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Intro: Hi, I'm Ed Slott.

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And I'm Jeff Levine.

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And we are two guys who just love
to talk about retirement and taxes.

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Look, our mission is simple to educate
you, the savers, so that you can make

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better decisions because better decisions
on the whole lead to better outcomes.

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And here's how we're going to do that.

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Each week, Jeff and I will debate
the pros and the cons of a particular

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retirement strategy or topic with the.

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Helping you keep more of
your hard-earned money.

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Yeah, but we won't know which side of
the debate we're taking until we flip

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a coin winner of the coin flip gets to
pick which side of the debate they want

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to argue, and both of us will have to
argue in favor of our respect positions,

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whether we agree with them or not.

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At the end of each debate, there's
going to be one clear winner you, a more

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informed saver who can hopefully apply the
merits of each side of the debate to your

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own personal situation to decide what's.

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For you and your family.

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So here we go.

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Welcome to the Great Retirement Debate.

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Ed Slott: Hi everyone, I'm Ed Slott
along with Jeff Levine and welcome

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back to the Great Retirement Debate.

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Now, if you remember last time we
really got into it whether to convert

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to a Roth or not, and I would have to
say I probably lost, I did lose the

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to the coin toss and I had to take an
argument that I might not agree with.

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But as usual, Jeff, we wanna give
people both sides of the coin, and I

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took the side for reasons when it might
not be favorable to convert to a Roth.

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And it got so, uh, it, we got so into
it that we had to make two episodes.

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So this is the beginning of part two.

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So Jeff, continuing from last week,
here are even more reasons or situations

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where it may be more favorable.

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Not to convert to a Roth ira.

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It's all about the tax rates and
that's what this Roth conversation is

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about, to convert or not to convert.

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It's a big giant bet on where you
think where, uh, where tax rates

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are today versus what they might be
in the future at distribution time.

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If you think tax rates will be
higher later on, as Jeff just said,

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than, uh, the Roth is a good deal.

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If you think tax, your own
tax rates might be lower.

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But you have to look beyond too.

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Uh, you might even look
towards beneficiaries.

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I remember one guy, uh, telling
me years ago, and I, I told him

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all about converting and I talked
about the tax rate argument and he

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said, well, I don't mind it for me.

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Uh, but, uh, to put it nicer than
he put it, he says, I got three

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kids and they're all losers.

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Uh, they'll never be in a house

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Jeffrey Levine: That was
nicer than he put huh?

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Ed Slott: What's that?

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Jeffrey Levine: That was
nicer than he put it?

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Ed Slott: Oh, that was way nicer.

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. 
Jeffrey Levine: Okay.

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.
Ed Slott: He said they will never be
in a high bracket, but granted that was

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back in the days of the stretch IRA,
and he said they're gonna always be a

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low bracket, so that might be a little
different now with the 10 year rule.

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But you have to look beyond the tax rates.

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You know, if you leave an IRA to
beneficiaries, remember the more

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tax returns, you could spread
that income over, and that is

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totally about the beneficiaries.

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Let's, for example, even under the
10 year rule, if you have three kids

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and they wanted to spread out, uh,
the distributions on the IRA that you

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didn't convert, that you left to them,
and they wanted to do it over 10 years,

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they could spread that income over 30
different tax returns, 10 years times,

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uh, for each of the three of them and
get that money out at almost nothing.

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Now that's on the backend.

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That may be a concern for you too.

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Another reason.

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So that may be a reason to hold on.

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Not convert and let them get that
money out at bargain basement

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rates, especially if they
themselves may be in lower brackets.

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Again, it's all about the brackets,
the marginal rates now versus

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when the money has to come out.

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Another reason.

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Okay, go ahead.

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Jeffrey Levine: Good.

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Yeah.

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Lemme pause you there, Ed, because you
know you're talking about the brackets

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and the rates and when people get stuff,
but you know, one of the things that makes

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IRAs different from just about every other
type of asset is that you can't get it

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to someone else until you are dead right?

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There's no way to gift an IRA to,
to other heirs during lifetime.

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And most of the time, married couples,
uh, will end up leaving their IRA

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to each other first, and then when
the second one passes away, that's

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when it goes down to the kids.

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Well, you talk about that and you
said spreading, you know, spreading

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the tax bills over lots of different
returns, which sounds great, but while

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you're alive, there's just one return.

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You could spread it over yours, and if
you are married and one of you passes

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away and the survivor lives for some
sort of extended period of time, you

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go from using the nice joint brackets
down to the single brackets, which

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get you to much higher tax rates at
much lower income levels and so that

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can end up being a significant impact.

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Sometimes people refer to as the widow
or widowers penalty, and effectively what

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happens is someone who's surviving can
end up with slightly less income cuz you

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lose the lower social security check.

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and you sometimes lose pensions, etc.

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Uh, there's that word again, Ed.

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Uh, but you can sometimes lose some
income, but still end up with a

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significantly higher tax bill because
you're paying a higher rate, because now

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you're filing as a single individual.

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So converting while both members of
a couple are alive is almost like

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buying, uh, tax bracket insurance.

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You're ensuring that you can
use those joint brackets as

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opposed to the single brackets.

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Ed Slott: But again, it all comes
down to if you think you'll be

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in a lower rate in retirement,
some people believe they will be.

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Another reason you may not wanna
convert, at least everything is if you're

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anticipating, and a lot of people are,
large medical bills, as you get older.

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You wanna have, if the only money,
if that's where most of your money

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is, is an taxable IRA, you're not
gonna wanna convert that because if

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medical bills go really high, and I
have to tell you the last 10 years, it

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hasn't been unusual to see tax returns
where people claim over a hundred

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thousand dollars of medical expenses.

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I had this, you know, with my own, uh,
mother recently, uh, nurses age, uh,

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uh, nursing homes, uh, all, all kinds
of uh, medical home improvements, ramps

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and railings and chair lifts and stair
lifts and widening doorways and hallways.

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Bathroom and kitchen modifications.

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These are big ticket items.

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If the only money available to pay for
that is in an IRA, don't convert it.

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Use that IRA.

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If you convert it to a Roth, now
you paid tax on money you could have

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got  a deduction for that would be a
reason to keep some of that IRA money

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use it to pay these medical bills.

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At least you'll get somewhat
of an offsetting deduction.

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I know there's a threshold amount, but
I'm talking about big ticket items.

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Uh, you'll get some type of big tax
benefit by using regular IRA money.

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And there's another reason
you have to be careful and you

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should always do a projection.

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One thing with Roth conversions,
you better be careful what you

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do because they are permanent.

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There's no backies, there's
no getting your money back.

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There's no do overs.

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That stopped a few years back.

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We used to call them Roth
re-characterization, so I

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wouldn't be so quick to convert.

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I, I'm not saying that should
deter you, but you have to have

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an accurate tax, pro projection.

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You have to know what it's going
to cost before you buy in because

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you can't get your money back.

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So those are some other reasons.

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I'll throw in one more reason.

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This may not affect a lot of people,
but right now we have this, uh,

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oddball deduction, which does help
a lot of self-employed people.

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The qualified business income deduction.

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If you convert to a Roth and you have
a, uh, maybe you have a small business

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that has passed through income or your
Schedule C, self-employed, or you have

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an S Corp or an L L C or a partnership,
we have passed through income.

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You may or may not be always
run this by your tax advisors.

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Uh, you may qualify for
a huge 20% deduction.

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If you are under certain income limits
for certain groups, without getting into

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the weeds on this, a Roth conversion
can actually kill that and cost in

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the wrong year, uh, cost you a big
tax deduction on your business income.

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So those are other things, not to
mention if maybe your younger or you're

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paying for a, a college and uh, uh,
you, the income from a Roth conversion

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could throw you out for financial aid.

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So there are, uh, reasons on
both sides of this debate.

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Jeffrey Levine: You know, Ed, you, you
hit on something there that, uh, it's not

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an argument for my side nor an argument
against my side, but just a point that

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I think that we should really hit on.

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You talked about the phasing out of
this Q B I deduction, and that's just

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one example, this business deduction
that Ed was just talking about, that,

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you know, that's just one example.

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There are credits that phase out as
income goes up, there are other deductions

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that phase out as income goes up.

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Ed Slott: IRMAA charges,
or what we call sur taxes.

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Jeffrey Levine: Exactly.

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Sur taxes, right.

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The 3.8% investment, surtax, all
the good things basically that

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are on a tax return that go away.

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Yeah.

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Where the bad things that come in are
somehow keyed to income and, and so

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when we talk about rates, so oftentimes
people associate rates with brackets.

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The brackets help to inform
what the rate is, but they don't

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determine what the rate is.

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There are times when you might be
in a lower bracket but be paying a

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higher tax rate because you're phasing
yourself out of some sort of credit or

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deduction you may not get in the future
because of circumstances changing.

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For instance, you know, if you phase
yourself out of an education, uh, credit.

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Right.

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Well, you only get that credit maybe
while you or your kids are in school.

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Once they're outta school, you
don't have to worry about phasing

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yourself out of the credit anymore
cause you don't get it to begin with.

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So, and whenever you're doing this
and talking with your financial

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professionals, either a tax advisor or
your financial advisor, it's important

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not to fall into the bracket trap of
just looking at what bracket you're in.

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You have to look at the,
uh, the full picture.

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Now, ed, I wanna bring up, one
maybe last argument here from my

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side and I think it is my, my Trump
card, and that is peace of mind.

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You know, peace of mind.

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Uh, when we talk about retirement,
there are so many unknowns.

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How long will I live?

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What will interest rates be?

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What will markets do?

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What, you know, what
will my health be like?

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What will inflation be?

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All of these are unknown.

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So is what will my future tax rate?

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Will, uh, what will my future tax rate be?

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Unless that money is sitting in a
nice, beautiful tax free account

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like the Roth IRA and there, even
if I've overpaid a little bit.

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Now, I certainly wouldn't suggest people
make foolish decisions and dramatically

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overpay, but if you're not sure.

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There are some times when people
will just do things because it gives

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them peace of mind and security.

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The same thing goes for, for
people who maybe, you know,

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like Ed, I know you drive a car.

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Thankfully, you are in a position where
if, God forbid something happened,

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if you, if there was an accident
and someone hit your car, uh, you

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would be able to pay to fix your car.

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You don't need insurance on your car.

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You don't need collision
insurance, but you own it because

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it gives you peace of mind.

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And the same thing comes with the Roth.

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And by the way, Anytime you buy insurance,
theoretically on the whole, it should

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be a losing proposition, otherwise
the insurance companies would be out.

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Ed Slott: Yeah.

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Damn, my house didn't burn down
and I had all that fire insurance.

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Jeffrey Levine: That's right.

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Exactly.

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No one gets upset about that.

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No one goes and drives to work
and says, ah, can't believe I

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didn't get into an accident today.

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Driving to work.

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What a waste of money.

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No.

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Sometimes you do things just cuz
it gives you peace of mind and the

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Roth conversion can do just that.

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I rest my case with that argument.

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Good, sir.

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Ed Slott: All right.

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I think you rested your case to do
a Roth conversion by handing me off

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the biggest softball in this debate.

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On reasons maybe not to convert, you
said, well, at least I have insurance.

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My Roth will be tax free forever.

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I never have to worry about it.

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Well, CPAs have an old saying, tax
laws are written in pencil, and

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the number one question, and you
probably know what it is, I get in

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every program I do for consumers.

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Especially after I talk all about
the great things which I love

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Roth IRAs, cause I love tax free.

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They say, yeah, but can I trust the
government to keep its word that

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Roth IRAs will always be tax free.

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What if they need money?

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Can they change the laws, I
guess anything's possible, but

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that sits in people's minds.

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They don't wanna be played
for suckers paying a tax.

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And then the Congress can find
some way around the fringes maybe.

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Personally, I don't think they'll do
it because if they kill the golden

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goose, which is the Roth IRA for
them, that produces a lot of revenue.

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But it's what people are thinking about.

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And if that keeps you up at night,
that may be a reason not to convert.

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Jeffrey Levine: Well said.

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Well, you know, Ed, this one,
perhaps more than any other that

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we've talked about so far, truly
has two very, very compelling sides.

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Uh, there's lots of reasons to convert,
lots of reasons not to convert.

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As you pointed out, Ed, for
many people, this is not an all

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or a nothing decision, right?

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It's ultimately, uh, you know,
most people who do conversions.

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Probably should not do a
giant conversion one time.

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It's usually done over many years, uh,
in a limited fashion each year, so as

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not to raise the rate too high, obviously
the more you convert, the more income

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you're gonna have, the higher your income
tax rate will be, you know, save for

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maybe those at the highest tax rates
already where it can't get much worse.

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Uh, and we look at someone who might be
paying more tax down the road when things

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expire, going from 37% back up to 39.6.

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With the exception of those who are
already at that highest tax rate, uh,

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it's likely that this is a multi-year
process to shift money over, and for

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many folks it will ultimately be a
combination of traditional IRAs, Roth

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IRAs, and taxable accounts like joint
accounts, individual accounts, revocable

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trust accounts that ultimately produces
the greatest, uh, tax efficiency

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in terms of, uh, and, and, and...

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Ed Slott: What we call
tax risk diversification.

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Jeffrey Levine: Tax risk diversification.

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Indeed.

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Now, I, I will say Ed at, uh, you
know, at the risk of arguing against

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something I just said, I think too many
people aim to have that diversification.

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The goal, as we talked about
earlier, is pay your taxes

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when your rate is the lowest.

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Ed Slott: Right

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Jeffrey Levine: But oftentimes that
results in having tax diversification,

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which you can then use to your advantage.

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Ed Slott: Right.

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That was a good point.

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Jeffrey Levine: Alright, well Ed on
that note, when you say it's a good

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point, that's where I wanna end.

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So I'm gonna end there and call it a day.

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You know, Ed..

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Ed Slott: Like that Seinfeld episode
where George, uh, makes an argument.

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I'm outta here!

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Jeffrey Levine: That's it.

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I'm out.

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I'm done.

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The summer of George.

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All right.

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I've been watching old
Seinfeld episodes lately.

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I got to that one the other night.

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Alright, well on that note, uh, you
know, there are two sides to every coin.

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We covered them today, but your life
and your retirement decisions are too

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important to leave up to that coin flip.

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And that is why the one thing that.

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And I will always agree on is making
sure that you talk through any big

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decision like should I convert to
a Roth or not with a knowledgeable

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financial advisor or tax professional,
so that you can weigh the pros and

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cons of these decisions against
your specific goals and objectives.

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If you'd like to continue to
discussion with Ed and I, we

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would love to hear from you.

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Let us know what you think.

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Do you have your money in a
Roth, in a traditional IRA?

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Are you in the process of converting?

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Do you believe the government
when they say it's gonna be tax

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free in the future, let us know.

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Reach out to us on Twitter using
the handle @TheSlottReport that's

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@TheSlottReport for Ed, or @CPAPlanner.

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Once again, that's @CPAPlanner for myself.

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We'd love to hear from you,
Ed, this one was a lot of fun.

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I can't wait for our next debate.

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Ed Slott: Oh yeah, on the Great Retirement
Debate, this was a big one to Roth or not.

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Listen back a few times.

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There were a lot of points in this
one, so you may wanna play it back.

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And we also talk fast.

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See you next time on the
Great Retirement Debate.

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Outro: Jeffrey Levine is Chief Planning
Officer for Buckingham Wealth Partners.

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This podcast is for informational and
educational purposes only, and should

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not be construed as specific investment
accounting, legal or tax advice.

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00:16:21,354 --> 00:16:24,264
Certain information mentioned may
be based on third party information,

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00:16:24,264 --> 00:16:27,114
which may become outdated or
otherwise superseded without notice.

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00:16:27,174 --> 00:16:30,384
Third party information is deemed to
be reliable, but it's accuracy and

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00:16:30,384 --> 00:16:31,824
completeness cannot be guaranteed.

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00:16:31,974 --> 00:16:34,974
The topic discussed in corresponding
arguments are those of the speakers

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00:16:35,154 --> 00:16:37,914
and may not accurately reflect
those of Buckingham Wealth partners.