receiving income from your portfolio means paying less taxes, and if it’s not obvious, the less taxes you pay, the more income you have.

Today we’re talking about Roth conversions. It’s a longer term strategy to help you pay less tax on your overall retirement plan, and I know that’s what you wanna do. We’re talking about three particular paths right now that you’re gonna be on one of them when it comes to conversions. Path number one, as we already talked about a few minutes ago, is you just don’t do anything.

That’s the default path. You don’t set up a conversion strategy, and you’re not doing any conversions. You let required minimum distributions sneak up on you, and you just pay the tax that the government requires you to pay. That’s path number one. Path number two is you actually set up a strategic strategy, a strategy that allows you to decide what amount to convert into Roth IRAs each year, depending on IRMAA tax brackets, depending on your current income levels, your income sources, and try to do a longer term Roth conversion strategy to minimize the taxes over the long run, and that’s path number two, just being very strategic.

Path number three is for those of you that want to be a little more aggressive, though, and that’s the path that we’re gonna talk about here as we wrap up the show. The final path we’re gonna talk about, path number three, I wanna warn you though, is not for the faint of heart, but it could make sense for those of you that understand the math.

Let’s say that you have four million dollars in a pre-tax IRA, and maybe you’ve got another million dollars in cash, maybe a little bit more that you just don’t need. You’ve done well enough, you’ve got your estate, you’ve got income from other sources, and this is your situation, and instead of playing the short game, you realize that taxes are low.

You don’t want taxes to go up. You don’t want your balance to go up, and you just wanna get that tax paid off ASAP. You’re the type of person that paid off your mortgage early. You realize that you owe a tax lien on your IRA because as long as it’s in a pre-tax account, you’ll always owe the government, and that’s just not acceptable to you, and you just wanna get it paid off, and you convert the whole thing.

Well, think about this. You’re probably gonna pay fifty percent of it in tax, so your four million dollars is gonna be turned into two million dollars, and that’s assuming that- you don’t have other cash to be able to pay for the conversion. If you have four million dollars and you convert that to a Roth IRA, four million dollars, and it costs you two million dollars of tax, well, if you’ve got two million dollars sitting in another account that’s already b- had the tax paid on it, use that money to pay the tax on the conversion because now you have four million dollars in a Roth IRA, and that’s gonna grow tax-free forever.

But let’s say that’s not the case. Let’s say you’ve got four million dollars in an IRA. You do the conversion. You’ve gotta pay the tax out of the conversion. So what’s left in the Roth IRA is only two million dollars. If that’s the case and you leave that money invested in stocks or the market and it earns seven percent, within ten years, you’re gonna get your four million dollars back.

That’s the way the math works. And now, all of that money is gonna be tax-free one hundred percent all the time forever. You’ll never owe another dime of tax on that money. If you’re sixty-five years old when you do this, then by the time you’re eighty-five, that two million dollars could have very well become eight million dollars based on a seven percent return, and that eight million dollars is all tax-free.

And if one of your goals is to leave as much to your kids as you can through a legacy, I think it’s arguable to say that there’s no better way to do it than through the Roth conversion strategy. And oftentimes, doing the conversion up front like we just talked about makes a lot of sense. It also makes sense for your kids because when they inherit a Roth IRA, they will be allowed to let it grow for another ten years tax-free, and then they’ll be able to cash it out.

The fact that it’s tax-free is absolutely critical if one of your goals is to leave as big of a legacy as possible for your kids, and I know that a lot of you have that as a goal. In recap then, path number one is you just don’t do anything, no conversions at all. This is probably the most expensive path for you, but there are times when it makes sense.

Path number two is you set up a strategic conversion strategy over a period of years, maybe even ten or twenty years. That’s usually the most tax-efficient way to go. Or path number three is you do it all at once, and there are pros and cons for each path. Well, I’m Anthony Saccaro. I’ve enjoyed being with you today.

We’ve been talking about how to save as much tax as possible through Roth conversions. I certainly hope you’ve learned something you didn’t know before and something that’s gonna help have you more confidence and clarity and the peace of mind that you actually deserve in retirement. Thank you for joining us here for the Providence Financial Retirement Show.

We’ll see you next week, same time, same place. Have a great week, everyone. God bless.