Transcript
Speaker: Everyone dreams of living an uncommon life and the best asset you have to achieve your dreams is you. Welcome to the Uncommon Wealth Podcast.
Speaker: We're going to introduce you to people who are living uncommonly. We're also going to give you some tools and strategies for building wealth and for pursuing an uncommon path that is uniquely right for you.
Speaker: Hello, everybody. Welcome to the Uncommon Wealth Podcast. I'm your host, Philip Ramsey. Thanks for tuning in. I'm excited to talk to you about the more technical, I guess, strategy today, and it's called Roth conversions. What in the world is a Roth conversion?
Speaker: A Roth conversion, and I'm not reading this, so it's just Philip off the cuff, is when retirees or non-retirees take money from a qualified IRA account or a 401k account and move it over to a Roth.
Speaker: Roths taxed different. If you know anything about Roths, you already get taxed when you put it in there. So you taxes are taken out of it, ordinary income, and then you put it into a Roth, they get to grow tax-free, and then you get to access those tax-free.
Speaker: So a Roth conversion is a powerful strategy that people will do. um A lot of times, this is the way we like to implement it. After you retire, where you have no more income,
Speaker: that's the best time to convert some of those monies from an IRA because you're going to be triggering income tax and then converting them over to a Roth IRA, which then can grow tax free and you can access it tax free.
Speaker: ah So this strategy is is really, i would say pretty neat and it allows your money to grow longer, faster, but you have to take the initial hit first and you don't really get that money.
Speaker: So ah that's kind of interesting. You take the money out. Let's say you convert $30,000 in a year. Well, the government sees that you took that money as as income.
Speaker: So you get taxed on that $30,000. depending on tax bracket you're in, it can 12%, 22%, 24%, 33%. It depends which one you're in. can be twelve percent twenty two percent twenty four percent thirty three percent it depends on which one you're in But that's what it'll get taxed as.
Speaker: And then you owe that money at the end of the year. Although you haven't really taken that money, you put it over into account like a Roth IRA account in this example. And then that gets to grow tax free. So this Roth conversion sounds kind of like a bad deal because you don't get to get it in your money. You don't get it in your pocket, I would say.
Speaker: But the good news is once it's in there, you don't have to do this thing called an RMD or a required minimum distribution. Once your monies are in a Roth IRA, those can grow tax free. And then when you're 70, depending on the age, it's either around 73 75 depends when you were depends on when you were born um You have to take these things called required minimum distributions out of your IRAs or your Roth ah or I'm sorry of your 401ks, your 403bs, your 557s, all these things that the government hasn't been taxed on.
Speaker: There comes a point and you get so old or you get... You get to of age, I'll say young, 75, and they're wanting their taxes out. Government is like, okay, you've avoided taxes for so long. You actually got a tax deduction to put it in these accounts.
Speaker: Now it's time for you to take those monies out and we want to start taxing those. Okay. So they will start pushing those out and that, percentage, there's like a calculation that goes up every year. So when you're 76, it's a little bit more than when you were 75, when you're 77, it's a little bit more than when you were 76 and a little bit more than you were 75. So that,
Speaker: that percentage goes up of more that they're pushing out of that account because they're starting to wanting to get their taxes out of it so you get to avoid the rmds the rmds end up being like if you have a million dollars like it starts pushing that money out even when you don't need it so at that point you can also do a roth conversion or in in this example a lot of times it's more beneficial to do a roth conversion when you're when you're when you're younger, I would say, and let it grow tax-free. And don't have to worry about the RMDs.
Speaker: The government can't tell you when to take it out. There are also Roth IRAs are a little bit, i would say, more efficient to pass the next generation. So if you're thinking about like the legacy transfer, things like that. But the Roth conversion is a pretty powerful tool.
Speaker: If you've never heard about it, now you have. You can talk to your advisor about it. You can talk to us. We would love to tell you more information about it. Uncommonwealth.com. Click on Talk to Us Now. Schedule an appointment. Uh, but that could be a really cool strategy that you can look at your plan in a little bit different perspective and, and see if this is a good thing for you.
Speaker: Anyway, that's enough for now. I know technical stuff. Isn't that exciting, but it is helpful. And I think it's powerful for some people. So you've been listening the Commonwealth podcast. I've been your host, Philip Ramsey.
Speaker: And until next time, have a good day.
Speaker: That's all for this episode brought to you by Uncommon Wealth Partners. Be sure to visit UncommonWealth.com to learn more about our services. Don't miss an episode as we introduce you to inspiring people who are actively pursuing an uncommon life.
