Maximizing Your Tax-Free Wealth & Income For Retirement | Ed Slott
Summary
Retirement Tax Planning: Ed Slott emphasizes minimizing lifetime taxes by proactively planning, not just reducing this year’s bill.
Roth Conversions: Strong case for converting to Roth IRAs while tax rates are historically low, using partial, bracket-aware conversions over multiple years.
Tax Bracket Management: Optimize 12%, 22%, and 24% brackets annually to avoid wasting low-rate capacity and reduce future RMD-driven tax burdens.
Estate Planning: Addresses widow’s penalty, beneficiary impacts, and “estate planning up the family tree” by funding a parent’s Roth at their lower rates.
Tax-Free Income: Highlights benefits of Roths—no lifetime RMDs, tax-free withdrawals, and compounding for heirs under the 10-year rule.
Annuities: Advocates considering guaranteed income to cover essential expenses, especially via annuities held inside Roth IRAs for guaranteed, tax-free income.
Market/Economic Context: Notes uncertainty of future tax rates and large federal deficits; argues known low rates today favor acting now.
No Stock Picks: No specific public companies or tickers were discussed or pitched in this conversation.
Transcript
The key to saving taxes, not today or tomorrow or this year, but over a lifetime and beyond to your beneficiaries, is my number one always rule. Always pay taxes at the lowest rates. Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Smart retirement planning is key to living well after you've stopped working. But sadly, many Americans find themselves falling behind. According to the Federal Reserve's Economic Well-being of US households report, 65% of Americans either believe their retirement savings are off track or they aren't sure. And for those who do have retirement accounts, the median savings balance stands at just 87,000, far too little to retire on. Today's guest is going to tell you how to increase your odds of not only being able to afford to retire, but doing so with ample excess to live your golden years the way you want. Ed Slott, CPA, is a renowned IRA distribution expert, author, and professional speaker known as America's IRA expert. He's the founder of Ed Slotten Company, creator of the Elite IRA Advisor Group, and a professor of practice at the American College of Financial Services. He focuses on advanced tax strategies and retirement savings. Ed, thanks so much for joining us today. >> Thank you. Great to be here. You know, I got uh when you mentioned that medium median uh retirement balance 80s something,000, I wonder is that skewed to like all ages because I would think somebody like in their 50s or 60 would have a much higher median. >> You you would hope. I don't have the distribution in front of me. I think that is probably median of all working adults. So maybe that >> sounds pretty weak. >> Yeah. But but I I I have seen data that shows it's not all that much better for people who are in the 54 to 64 year old cohort. You know, maybe they've got 175,000, maybe 200,000, but again, that's not enough to fund the next, you know, 20 plus years of your life. >> Yeah. >> All right, Ed. So, um, look, uh, as far as thanks go, thank you again for coming on, but extend my gratitude to the team at Lance Roberts teams at Real Investment Advice. Um, they had me out at their conference in January where you were the keynote speaker and really enjoyed your presentation and thought I wanted to get this in front of my audience. So, that's what we're going to try to do today. >> Okay. Now, you you remind me what I said because it's different every time. Yeah. As you saw with me, I never use PowerPoint or slides or anything. It's whatever, you know, whatever happens organically with the audience. >> Good. Well, we'll we'll build into this nicely, Ed. Um, so to start, let me ask you this. What are the most common mistakes or acts of self- sabotage that people make when it comes to retirement planning? >> Oh, the number one mistake, short-sightedness. That's easy. especially when it comes to a Roth IRA or more particularly a Roth conversion. A Roth conversion requires you to pay tax upfront. And one of my always rules, uh, the reason I created all these always rules I have of mine because I saw for years people on TV, talking heads and everything, not me, they could never give you a straight answer. you'd be on CNBC. They said, "Well, probably could be, maybe, I don't know, wishy-washy, you know, have to run the numbers." And to me, that didn't help anybody. So, I came up with my own. There's not many of them because there's not many rules that are always. But when I tell you I have an always rule, you can take it to the bank. It's non-negotiable. And the key to saving taxes, not today or tomorrow or this year, but over a lifetime and beyond to your beneficiaries is my number one always rule. Always pay taxes at the lowest rates. Now, that sounds simple. It makes sense, too. If you're always paying at the lowest rates, you'll save the most in taxes over a lifetime. But there's a second part to my always rule which catches people. >> Always pay taxes at the lowest rates, even if that means paying taxes before they're required. Uhoh. And that's the one that nobody likes because nobody likes paying taxes before they're dragged, kicking, and screaming. I'll give you an example. Let's say you're a 60y old. Now, a 60-year-old, you're building a nice retirement account, maybe. And under today's law, you don't have to take RMDs until age 75. It's actually 73 now, but for 60 year old, changes later on, but for a 60 year old, it's age 75. Should that 60 year old, that's 15 years. Should that 60 year old 60y old do nothing for 15 years, just watch this account grow? it's growing tax deferred your IRA or 401k. While there were low tax rates each of those years where some of those funds could have been pulled out had historically low rates. And I'm not talking about pulling it out to spend on a vacation or something. I'm talking about like a Roth conversion getting money out while rates are low. Taxes are historically low. And the Roth conversion is really just a big bet on future tax rates. So I I may have asked the audience this. How many people think tax rates will go up? And almost all the hands went up. >> But then I asked a different question which is actually the same question. And no hands went up. I said, "How many uh how many of you think taxes will go down?" And nobody thinks that and it's the same question. So I think the Roth is a good bet. But that you back to your question, what's the number one mistake people make that affects them long-term? Shortsightedness, not seeing the big picture, where you want to end up that may require you paying some taxes if you can get it now while rates are low. Not using the 12%, 22, even 24%. If you don't maximize or optimize those brackets each year, they're gone forever. You never get them back. So, back to that 60-year-old. Can you imagine wasting 15 years of low brackets? >> All right. So, let's let's define a couple of things here for people. Um, Ed, so you're clearly a really big fan of Roth instruments. >> I'm a fan of keeping more money and more of it tax-free. And any way to do that, which the best way, I mean, let's face it, the Roth IRA is the best account ever created. It grows tax-free for the rest of your life and 10 years beyond. It would be even better if you didn't have to pay the tax to get in there. But that's that's the price of admission. >> Okay, let let me just again clarify here. So it it grows taxree, which is why you love it, but I think you love it even more because you withdraw taxree on the back end. Un unlike a traditional IRA where you're putting it in tax deferred, it's growing taxfree, but then you're actually getting taxed on it when you're taking those distributions. Correct. >> Right. And every year you watch this IRA grow. It looks nice on your statement, but it's also looking nice on Uncle Sam's statement, too, because he's a partner in that growth. >> All right. So, um, uh, you you you said don't, uh, >> never waste a low tax bracket. >> Never waste a low tax bracket. So, I want to I want to use your 60-year-old person. Okay. >> So, um, you're right. Most people think in general the tax code's going to go up over time, right? Um, that's the assumption. >> Tax rates. Yeah. >> Yeah. The tax rates. Um, but let's say that 60-year-old's still employed and let's say he's doing really well, right? So, let's say his income tax bracket, he's in the highest tax bracket right now. Um, the the the question here is is what's better for me? Is it is it better for me to do a Roth conversion? And we'll we'll define what that is in just a second and take the tax hit on that today even though I'm in the the maximum tax bracket and I might be in a lower tax bracket later on when I start doing my distributions. But but hey, that still might make sense to take it today if I've got enough years of growth ahead of me that if I'm taking it out tax-free, yeah, it's worth the hit today. So, how does somebody do that math? >> That's a tough one because if you're in the top bracket, you're probably thinking, I'll I'll I'll be in a lower bracket in retirement, but in reality, the the math isn't proving that out. Now, there could be a situation. We've seen situations where there was a gap uh a lag where somebody in their 60s, they're doing well at their top earnings year, top bracket like you said, but they retire maybe at 67 or 68. So you have those few years where income will be lower before RMDs kick in. Those would be the years to fill up those low brackets. Also, I might still do the conversion. if you look at where he may be this person when RMDs are acquired required minimum distributions because one of the real benefits of converting to a Roth IRA is known tax rates. We know what the rates are today. We don't know what they'll be when the 60-year-old retires. Plus, if he does nothing, to me, doing nothing is not really an option. Unless you honestly believe you'll be in a lower bracket in retirement. There's a lot of people who will, then the Roth conversion probably doesn't pay. Going back to my rule, always pay taxes at the lowest rates. If you think you'll be at low rates in retirement, uh, then fine, then you'll be fine. And the beneficiaries, too. But many people when they do whatever analysis they do, whether they use computers or however they do it, they fail to take into account that when they do nothing, if they say, "Well, I'll be in a lower bracket in retirement, so I'm not going to do anything." And now you have the 60-year-old growing for 15 years, a gigantic tax bill. If you have large balances, that's another factor, too. If you have too much in your IRA, what do I mean by that? Many people have an imbalance today, especially people with large balances. Not everybody has that, unfortunately. But if you have 500,000 or million more in an IRA, you have too much money in your IRA as compared to tax-free money. There's an imbalance because most people, you know, the Roth came later. So, most people filled up the tax deferred. So, they have tax what I call tax risk diversification. they have a a t they don't have tax risk diversification is what I'm saying they have too much that will be taxed later so if this continues to grow you may only be looking in retirement when you say what will my bracket be you have to figure out the cumulative effect or the acrewing of RMDs what they will be based on 15 more years of growth when you didn't touch that money so now what we see in the real world when we I've seen it with clients when I was a practitioner and we would see people come in and I remember this one guy I was having this exact conversation with him a tax client right at this desk same desk I've been at for over 40 years and I was talking to him about Roth IAS and he says no ex everything you said I'm in a high bracket making a big W2 I'll be at a lower bracket in retirement all right and this is almost a joke already all the years of these little talks while we were doing the fact returns. So he comes in this one year and he's licking his chops almost. He says, "Ed, no W2 this year, totally retired." I give him the return. How could this be? My income's higher than my best earnings years. How could this be? Cuz you never listen to me. Now your IRA is so high your RMDs exceed the income you used to have. And you didn't figure on that. So, and the RMDs, remember the R stands for required. Then it's out of your control. While you're converting to a Roth, I'm not saying convert everything. You're in control. You can manage the brackets. But once RMDs kick in, those funds have to be taken at whatever the future rate is. And we don't know. That's another un unknown. If you know the rates now, and they're super low now, historically low for most people, even people like that in a high bracket. The highest bracket is 37%. Compare that to what it was in the 70s and the 80s or 50% 70%. I'm hoping we don't go back to those days. But I also have to look at the math. Uh not that Congress does, but I look at it and and you see the debt. I don't know what the debt levels are, 37, 38, 39 trillion. All I know is if they have to round up to the nearest trillion, that's a problem. That's a financial problem. And the things I'm saying where I believe tax rates will go up. I've been saying that for years and I've been wrong. But I have to believe at some point the math has got to hit the fan. So if you can lock in these rates, it might be a great deal. But it's not for everybody. So if you truly think you'll be in a lower bracket in retirement, then it's not for you. Or you do partial. You know, one way to to, you know, go into the midway of this whole situation is to do a series of smaller conversions each year for that 60 year old for maybe 15 years using up some part of the bracket just to hedge your bets. At least get something in the Roth at low rates just to manage the imbalance of IAS to Roth IAS. >> All right. So again, let's um I want to I want to dig into your advice about managing your brackets and helping people understand that. But before that, so so again um you're a big fan of anything that lets you um >> reduce your taxes and you love taxfree more than anything. >> Reduce lifetime taxes, not today's taxes. Because we're in tax season today and I guarantee there's somebody listening either doing their taxes or sitting with their accountant and say, "Should I convert to a Roth?" and the accountant, my own peers will say, "Oh, no, that's going to raise the tax bill. That's going to raise the tax on social security. That could knock out the new senior deduction. Oh, that's going to raise your arm charge." All right. I I heard enough. I'm not going to go near a Roth. But that's one year. You're not thinking long-term big picture. >> Okay. So, so minimizing lifetime tax payments. And for beneficiaries, remember uh when another thing when people say they'll be in a lower bracket in retirement, I've had people tell me that I'll be in a lower bracket in retirement. I always answer there's no I in team. Maybe you think you'll be in a lower bracket, but let's say you're the husband and you die and now you leave your IRA to your wife. You never did the Roth conversion because you figured you'd be in a lower bracket. Well, now uh something I call the widow's penalty that people just don't plan for. And what happens is uh most couples, which is fine, most couples leave everything to each other. And that's fine. >> But when the husband dies, let's say in this sense, in this example, he leaves everything to his wife. So, she's going to have the same income roughly, maybe a little less due due to the uh social security adjustment. She's going to have the same income that they both had together, but she will be paying tax at a much higher rate because now she's filing at single rates. I'll give you an example. If you want to look up the tax rate for 2026, >> and a married couple filing joint, let's say they had 400,000 of income, they'd be in the 24% bracket. A single person would be in the 35% bracket. That's a 46% tax increase on that widow. Now, and that's going to be that's going to hit her for the rest of her life. On the other side, let's say he converted everything. Maybe he thought he'd be in a lower bracket, but he wanted to make sure his wife wouldn't get hammered with taxes at single rates to avoid the widow's penalty. And let's say just extreme, he converted everything. Well, now he dies. She has a Roth IRA. her income will be low for the rest of her life and 10 years beyond to beneficiaries. Plus, she won't be required to take any money out of that Roth because Roth IAS have no lifetime required minimum distributions. Plus, if she wants to take money, she can. Total freedom. It won't increase her income. It won't increase the tax on her social security or the Medicare Irma charges or the 3.8% tax on net investment income. she can just take the money tax-free. If she doesn't take it because she doesn't need it or for whatever reason, she can leave it to the beneficiaries who even after the secure act changes can hold on to that money growing, building and accumulating 10 more years all income tax-free for the investment, say the husband made when he decided to convert. So, you get the bang for your buck. It's just the buck has to come out up front and that's a tough that's a a major psychological hurdle for most people. >> Yeah. Um and we're going to get to how to deal with that in a little bit. You just said something I want to confirm. So Roths do not have RMDs. >> No lifetime RMDs for beneficiaries. There are they for most non-spouse beneficiaries they have to empty the inherited Roth by the end of the 10th year after death. But they don't have to touch it for 10 years if they don't want. So it grows and accumulates snowballs like I said income tax-free for her life and beyond to the uh to the children or grandchildren. >> Okay. So ju just to be clear though um I put my money into this wroth while I'm alive. I don't have any RMDs. If I die and give it to my and I die and my spouse gets it, she doesn't have any RMDs. It's only when it then the estate then passes to heirs. They've got 10 years to take those RMDs. >> Right? But look at the amount of time given most people's average life expectancy. The the accumulation period could be decades, >> right? You really benefit from all that compounding um and depreciation. Okay, so that's that's a huge uh advantage there. I even I wasn't super clear on um Okay, but again, ju just getting down to brass tax. I'm going to build up a little bit here. Okay, so first off, you love minimizing lifetime taxes. The Roth is a >> Everybody loves minimizing lifetime taxes. The difference is I don't mind paying for it upfront. And that's how that's the secret to it. >> Yeah. >> I'm going to give you the secret to this. You know what Benjamin Franklin said about secrets? >> Three people can keep a secret if two of them are dead. >> Right. >> Here's the secret. And I use this in a lot of my consumer programs. Three words to pay paying the least amount of taxes over your lifetime on your retirement savings. Three words. Pay taxes. Now, now when I say that, most audiences say, "Ed, what kind of accountant are you? Pay taxes." Now, if I pay taxes now, I'll immediately have less, not more. I'm here to tell you, if you get it out at the low rates, the exact opposite is true mathematically. >> Okay? And and I I understand the sense of that, and I think a lot of my audience probably rationally does. Maybe they're still working through the emotional challenge of writing. psycholog I said it's a major hurdle to pay a tax especially when your accountant is there and I'm an accountant too but you know what I'm a little different than most I'm a recovering accountant because most accountants are just there to help people they they just look at how do I save you taxes this minute yes you could save a boatload of taxes and just kick the can down the road like Congress does. >> Yeah. And one of the reasons why I brought you on is I've learned of some instruments like this where I'm like, why didn't my accountant tell me about this? Because it's going to save me a lot of money in the long run. And usually it's because in the short run it's costly. Um, and they have that short-term focus like you're saying, but okay. So, we the goal is to minimize lifetime taxes spent. The Roths are a great vehicle for that. Now, Roth IAS, first off, there's just a minimum, sorry, there's a maximum that you can generally put in each year. Um, and there are income limitations on it. Correct. >> Yeah. That's not what I'm talking about. That's the small potatoes. I'm talking big picture. Roth, uh, Roth contra, there's two flavors of Roth, contributions and conversions. I'm talking about the big number, the >> I know. I know. I just want to make sure people sort of understand the options. >> Contributions are limited by income. For example, for 2026, the most you can put in is 7,500. If you're 50 or over, another 1,100. So, it gets you to 8,600. And that's assuming you're under the Roth income limits. And if you are over that, there's something called the backdoor Roth. But, you know, that's 7 8 9 whatever it's going to come to with the inflation increases. That's small potatoes. Again, I always plan in the big picture. Where do you want to end up? That's great doing that if you can, but the big picture is bringing down this IR. You have to start reducing these heavily weighted IRA balances while rates are low. >> Yep. So, I I I agree them and I'm just building here. So, first off, >> I can't wait till the finale comes. >> No worries. And we're just in the we're just in the introduction right here. But but if if you can if you qualify to be able to put those contributions in, I assume you would say do it. >> Yeah. because all you're doing it is moving money from one pocket to another. It's your own money. You're moving money from a taxable pocket to a tax-free pocket. >> Okay, great. So, we're we're doing that now. Um now, uh uh we're going to talk about um the the Roth conversions in just a second, but above and beyond contributing to my Roths, um if I can then put money into something like a traditional RAIA or whatnot, I should do that. Correct. >> Well, it depends. Again, you know, I'm a little controversial in this area. I think some people are heavily overweighted. Like I said, two no balance. They're they don't have any tax they the tax risk. They, you know, with investments, they tell you, don't put all your eggs in one basket, everything in one stock. But people are doing that with their IAS. They have all their IRA money in one tax basket. And that basket is too full. So, if you think you're too full and you want to build up in the tax-free, why would you add anything to that problem if you're already already at a problem phase? >> Okay. And just so you know, I'm coming at this as as from the perspective of somebody kind of growing into their career, right? So, so, so I would assume you would say put your money into your Roths first, >> right? >> Then put your money into your reg traditional IAS. Well, >> up up until the point where you start having too much. Well, even even before that, I might stop. I would look at your tax rates. Again, tax rates are historically low. From a tax planning perspective, you want to you want to take deductions when rates are high, not when rates are low. So, getting a deduction for an IRA or 401k contribution, it's not worth it when rates are low. You take income when rates are low. You take deductions when rates are high. Okay. All right. I I Yeah, that does make sense to me. Um, and maybe somewhere in here, too, I should probably just say getting a good financial partner, a good accountant, a good financial adviser who can kind of help you do the math to judge when it's too high, when it's not, will be helpful. Um, all right. So, let's talk about a Roth conversion now, which essentially is a way to take tax deferred retirement income and put it into a Wroth. But then the challenge is is you have to pay the price of that upfront. You have to pay the taxes of that. It's essentially a distribution. Right. You have to pay that upfront. Right. >> Right. I I you know, don't think it of it as a payment in tax. Think of it as an investment in your future financial security because it goes right back. Yes. But it goes right back to you because this is tax that will have to be paid anyway. It's not if, but when. It's not like if you don't do it, you've escaped it. It it the problem just gets worse and worse. Like, you know, not seeing a doctor for a while. It doesn't mean you're getting better just because you didn't see the doctor and he didn't give you the bad news. >> Right. Right. And so, um, here's the way I think of it, the benefit of a of a um conversion, which is, and I'm going to take my high earnner example. Um, let's say I'm 50, right? Um, and I'm I'm successful. I'm in the highest tax bracket, but I hope to live another 40 plus years, right? So, I've got just to round numbers, I've got a million dollars in a traditional IRA or amongst my my traditional tax deferred retirement accounts, but let's say it's in one just for simplicity. I've got a million dollars in there and I say I want to do a Roth conversion. First question is is can I convert all 1 million in one year? you know, sure, if you have the money to do it. Uh, you know, that's really ripping the band-aid off. I might do a series of smaller conversions to use up the low brackets each year. >> Okay. And so, um, All right. But, but, but you can't first question is you can in theory take an unlimited amount that's in a a retirement. Okay. As long as you can have the ability to pay the the tax that year. >> Um, I'm going to come back to your brackets in just a second. Um, but but in my example, I'm 50. I've just paid what's the top bracket? 37%. You said >> okay. Uh, and I guess it's it's gradated, so it's I'm not paying 37. >> No, not everything's at 37%. You know, remember I I'm looking at the brackets now. The 35% uh tops out. It's a very high number. The brackets are so wide. You don't get to 37% married joint until your taxable income after deductions exceeds 768,700. So that's not most people. >> Okay. Got it. All right. But I'm I'm paying my my hefty fee. Let's just for ease of calculations, let's say it's uh it's $300,000. Might be less, but let's just let's just say it's $300,000. So I'm paying that today on a million dollars. Um, why would I do that? Well, in my mind, it's because, all right, fast forward 20, 30 years or more, that million will have grown to, I don't know, what do you want to say, $3 million? >> It doesn't matter what it grows to because now you're getting to an area which some even my accounting colleagues, my CPA colleagues sometimes, uh, use what you're talking about as an argument against the Roth. Here's what they're talking about. You're talking about the time value of money or what some people call the opportunity cost. So, some people say to me, Ed, again, short-term thinkers say, Ed, why would I convert and pay all that tax when I could have used that money to invest and it would have grown in the in the market. So, I lose the opportunity. There's an opportunity cost. So for anybody thinking that and that's something like what you're talking about there is no opportunity cost because you can't go about how much you make because you have to compare apples to apples. If you're doing the comparison you have to compare t uh you have to assume the same tax rate and the same earnings rate. I'll give you you may want to write this down. I'll give you a little example to prove this point. Let's say you're debating whether to convert $100,000 or not. and we'll put on our parameters. So where you started going with that, but I would earn all this money. You have to assume even if it was in the IRA, you would earn all that money and it would be tax deferred. You would actually earn on a higher balance because you didn't use that money to convert to Roth. So you can't assume because you went into a WTH you do you'd earn more you because you paid tax upfront. So, uh, let's say you're debating, should I convert a 100,000? All right, let's assume a 30% tax rate. Doesn't matter as long as you're assume comparing apples to apples. Assuming 30% now and 30% later. And let's assume it doesn't even matter what your investment return rate is as long as you're assuming it would have been the same in the IRA as it would have been in the Roth IRA. So, let's say instead of an investment return over many years, it would have doubled. All right, make it easy. All right. So if I don't convert, let's take the first scenario. If I don't convert, I have a H 100,000. I said the money doubles over time till you take it out, let's say. So now it'll be worth 200,000. And then I'll pay tax at the 30%. 30% times 200,000 is 60,000. So what does that leave you from the 200,000 if you're writing that? >> Well, that would be 140,000, right? >> All right. Good. I wanted to hear you say it. Okay. >> Okay. >> Now, all right. So, that's one scenario. So, I'd net 140,000, >> right? Let's say I converted. Now, I have the same 100,000. I convert. So, now I pay 30% tax on 100,000 right off the top. So, now I'm only left with 70,000 to invest. But it doubles over time. What am I left with? >> 140,000. >> It's the same thing. So you can't assume where you started going say all this money will grow in the Roth like if it wouldn't in the IRA the only difference is the tax that 30% will apply to a higher balance in the IRA >> eventually >> right that that's actually where I was going which was um assuming they both grow at the same rate my point was that the the tax burden that I'm paying on day one if this thing over time continues to grow and like I said you 30 20 30 years. It's probably going to more than double. And therefore, my IR my my my tax deferred uh taxes that I will pay when I finally get to the distributions that I have to take will likely be far greater even inflation adjusted than what the hit I'm taking today is. >> Yeah, they will be far greater even though we're using the same rate and rate of return because the difference is and this is where I think the Roth tips the scales. you're forced to take that money out whether you want to or not at age 73 now. >> Right. >> With the Roth, it just keeps growing until you die, the spouse dies, and the kids 10 years later, >> right? And to your earlier point, too, there's just a lot of uncertainty about the future, right? We we might have President Mumi by the time, you know, I retire and tax rates could be in the 70 percentile for whatever. Um whereas in the Roth you do have certainty which is hey when and if when or even if I take these distributions out I know I'm getting it tax free >> right these you have known rates you know uh it's really like I said a big bet on where you think future tax rates are. So when I say the word bet it reminds me of a casino which by the way I don't know if you've noticed this I know you speak at a lot of financial conferences me too. uh and they always teach you uh have good speakers on how to be prudent with money and most of those conferences are in a casino in Las Vegas or somewhere. So I I never understood a little ironic but uh anyway so the Roth is a big bet. Now let's say you were in a casino and I'm not a big I don't really I don't gamble at all but I I've walked through the I know the games let's say and let's say you're playing blackjack. In other words, on the Roth bet, you're betting, which I think is a real good bet that future higher it would to do the Roth, it would work if you believe future your future higher tax rates, the rates and your marginal rates will be higher. I think that's probably for most people could be 70 80% probability that it'll be higher. It's a good bet. So, in Las Vegas, you don't get those kind of odds. But what if you did? What if what if uh you're at the blackjack table and you know the way the works of they have the two cards. What if the dealer turned over both of his cards before you decide to hit? >> Right. >> Would you increase that bet? >> Absolutely. >> Right. That's the same thing with the Roth. I think the odds go in your favor uh on whether tax rates will be higher in the future. >> All right. And I like that analogy because the Roth gives you greater clarity and that's just like being able to see both of the dealers cards, >> right? >> Okay. So earlier you said um you want to um you want to manage the brackets. So as said, let's use my 50-year-old again. So somebody with some life ahead of them still. Um >> how do you manage the brackets? >> Well, right now you gave an example of somebody already in the top bracket. Well, you know, it may not be the best thing for them unless they're so overweighted. I think in your example, the guys that already had a million that might be too much. Again, there's no disparity. There's no too much in tax. Instead of calling it tax deferred to be taxed money is growing. You're growing a bill. You know, I always say at conferences, your IRA is an IOU to the IRS. It's a growing building tax bill where the compounding is working against you. In the Roth, it's working for you. So, uh, when I say the tax brackets, you look at the brackets and I would say at a minimum, given today's 12%, 22 and 24, those are historically low. I know I've said it a few times, but most people don't realize how good they have it. And each year, the brackets, these low brackets expand due to inflation increases. So more money can come out at 12% or 22%. I remember at an accounting conference I was speaking at, one of the accountants came up to me proudly. He's waiting for me to give him a pat on the back. He says, "Ed, you're going to love this. I kept my client in the 12% bracket." I said, "I'm sorry to hear that. >> You mean the guy has a large IRA and you didn't use the 22 or 24% bracket? Now it's lost forever. So you look at the brackets you want to optimize. If you don't optimize these low brackets, and they are historically low. I know everybody complains about taxes and nobody wants to pay them before you have to, but I mean this is like Christmas. It's, you know, it's it's on sale. Taxes are on sale. Look what they do on Black Friday. Everybody tramples over everyone to get a TV for $10 less because they like a sale. Taxes are on sale. And these are taxes. The difference with the TV in the store on Black Friday, >> you don't actually have to buy it. With the taxes, you do. So with the taxes, you know, you have to pay it at some point. So may as well get it on sale. That goes, that's another way of saying my always rule. Always pay taxes at the lowest rates. >> All right. And um maybe this is really defined by the individual, but um let's say somebody is in the 12% bracket um but they have money in a um to be taxed retirement vehicle, an IRA. Um is is it just getting the next bracket? Is that what you want to do? Or might you want to comfortable with sir? >> It depends on you have you know how much you have. If somebody has, I'd say, two, three, 400,000. I'm not saying that's not a lot, but it's more likely more of that money will be spent over a given life expectancy or through RMDs. And maybe a Roth is not a big deal. You may always be in a low bracket just in lifetime spending and always getting it out. So, this wouldn't apply. But as the the accounts grow, you know, the larger the the account balance, it's all not only a bigger tax bill that again will be forced on you at 73, but a bigger tax bill for your beneficiaries over that shortened 10-year window because they may at that point be in their own highest earnings years. And all of that money, think about this, all of the buildup in your lifetime plus 10 years has to come out at the end of the 10th year after death to your beneficiaries. In other words, in year 10, it's a 100% RMD. >> Mhm. >> That could that could be a a big hit of taxes at that point. >> Okay. So, help me understand here. Um, so I I get I get all the advantages of doing this. Um uh now the older you are um you may have less time between to recoup between the time you pay the tax and the time you have to start taking the stuff out. >> So a lot of people who are watching this video are close to retirement age or or perhaps already retired. >> Um how should they be thinking about this? because you can still kind of play these these brackets even even if you're retired before you're >> first of all another one of my general rules nobody should go broke converting if you're 70 or 80 years old I get this question am I too old to convert well it should never uh impact your current lifestyle you shouldn't be converting and then keep keeping yourself paying all this tax you know it I I'll say it I'm trying to say it in a nicer way But >> uh given >> the cost versus the benefit and your limited life expectancy is just not worth it. Especially if it impacts your lifestyle. Nobody should go broke converting. You should be thinking about yourself first. However, if you could be 80 years old and say, "Look, I don't even need that money. I'm converting for my children and grandchildren." Well, that's another whole story. then you might want to convert and maybe take advantage of the tax brackets because it doesn't impact your financial security. That's rule one. You have to take care of yourself first. It does you it cannot impact your financial security during lifetime. People worry too much about the kids and I even said this would be a great gift to the kids but not if it impacts your lifestyle. >> Got it. All right. Um uh All right. To totally makes sense there as well. So let me ask you this. Um, you >> you want to hear a nice little uh strategy I've used for people. It doesn't apply to everybody because we started talking about older people. Let's say you're watching this now and you have uh followers or viewers that may be in their 50s and they may may be that person that's doing well in a high bracket. >> I got plenty of those watching right now. >> Right. All right. So, and but their mom's around and their mom has an IRA, but she's in a low bracket, you know, taking her RMDs and all that. Here's here's an idea. Give your mom money to convert her IRA to a Roth IRA cuz she'll do it at her bracket. She has to still take her RMDs. RMDs can't be converted. But after her RMDs are taken, give make her a gift. And the gift limits are very high. I mean, you can gift up to $15 million a year. Uh, 30 million per couple under the new rules. So, uh, and you could do 19,000 a year just in the annual gift tax exclusion. Doesn't even account against the 15 million. So, that's not even an issue. There's no gift tax or anything. So, you could give mom money to convert her two or $300,000 IRA. Convert it all. She'll still probably be in a low bracket. The only trick here is make sure she names you as the beneficiary, >> right? Yeah. >> Because then you're going to inherit her wroth at some point, but it was paid for at her rates. >> Correct. And then you've got 10 years to basically do whatever you want with that money. >> Right. >> Right. But hopefully mom lives a long time, so you're not seeing that long into the future when hopefully maybe it's actually appreciated a fair amount. Um, and I'm curious if she converts at all, like you said in that example, she doesn't have any more RMDs, does she? >> Right. Right. Then she has a Roth and she and not only that, her income is lower because of no RMDs for the rest of her life. It may even lower her Irma charges, her social security taxation, and everything based on income. >> Man, that makes total sense. Um, that's a that's that's a great idea. >> You know what I call it? I call it estate planning up the family tree. reverse estate planning. Everybody that does estate planning looks how to get money down to the children and grandchildren, but nobody thinks about the parents and this could be one situation where it pays to gift up the family tree. >> Yeah, absolutely. I mean, that that just makes total sense to me. So, you're giving us lots of great um jewels here. Um Ed, thank you. So, question for this. So, so you know, I I asked you and you said yes, you can. If I've got a big um tax deferred account, I can convert all of that in any given year if I want to. Um can I do that every year? Like, can I can I put money into a regular IRA, you know, make a contribution for the year and then at the end of the year convert that over and just do that year after year or there? >> Yeah. What you're describing is basically the backdoor Roth. uh you would only do it that way if you're making too much money to contribute to a Roth IRA. But if you have a very large IRA, you can bite off bits. Then you don't have to do the backdoor Roth. Then you can just do I'm going to do 200,000 a year or something. I was just speaking to somebody who's doing exactly that. Doing say 200,000 a year to knock down a $2 million account. Too much money in their IRA. >> Right. So that that's taking your bites of an existing RA. I'm saying let's say I've already done that. So I'm I'm I'm this successful 50-year-old. I decide to take all the pain today and I convert everything I have >> next year. Can I make an additional contribution to that tax deferred IRA and then roll that over again too? >> Right. But if you're going to roll it over, why not just make a contribution to the Roth IRA unless you're over the income limit? >> But I'm assuming in this case you're over the income. >> Yeah. All right. That's called the backdoor Roth. make a a non-deductible IRA contribution to a traditional IRA and then convert it to a Roth. >> Okay. And I can do that year after year after year. There's no limitations on it. >> Wow. It seems like almost cheating the system to a certain extent, but I guess the government's getting paid today. >> Yeah. The government, you know, you bring up an excellent point. One of the biggest objections to doing Roth convert, I don't know if it's objections, but things I get from consumers at programs, they talk hear me talk all about the Roth and they said, "But Ed, somebody always asks us, can I trust the government to keep their word that Roth IAS will always be income tax-free?" And my answer is always no. You can't trust them as far as you can throw them. We have a saying in among CPAs, tax laws are written in pencil. But I have no problem with that. I don't see that as a problem. Why? Because luckily, as I said before, Congress is shortsighted. They're the worst financial planners on Earth. They actually love the Roth because it brings in money upfront for their budget cycles. So, anything that's their golden goose. If you look at the last few tax bills, that's what they the Roth provisions were in in the revenue provisions to pay for everything else in the bill. And if you look at it, I don't know if you go how far back you go, but if you remember in 201 before 2010, you couldn't convert to a Roth IRA if your income exceeded $100,000. I don't remember if you know if you I don't know if you remember those days. >> Uh when Roth first came out, you couldn't contribute uh if your income exceeded $100,000. Congress, as usual, needed money. And somebody say, why don't we get money from people who make more than a h 100red,000? So they eliminated that that restriction and they got a boatload of money uh including people like me that year. I converted everything. The minute they eliminated that restriction, I converted everything in 2010. You want to take a guess on how much tax I paid in 2010? >> I'm going to say zero. >> Zero is the answer. That was the deal of the century. If you went to my seminars, I begged people to take that deal. The point is Congress was desperate for the money, but if I paid zero, how'd they get the money? The deal was, we're going to let everybody uh regardless of income, no more income limitation, convert because they wanted boatloads of money to come in. And they got it from people like me. But uh the deal was if you convert in 2010 as an incentive, no tax in 2010. you could pay half in 11, half and 12. In other words, the government gave everyone an interestfree loan to build a tax-free savings account. It was the deal of the century. I begged people to take that deal. And you know, even professionals in my audiences and consumers didn't take that deal. Why? They didn't even want to pay the tax at under those circumstances. Even then, the the short-sightedness took over. And uh if you look at it back in 2010, I believe the market, the Dow was about 11,000. Even now it's four times that. All of that growth for the people who did that is all growing has all been growing for now 16 years income tax-free and compounding income tax-free. So looking in hindsight, you might say, you know, it would have paid to pay the tax, but people are are not looking, you know, they're they're again shortsighted. Nobody wants to pay a tax. So the reason I bring up that deal is because once Congress saw the money they got in from that deal, they said, "Let's expand Roth 401ks. Let's span Roth 403bs." And then eventually they added SEP Roth IAS, simple Roth IAS, 529s to Roth. They wanted everybody to do Roths. they want. In fact, this year, 2026, is the first year Congress actually mandated Roth contributions for catchup contributions. People that work at a company that get catchup contributions, they're over 50 or over the 60, 61, 62, these other catch-up contributions. If you made more than 150,000 last year on a W2 at this company, your catchup contribution must by law go to the Roth. Not the worst thing in the world, but people would like a choice. But this is where I'm saying Congress is tipping their hand. They love the Roth because they get their money upfront. So I don't think that's a risk of Congress killing their golden goose. >> Okay. So, what I'm taking from you, Ed, is you're saying, "Look, we all hate paying taxes, but obviously it makes sense to pay taxes now if it's going to save you more taxes down the road." And we're in this beneficial moment in time where tax rates are historically low and the government is actually leaning into Rothbased solutions. >> That's right. >> So, basically, don't be an idiot. Take advantage of it. >> Well, you know, it everybody's situation is different. If they truly believe they'll be in a lower bracket, you go back to my rule. always pay taxes at the lowest rates. If those will be your lowest rates, then the Roth is not a thing for you. >> Okay. Um All right. Well, look, um this has been great, Ed, I want to ask you about annuities, which is something you also spoke at. Um but real quick before I do, um Roths are great vehicles for saving lifetime taxes. Are there any other strategies >> that are worth talking about here before we move on to your annuity concept? Well, the theu the annuity I don't sell, just so people know, I'm a tax accountant, a tax advisor. I don't sell stocks, bonds, funds, insurance, annuities, none of that. I don't do any investment. I don't make any money over any. We're an education company essentially is what we do. But there is a case to be made to have guaranteed income with these girrations in the market. And it might not be a good bad idea to take some of those gains off the table, some of those chips off the table in that casino we were talking about where everything is generally up except the last few weeks, but generally up. Uh maybe take some of those chips off the table. Cash them in at today's low rates and get yourself and speak to your own advisor if it's right for you. Uh a guaranteed annuity, you know, guaranteed income through an annuity where th those checks come in. I mean, they're guaranteed as I I my own rule is for your basic monthly living expenses. Those shouldn't be left to volatility in the market. Oh, I can't pay the light bill because the market's down. Nobody should live like that. So, what I mentioned, you might have heard me talk about that at that conference. Uh because my mother be obviously before she passed, she had these annuities. I didn't even know what they were, but my father died much earlier. My mother lived into her 90s and she had an adviser that realized she was like the Energizer Bunny. She's going to be going a while and he put her in these four or five annuities. Turned out to be the best thing that ever happened to our family. Those checks came in every month. No matter how old she got, no matter how sick she got, and no matter how the market performed, she never worried about money. And I don't have any data on this, but from what I see, people like my mother and others, people with guaranteed income, they're just happier people. They don't worry about anything. Even at the end, my before my mother passed, I was up at the hospital with her. And I said, "Ma, you only have $600 in your checking account." She says, "What do I care? I get five new checks every month." That mentality that you'll never run out of money. There's something to be said for that. But one thing I did mention that I picked up from my mother, I got annuities myself just as a hedge, you know, to have some guaranteed income. But the only thing better than guaranteed income for life is what I have guaranteed tax-free income for life. How do I do that? Well, I followed my mother's lead, but I got the annuities in my Roth IRA. What does that do? Well, I'm hoping never to need the income for life. I hope it goes to my kids. But let's say I wanted to tap into that. it would be guaranteed for life. And because it's coming out of a Roth, it's guaranteed tax-free. And it's not for my whole Roth, a very small portion, but enough to to protect against any downside risk as a buffer, a guard rail, whatever you want to call it. It allows me to be much more aggressive with the the lion share of my Roth investments, >> right? Because, you know, every month when those annuities kick in, you're going to get that check. Hey, real quick. So, so to me, this makes a ton of sense, right? I love it. It's your guaranteed income, but it's tax-free as well. Um, which is great because >> because I love anything taxree, you know me. >> Yeah. Well, and it's like, why wouldn't you do it in your Roth, right? So, I could get an annuity, it would pay me, but then I'd owe taxes on that. So, I'm getting only a percentage of the check at the end of the day. >> Well, if I just have my Roth buy it, >> I get the whole thing. Like, just why wouldn't I do that, >> right? >> Yeah. And you said one thing I just want to clarify there is you said the annuity is guaranteed for life. So the annuity >> well depend on they're all different products. Again, I'm not a product guy. It's like it's like uh every different flavor and bells and whistles and features to you can turn some features on or off. So you have to speak to a professional or do your own research. Every one of these products has different bells and whistles to ch options to choose from. >> Okay, let me just get the thought out. But if if it were one that was for the life of the annuitant, um that is something that would not pass on to your heirs as part of the IRA. >> If that's your I don't have that kind because I have a death benefit on mine. Uh so but you pay for that internally. So you would get a a lower lifetime benefit. You know, it's all the uh actuarial numbers. So yeah, if you wanted it to end in your life, you'll get a much bigger monthly check. I didn't choose that. >> Okay. All right. Um, so obviously be, you know, be careful about what you're agreeing to and the impact it might have on things, but also the benefit is there's so many different options there. You can pretty much custom create what you want. >> Right. Right. >> Yeah. All right. Well, Ed, look, this has been um super useful. Um, very informative. Um, and I I'm going to say this and you can clarify anything you want on top of this, but folks, if if this is sounding of interest to you, um, I highly recommend, especially if this is something you're not already doing yet, >> um, you know, sit down with a good financial advisor andor your CPA and go through the different options that you think you might want to do. And of course, they might be able to come up with a whole bunch of options that you haven't even thought of yourself. But really do have a professional run the numbers for you, give you lots of different options, and help you triangulate in on what's going to be best for you. But obviously, Ed, you've given us a lot of uh fodder for thought here in terms of ways to, you know, basically reduce uh taxes we'll pay over the rest of our lives and and thus increase the amount left over that we have to actually live our lives and enjoy our golden years and pass stuff on to our family. >> Yeah. And be with the Roth, I have to add this, you have to be careful. Roth conversions are permanent. There's no back seis, no doovers, no reccharacterizations that we had years ago. So, I would have these conversations or do your research, but I would not pull the trigger on a Roth conversion until the first week of December when the capital gain distributions come in when you have a better idea of wages for the year, income, expenses, so you can have a better projection of what it's going to cost you on what bracket you'll end up in. >> Okay. And do you know whether it with doing the conversion c can you do it in that window between January 1st and tax season? >> No. No. That's the challenge with Roth. It's not like an IRA. Uh you you have until April 15th to put money in an IRA, a com a contribution to an IRA or Roth for last year. There is no last year concept for Roths. So it's a challenge. If you want a Roth IRA conversion for 2026, the funds have to leave the IRA in 2026 when you won't know the exact bracket. You have an idea, but not exactly until you see that tax return. You say, "Where did all these capital gain distributions come from?" >> Okay. All right. Well, look, Ed, thank you for coming on and sharing all this with us. For folks that would like to follow you and your work, where should they go? >> Ielp.com. It's an amazing site. I know it's our site, but there's so much free and quality information. wwwirhpirelp.com. We put out blogs several times a week. We answer questions. And when I say we, I'm talking about experts. Uh you'll see the question. You can learn so much just from going into the mailbag where people write in questions. We even say bring your questions. But uh oh, and we also have a part where other people can answer your questions. And usually experts log in there. So you might say, well, if anybody can answer, that's a different section. The section we answer, you know, you're getting it right from the experts. But the uh the I forget what we call it, the mail, it's not the mailbag, something where it's a like a bulletin board where you could just answer ask a question and anybody it's an open forum. >> Let the community have >> discussion forum. That's what it's called. Discussion forum, I think. So anybody can answer. So, you might say, "Uh, well, if I put something in there there, how do I know the answer is going to be correct?" I'll tell you, it's self-correcting because we have had such a following on there for over 20 years. If you post an answer on there that's wrong, you will hear from about 20 people within about a minute and they'll say, "It's wrong because you forgot these three things." And when that happens, you learn so much from that. >> Excellent. All right. Um, well, look, Ed, when I edit this, I will put up the link to your website there, so folks know exactly where to go. Folks, the links will be in the description below this video as well. All right. Well, as we wrap up here, folks, please extend your gratitude for Ed for being so generous with his expertise here with us today by hitting the like button and then clicking on the subscribe button below, as well as that little bell icon right next to it. Uh and very important as we mentioned um you know if you're planning on acting on this I highly recommend that you do so under the guidance of uh a good financial adviser and your CPA. Um but if you don't have a good adviser or CPA advising you feel free to talk to one of the financial adviserss that thoughtful money endorses. These are the firms you see with me on this channel week in and week out. To set up one of those free discussions just fill out the very short form at thoughtfulmoney.com. Tell them you saw this video with Ed and you want to talk to them about the strategies that we we mentioned here. They'll be happy to sit down with you. And again, these consultations are totally free. There's no commitments involved. It's just a service they offer to be as helpful to as many people as possible. Um, also a reminder that we had the thoughtful money spring online conference this past weekend. It was absolutely fantastic, folks. uh hands down the best one we've ever done and uh couldn't have been more timely with everything going on in the world particularly with the war there in Iran and and and all the knock-on effects that's having on the markets and the global economy. Um if you did not watch uh did not attend that uh conference and wish you had, don't worry, you can purchase the replay to the whole thing. To do that, just fill out the very short form and not even the very short form. just go to thoughtfulmoney.com/conference and you can quickly buy the replay video of the whole event, all the presentations, all the live Q&A there. Um, all right, Ed, I can't thank you enough. This was so informative. Really look forward to having you back on the channel again soon. >> Yeah. Thanks, Adam. Great show. Thank you. >> Thank you. And look forward to having you back on again at some point in the future. >> Yeah. >> All right. And everybody else, thanks so much for watching.
Maximizing Your Tax-Free Wealth & Income For Retirement | Ed Slott
Summary
Transcript
The key to saving taxes, not today or tomorrow or this year, but over a lifetime and beyond to your beneficiaries, is my number one always rule. Always pay taxes at the lowest rates. Welcome to Thoughtful Money. I'm its founder and your host, Adam Tagert. Smart retirement planning is key to living well after you've stopped working. But sadly, many Americans find themselves falling behind. According to the Federal Reserve's Economic Well-being of US households report, 65% of Americans either believe their retirement savings are off track or they aren't sure. And for those who do have retirement accounts, the median savings balance stands at just 87,000, far too little to retire on. Today's guest is going to tell you how to increase your odds of not only being able to afford to retire, but doing so with ample excess to live your golden years the way you want. Ed Slott, CPA, is a renowned IRA distribution expert, author, and professional speaker known as America's IRA expert. He's the founder of Ed Slotten Company, creator of the Elite IRA Advisor Group, and a professor of practice at the American College of Financial Services. He focuses on advanced tax strategies and retirement savings. Ed, thanks so much for joining us today. >> Thank you. Great to be here. You know, I got uh when you mentioned that medium median uh retirement balance 80s something,000, I wonder is that skewed to like all ages because I would think somebody like in their 50s or 60 would have a much higher median. >> You you would hope. I don't have the distribution in front of me. I think that is probably median of all working adults. So maybe that >> sounds pretty weak. >> Yeah. But but I I I have seen data that shows it's not all that much better for people who are in the 54 to 64 year old cohort. You know, maybe they've got 175,000, maybe 200,000, but again, that's not enough to fund the next, you know, 20 plus years of your life. >> Yeah. >> All right, Ed. So, um, look, uh, as far as thanks go, thank you again for coming on, but extend my gratitude to the team at Lance Roberts teams at Real Investment Advice. Um, they had me out at their conference in January where you were the keynote speaker and really enjoyed your presentation and thought I wanted to get this in front of my audience. So, that's what we're going to try to do today. >> Okay. Now, you you remind me what I said because it's different every time. Yeah. As you saw with me, I never use PowerPoint or slides or anything. It's whatever, you know, whatever happens organically with the audience. >> Good. Well, we'll we'll build into this nicely, Ed. Um, so to start, let me ask you this. What are the most common mistakes or acts of self- sabotage that people make when it comes to retirement planning? >> Oh, the number one mistake, short-sightedness. That's easy. especially when it comes to a Roth IRA or more particularly a Roth conversion. A Roth conversion requires you to pay tax upfront. And one of my always rules, uh, the reason I created all these always rules I have of mine because I saw for years people on TV, talking heads and everything, not me, they could never give you a straight answer. you'd be on CNBC. They said, "Well, probably could be, maybe, I don't know, wishy-washy, you know, have to run the numbers." And to me, that didn't help anybody. So, I came up with my own. There's not many of them because there's not many rules that are always. But when I tell you I have an always rule, you can take it to the bank. It's non-negotiable. And the key to saving taxes, not today or tomorrow or this year, but over a lifetime and beyond to your beneficiaries is my number one always rule. Always pay taxes at the lowest rates. Now, that sounds simple. It makes sense, too. If you're always paying at the lowest rates, you'll save the most in taxes over a lifetime. But there's a second part to my always rule which catches people. >> Always pay taxes at the lowest rates, even if that means paying taxes before they're required. Uhoh. And that's the one that nobody likes because nobody likes paying taxes before they're dragged, kicking, and screaming. I'll give you an example. Let's say you're a 60y old. Now, a 60-year-old, you're building a nice retirement account, maybe. And under today's law, you don't have to take RMDs until age 75. It's actually 73 now, but for 60 year old, changes later on, but for a 60 year old, it's age 75. Should that 60 year old, that's 15 years. Should that 60 year old 60y old do nothing for 15 years, just watch this account grow? it's growing tax deferred your IRA or 401k. While there were low tax rates each of those years where some of those funds could have been pulled out had historically low rates. And I'm not talking about pulling it out to spend on a vacation or something. I'm talking about like a Roth conversion getting money out while rates are low. Taxes are historically low. And the Roth conversion is really just a big bet on future tax rates. So I I may have asked the audience this. How many people think tax rates will go up? And almost all the hands went up. >> But then I asked a different question which is actually the same question. And no hands went up. I said, "How many uh how many of you think taxes will go down?" And nobody thinks that and it's the same question. So I think the Roth is a good bet. But that you back to your question, what's the number one mistake people make that affects them long-term? Shortsightedness, not seeing the big picture, where you want to end up that may require you paying some taxes if you can get it now while rates are low. Not using the 12%, 22, even 24%. If you don't maximize or optimize those brackets each year, they're gone forever. You never get them back. So, back to that 60-year-old. Can you imagine wasting 15 years of low brackets? >> All right. So, let's let's define a couple of things here for people. Um, Ed, so you're clearly a really big fan of Roth instruments. >> I'm a fan of keeping more money and more of it tax-free. And any way to do that, which the best way, I mean, let's face it, the Roth IRA is the best account ever created. It grows tax-free for the rest of your life and 10 years beyond. It would be even better if you didn't have to pay the tax to get in there. But that's that's the price of admission. >> Okay, let let me just again clarify here. So it it grows taxree, which is why you love it, but I think you love it even more because you withdraw taxree on the back end. Un unlike a traditional IRA where you're putting it in tax deferred, it's growing taxfree, but then you're actually getting taxed on it when you're taking those distributions. Correct. >> Right. And every year you watch this IRA grow. It looks nice on your statement, but it's also looking nice on Uncle Sam's statement, too, because he's a partner in that growth. >> All right. So, um, uh, you you you said don't, uh, >> never waste a low tax bracket. >> Never waste a low tax bracket. So, I want to I want to use your 60-year-old person. Okay. >> So, um, you're right. Most people think in general the tax code's going to go up over time, right? Um, that's the assumption. >> Tax rates. Yeah. >> Yeah. The tax rates. Um, but let's say that 60-year-old's still employed and let's say he's doing really well, right? So, let's say his income tax bracket, he's in the highest tax bracket right now. Um, the the the question here is is what's better for me? Is it is it better for me to do a Roth conversion? And we'll we'll define what that is in just a second and take the tax hit on that today even though I'm in the the maximum tax bracket and I might be in a lower tax bracket later on when I start doing my distributions. But but hey, that still might make sense to take it today if I've got enough years of growth ahead of me that if I'm taking it out tax-free, yeah, it's worth the hit today. So, how does somebody do that math? >> That's a tough one because if you're in the top bracket, you're probably thinking, I'll I'll I'll be in a lower bracket in retirement, but in reality, the the math isn't proving that out. Now, there could be a situation. We've seen situations where there was a gap uh a lag where somebody in their 60s, they're doing well at their top earnings year, top bracket like you said, but they retire maybe at 67 or 68. So you have those few years where income will be lower before RMDs kick in. Those would be the years to fill up those low brackets. Also, I might still do the conversion. if you look at where he may be this person when RMDs are acquired required minimum distributions because one of the real benefits of converting to a Roth IRA is known tax rates. We know what the rates are today. We don't know what they'll be when the 60-year-old retires. Plus, if he does nothing, to me, doing nothing is not really an option. Unless you honestly believe you'll be in a lower bracket in retirement. There's a lot of people who will, then the Roth conversion probably doesn't pay. Going back to my rule, always pay taxes at the lowest rates. If you think you'll be at low rates in retirement, uh, then fine, then you'll be fine. And the beneficiaries, too. But many people when they do whatever analysis they do, whether they use computers or however they do it, they fail to take into account that when they do nothing, if they say, "Well, I'll be in a lower bracket in retirement, so I'm not going to do anything." And now you have the 60-year-old growing for 15 years, a gigantic tax bill. If you have large balances, that's another factor, too. If you have too much in your IRA, what do I mean by that? Many people have an imbalance today, especially people with large balances. Not everybody has that, unfortunately. But if you have 500,000 or million more in an IRA, you have too much money in your IRA as compared to tax-free money. There's an imbalance because most people, you know, the Roth came later. So, most people filled up the tax deferred. So, they have tax what I call tax risk diversification. they have a a t they don't have tax risk diversification is what I'm saying they have too much that will be taxed later so if this continues to grow you may only be looking in retirement when you say what will my bracket be you have to figure out the cumulative effect or the acrewing of RMDs what they will be based on 15 more years of growth when you didn't touch that money so now what we see in the real world when we I've seen it with clients when I was a practitioner and we would see people come in and I remember this one guy I was having this exact conversation with him a tax client right at this desk same desk I've been at for over 40 years and I was talking to him about Roth IAS and he says no ex everything you said I'm in a high bracket making a big W2 I'll be at a lower bracket in retirement all right and this is almost a joke already all the years of these little talks while we were doing the fact returns. So he comes in this one year and he's licking his chops almost. He says, "Ed, no W2 this year, totally retired." I give him the return. How could this be? My income's higher than my best earnings years. How could this be? Cuz you never listen to me. Now your IRA is so high your RMDs exceed the income you used to have. And you didn't figure on that. So, and the RMDs, remember the R stands for required. Then it's out of your control. While you're converting to a Roth, I'm not saying convert everything. You're in control. You can manage the brackets. But once RMDs kick in, those funds have to be taken at whatever the future rate is. And we don't know. That's another un unknown. If you know the rates now, and they're super low now, historically low for most people, even people like that in a high bracket. The highest bracket is 37%. Compare that to what it was in the 70s and the 80s or 50% 70%. I'm hoping we don't go back to those days. But I also have to look at the math. Uh not that Congress does, but I look at it and and you see the debt. I don't know what the debt levels are, 37, 38, 39 trillion. All I know is if they have to round up to the nearest trillion, that's a problem. That's a financial problem. And the things I'm saying where I believe tax rates will go up. I've been saying that for years and I've been wrong. But I have to believe at some point the math has got to hit the fan. So if you can lock in these rates, it might be a great deal. But it's not for everybody. So if you truly think you'll be in a lower bracket in retirement, then it's not for you. Or you do partial. You know, one way to to, you know, go into the midway of this whole situation is to do a series of smaller conversions each year for that 60 year old for maybe 15 years using up some part of the bracket just to hedge your bets. At least get something in the Roth at low rates just to manage the imbalance of IAS to Roth IAS. >> All right. So again, let's um I want to I want to dig into your advice about managing your brackets and helping people understand that. But before that, so so again um you're a big fan of anything that lets you um >> reduce your taxes and you love taxfree more than anything. >> Reduce lifetime taxes, not today's taxes. Because we're in tax season today and I guarantee there's somebody listening either doing their taxes or sitting with their accountant and say, "Should I convert to a Roth?" and the accountant, my own peers will say, "Oh, no, that's going to raise the tax bill. That's going to raise the tax on social security. That could knock out the new senior deduction. Oh, that's going to raise your arm charge." All right. I I heard enough. I'm not going to go near a Roth. But that's one year. You're not thinking long-term big picture. >> Okay. So, so minimizing lifetime tax payments. And for beneficiaries, remember uh when another thing when people say they'll be in a lower bracket in retirement, I've had people tell me that I'll be in a lower bracket in retirement. I always answer there's no I in team. Maybe you think you'll be in a lower bracket, but let's say you're the husband and you die and now you leave your IRA to your wife. You never did the Roth conversion because you figured you'd be in a lower bracket. Well, now uh something I call the widow's penalty that people just don't plan for. And what happens is uh most couples, which is fine, most couples leave everything to each other. And that's fine. >> But when the husband dies, let's say in this sense, in this example, he leaves everything to his wife. So, she's going to have the same income roughly, maybe a little less due due to the uh social security adjustment. She's going to have the same income that they both had together, but she will be paying tax at a much higher rate because now she's filing at single rates. I'll give you an example. If you want to look up the tax rate for 2026, >> and a married couple filing joint, let's say they had 400,000 of income, they'd be in the 24% bracket. A single person would be in the 35% bracket. That's a 46% tax increase on that widow. Now, and that's going to be that's going to hit her for the rest of her life. On the other side, let's say he converted everything. Maybe he thought he'd be in a lower bracket, but he wanted to make sure his wife wouldn't get hammered with taxes at single rates to avoid the widow's penalty. And let's say just extreme, he converted everything. Well, now he dies. She has a Roth IRA. her income will be low for the rest of her life and 10 years beyond to beneficiaries. Plus, she won't be required to take any money out of that Roth because Roth IAS have no lifetime required minimum distributions. Plus, if she wants to take money, she can. Total freedom. It won't increase her income. It won't increase the tax on her social security or the Medicare Irma charges or the 3.8% tax on net investment income. she can just take the money tax-free. If she doesn't take it because she doesn't need it or for whatever reason, she can leave it to the beneficiaries who even after the secure act changes can hold on to that money growing, building and accumulating 10 more years all income tax-free for the investment, say the husband made when he decided to convert. So, you get the bang for your buck. It's just the buck has to come out up front and that's a tough that's a a major psychological hurdle for most people. >> Yeah. Um and we're going to get to how to deal with that in a little bit. You just said something I want to confirm. So Roths do not have RMDs. >> No lifetime RMDs for beneficiaries. There are they for most non-spouse beneficiaries they have to empty the inherited Roth by the end of the 10th year after death. But they don't have to touch it for 10 years if they don't want. So it grows and accumulates snowballs like I said income tax-free for her life and beyond to the uh to the children or grandchildren. >> Okay. So ju just to be clear though um I put my money into this wroth while I'm alive. I don't have any RMDs. If I die and give it to my and I die and my spouse gets it, she doesn't have any RMDs. It's only when it then the estate then passes to heirs. They've got 10 years to take those RMDs. >> Right? But look at the amount of time given most people's average life expectancy. The the accumulation period could be decades, >> right? You really benefit from all that compounding um and depreciation. Okay, so that's that's a huge uh advantage there. I even I wasn't super clear on um Okay, but again, ju just getting down to brass tax. I'm going to build up a little bit here. Okay, so first off, you love minimizing lifetime taxes. The Roth is a >> Everybody loves minimizing lifetime taxes. The difference is I don't mind paying for it upfront. And that's how that's the secret to it. >> Yeah. >> I'm going to give you the secret to this. You know what Benjamin Franklin said about secrets? >> Three people can keep a secret if two of them are dead. >> Right. >> Here's the secret. And I use this in a lot of my consumer programs. Three words to pay paying the least amount of taxes over your lifetime on your retirement savings. Three words. Pay taxes. Now, now when I say that, most audiences say, "Ed, what kind of accountant are you? Pay taxes." Now, if I pay taxes now, I'll immediately have less, not more. I'm here to tell you, if you get it out at the low rates, the exact opposite is true mathematically. >> Okay? And and I I understand the sense of that, and I think a lot of my audience probably rationally does. Maybe they're still working through the emotional challenge of writing. psycholog I said it's a major hurdle to pay a tax especially when your accountant is there and I'm an accountant too but you know what I'm a little different than most I'm a recovering accountant because most accountants are just there to help people they they just look at how do I save you taxes this minute yes you could save a boatload of taxes and just kick the can down the road like Congress does. >> Yeah. And one of the reasons why I brought you on is I've learned of some instruments like this where I'm like, why didn't my accountant tell me about this? Because it's going to save me a lot of money in the long run. And usually it's because in the short run it's costly. Um, and they have that short-term focus like you're saying, but okay. So, we the goal is to minimize lifetime taxes spent. The Roths are a great vehicle for that. Now, Roth IAS, first off, there's just a minimum, sorry, there's a maximum that you can generally put in each year. Um, and there are income limitations on it. Correct. >> Yeah. That's not what I'm talking about. That's the small potatoes. I'm talking big picture. Roth, uh, Roth contra, there's two flavors of Roth, contributions and conversions. I'm talking about the big number, the >> I know. I know. I just want to make sure people sort of understand the options. >> Contributions are limited by income. For example, for 2026, the most you can put in is 7,500. If you're 50 or over, another 1,100. So, it gets you to 8,600. And that's assuming you're under the Roth income limits. And if you are over that, there's something called the backdoor Roth. But, you know, that's 7 8 9 whatever it's going to come to with the inflation increases. That's small potatoes. Again, I always plan in the big picture. Where do you want to end up? That's great doing that if you can, but the big picture is bringing down this IR. You have to start reducing these heavily weighted IRA balances while rates are low. >> Yep. So, I I I agree them and I'm just building here. So, first off, >> I can't wait till the finale comes. >> No worries. And we're just in the we're just in the introduction right here. But but if if you can if you qualify to be able to put those contributions in, I assume you would say do it. >> Yeah. because all you're doing it is moving money from one pocket to another. It's your own money. You're moving money from a taxable pocket to a tax-free pocket. >> Okay, great. So, we're we're doing that now. Um now, uh uh we're going to talk about um the the Roth conversions in just a second, but above and beyond contributing to my Roths, um if I can then put money into something like a traditional RAIA or whatnot, I should do that. Correct. >> Well, it depends. Again, you know, I'm a little controversial in this area. I think some people are heavily overweighted. Like I said, two no balance. They're they don't have any tax they the tax risk. They, you know, with investments, they tell you, don't put all your eggs in one basket, everything in one stock. But people are doing that with their IAS. They have all their IRA money in one tax basket. And that basket is too full. So, if you think you're too full and you want to build up in the tax-free, why would you add anything to that problem if you're already already at a problem phase? >> Okay. And just so you know, I'm coming at this as as from the perspective of somebody kind of growing into their career, right? So, so, so I would assume you would say put your money into your Roths first, >> right? >> Then put your money into your reg traditional IAS. Well, >> up up until the point where you start having too much. Well, even even before that, I might stop. I would look at your tax rates. Again, tax rates are historically low. From a tax planning perspective, you want to you want to take deductions when rates are high, not when rates are low. So, getting a deduction for an IRA or 401k contribution, it's not worth it when rates are low. You take income when rates are low. You take deductions when rates are high. Okay. All right. I I Yeah, that does make sense to me. Um, and maybe somewhere in here, too, I should probably just say getting a good financial partner, a good accountant, a good financial adviser who can kind of help you do the math to judge when it's too high, when it's not, will be helpful. Um, all right. So, let's talk about a Roth conversion now, which essentially is a way to take tax deferred retirement income and put it into a Wroth. But then the challenge is is you have to pay the price of that upfront. You have to pay the taxes of that. It's essentially a distribution. Right. You have to pay that upfront. Right. >> Right. I I you know, don't think it of it as a payment in tax. Think of it as an investment in your future financial security because it goes right back. Yes. But it goes right back to you because this is tax that will have to be paid anyway. It's not if, but when. It's not like if you don't do it, you've escaped it. It it the problem just gets worse and worse. Like, you know, not seeing a doctor for a while. It doesn't mean you're getting better just because you didn't see the doctor and he didn't give you the bad news. >> Right. Right. And so, um, here's the way I think of it, the benefit of a of a um conversion, which is, and I'm going to take my high earnner example. Um, let's say I'm 50, right? Um, and I'm I'm successful. I'm in the highest tax bracket, but I hope to live another 40 plus years, right? So, I've got just to round numbers, I've got a million dollars in a traditional IRA or amongst my my traditional tax deferred retirement accounts, but let's say it's in one just for simplicity. I've got a million dollars in there and I say I want to do a Roth conversion. First question is is can I convert all 1 million in one year? you know, sure, if you have the money to do it. Uh, you know, that's really ripping the band-aid off. I might do a series of smaller conversions to use up the low brackets each year. >> Okay. And so, um, All right. But, but, but you can't first question is you can in theory take an unlimited amount that's in a a retirement. Okay. As long as you can have the ability to pay the the tax that year. >> Um, I'm going to come back to your brackets in just a second. Um, but but in my example, I'm 50. I've just paid what's the top bracket? 37%. You said >> okay. Uh, and I guess it's it's gradated, so it's I'm not paying 37. >> No, not everything's at 37%. You know, remember I I'm looking at the brackets now. The 35% uh tops out. It's a very high number. The brackets are so wide. You don't get to 37% married joint until your taxable income after deductions exceeds 768,700. So that's not most people. >> Okay. Got it. All right. But I'm I'm paying my my hefty fee. Let's just for ease of calculations, let's say it's uh it's $300,000. Might be less, but let's just let's just say it's $300,000. So I'm paying that today on a million dollars. Um, why would I do that? Well, in my mind, it's because, all right, fast forward 20, 30 years or more, that million will have grown to, I don't know, what do you want to say, $3 million? >> It doesn't matter what it grows to because now you're getting to an area which some even my accounting colleagues, my CPA colleagues sometimes, uh, use what you're talking about as an argument against the Roth. Here's what they're talking about. You're talking about the time value of money or what some people call the opportunity cost. So, some people say to me, Ed, again, short-term thinkers say, Ed, why would I convert and pay all that tax when I could have used that money to invest and it would have grown in the in the market. So, I lose the opportunity. There's an opportunity cost. So for anybody thinking that and that's something like what you're talking about there is no opportunity cost because you can't go about how much you make because you have to compare apples to apples. If you're doing the comparison you have to compare t uh you have to assume the same tax rate and the same earnings rate. I'll give you you may want to write this down. I'll give you a little example to prove this point. Let's say you're debating whether to convert $100,000 or not. and we'll put on our parameters. So where you started going with that, but I would earn all this money. You have to assume even if it was in the IRA, you would earn all that money and it would be tax deferred. You would actually earn on a higher balance because you didn't use that money to convert to Roth. So you can't assume because you went into a WTH you do you'd earn more you because you paid tax upfront. So, uh, let's say you're debating, should I convert a 100,000? All right, let's assume a 30% tax rate. Doesn't matter as long as you're assume comparing apples to apples. Assuming 30% now and 30% later. And let's assume it doesn't even matter what your investment return rate is as long as you're assuming it would have been the same in the IRA as it would have been in the Roth IRA. So, let's say instead of an investment return over many years, it would have doubled. All right, make it easy. All right. So if I don't convert, let's take the first scenario. If I don't convert, I have a H 100,000. I said the money doubles over time till you take it out, let's say. So now it'll be worth 200,000. And then I'll pay tax at the 30%. 30% times 200,000 is 60,000. So what does that leave you from the 200,000 if you're writing that? >> Well, that would be 140,000, right? >> All right. Good. I wanted to hear you say it. Okay. >> Okay. >> Now, all right. So, that's one scenario. So, I'd net 140,000, >> right? Let's say I converted. Now, I have the same 100,000. I convert. So, now I pay 30% tax on 100,000 right off the top. So, now I'm only left with 70,000 to invest. But it doubles over time. What am I left with? >> 140,000. >> It's the same thing. So you can't assume where you started going say all this money will grow in the Roth like if it wouldn't in the IRA the only difference is the tax that 30% will apply to a higher balance in the IRA >> eventually >> right that that's actually where I was going which was um assuming they both grow at the same rate my point was that the the tax burden that I'm paying on day one if this thing over time continues to grow and like I said you 30 20 30 years. It's probably going to more than double. And therefore, my IR my my my tax deferred uh taxes that I will pay when I finally get to the distributions that I have to take will likely be far greater even inflation adjusted than what the hit I'm taking today is. >> Yeah, they will be far greater even though we're using the same rate and rate of return because the difference is and this is where I think the Roth tips the scales. you're forced to take that money out whether you want to or not at age 73 now. >> Right. >> With the Roth, it just keeps growing until you die, the spouse dies, and the kids 10 years later, >> right? And to your earlier point, too, there's just a lot of uncertainty about the future, right? We we might have President Mumi by the time, you know, I retire and tax rates could be in the 70 percentile for whatever. Um whereas in the Roth you do have certainty which is hey when and if when or even if I take these distributions out I know I'm getting it tax free >> right these you have known rates you know uh it's really like I said a big bet on where you think future tax rates are. So when I say the word bet it reminds me of a casino which by the way I don't know if you've noticed this I know you speak at a lot of financial conferences me too. uh and they always teach you uh have good speakers on how to be prudent with money and most of those conferences are in a casino in Las Vegas or somewhere. So I I never understood a little ironic but uh anyway so the Roth is a big bet. Now let's say you were in a casino and I'm not a big I don't really I don't gamble at all but I I've walked through the I know the games let's say and let's say you're playing blackjack. In other words, on the Roth bet, you're betting, which I think is a real good bet that future higher it would to do the Roth, it would work if you believe future your future higher tax rates, the rates and your marginal rates will be higher. I think that's probably for most people could be 70 80% probability that it'll be higher. It's a good bet. So, in Las Vegas, you don't get those kind of odds. But what if you did? What if what if uh you're at the blackjack table and you know the way the works of they have the two cards. What if the dealer turned over both of his cards before you decide to hit? >> Right. >> Would you increase that bet? >> Absolutely. >> Right. That's the same thing with the Roth. I think the odds go in your favor uh on whether tax rates will be higher in the future. >> All right. And I like that analogy because the Roth gives you greater clarity and that's just like being able to see both of the dealers cards, >> right? >> Okay. So earlier you said um you want to um you want to manage the brackets. So as said, let's use my 50-year-old again. So somebody with some life ahead of them still. Um >> how do you manage the brackets? >> Well, right now you gave an example of somebody already in the top bracket. Well, you know, it may not be the best thing for them unless they're so overweighted. I think in your example, the guys that already had a million that might be too much. Again, there's no disparity. There's no too much in tax. Instead of calling it tax deferred to be taxed money is growing. You're growing a bill. You know, I always say at conferences, your IRA is an IOU to the IRS. It's a growing building tax bill where the compounding is working against you. In the Roth, it's working for you. So, uh, when I say the tax brackets, you look at the brackets and I would say at a minimum, given today's 12%, 22 and 24, those are historically low. I know I've said it a few times, but most people don't realize how good they have it. And each year, the brackets, these low brackets expand due to inflation increases. So more money can come out at 12% or 22%. I remember at an accounting conference I was speaking at, one of the accountants came up to me proudly. He's waiting for me to give him a pat on the back. He says, "Ed, you're going to love this. I kept my client in the 12% bracket." I said, "I'm sorry to hear that. >> You mean the guy has a large IRA and you didn't use the 22 or 24% bracket? Now it's lost forever. So you look at the brackets you want to optimize. If you don't optimize these low brackets, and they are historically low. I know everybody complains about taxes and nobody wants to pay them before you have to, but I mean this is like Christmas. It's, you know, it's it's on sale. Taxes are on sale. Look what they do on Black Friday. Everybody tramples over everyone to get a TV for $10 less because they like a sale. Taxes are on sale. And these are taxes. The difference with the TV in the store on Black Friday, >> you don't actually have to buy it. With the taxes, you do. So with the taxes, you know, you have to pay it at some point. So may as well get it on sale. That goes, that's another way of saying my always rule. Always pay taxes at the lowest rates. >> All right. And um maybe this is really defined by the individual, but um let's say somebody is in the 12% bracket um but they have money in a um to be taxed retirement vehicle, an IRA. Um is is it just getting the next bracket? Is that what you want to do? Or might you want to comfortable with sir? >> It depends on you have you know how much you have. If somebody has, I'd say, two, three, 400,000. I'm not saying that's not a lot, but it's more likely more of that money will be spent over a given life expectancy or through RMDs. And maybe a Roth is not a big deal. You may always be in a low bracket just in lifetime spending and always getting it out. So, this wouldn't apply. But as the the accounts grow, you know, the larger the the account balance, it's all not only a bigger tax bill that again will be forced on you at 73, but a bigger tax bill for your beneficiaries over that shortened 10-year window because they may at that point be in their own highest earnings years. And all of that money, think about this, all of the buildup in your lifetime plus 10 years has to come out at the end of the 10th year after death to your beneficiaries. In other words, in year 10, it's a 100% RMD. >> Mhm. >> That could that could be a a big hit of taxes at that point. >> Okay. So, help me understand here. Um, so I I get I get all the advantages of doing this. Um uh now the older you are um you may have less time between to recoup between the time you pay the tax and the time you have to start taking the stuff out. >> So a lot of people who are watching this video are close to retirement age or or perhaps already retired. >> Um how should they be thinking about this? because you can still kind of play these these brackets even even if you're retired before you're >> first of all another one of my general rules nobody should go broke converting if you're 70 or 80 years old I get this question am I too old to convert well it should never uh impact your current lifestyle you shouldn't be converting and then keep keeping yourself paying all this tax you know it I I'll say it I'm trying to say it in a nicer way But >> uh given >> the cost versus the benefit and your limited life expectancy is just not worth it. Especially if it impacts your lifestyle. Nobody should go broke converting. You should be thinking about yourself first. However, if you could be 80 years old and say, "Look, I don't even need that money. I'm converting for my children and grandchildren." Well, that's another whole story. then you might want to convert and maybe take advantage of the tax brackets because it doesn't impact your financial security. That's rule one. You have to take care of yourself first. It does you it cannot impact your financial security during lifetime. People worry too much about the kids and I even said this would be a great gift to the kids but not if it impacts your lifestyle. >> Got it. All right. Um uh All right. To totally makes sense there as well. So let me ask you this. Um, you >> you want to hear a nice little uh strategy I've used for people. It doesn't apply to everybody because we started talking about older people. Let's say you're watching this now and you have uh followers or viewers that may be in their 50s and they may may be that person that's doing well in a high bracket. >> I got plenty of those watching right now. >> Right. All right. So, and but their mom's around and their mom has an IRA, but she's in a low bracket, you know, taking her RMDs and all that. Here's here's an idea. Give your mom money to convert her IRA to a Roth IRA cuz she'll do it at her bracket. She has to still take her RMDs. RMDs can't be converted. But after her RMDs are taken, give make her a gift. And the gift limits are very high. I mean, you can gift up to $15 million a year. Uh, 30 million per couple under the new rules. So, uh, and you could do 19,000 a year just in the annual gift tax exclusion. Doesn't even account against the 15 million. So, that's not even an issue. There's no gift tax or anything. So, you could give mom money to convert her two or $300,000 IRA. Convert it all. She'll still probably be in a low bracket. The only trick here is make sure she names you as the beneficiary, >> right? Yeah. >> Because then you're going to inherit her wroth at some point, but it was paid for at her rates. >> Correct. And then you've got 10 years to basically do whatever you want with that money. >> Right. >> Right. But hopefully mom lives a long time, so you're not seeing that long into the future when hopefully maybe it's actually appreciated a fair amount. Um, and I'm curious if she converts at all, like you said in that example, she doesn't have any more RMDs, does she? >> Right. Right. Then she has a Roth and she and not only that, her income is lower because of no RMDs for the rest of her life. It may even lower her Irma charges, her social security taxation, and everything based on income. >> Man, that makes total sense. Um, that's a that's that's a great idea. >> You know what I call it? I call it estate planning up the family tree. reverse estate planning. Everybody that does estate planning looks how to get money down to the children and grandchildren, but nobody thinks about the parents and this could be one situation where it pays to gift up the family tree. >> Yeah, absolutely. I mean, that that just makes total sense to me. So, you're giving us lots of great um jewels here. Um Ed, thank you. So, question for this. So, so you know, I I asked you and you said yes, you can. If I've got a big um tax deferred account, I can convert all of that in any given year if I want to. Um can I do that every year? Like, can I can I put money into a regular IRA, you know, make a contribution for the year and then at the end of the year convert that over and just do that year after year or there? >> Yeah. What you're describing is basically the backdoor Roth. uh you would only do it that way if you're making too much money to contribute to a Roth IRA. But if you have a very large IRA, you can bite off bits. Then you don't have to do the backdoor Roth. Then you can just do I'm going to do 200,000 a year or something. I was just speaking to somebody who's doing exactly that. Doing say 200,000 a year to knock down a $2 million account. Too much money in their IRA. >> Right. So that that's taking your bites of an existing RA. I'm saying let's say I've already done that. So I'm I'm I'm this successful 50-year-old. I decide to take all the pain today and I convert everything I have >> next year. Can I make an additional contribution to that tax deferred IRA and then roll that over again too? >> Right. But if you're going to roll it over, why not just make a contribution to the Roth IRA unless you're over the income limit? >> But I'm assuming in this case you're over the income. >> Yeah. All right. That's called the backdoor Roth. make a a non-deductible IRA contribution to a traditional IRA and then convert it to a Roth. >> Okay. And I can do that year after year after year. There's no limitations on it. >> Wow. It seems like almost cheating the system to a certain extent, but I guess the government's getting paid today. >> Yeah. The government, you know, you bring up an excellent point. One of the biggest objections to doing Roth convert, I don't know if it's objections, but things I get from consumers at programs, they talk hear me talk all about the Roth and they said, "But Ed, somebody always asks us, can I trust the government to keep their word that Roth IAS will always be income tax-free?" And my answer is always no. You can't trust them as far as you can throw them. We have a saying in among CPAs, tax laws are written in pencil. But I have no problem with that. I don't see that as a problem. Why? Because luckily, as I said before, Congress is shortsighted. They're the worst financial planners on Earth. They actually love the Roth because it brings in money upfront for their budget cycles. So, anything that's their golden goose. If you look at the last few tax bills, that's what they the Roth provisions were in in the revenue provisions to pay for everything else in the bill. And if you look at it, I don't know if you go how far back you go, but if you remember in 201 before 2010, you couldn't convert to a Roth IRA if your income exceeded $100,000. I don't remember if you know if you I don't know if you remember those days. >> Uh when Roth first came out, you couldn't contribute uh if your income exceeded $100,000. Congress, as usual, needed money. And somebody say, why don't we get money from people who make more than a h 100red,000? So they eliminated that that restriction and they got a boatload of money uh including people like me that year. I converted everything. The minute they eliminated that restriction, I converted everything in 2010. You want to take a guess on how much tax I paid in 2010? >> I'm going to say zero. >> Zero is the answer. That was the deal of the century. If you went to my seminars, I begged people to take that deal. The point is Congress was desperate for the money, but if I paid zero, how'd they get the money? The deal was, we're going to let everybody uh regardless of income, no more income limitation, convert because they wanted boatloads of money to come in. And they got it from people like me. But uh the deal was if you convert in 2010 as an incentive, no tax in 2010. you could pay half in 11, half and 12. In other words, the government gave everyone an interestfree loan to build a tax-free savings account. It was the deal of the century. I begged people to take that deal. And you know, even professionals in my audiences and consumers didn't take that deal. Why? They didn't even want to pay the tax at under those circumstances. Even then, the the short-sightedness took over. And uh if you look at it back in 2010, I believe the market, the Dow was about 11,000. Even now it's four times that. All of that growth for the people who did that is all growing has all been growing for now 16 years income tax-free and compounding income tax-free. So looking in hindsight, you might say, you know, it would have paid to pay the tax, but people are are not looking, you know, they're they're again shortsighted. Nobody wants to pay a tax. So the reason I bring up that deal is because once Congress saw the money they got in from that deal, they said, "Let's expand Roth 401ks. Let's span Roth 403bs." And then eventually they added SEP Roth IAS, simple Roth IAS, 529s to Roth. They wanted everybody to do Roths. they want. In fact, this year, 2026, is the first year Congress actually mandated Roth contributions for catchup contributions. People that work at a company that get catchup contributions, they're over 50 or over the 60, 61, 62, these other catch-up contributions. If you made more than 150,000 last year on a W2 at this company, your catchup contribution must by law go to the Roth. Not the worst thing in the world, but people would like a choice. But this is where I'm saying Congress is tipping their hand. They love the Roth because they get their money upfront. So I don't think that's a risk of Congress killing their golden goose. >> Okay. So, what I'm taking from you, Ed, is you're saying, "Look, we all hate paying taxes, but obviously it makes sense to pay taxes now if it's going to save you more taxes down the road." And we're in this beneficial moment in time where tax rates are historically low and the government is actually leaning into Rothbased solutions. >> That's right. >> So, basically, don't be an idiot. Take advantage of it. >> Well, you know, it everybody's situation is different. If they truly believe they'll be in a lower bracket, you go back to my rule. always pay taxes at the lowest rates. If those will be your lowest rates, then the Roth is not a thing for you. >> Okay. Um All right. Well, look, um this has been great, Ed, I want to ask you about annuities, which is something you also spoke at. Um but real quick before I do, um Roths are great vehicles for saving lifetime taxes. Are there any other strategies >> that are worth talking about here before we move on to your annuity concept? Well, the theu the annuity I don't sell, just so people know, I'm a tax accountant, a tax advisor. I don't sell stocks, bonds, funds, insurance, annuities, none of that. I don't do any investment. I don't make any money over any. We're an education company essentially is what we do. But there is a case to be made to have guaranteed income with these girrations in the market. And it might not be a good bad idea to take some of those gains off the table, some of those chips off the table in that casino we were talking about where everything is generally up except the last few weeks, but generally up. Uh maybe take some of those chips off the table. Cash them in at today's low rates and get yourself and speak to your own advisor if it's right for you. Uh a guaranteed annuity, you know, guaranteed income through an annuity where th those checks come in. I mean, they're guaranteed as I I my own rule is for your basic monthly living expenses. Those shouldn't be left to volatility in the market. Oh, I can't pay the light bill because the market's down. Nobody should live like that. So, what I mentioned, you might have heard me talk about that at that conference. Uh because my mother be obviously before she passed, she had these annuities. I didn't even know what they were, but my father died much earlier. My mother lived into her 90s and she had an adviser that realized she was like the Energizer Bunny. She's going to be going a while and he put her in these four or five annuities. Turned out to be the best thing that ever happened to our family. Those checks came in every month. No matter how old she got, no matter how sick she got, and no matter how the market performed, she never worried about money. And I don't have any data on this, but from what I see, people like my mother and others, people with guaranteed income, they're just happier people. They don't worry about anything. Even at the end, my before my mother passed, I was up at the hospital with her. And I said, "Ma, you only have $600 in your checking account." She says, "What do I care? I get five new checks every month." That mentality that you'll never run out of money. There's something to be said for that. But one thing I did mention that I picked up from my mother, I got annuities myself just as a hedge, you know, to have some guaranteed income. But the only thing better than guaranteed income for life is what I have guaranteed tax-free income for life. How do I do that? Well, I followed my mother's lead, but I got the annuities in my Roth IRA. What does that do? Well, I'm hoping never to need the income for life. I hope it goes to my kids. But let's say I wanted to tap into that. it would be guaranteed for life. And because it's coming out of a Roth, it's guaranteed tax-free. And it's not for my whole Roth, a very small portion, but enough to to protect against any downside risk as a buffer, a guard rail, whatever you want to call it. It allows me to be much more aggressive with the the lion share of my Roth investments, >> right? Because, you know, every month when those annuities kick in, you're going to get that check. Hey, real quick. So, so to me, this makes a ton of sense, right? I love it. It's your guaranteed income, but it's tax-free as well. Um, which is great because >> because I love anything taxree, you know me. >> Yeah. Well, and it's like, why wouldn't you do it in your Roth, right? So, I could get an annuity, it would pay me, but then I'd owe taxes on that. So, I'm getting only a percentage of the check at the end of the day. >> Well, if I just have my Roth buy it, >> I get the whole thing. Like, just why wouldn't I do that, >> right? >> Yeah. And you said one thing I just want to clarify there is you said the annuity is guaranteed for life. So the annuity >> well depend on they're all different products. Again, I'm not a product guy. It's like it's like uh every different flavor and bells and whistles and features to you can turn some features on or off. So you have to speak to a professional or do your own research. Every one of these products has different bells and whistles to ch options to choose from. >> Okay, let me just get the thought out. But if if it were one that was for the life of the annuitant, um that is something that would not pass on to your heirs as part of the IRA. >> If that's your I don't have that kind because I have a death benefit on mine. Uh so but you pay for that internally. So you would get a a lower lifetime benefit. You know, it's all the uh actuarial numbers. So yeah, if you wanted it to end in your life, you'll get a much bigger monthly check. I didn't choose that. >> Okay. All right. Um, so obviously be, you know, be careful about what you're agreeing to and the impact it might have on things, but also the benefit is there's so many different options there. You can pretty much custom create what you want. >> Right. Right. >> Yeah. All right. Well, Ed, look, this has been um super useful. Um, very informative. Um, and I I'm going to say this and you can clarify anything you want on top of this, but folks, if if this is sounding of interest to you, um, I highly recommend, especially if this is something you're not already doing yet, >> um, you know, sit down with a good financial advisor andor your CPA and go through the different options that you think you might want to do. And of course, they might be able to come up with a whole bunch of options that you haven't even thought of yourself. But really do have a professional run the numbers for you, give you lots of different options, and help you triangulate in on what's going to be best for you. But obviously, Ed, you've given us a lot of uh fodder for thought here in terms of ways to, you know, basically reduce uh taxes we'll pay over the rest of our lives and and thus increase the amount left over that we have to actually live our lives and enjoy our golden years and pass stuff on to our family. >> Yeah. And be with the Roth, I have to add this, you have to be careful. Roth conversions are permanent. There's no back seis, no doovers, no reccharacterizations that we had years ago. So, I would have these conversations or do your research, but I would not pull the trigger on a Roth conversion until the first week of December when the capital gain distributions come in when you have a better idea of wages for the year, income, expenses, so you can have a better projection of what it's going to cost you on what bracket you'll end up in. >> Okay. And do you know whether it with doing the conversion c can you do it in that window between January 1st and tax season? >> No. No. That's the challenge with Roth. It's not like an IRA. Uh you you have until April 15th to put money in an IRA, a com a contribution to an IRA or Roth for last year. There is no last year concept for Roths. So it's a challenge. If you want a Roth IRA conversion for 2026, the funds have to leave the IRA in 2026 when you won't know the exact bracket. You have an idea, but not exactly until you see that tax return. You say, "Where did all these capital gain distributions come from?" >> Okay. All right. Well, look, Ed, thank you for coming on and sharing all this with us. For folks that would like to follow you and your work, where should they go? >> Ielp.com. It's an amazing site. I know it's our site, but there's so much free and quality information. wwwirhpirelp.com. We put out blogs several times a week. We answer questions. And when I say we, I'm talking about experts. Uh you'll see the question. You can learn so much just from going into the mailbag where people write in questions. We even say bring your questions. But uh oh, and we also have a part where other people can answer your questions. And usually experts log in there. So you might say, well, if anybody can answer, that's a different section. The section we answer, you know, you're getting it right from the experts. But the uh the I forget what we call it, the mail, it's not the mailbag, something where it's a like a bulletin board where you could just answer ask a question and anybody it's an open forum. >> Let the community have >> discussion forum. That's what it's called. Discussion forum, I think. So anybody can answer. So, you might say, "Uh, well, if I put something in there there, how do I know the answer is going to be correct?" I'll tell you, it's self-correcting because we have had such a following on there for over 20 years. If you post an answer on there that's wrong, you will hear from about 20 people within about a minute and they'll say, "It's wrong because you forgot these three things." And when that happens, you learn so much from that. >> Excellent. All right. Um, well, look, Ed, when I edit this, I will put up the link to your website there, so folks know exactly where to go. Folks, the links will be in the description below this video as well. All right. Well, as we wrap up here, folks, please extend your gratitude for Ed for being so generous with his expertise here with us today by hitting the like button and then clicking on the subscribe button below, as well as that little bell icon right next to it. Uh and very important as we mentioned um you know if you're planning on acting on this I highly recommend that you do so under the guidance of uh a good financial adviser and your CPA. Um but if you don't have a good adviser or CPA advising you feel free to talk to one of the financial adviserss that thoughtful money endorses. These are the firms you see with me on this channel week in and week out. To set up one of those free discussions just fill out the very short form at thoughtfulmoney.com. Tell them you saw this video with Ed and you want to talk to them about the strategies that we we mentioned here. They'll be happy to sit down with you. And again, these consultations are totally free. There's no commitments involved. It's just a service they offer to be as helpful to as many people as possible. Um, also a reminder that we had the thoughtful money spring online conference this past weekend. It was absolutely fantastic, folks. uh hands down the best one we've ever done and uh couldn't have been more timely with everything going on in the world particularly with the war there in Iran and and and all the knock-on effects that's having on the markets and the global economy. Um if you did not watch uh did not attend that uh conference and wish you had, don't worry, you can purchase the replay to the whole thing. To do that, just fill out the very short form and not even the very short form. just go to thoughtfulmoney.com/conference and you can quickly buy the replay video of the whole event, all the presentations, all the live Q&A there. Um, all right, Ed, I can't thank you enough. This was so informative. Really look forward to having you back on the channel again soon. >> Yeah. Thanks, Adam. Great show. Thank you. >> Thank you. And look forward to having you back on again at some point in the future. >> Yeah. >> All right. And everybody else, thanks so much for watching.