Back by popular demand (probably), Host Josh Bretl is diving into the finer points of savings conversions in a follow-up to Part I of a very special Retirement = Freedom Podcast arc devoted to all things Roth IRA. If you missed the first installment, you might want to review the basics by listening to Episode 011, which you’ll find here.

This episode is devoted to the timing of moving your savings from pre-tax traditional IRAs and 401k retirement plans into a Roth IRA whose growth going forward will be tax-free. The ouch, of course, is that the nest egg on which those future free distributions rest has to be taxed in the here and now. So it can be tricky! Josh explains some of the factors that must be analyzed when developing a smart conversion strategy. And a critical word of advice: Do your due diligence because once you click “convert,” there’s no going back. It’s important to be sure you’ve got a firm grasp of your current and future earnings and tax scenarios!

Feeling a little unclear about the finer points of Roth IRA conversions versus sticking with your traditional IRA? Josh and his intrepid (which isn’t to say marathon-ready) cohost Dave Schmidt frame the decision in terms of weight loss and the pay-it-now or pay-it-later reality of managing good health. It’s a two-for-one. Great financial planning education plus inspiration for that physical fitness regime you’ve been putting off. So put down that Puddin’ Cake and join the fun!

Are you in the FSR Wealth Strategies family and curious to learn more about Roth IRAs? Click  here to join our new private Facebook group and request a free Roth conversion analysis and maybe even win a chance at an original Dave jingle personalized just for you!

Now, a lot of people think that they can't

use a Roth because they think, "Hey, I'm retired now, the

rules are I can't use a Roth."

But those Roth conversions are a way that pretty much allow

almost everybody to utilize a Roth IRA for their benefit.

Back by popular demand, maybe, we're diving

into the finer details of Roth IRA conversions.

As a follow up to episode 11, we talk about the timing

of moving your savings from pretax traditional

IRAs, into a Roth IRA.

Roth IRAs grow tax free, but the "ouch" of course, is that you're

being taxed in the here and now.

So timing is everything.

Josh also explains the factors that must be analyzed when

developing a smart Roth IRA conversion strategy.

And finally, are you feeling a little unclear about the finer

details of going with a Roth IRA conversion versus sticking

with your traditional IRA?

Well, Josh and I frame the decision in terms of weight

loss and the pay it now, or pay it later reality

of managing good health.

So put down that Puddin' Cake and join the fun,

cuz this is the Retirement Equals Freedom Podcast.

Your host, Josh Bretl, is the owner and founder

of FSR Wealth Strategies in Elmhurst, Illinois.

For the last 18 years or so, he's been helping

people just like you thrive in their retirement.

And me?

I'm Dave.

Josh's cohost, longtime friend and financial project.

I'm here to keep Josh from getting too technical on you.

And now let me, let you, let me end this introduction,

so you can enjoy the show.

FSR Wealth Management is a registered investment advisor

located in Elmhurst, Illinois.

Information and opinions contained in this audio

have been arrived at by FSR Wealth advisors.

All information herein is for informational purposes

and should not be construed as investment advice.

It does not constitute an offer, a solicitation or recommendation

to purchase any security.

FSR is not providing legal, tax, accounting, or financial

planning advice in this audio.

These views are as of the date of this publication

and are subject to change.

Josh, good afternoon, friend.

Hey buddy.

Hey Dave, you're wearing the same shirt you wore

in episode, whatever, 11.

It's because I slept here last night.

I did get a comment from your friendly staff.

I walked in this morning and they said, "Dave, you're

wearing another collared shirt."

And I said, "Yeah, it is number two of two."

I thought I was wearing the only one I owned at the

client event on Tuesday.

Turns out I had another one in the closet sitting there

probably from high school.

It still fits you.

It still fits.

It's huge.

It's super baggy.

And this brings us to a really important point, Josh.

This weekend, Carla, put in our calendar an hour to

go shopping at Kohl's for me to buy like nice shirts

for when we do podcasts.

Oh, Carla.

God bless you.

Yeah.

It's kind of embarrassing walking in here with t-shirts.

I actually owe you an apology.

Oh.

At the client event on Tuesday, I introduced you.

And there was no background.

There was no setup.

I just made fun of what you were wearing.

And the people who listened to the podcast

would understand that.

But, there was a lot of people there that had never

heard of the podcast before, but we told them about it.

But, I made fun of you in front of them for

what you were wearing.

And I actually felt bad afterwards.

What?

Yeah.

Now, the setup wasn't there.

If I would've set it up ahead of time and told them

the people who were there, how awesome you are as a

person, but how terrible your clothing choices are, they

would've been okay with it.

But I wouldn't have felt so bad.

And I think it rolled off me

like water on a frog.

Don't you love when you start an analogy?

You're like, all right, what am I going to go with here?

I think just based on my decades

of self-deprecation I'm like, he's right.

You can't offend me, by the way.

Also, this is like the third client event I've attended,

and each time you've introduced me, and so I think for a

portion of the room, they kind of know who I am to

you and to the whole setup.

That is true.

There was some guilt that came in there.

Well, I appreciate that.

I appreciate that.

What I'm really interested in is this hashtag tax nerd.

'Cause that is something I threw out there a few episodes ago.

And you wrote this for our little kind of show notes here.

Can you tell me more about this?

I haven't told you this story yet.

And we've already talked about how my kids and I like to listen

to the Retirement = Freedom podcast in the car, and-

It's a kid appropriate.

It's a family friendly show.

I don't know why they'd care about

Roth IRAs or taxes, but-

Because they're Bretl's.

So we were driving, it was a Saturday morning

and it was soccer morning.

And so my daughter had a game and then my boys

had a little bit after.

So we all went to my daughter's game and then I took the

boys over to their game.

And we're driving across town and I said, "Guys, there's a new

Retirement = Freedom podcast.

Do you want to listen to it?"

And of course, like, "Yeah, of course Dad."

And-

I love those kids.

They're so awesome.

So in the beginning of the episode, we're talking

about the kids, like we have in prior episodes.

And I was talking about how Alex talks about or

asks me at nighttime to tell them about taxes.

And actually another funny story about that one, but

you made the comment and you go, "Hashtag tax nerd."

And Alex thought that was so funny.

I mean, at first he looked at me like, "Dad, why are you making

fun of me on the podcast?"

But then he thought that was so funny.

And so throughout his whole soccer game, he'd look over

me and go, "Hashtag tax nerd."

And all day long and my family and we would call each

other, "Hashtag tax nerd."

So cool.

In our Retirement = Freedom Facebook group, we'll

have to make sure we get the hashtag tax nerd going there.

You know what we should do as a summer

project, and maybe add it to your family's bucket list, let

Zach and Al and Maggie, and maybe Landon, design a t-shirt

with hashtag tax nerd on it.

And we can sell it and we can give all money

to like a charity.

Maggie would love that.

Yeah?

Yeah.

I mean she designs whatever she can.

But that'd be really cool-

A swag store.

If we could do that.

We'll get a hashtag tax nerd t-shirt.

So I was telling that story to my parents.

And once again, that night we're laying with Alex in bed

and hashtag tax nerd came up and were laughing about it.

And he says to me, "Well, Dad, taxes are on stuff that

you have to buy, right?"

I said, well, "Buddy, those are actually sales taxes.

What I'm talking about on the podcast are income

taxes, and that's taxes on money that you earn."

And it was like his mind was just blown.

He's like, "Oh my God."

He goes, "There're other types of taxes?"

so cool.

I said, "Yeah, well there's use taxes

and property taxes."

So he comes down and he is at my parents' houses or

something the following day.

And he starts telling my dad about the

different types of taxes.

Oh my God.

He's eight years old.

Oh, he's going to be so well prepared for life.

Or he's going to learn disappointment

at an early age.

One of the two.

Now one tax you talked about early on in one of

our episodes was the dad tax.

So I would've loved that story.

Oh, Daddy tax.

I love the story about Al coming to

tell your dad about taxes.

I think what would make this epic though, is if your dad

introduced the grandpa tax to Al, and so whatever snack

he was eating, Cheez-It's, Goldfish, grandpa would be

like, "Grandpa tax," take a handful of snacks and eat them.

I think Alex would just look at him

like, "What are you doing?"

"Listen Grandpa, I like taxes and all, but

I don't like this tax."

we're going to spend some time with

my parents coming up here.

If my father gets to hear this podcast before then, I'm

sure grandpa tax is coming.

Love it.

So Alex, if you're listening to this and grandpa takes

something from you, it's because Dave told him to.

That's right.

So you're good.

And it's a hundred percent right.

But no, it was fun.

And if you hear us around the house going, "Hashtag tax nerd."

That's what it is.

Love it.

Cool.

Dave, how many minutes in have we

not mentioned today's- actually, you know what?

We actually have mentioned today's topic so far.

We did mention it.

We're at seven and a half minutes Josh.

Oh man.

We are terrible.

Well, this episode I actually wanted to do kind of

a part two of our prior episode.

And because Roth IRAs were so riveting that I

thought, you know what?

We should do a second part to that.

And I clearly remember after that episode

you were distraught.

You went into like the fetal position like, "I didn't talk

enough about conversions.

Oh."

So spoiler alert, we're talking about Roth conversions.

Oh wait, can I just mention?

I got to get this out there.

K-Cup, not Cometeer coffee.

Cometeer, I'm coming for you.

I need your coffee.

All right.

Continue.

That's why you're in the fetal position.

No, so we have a rule in our office that whenever you

identify a problem and you ask somebody for help, you have

to have a potential solution.

Your solution may be wrong, that's okay.

But you have to have a potential solution.

I don't just want to hear about problems.

I want to hear about how you think you're going to fix them.

And so I told everyone how great Roth IRAs are, but I never told

people actually how to use them and how the conversions work

and things along those lines.

Oh gosh, you see.

For most retirees, they are at a point in their

life, and we can't change where they're at today.

They've gotten to a point, and most retirees aren't

thinking about taxes or even Roth IRAs until they

get to the point where it's too late to save into it.

They think in their mind, "Oh, I wish I would've done

that back when I was 40."

Or, "I wish I would've that a long time ago, poor woe is me.

I can't do anything about it now."

Yeah.

Regrets, I've had a few.

My favorite is when you sing things, it's when it

becomes a musical podcast, Dave.

I am artsy.

So, people just kind of think they

can't do anything about it.

And actually, for a lot of people, where you are

now might be the best thing possible for you.

But now you have to look at going forward.

And you can't just sit back and relax and, "Hey, I'm retired.

I'm done."

Like no.

Now it's time to do some serious tax planning.

So Roth conversions are something you can do to take

advantage of your tax situation.

So Roth conversions, what are they?

Roth conversions are when you take money out of your

regular traditional IRA and move it to a Roth IRA.

Now, as a recap from last episode, traditional

IRAs is money you have yet to pay taxes on.

Roth IRA is all money you already have paid taxes on and

you'll never pay taxes on again.

Correct.

Okay.

So moving money from your traditional over to your

Roth is a taxable event.

That money gets added to your income.

But once it's there, it's tax free forever.

In perpetuity.

In perpetuity.

So why would you do that?

So what you're doing is you're constantly comparing and

you're doing an analysis of paying taxes now versus paying

taxes later, paying taxes now versus paying taxes later.

So you have to start with the baseline.

Where am I going to be if I don't do it?

And you actually can do tax projections into the future.

And so right now, tax rates are where they are.

We know in 2026, they go up.

Let me give you an example here.

So people will retire in their mid sixties and they'll think,

"Hey, I got enough money saved up," in their savings

account, whatever it might be.

And they just spend that money down.

And all of a sudden their tax rates are really freaking low.

But they get to age 70 and social security kicks in,

and age 72 when the required distributions kick in.

And all of a sudden their income pops back up.

And that's a time, we know tax are going to up in 2026.

They could go higher.

People aren't thinking about that where they are

going to have to pay these higher taxes in the future.

It felt really good to not pay them right now,

but we have these higher taxes in the future.

And on top of that, not just the taxes, but it causes Medicare to

go up and social security to be taxed and things on those lines.

So with a Roth conversion, by paying those taxes now versus

into the future, there could be some very real tax benefits.

We use what we call tax bracket management, and tax

bracket management is pretty much using your current tax

return to your advantage.

So for retiree, there's a lot of advantages they have

in a tax return, especially with the tax cuts that are

going on right now with the high standard deductions.

There's all sorts of things that they can do to take advantage

of the current tax situation to benefit them down the road.

But no, tax bracket management just says, "Hey, if you

have the 12% rate available to you, let's use it.

If you've got the 22% rate available to you, maybe

we should use this now."

So it's that tax bracket management that we're

trying to implement into someone's situation.

And there's some great analysis that we can do.

And over your lifetime, it can be hundreds of thousands, if

not millions of dollars in your pocket, that the only difference

is how things are taxed, and that's that Roth conversion.

So, that traditional IRA to that Roth IRA can

be extremely powerful.

Now, does that make sense?

Makes sense.

Yeah, that was a deep dive into what they are.

What they are.

Now, a lot of people think that they can't use a Roth

because they think, "Hey, I'm retired now, the rules

are I can't use a Roth."

But those Roth conversions are a way that pretty much allow

almost everybody to utilize a Roth IRA for their benefit.

So, does that make sense?

Total sense.

So why and when would you convert?

And there's some benefits to it.

So people can identify, "Hey, I need to convert

or I'm going to do it."

And we can help you with some analysis of proper conversions.

You don't need to convert at 35% if you're going to

be in 12%, the rest of your life, that's just stupid.

But, there are reasons to do it now.

So for example, we're in a moment right now, when, as we

record this in late June of 2022, the stock market's down.

Stock market's down.

The S&P500 is down over 20% for the year so far.

And most people agree that it's going to come back up.

So when the market is down like this, and if you're holding

an asset that you really like, let's use Netflix as an example.

I'm not suggesting, this is not a recommendation to buy Netflix.

This is just as an example.

Netflix for the year is down like 70%.

Now, if you think Netflix is a great company and it's

going to bounce back in the future, it's going to earn

all of that 70% back, this could be a great conversion.

So let me give you an example.

Let's say you own a hundred shares of Netflix.

Okay.

And it's worth $10.

So you have a thousand dollars of Netflix, all right?

It drops to $3 and now you only have $300 in Netflix.

So we can convert the $300.

You're going to pay taxes on $300.

And if you think it's going to bounce back, now it

bounces back to that full $10.

You just earned that $700 tax free.

Got it.

Okay.

And if you think there's future into it.

So I use that spring example in the past episode, but it's

kind of like having, right now we have a compressed

spring and you only pay taxes on how big that spring is.

And all of a sudden, as you move it over and the spring

expands, you've just avoided a lot of taxation on that.

Yeah.

Makes sense.

So in a down market, Roth conversions can have a

lot of value as long as you believe that those investments

are going to come back.

Yeah.

Will spring back up.

They will spring back up.

There's a few things we tell people though,

you have to be careful.

There is not an undo button.

So if we do a conversion, it's done.

So when you do a conversion, you have to be careful

about what it's going to do for your tax rates.

You have to do be careful what it's going to do

for your Medicare cost.

You have to make those considerations because once

you do it, you can't undo it.

What you're saying is unlike our

podcast, if I say something ridiculous, we can edit it out.

Yeah.

Or-

We' can't do that with conversions.

No, no.

I mean, you sneeze too loud and we can edit that.

Not with a conversion.

We can't do.

Wow.

Okay.

We used to be able to, and those were the good

old days of Roth conversions.

Good old days.

No, you have to be cognizant of all of

the impacts that it has.

Did like congressman or Senator

Roth, be like, "I'm going to change the rules now"?

They had to do it because people were

taking advantage of it.

We would over convert quite a bit.

So we'll use this example.

I told you right now, when stock market's down, you

want to convert things that are going to grow.

We would actually double convert.

So, we would convert things and we convert

some really conservative assets and we convert

some really risky assets.

And from the time we converted, if the market

went way up, we'd unconvert the conservative assets.

Oh, I see.

And if the market went down, we'd unconvert the

stocks and we'd keep them.

So there was ways to do that-

got it.

That aren't there anymore.

Got it.

Okay.

I love telling people about the good old

days they can't have anymore-

the good old days.

But it's there.

So it's like saying, "Yeah, we used to be able to get 10

cents a gallon on gas, but."

we used to get five for five at Arby's.

We just drove by the other night.

What was it?

It was two for six.

I mean, I'm no mathematician, but that is

far less of a better deal.

In a prior episode, this is totally

not about Roth conversion.

In a prior episode, we talked about inflation,

and I was laughing.

I was with Dave the other night and we drove past an

Arby's and the price for roast beef was two for six.

When we talked about it earlier, we used to get five for five.

That's when I knew he was really feeling inflation.

That's when I knew that was really there.

Did you see me rolling down my

window down and point to the sign as you drove by?

I was hoping you did.

Amazing.

But no, Roth conversions can be extremely

beneficial for people.

But there's some pain that goes with it.

No one likes to pay the tax.

And that's the hard part.

And what you have to realize is that tax is going to

be paid no matter what.

You just want to pay it as cheap as humanly possible.

And this goes back to the, if you want to get to your end

destination in the best possible way, unfortunately we're

going to have to pay that tax.

And so paying that tax is necessary.

You don't want to pay more than you have to, but there's

some real benefits to doing that now, as opposed to later.

So you're saying there are things that we

should do now as opposed to waiting to do in the future.

That is what I'm saying.

I need you to hit that button.

Oh man.

Dave relates To Retirees.

Yeah.

Oh, I like it.

And you know what, friends?

I'm going to surprise Josh here, because it's not only

Dave Relates To Retirees today.

It's also Josh Relates To Retirees.

Yeah.

Your facial expression is great.

Now, that's not really fair.

I mean, my entire life is relating to retirees,

but okay, go ahead.

Okay.

That's a fair point.

Josh relates to Dave relating to retirees.

Yeah.

All right, look, something that you and I both should

focus on now, as opposed to the future is our physical stature.

Some people say overweight.

I prefer pleasantly plump.

But driving here today, every bump I hit on Route

83, I felt the jiggle.

And as your friend, Scott and Delaney, what's the last name?

Kaylor.

Scott Kaylor on the beach of your parents'

house in Michigan years ago, he was running and he looked

over at me and Matt and you.

And he goes, "This is a healthy jiggle fellas," right?

He was a little plump back in the day.

This is not a healthy jiggle anymore, Josh.

I should be losing weight now and not in the future.

Can you relate to how I relate?

Not only do I relate, I understand

exactly what you're saying.

Now, my friend Scott, I don't know if you've, you

haven't seen Scott in a while.

Scott now has a beard, like a mountain man.

I mean, it is literally like down to the middle of his chest.

Is it red?

Yeah, it's red and gray.

And he now runs Ironman triathlons.

What?

So, he has lost any pleasant jiggle, and you

and I have picked up all of it.

Oh, his healthy jiggle.

So now who would win in a race?

Scott or Brent?

Scott and Brent are really good friends and I

hope they both listen to this.

And I'm not going to take sides.

But, one of the two would lose.

That's all I'm going to say.

Let's relate to this.

Yeah.

Let's, please.

Please.

I'm going to jingle out.

Dave Schmidt:

Relates To Retirees.

Dave Schmidt:

Yeah.

This is the easiest one you've given me.

Thank you.

Roth conversions are done in order to make

the rest of your life better.

But Roth conversions are painful because as you do

them, you have to pay taxes.

And I will tell this story in workshop sometimes that

I'm adamant that I get my blood drawn before I go

to my physical, because I want my doctor to be able

to tell me something other than just lose weight.

Yeah.

I love that story.

In fact, I'm supposed to have a physical

today this afternoon that I postponed, 'cause I haven't

had my blood drawn yet.

So, they didn't get the order in time for me

to get my blood test.

Roth conversions, people don't like paying the tax, and

they just don't enjoy that.

Which I don't blame them.

I don't like it either.

But like losing weight or stopping smoking or whatever

all those things are that are really healthy for you, this

can be an extremely healthy endeavor for your finances.

Love it.

And there are certain people out there

who are so skinny you don't want them to lose weight.

There are certain people out there who they're in a tax

situation that we don't want them doing Roth conversions.

But, there's a lot more people like you and I who

could stand to lose quite a bit will be around longer.

The reason we would lose weight is because we want to enjoy

our children and live a longer life and not have our knees

hurt and maybe play basketball again and do all that fun stuff.

The same is true for Roth conversions.

You're going to do them because they're going to benefit-

you long term.

In the long term.

Oh man, I kind of feel good after

having this conversation.

But you know what I feel better about Josh?

Any minute now we'll be having our food delivered

for lunch and I'll let you tell our listeners, what did

you and I order for lunch.

Salads.

We ordered salads people.

100% that is hashtag fact salads.

Not sushi, not sandwiches.

Salads.

You know who's going to be most surprised by that?

Who?

Our wives.

Oh, a hundred percent.

Yep.

Yeah.

Maybe we'll take a picture of our salads

for people today and we'll post it in the Retirement

= Freedom Facebook group.

We'll do it.

And then oh, it's a good thing we haven't ordered

Puddin' cakes yet.

Because I would just break it up in little pieces

and put it on top of the salad and [nom nom nom].

I mean Puddin' cakes.

All right, cool.

Roth conversions.

You thought it was going to be a short episode.

It's a good one.

It's an okay one.

Roth conversions are fun.

And Roth conversions are something that

have to be analyzed.

This is one of those things that it is unique to your situation.

So if you're in the Retirement = Freedom

Facebook group, let us know.

We'd be happy to run an analysis for you.

If you've been a client for a long time and you need yours

updated, we do those constantly.

If you're not in the Facebook group, you should join us

in here, the Retirement = Freedom Facebook group.

It's as much fun as this podcast is.

And we promise content for retirees as well as more Dave.

You know what Josh?

Do you remember how I wanted to run a contest

for free Puddin' cakes?

I have a new contest I'd like to run.

Oh good God.

Let me know if compliance and you

would be okay with this.

The first 10 people to request access to your Facebook group,

I will record a jingle for them.

If your name is Olga, you'll get a, "Olga relate to retirees.

Yeah."

what do you think?

Do you think Olga wants that?

It doesn't matter.

I'll do it.

And I'll post it in the Facebook group.

I'm just saying, there are so many benefits to

joining this group, guys.

So many.

I hope you got something out of Roth

conversions and I hope you see why we needed two episodes to

get the Roth ideals in there.

I'll end this by saying, eat more salads and bye.

Bye.