The Unprecedented 3-Year Roth Conversion Opportunity for Railroad Retirement

Transcript:

You might want to take advantage of this strategy over the next few years before it goes away.

Welcome, everyone, to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name is John McNamara of Highball Advisors. And today we're going to talk about a unique opportunity that's really going to be only available for the next three years, assuming you're watching this in 2023, is the Roth conversions. Okay?

Let's just go over what I'm talking about and then I'll go into the actual strategy, is the Roth conversions, where we're going to take our tax-deferred money that we've been accumulating over the years, in your IRAs, your 401(k)s, and move it into a tax-free Roth account. Okay?

So what are we trying to accomplish with the Roth conversion is we want to defer as much income as we can when we're earning a lot. All right? Those high tax rates. And then as we retire or maybe we're in a changed position, we had a lull year, so to speak, and we're in lower tax rates, then we want to do a conversion and take advantage of the lower tax rates. So defer at higher rates and do the conversion at lower rates. All right?

So what's interesting about this strategy this year is we had a lot of inflation. Okay? Inflation creates the opportunity, believe it or not. Because every year, the IRS has to set the tax rates. You have your 10%, your 15%, 22%, but those are bands every year. But those bands are based off of inflation. So now they've moved the bands out a lot bigger for 2023 so you can stay inside your bracket. The lower brackets are going to be a little bit bigger, and we can take advantage of it.

So let's have a quick look at it. And then, additionally, the reason I say three years is that the current tax rates, the Trump tax cuts, so to speak, they're going away, beginning of 2026. So we have '23, '24, '25, these three years to take advantage of.

So these rates, the first two brackets, 10, 10, they're going to stay. 12 to 15. 22 to 25. 24 to 28, that's a big one. 32 to 33 is not bad. The 35s are the same. And then the 37 up to 39.6. So you want to take advantage of these tax rates for the next three years, that's for sure.

And then just to show you the difference in how much the bands have moved, right? So the top one has moved up almost $1,500. The 12% is up almost $6,000. You can stay 6,000 more dollars in the 12%. And the 22% is up 12 over 12. And 24 is up 24,000%. Or $24,000. I apologize for that.

So what I'm saying is there's bigger bands, right? And we've got limited time left, three years, before we know that a tax hike is going to come, unless maybe Congress will keep the tax rates the same. I don't know. There seems to be a lot of spending of money. I guess common sense tells you that they're probably going to raise the tax rates to collect more revenue.

But I want to just show you that what you can do by taking advantage of these rates, the three years before they go, and then the inflation going out. And really, those Roth conversions, very, very powerful stuff.

I hope you found this helpful. Reach out to me if you have any questions about Roth conversion if you're at or near retirement and say, "Oh, geez, you know, John, I've been socking some money away in the 401(k). I would like to move some of that to tax-free." Reach out to me. We'll talk about the strategy and go forward from there.

Please click on the YouTube channel to subscribe to the channel, get the latest notifications. Until next time, everyone. Please stay safe, stay on track, and take care. So long, everybody. Bye.

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