When Should I Convert to Roth?
Knowing when and how to add to a Roth retirement account depends on a few specific details.
Watch Mike explain basic guidelines to maximizing your Roth Conversions!
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Mike
That's the value of that asset to you. When all is said and done. How does that apply to a 41 K or an IRA? What do we say? It's worth $1,000,000 because that's what's on your statement. Is it really all your money? What if you cashed out that for one K and you put the balance the money in your pocket How much would you put in your pocket?
00:02:57:14 - 00:03:15:06
Mike
I live in Texas, so we don't have to worry about state income tax. Like if you live in California or something, you certainly have to worry about state income tax. But if you try to cash out a 401 K, what's going to happen? The IRS, you know what? I don't really like the IRS in green because green is usually good.
00:03:15:13 - 00:03:35:29
Mike
Anyway, the IRS, they're going to have their hand out there. You say, wait a minute. Part of that million dollars up there, part of that is ours. How much you have to give to them? Well, it depends on your tax brackets and all of that. But let's imagine for the sake of this discussion that you have to give them $350,000.
00:03:36:05 - 00:04:11:15
Mike
What does that tell you? What is the real value of your million dollar for one K or your million dollar IRA? It's really about six 50. That's what it's worth. Step number one, when you look at your accounts, you need to recognize that when you have an IRA, a 41 K, a four or three, be a four 57, these traditional accounts It's not John Smith account or Jane Smith.
00:04:11:16 - 00:04:18:01
Mike
Right. It's not an account. You are not the only owner of that account. It's John Smith.
00:04:20:04 - 00:04:52:21
Mike
Or Jane Smith. And IRS is account. So if you have a 401 K, it's Jane Smith and IRS is for one K, John Smith and IRS is 401 K. You have a joint owner. Here's how their ownership share works. The bigger the pot of money is, your money gets bigger. Their percentage increases. So the more you have, the more their percentage goes.