A Beginner's Guide To Roth Conversions

Are you overthinking your Roth conversion strategy? While Roth conversions can be powerful, not every retiree needs them. In this video, you’ll learn when a Roth conversion truly makes sense—and when it may just add unnecessary complexity.

Using the “cauliflower analogy,” we break down how Required Minimum Distributions (RMDs) can push retirees into higher tax brackets, and why paying taxes now can sometimes help avoid bigger bills later. But there’s an even more important question: could you be better off retiring earlier or spending more instead of over-optimizing your tax plan?

We’ll also highlight the sweet spot for conversions (between retirement and when Social Security and RMDs begin) when tax savings can be most effective. Ultimately, a great financial plan isn’t defined by your Roth conversion strategy, but by building a life well lived. 

 Whether you're considering your first conversion or refining your existing approach, this episode provides the foundation for making decisions aligned with what truly matters in your financial journey. 

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Ari Taublieb, CFP ®, MBA is the Chief Growth Officer of Root Financial Partners and a Fiduciary Financial Planner specializing in helping clients retire early with confidence.

Episode Transcript

Speaker 0 (00:00):
Roth conversions can be powerful.
They can lead to millions ofmore dollars in your ending
balance of what you've worked sohard for.
But sometimes they're notnecessary at all, and I'll see a
lot of people want to do a Rothconversion because it sounds
cool, it's different, maybetheir neighbor hasn't done it.
They love tax arbitrage, whereyou're kind of making the most
of your tax situation todayversus retirement, and the

(00:22):
reality is, I find way too manypeople execute conversions
incorrectly.
This is going to be abeginner's guide to Roth
conversion, so I'm not going togo into great detail on Irma,
surcharges and tax brackets.
Changing Today is just how Rothconversions work, keeping it
plain and simple, nice and easy,and so if you're considering a
conversion, I would recommendlistening to this, and if you

(00:43):
want my deeper episodes where Igo into tons of detail, just
look up Ari Roth conversions onYouTube or search in the podcast
app and you will see it willcome up, unless I am shadow
banned for some reason, which Idon't think is the case.
So, with that being said, thankyou, as always, for tuning into
this podcast.
All of my episodes are alsoposted on YouTube.
The timing will vary based offwhen my amazing editors have a

(01:05):
chance to get to it, but I wantto make sure all of you continue
to get this content as you wantit, so it's always going to
still go to the podcast apps,it's always going to go to
YouTube, and thank you forallowing me to do this because I
love it.
I am Ari, the host of thispodcast, early Retirement, chief
Growth Officer at Root and acertified financial planner.
I often say how many peoplewould you never let touch your

(01:27):
body that are doctors?
Probably a lot of them, notbecause they're bad, but maybe
they're just not a great fit foryou.
Now some of them are bad In theindustry.
I work in the financialindustry.
I took a CFP course to getcertified, of course, and there
were people in my cohort who Iwould never let manage a dime of
my money, let alone hold mylunchbox.
So I'm telling you this becauseI hope you don't listen to me,

(01:49):
because I'm a CFP.
I hope you listen and resonatewith my style, which I hope is
very transparent, because that'swhat I try to do here.
So we're gonna talk about Rothconversions.
We're doing a fun way.
So many of you know mycauliflower analogy.
I'm going to give it to you onemore time, if you have not
heard it.
I will often talk about Rothconversions, like eating
cauliflower.
Pretend you've saved andinvested.

(02:10):
Well, you're going to have a401k.
I'm just going to take anexample.
If you have a 401k, it has amillion dollars in it and it
keeps growing.
Maybe when you're 75, it mighthave like two or three or five
$10 million, who knows.
You're going to be forced totake out a certain amount.
That's what's called a requiredminimum distribution.
Nothing to do with caulifloweryet, but we're about to learn so

(02:31):
that RMD starts at 3.8%.
So I'm whipping out my fancycalculator on my iPhone right
now.
And let's pretend you have $3million at 75 in your 401k,
which is pre-tax.
Well, you're going to be forcedto take out $114,000, whether
you want it or not, starting atage 75, depends on when you were

(02:52):
born, but for most of you, 75.
Okay, so some of you are likewell, what's the problem?
I like money, and 114,000 islike a good amount of money, so
I see no issue here.
Well, at 75, you'll also haveSocial Security.
Maybe that's another $40,000.
So now you've got, we'relooking at $154,000.
And maybe there's inheritance,maybe there's rental income,

(03:13):
maybe that, who knows?
But let's just round it up andsay now you really have $180,000
that's coming in, whether youwant it or not.
You might be like, well, like,did you not listen to me?
I don't need $180,000.
I need 120,000.
Well, what gets happened?
What happens to the excess from120 to 180?
That 60 is it's all taxed atyour highest marginal bracket,
which is not fun.

(03:34):
So what we'll often recommend isthat you eat a little
cauliflower, pay a little bit intaxes so you're not forced to
eat a ton of cauliflower inretirement.
You probably want pasta insteak and all the good stuff.
Those are some of my favoritefoods and you can debate me as
much as you want, but a goodpesto pasta will still beat
marinara every day.
Now you can let me know if youfeel strongly one way or the

(03:56):
other, but at its best, not theaverage.
If you want general marinara,I'll take that over like an
average pesto.
I'll never buy pesto just in ajar from the store.
You know, call me bougie, butdebate me on that later.
I try to keep these fun andentertaining because I make a
lot of content, guys, sohopefully it's not annoying.
Now let's get back to theexample.
Okay, so 180,000 istheoretically what you're forced

(04:18):
to take Now, 120 is really allyou need.
Could you spend more, of course, but you don't want to spend
for the sake of spending.
That's just illogical.
So that $60,000 otherwise wouldhave been taxed at, let's just
say, 35%.
If you live in California, likeI do, we have a very
advantageous tax bracket systemto the IRS.

(04:40):
I always like to say I'm all forpaying taxes, I'm all for being
patriotic, but not to the pointthat I pay more than I need to.
So what if you retire at 60 andyou're like 75, that's going to
not for 15 years.
What can I do now so that thisisn't an issue?
Well, what you can do is youcan go.
I'm currently in the 12% taxbracket.
Why don't I pay taxes at 12% toavoid paying 35% in the future?

(05:04):
And as I convert money from my401k to a Roth IRA or IRA to
Roth IRA, what I can do is havethat money invested well so it
grows, and as it grows, it's allgrowing in a Roth account.
So you never pay taxes everagain.
So Roth conversions can bebeautiful.
When do they make sense?
They make sense when you knowyou're going to be in a higher

(05:27):
tax bracket in the future.
So if right now you're 55,you're working, you make 500K a
year, you're crushing it.
You're in a high tax bracket.
You're 55.
Now, at 60, you retire, you andyour spouse pretend, don't work
, you have no rental income, nosocial security, your income is
zero.
That might be a great time todo Roth conversions because
you're in a very low tax bracket, knowing in the future you'll

(05:47):
be in a greater one.
So that's when it can makesense to Roth conversions, when
you know you're going to be in ahigher tax bracket in the
future than when you retire.
Now what should we do before welook at Roth conversions, which
sound good, by the way, and ifyou use the software I talk
about, you can see, you can playaround with the little slider
and it will tell you what'sgoing to make most sense for you
.
But what it misses out on is twobig factors.

(06:09):
Before looking at Rothconversions, I would beg you to
consider spending more orretiring earlier.
What a lot of people do is theykeep working and working
because their 401k grows andgrows, and then they're like I'm
going to have to do Rothconversions.
No, you don't.
You could retire earlier, havea smaller balance, enjoy your
life more.
The point of life.
I've never had someone come tome and go oh my God, I'm so glad

(06:31):
my average return was 8.32961%,or I'm so glad I did X amount
of Roth conversions it's always.
I'm so glad I retired earlier.
I'm so glad I did spend 160,000instead of 120,000 because I
really enjoyed my retirement.
So Roth conversions can beamazing.
There's a reason they exist andI love them.
But they can be equally amazingif you don't do them and

(06:53):
instead enjoy your life way more, which sometimes is going to be
what you actually care about.
So, yes, always run thefinancial analysis so that
you're making a consciousdecision.
I have clients that go wow, I'mactually scared to travel
because I don't want to throwoff the amazing Roth conversion
strategy we showed you.
And then I'll say, well, Ididn't do my job.
Well, because the point of life, the sign of a good financial

(07:13):
plan, is a life well lived, notyour Roth conversion strategy.
Now, sometimes I'll go to aclient.
I'll say Look, I know you wantto spend big.
I know you want to retire.
Even if you do these things,you're still going to get
crushed in taxes.
So we're doing Roth conversions.
That's not the debate.
The debate is how much do we do?
And that's generally whathappens.
Most of you who have saved andinvested well, you're going to

(07:34):
probably need to do conversionsof some sort, based on many
different factors, but a lot ofyou will want to do them and if
you don't do them, you'llliterally just be leaving.
You're giving more money to theIRS.
So if you need to do them, thequestion is how much do you do
them, when do you do them?
And all these moving pieces inbetween which I go into great
detail on and it's what wespecialize in.
So just a quick, short andsweet beginner's guide to Roth

(07:56):
conversions, aka eatingcauliflower.
Can we eat a little cauliflowerfrom 60 to 65, when we're in a
low tax bracket, before SocialSecurity kicks in, before maybe
rental income or a spousedecides to stop working, and now
, all of a sudden, maybe you're,in a way, higher tax bracket
and that's when we maybe want todo some conversions, but not as
much as you were doing before.

(08:16):
You can get real creative withit.
The beautiful thing aboutretiring early is the earlier
you retire, the more of a taxwindow you have If you retire at
63 and then you turn on SocialSecurity at 67 and RMDs start at
75, you don't have that long ofa window to do these
conversions.
So you want to make sure if youare retiring and you're in a

(08:37):
good spot, there is something toconsider for retiring earlier
so that you have a longer windowto execute Roth conversions.
So, short and sweet, hopefullyyou guys enjoyed this episode.
This is what we do.
If you're like, wow, I can tellyou guys love Roth conversions
more than I do, well, reach outto us.
We love helping people optimizeand you can absolutely see that
this is what we do.
When you reach out to us andhead to our website,

(08:58):
rootfinancialcom and you can seein the description of this
episode on podcast or YouTube,wherever you are watching slash
listening you can get access tothe software that I use to
actually let you calculate yourpotential Roth conversion
strategy.
So hopefully you enjoyed it.
I think I said that five timesnow.
See you guys next time.
Thank you all, as always, forlistening to the early

(09:20):
retirement podcast.
I love getting to host theseshows and make different content
for you guys every single week.
I've not missed a single weekin years and that is because I
love getting to do this.
Now, please be smart about this.
Before you actually execute anystrategy that you see me talk
about or hear me talk about,should I say Please talk to your
financial advisor, your taxpreparer, your estate attorney,

(09:43):
please be smart about this.
None of this should beconstrued as financial advice.
This is for fun, educational,informational purposes only.
Once again, just quickdisclaimer here.
Guys, please be smart aboutthis.
Appreciate you listening, asalways, and you can, of course,
submit a question on my website,earlyretirementpodcastcom, if

(10:03):
you, of course, want me toaddress a specific case study or
topic.
I will not promise I can get toit, but I respond to every
single person and if I find itwill be helpful for a lot of
people, I will absolutely makean episode on it.
At the very least give you someinsight.
That's it.
Thanks, guys.