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How Smart Investors Use Roth Conversions To Supercharge Tax-Free Wealth

Updated: Apr 7, 2021

RL057 – How Smart Investors Use Roth Conversions To Supercharge Tax-Free Wealth

Today on the Retirement Lifestyle Show, Roshan Loungani, Erik Olson, and Adrian Nicholson talk about Roth conversions and Tax rates. They discuss withdrawal and Roth conversion strategies, how to intelligently grow your tax-free assets, and how tax rates can affect your retirement plans.

[04:38] Difference between Roth IRA and traditional IRA

[14:10] Why tax rates and Roth conversions are important

[19:27] How to ensure Roth conversions are as inexpensive as possible

[25:28] Analyzing different Roth conversions strategies

[34:50] Cons of implementing Roth conversions

[37:12] Assessing the current tax brackets

[44:11] Effects of combining a withdrawal strategy and Roth conversions

[48:55] How to intelligently grow the tax-free portion of your portfolio

Roshan Loungani can be reached at or at 202-536-4468.

Erik Olson can be reached at or 815-940-4652.

Adrian Nicholson can be reached at or at 703-915-8905.

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Show Notes:

IRAs are tax-advantaged accounts that people use to save for retirement and include the 401Ks. These accounts operate such that when you deposit money, say through a retirement plan, you don’t have to pay income tax on that portion of the money. However, once you start withdrawing the money, it’s considered ordinary taxable income, which can sometimes be pretty expensive. In contrast, the Roth IRA allows you to first pay taxes before putting money into your retirement plan. This ensures that you won’t have to pay taxes when you pull out the money because taxes were deducted before the money was deposited into the account.

You might be wondering why such strategies are necessary since you still end up paying taxes in both scenarios. It’s obvious that your tax bracket or tax rates will be different during your contribution and withdrawal periods. With the Roth IRA, the main selling point is that you pay your taxes when your rates are lower, thus eliminating the huge taxes you’d potentially pay in the future.

As mentioned in some of our previous episodes, after age 72, a person must make yearly minimum withdrawals from their traditional IRA accounts. For some people, the minimum withdrawal is far greater than their yearly spending. This extra income can potentially take you to a higher tax bracket, which equals more taxes. Moreover, recent tax amendments adjusted the period in which your heirs can take out money. The IRA initially allowed for a 20 to 30-year period in which your children or anyone in charge of your assets can withdraw the money after your death. However, it’s currently limited to 10 years, which means that people will be forced to pull out huge sums of taxable money over a short period of time, thereby possibly raising their tax brackets. With this in mind, it would be best if you protect yourself from such legislation by adopting strategic Roth conversions and withdrawal strategies.

All opinions expressed by podcast hosts and guests are solely their own. While based on information that they believe is reliable, neither Arete Wealth nor its affiliates warrant its completeness or accuracy, nor do their opinions reflect the opinion of Arete Wealth. This podcast is for general informational purposes only, and should not be regarded as specific advice or recommendations for any individual. Before making any decisions, consult a professional.

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