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Roth Conversions
65 Plays22 days ago
Explore the powerful strategy of Roth conversions with host Phillip Ramsey on the Uncommon Wealth Podcast. Discover how shifting funds from traditional IRAs or 401ks into Roth IRAs can offer tax-free growth and avoid required minimum distributions (RMDs). Phillip unpacks the benefits, timing, and tax implications, providing valuable insights for strategic financial planning. Learn how this technique can enhance wealth and legacy transfer, offering listeners an uncommon approach to managing their finances. Engage with this episode to understand if a Roth conversion could be a beneficial tool for your financial future.
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Transcript
Introduction to Uncommon Wealth Building
00:00:00
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.
00:00:12
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.
00:00:27
Speaker
Hello, everybody. Welcome to the Uncommon Wealth Podcast. I'm
What is a Roth Conversion?
00:00:30
Speaker
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?
00:00:40
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.
00:00:55
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.
00:01:11
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
Roth Conversion Strategies for Retirement
00:01:20
Speaker
retire, where you have no more income,
00:01:22
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.
00:01:34
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.
00:01:46
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.
00:01:58
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.
00:02:12
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.
00:02:31
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.
00:03:04
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.
00:03:19
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
Benefits of Roth IRAs and Legacy Planning
00:03:40
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and a little bit more than you were 75. So that,
00:03:42
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.
00:04:14
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.
00:04:27
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.
00:04:46
Speaker
Anyway, that's enough for now. I know technical stuff. Isn't that exciting, but
Conclusion and Resources
00:04:50
Speaker
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.
00:04:57
Speaker
And until next time, have a good day.
00:05:01
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.