June 10, 2025 • 9 mins
In this episode of Your Retirement Guide, George Jameson, CFP® breaks down the concept of the “breakeven” age for Roth conversions. Learn how long it typically takes for a Roth conversion to pay off—and what factors can speed up or delay the benefits.
Welcome to "The Retirement Guide" Podcast! I'm your host George Jameson, owner of Capital Wealth Group, a Fee Only Advisory firm. Whether you’re nearing retirement or already retired, Join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.
Thank you for tuning in to this episode of The Retirement Guide. If you enjoyed this episode, please subscribe & leave a review. If you'd like a free 30-minute retirement review, visit our website at www.capitalwealthplan.com to schedule.
This is for education only.It is not tax, legal, or investment advice. Before acting on any information consult your tax, legal, or investment advisor.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
George Jameson (00:00):
Welcome to my podcast.
(00:01):
I'm George Jameson, founder ofCapital Wealth Group, located in
Columbia, South Carolina.
Today we're diving into aquestion, how long until your
Roth conversion pays off?
In other words, what's yourbreak even age?
With all the buzz around Rothconversions these days, it is
easy to get caught up in all thehype, but is a Roth conversion
truly in your best interest?
(00:22):
Most of you have heard aboutRoth conversions, but today
we're gonna break down theconcept of the breakeven age to
give you one more data point tohelp you determine if a Roth
conversion is right for you.
Now, right off the bat, it'simportant to understand that
there isn't a magic number, asingle average age, where a Roth
conversion suddenly becomes theright move or not.
(00:43):
The age at which the benefits ofa Roth conversion outweigh the
initial cost is different foreveryone, and it may not even be
a concern to you.
The breakeven age depends on alot of different factors, and
again, every situation isunique.
The only way that I'm aware ofto get an educated guess is to
use professional financialplanning software like the one I
use called Right Capital.
(01:04):
It will easily give you thebreak even age and tax savings
based on the number ofassumptions.
The key is, are these realisticassumptions or not?
You can play around with thedifferent assumptions, which I
highly recommend doing to makesure the Roth conversion is
right for you.
Before we go into detail indetermining the breakeven age,
let me quickly explain Rothconversions for those who don't
(01:25):
know.
So simply put it's when you takemoney from a retirement account
where you haven't paid taxesyet, like a traditional IRA or
401k and move it into a RothIRA, the catch is when you do
this, you have to pay incometaxes on the amount you convert
in that very year.
It is often best to pay thetaxes from after tax dollars,
but that's for another day.
(01:46):
The potential upside is thatonce the money is in the Roth
IRA, it grows tax free, and thenyou can make qualified
withdrawals tax free as well.
So you're essentially payingtaxes now, hoping to save on
taxes later.
This leads us to the idea of abreakeven point, which is when
the financial benefits ofconverting a traditional IRA or
401k to a Roth IRA outweigh theimmediate tax cost of the
(02:08):
conversion.
You'll usually do the conversionwhen your tax rates are low and
you expect your tax rates to behigher later on, also, Roth IRAs
are not subject to RMDs, whichcan significantly improve the
long-term benefits ofconversion, especially for
estate planning.
For many of us in our fiftiesand sixties who are approaching
retirement, we've been puttingmoney into our tax deferred
(02:30):
accounts for years, liketraditional IRAs and 4 0 1 Ks, 4
0 3 Bs and so on.
Of course, we get a taxdeduction now in these accounts
and then the money grows taxfree.
But later on, when you starttaking money out, you have to
pay ordinary income tax on thatamount.
You can of course start takingmoney out each year at the start
of retirement or when it makesthe most sense for you.
(02:52):
But when you reach age 73required, minimum distributions
start, and now you are forced totake out funds and pay taxes.
This is especially true forthose who have over a million
dollars in tax deferredaccounts.
Those big withdrawals,especially when you hit RMD Age,
can really push you into ahigher tax bracket.
(03:14):
So one of the big perks ofstarting Roth conversions early
in retirement is that it letsyou manage your taxable income.
And often at the beginning ofretirement, if you plan
correctly, you can be in a verylow tax bracket and by
converting just enough each yearwhile you're in this low tax
bracket, you can avoid receivinga large tax bill when your RMD
(03:35):
starts at age 73.
Bypassing the jump into highertax brackets.
In many cases, this approach canlower your overall tax bill by
hundreds of thousands of dollarsor more over the course of your
retirement.
Some of the key unknowns youhave to take into account are
what will taxes look like in thefuture?
Another big one is how will yourinvestments grow within the Roth
(03:58):
IRA If they do well, you'llreach the break even point much
sooner than if the investmentsgrow slowly.
Let's look at a hypotheticalexample.
Let's say Bill and Sally samplesage 65 and 63 have a million
dollars in their tax deferredaccounts.
And then they have 300,000 in ataxable account.
(04:20):
And they can use some of thisfor the conversion taxes.
And let's say they'll get anestimated 5,000 per month
combined on social securitystarting at age 70.
So they decide to convert up tothe top of the 12% tax bracket.
Assuming the assumptions come tofruition, they could see about a
million dollars more in taxadjusted assets over their
(04:41):
retirement lifetime.
They'd save roughly$200,000 intaxes and might need to pull
about 1 million less from theirtax deferred accounts.
Since Roth IRAs don't requireminimum distributions and right
capital projects, they willbreak even around age 83 Please
remember, this is just a simpleexample.
(05:02):
Your break even age, may beearlier or later, and a Roth
conversion may or may not makesense for you.
Now, here's where thecomplexities of Roth conversions
really come into play.
They're not a one size fits allsolution.
You've gotta think about a wholebunch of variables, not just
your life expectancy.
But also how your assets areinvested and how fast they'll
(05:22):
grow.
You need to consider bothtoday's tax rates and what
future tax brackets may looklike.
You need to consider how muchmoney you need to live on if you
plan to spend all of your RMDeach year, or do qualified
charitable donations with yourRMDs.
A Roth conversion may not be inyour best interest at all, no
matter how big your IRAs and 4 01 Ks are today.
(05:45):
And of course, there's aquestion of your heirs and what
tax situation they may face downthe road.
Some of this information is justunknowable, like your returns.
Even if a Roth conversion savesyou a significant amount of
money in taxes over yourlifetime, again, it may take
years for those savings to makeup for the extra taxes you paid
up front.
(06:06):
And it can also be really toughpsychologically speaking to
shell out more in taxes today tosave for tomorrow.
However, conversions can be avery powerful tax saving
strategy and makes a lot ofsense for a lot of people.
Now, back to the break, evenage.
While the break even age is ahelpful concept for
(06:27):
understanding the financialmechanics.
It's not the only, or even themost important factor.
The decision to do a Rothconversion often comes down to
when you want to pay taxes.
Do you want to pay them now witha Roth conversion or later with
traditional IRA withdrawals?
And then what will your taxbrackets look like now and in
(06:51):
the future?
What will your returns looklike?
Now until your RMDs kick in.
What are the projections for theinvestments you own over the
next decade or two?
Until you hit RMD Age?
And then at what tax rate do youwant to pay taxes?
If you believe your tax ratewill be lower now than in the
(07:13):
future, A Roth conversion makessense regardless of the
breakeven age.
Ultimately, determining whethera Roth conversion is right for
you and what your break even agemight be, involves a
personalized analysis of yourcurrent and projected financial
situation.
Including tax rates, retirementgoals, retirement spending, and
(07:37):
so on.
And using financial planningsoftware really can help you
decide if a Roth conversion isright for you, when to do them,
and how much to convert.
I hope this was helpful, ifyou're still unsure whether a
Roth conversion makes sense.
When to do it or how much toconvert?
Consider a 30 minutecomplimentary consultation with
(07:59):
myself.
We'll help you decide on astrategy that fits your goals
and makes the most sense foryou.
You can go to my website toschedule the
call@capitalwealthplan.com orclick the link below.
Happy planning and have, greatday.
Welcome to my podcast.
(00:01):
I'm George Jameson, founder ofCapital Wealth Group, located in
Columbia, South Carolina.
Today we're diving into aquestion, how long until your
Roth conversion pays off?
In other words, what's yourbreak even age?
With all the buzz around Rothconversions these days, it is
easy to get caught up in all thehype, but is a Roth conversion
truly in your best interest?
(00:22):
Most of you have heard aboutRoth conversions, but today
we're gonna break down theconcept of the breakeven age to
give you one more data point tohelp you determine if a Roth
conversion is right for you.
Now, right off the bat, it'simportant to understand that
there isn't a magic number, asingle average age, where a Roth
conversion suddenly becomes theright move or not.
(00:43):
The age at which the benefits ofa Roth conversion outweigh the
initial cost is different foreveryone, and it may not even be
a concern to you.
The breakeven age depends on alot of different factors, and
again, every situation isunique.
The only way that I'm aware ofto get an educated guess is to
use professional financialplanning software like the one I
use called Right Capital.
(01:04):
It will easily give you thebreak even age and tax savings
based on the number ofassumptions.
The key is, are these realisticassumptions or not?
You can play around with thedifferent assumptions, which I
highly recommend doing to makesure the Roth conversion is
right for you.
Before we go into detail indetermining the breakeven age,
let me quickly explain Rothconversions for those who don't
(01:25):
know.
So simply put it's when you takemoney from a retirement account
where you haven't paid taxesyet, like a traditional IRA or
401k and move it into a RothIRA, the catch is when you do
this, you have to pay incometaxes on the amount you convert
in that very year.
It is often best to pay thetaxes from after tax dollars,
but that's for another day.
(01:46):
The potential upside is thatonce the money is in the Roth
IRA, it grows tax free, and thenyou can make qualified
withdrawals tax free as well.
So you're essentially payingtaxes now, hoping to save on
taxes later.
This leads us to the idea of abreakeven point, which is when
the financial benefits ofconverting a traditional IRA or
401k to a Roth IRA outweigh theimmediate tax cost of the
(02:08):
conversion.
You'll usually do the conversionwhen your tax rates are low and
you expect your tax rates to behigher later on, also, Roth IRAs
are not subject to RMDs, whichcan significantly improve the
long-term benefits ofconversion, especially for
estate planning.
For many of us in our fiftiesand sixties who are approaching
retirement, we've been puttingmoney into our tax deferred
(02:30):
accounts for years, liketraditional IRAs and 4 0 1 Ks, 4
0 3 Bs and so on.
Of course, we get a taxdeduction now in these accounts
and then the money grows taxfree.
But later on, when you starttaking money out, you have to
pay ordinary income tax on thatamount.
You can of course start takingmoney out each year at the start
of retirement or when it makesthe most sense for you.
(02:52):
But when you reach age 73required, minimum distributions
start, and now you are forced totake out funds and pay taxes.
This is especially true forthose who have over a million
dollars in tax deferredaccounts.
Those big withdrawals,especially when you hit RMD Age,
can really push you into ahigher tax bracket.
(03:14):
So one of the big perks ofstarting Roth conversions early
in retirement is that it letsyou manage your taxable income.
And often at the beginning ofretirement, if you plan
correctly, you can be in a verylow tax bracket and by
converting just enough each yearwhile you're in this low tax
bracket, you can avoid receivinga large tax bill when your RMD
(03:35):
starts at age 73.
Bypassing the jump into highertax brackets.
In many cases, this approach canlower your overall tax bill by
hundreds of thousands of dollarsor more over the course of your
retirement.
Some of the key unknowns youhave to take into account are
what will taxes look like in thefuture?
Another big one is how will yourinvestments grow within the Roth
(03:58):
IRA If they do well, you'llreach the break even point much
sooner than if the investmentsgrow slowly.
Let's look at a hypotheticalexample.
Let's say Bill and Sally samplesage 65 and 63 have a million
dollars in their tax deferredaccounts.
And then they have 300,000 in ataxable account.
(04:20):
And they can use some of thisfor the conversion taxes.
And let's say they'll get anestimated 5,000 per month
combined on social securitystarting at age 70.
So they decide to convert up tothe top of the 12% tax bracket.
Assuming the assumptions come tofruition, they could see about a
million dollars more in taxadjusted assets over their
(04:41):
retirement lifetime.
They'd save roughly$200,000 intaxes and might need to pull
about 1 million less from theirtax deferred accounts.
Since Roth IRAs don't requireminimum distributions and right
capital projects, they willbreak even around age 83 Please
remember, this is just a simpleexample.
(05:02):
Your break even age, may beearlier or later, and a Roth
conversion may or may not makesense for you.
Now, here's where thecomplexities of Roth conversions
really come into play.
They're not a one size fits allsolution.
You've gotta think about a wholebunch of variables, not just
your life expectancy.
But also how your assets areinvested and how fast they'll
(05:22):
grow.
You need to consider bothtoday's tax rates and what
future tax brackets may looklike.
You need to consider how muchmoney you need to live on if you
plan to spend all of your RMDeach year, or do qualified
charitable donations with yourRMDs.
A Roth conversion may not be inyour best interest at all, no
matter how big your IRAs and 4 01 Ks are today.
(05:45):
And of course, there's aquestion of your heirs and what
tax situation they may face downthe road.
Some of this information is justunknowable, like your returns.
Even if a Roth conversion savesyou a significant amount of
money in taxes over yourlifetime, again, it may take
years for those savings to makeup for the extra taxes you paid
up front.
(06:06):
And it can also be really toughpsychologically speaking to
shell out more in taxes today tosave for tomorrow.
However, conversions can be avery powerful tax saving
strategy and makes a lot ofsense for a lot of people.
Now, back to the break, evenage.
While the break even age is ahelpful concept for
(06:27):
understanding the financialmechanics.
It's not the only, or even themost important factor.
The decision to do a Rothconversion often comes down to
when you want to pay taxes.
Do you want to pay them now witha Roth conversion or later with
traditional IRA withdrawals?
And then what will your taxbrackets look like now and in
(06:51):
the future?
What will your returns looklike?
Now until your RMDs kick in.
What are the projections for theinvestments you own over the
next decade or two?
Until you hit RMD Age?
And then at what tax rate do youwant to pay taxes?
If you believe your tax ratewill be lower now than in the
(07:13):
future, A Roth conversion makessense regardless of the
breakeven age.
Ultimately, determining whethera Roth conversion is right for
you and what your break even agemight be, involves a
personalized analysis of yourcurrent and projected financial
situation.
Including tax rates, retirementgoals, retirement spending, and
(07:37):
so on.
And using financial planningsoftware really can help you
decide if a Roth conversion isright for you, when to do them,
and how much to convert.
I hope this was helpful, ifyou're still unsure whether a
Roth conversion makes sense.
When to do it or how much toconvert?
Consider a 30 minutecomplimentary consultation with
(07:59):
myself.
We'll help you decide on astrategy that fits your goals
and makes the most sense foryou.
You can go to my website toschedule the
call@capitalwealthplan.com orclick the link below.
Happy planning and have, greatday.
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