Today we're doing some retirement planning with a one million dollar portfolio, but in this case it's ALL PRE-TAX! It may be surprising but the answer is not simply to do Roth conversion. Learn about the importance of retirement planning with all pre-tax dollars and how it can benefit you in the long run. Don't miss out on this valuable information for your retirement future.
0:00 – 0:51 Intro
0:52 – 1:50 Taxes & Retirement Planning
1:51 – 2:15 IRMAA Tax Explained Simply
2:16 – 3:08 Retirement Plan Overview
3:09 – 3:35 Tax bracket planning in retirement
3:36 – 4:08 When you shouldn't do Roth conversions
4:09 – 6:02 Tax breakdown retirement planning
6:03 – 6:30 Like & Subscribe! 🙂
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Thanks for watching! What’d you think of this plan? Any other ideas for those who have a lot of pre-tax dollars in retirement?
Great stuff, Eric!
Thanks, Haley! 😎
How about a video on living on a cruise ship? Send Mama Jazz out for the research!!!!!! 🎉
That’s the perfect new role for her! I’m SURE she wouldn’t have any gripes with that 😅
Great Video, I went through the new car purchase ended up getting a new car loan 2.99% instead of the large withdraw from qualified IRA account, Did I hear your correctly that you used 2.5% for inflation and what was used for SS COLA increase? Thank you
The low interest rates are always nice! They are getting tricky to justify now a days! We did use 2.5% in the plan for inflation and SS Cola used was 2.5% also.
Its really hard to say what the tax brackets are going to be given the total financial disaster we call the Federal Government. But while rates are low 12%, take out as much as you can of pre-tax and stay within the 12% bracket. If married, that expands the amount. You don’t have to spend it. Withdrawal amounts are not always tied to your annual expenses.
Thanks for watching! Tax brackets are an interesting topic. With all the federal spending, you would think they would have to raise taxes at some point….
well yes, but they print money so 1+1=whatever they want…
In 2026 the Trump tax cuts expire and it is doubtful they’ll extend it. So expect to pay 2% more in most brackets
Haven’t been in that 12% tax bracket since…well…ever.
Most people have at least some money taxed at the 12% bracket
This – and the one Justin did earlier. is excellent! I was ‘retired’ (laid off) in 2019 and never worked again. I saved HARD during my career, I don’t recall a Roth 401K available but when I was aware of Roth’s in general I was making over the limits at the time, and I really liked the tax break then anyway b/c I didnt have dependent decustions. I am 60 now. My Fidelity Team lead and I discussed Roth conversions and he said he didn’t think it was worth it, and, to a point I don’t mind paying taxes via RMDs (still gotta live long enough first – LOL) but I was still worried a LOT about IRMAA being a double hit at that point! So now I’m thinking I could just max out the 25% bracket and keep that in my regular brokerage account, for the next 15 yrs and lessen t he hit (maybe) that way without the additional hoops of Roth conversions!
an option for the RMD would be doing QCD – qualified charitable distribution – to lessen the reported income
Thanks for watching! Great idea with the QCD mentioned. If you plan to pull more out and pay the tax, then the conversion allows that money to grow tax free instead of the brokerage route.
Doing pretty much the same thing. Maxing out the tax bracket to the IRMAA limit. All funds that I don’t need go into brokerage account. Brokerage becomes “my” money to spend at will.
Does the government count brokerage account withdrawals as income for tax purposes? How does the taxation of brokerage account long term gain play into managing tax brackets?
The funds deposited into a brokerage account are after tax money, so withdraws of the original deposit amount do not count as income. You will have to deal with dividends and short/long term capital gains that the account generates, but that is still less of a tax hit than the whole pot being pre-tax.
You can also make the case that assets that will generate long term capital gains should be in a brokerage account rather than a 401k/IRA. In the pre-tax account you’ll pay tax on long term CG at your ordinary tax rate, in the brokerage account you’ll probably pay 0 or 15%.
As long as you can deal with the 5 year rule at conversion, Roth is the gold standard for avoiding taxes (after tax on the original contribution has been paid). It also limits income for the purpose of Social Security, IRMAA, and if you’re under 65 and want to get health care under the affordable care act.
​@@richweadon9376By the way, long term capital gains is counted as income. It counts as income when calculating how much social security income is going to be taxed, it counts as income when figuring out if you owe IIRMA, and it counts as income when figuring out what tax bracket IRA withdrawals are taxed at
Brokerage account withdrawals are taxed at their own special rates but they are beyond a doubt considered income in the eyes of the US government
YouTube censored my first comment?
Anyway, brokerage account withdrawals are taxed at their own special rates (mostly short and long term capital gains) and only taxed on their cost basis. However the withdrawals do count as income in the eyes of the federal government
It counts as income when determining the amount of social security income that gets taxed. It counts as income when determining if you owe IIRMA payments. It counts as income in a couple other equations too
I’m retired 71 years old with more than 1M in pretax dollars. When I start my RMD, I won’t really need the money. So my plan is to divide RMD money between my kids n grandkids n probably do QCD. I’m planning to do Roth conversions to cover d 24% bracket. I also heard about QLAC. What do u think. Thanks…
At some point as you get older Roth conversions may not have enough years to grow for you to come out ahead tax wise. That said, if your primary goal is to remove the tax hit for the money left to your heir, well then you may still choose to do it later in retirement.
Do a video on qualified dividends for tax purpose??
I’ll see what I can put together! Dustin did a pretty in depth video on dividends toward the end of last year that I’d point you to for now!
what is this nestegg site you are using?
We use it here at Jazz as a tool for building a thorough retirement plan 🙂
@houazy ….New retirement is a nice individual option as well for Monte Carlo software….
He can put the extra monthly money into an investment account.
This doesn’t even make sense. Whether he “spends” $1000 more per month or converts it to ROTH he’s withdrawing the same amount and paying the same taxes. If anything, the ROTH conversions give him more tax planning options as time goes on.
Great Video!
Thank you!
Everyone is screaming about taxes the median withdrawal amount from the median 401k account in 2023 would have amounted to almost nothing in tax….. Most people that were saving in a traditional never maxed them out so they actually saved more due to the fact they had more to add as it was before tax…. If you pull a modest sum from your Pretax you’re likely to be in a low tax bracket in retirement… You paid taxes all your working years it’s really no different in retirement plus you have the 15% of social security that is not taxed at the present time. I suppose if your Peter Thiel it’s a big deal but for the median account holder in 2024 not so much..
yeah, I mean at that level you need to watch out for the so-called tax torpedo, but if you’ve got 500k in pre-tax you can withdraw ~20k a year or so (plus social security) without any major worries.
That being said: the target audience for retirement financial advisors tend to be people that do have 1 million or more in their accounts, of which there are a few.
Pulling more money out of your before tax account doesn’t mean you have to spend more , you can bank it or reinvest it if you so choose .
Thank you for doing this video. I think there are so many people for whom the bulk of their reitirement savings are pretax and there just isn’t a lot of information about how to manage it. Sure I’d love to have one third in a brokerage account and one third in a Roth, but that’s not where I’m at and I’m honestly confused about how people end up with that sort of asset location. I had always assumed that spending more, before RMD age could be a valid strategy and this video assures me that I wasn’t way off base. Thanks. Now, if you could do a few more about this exact subject, I’l love to hear about other ways of managing a portfolio that is virtually all pre-tax.
Short answer? Earn a lot of money, and save 90k a year.
1. Max out your 401k + Employer match: 30k pre-tax, assuming your employer matches 50%.
2. Max out your mega-backdoor Roth: another 30k or so.
3. Invest 30k a year in a brokerage account.
Obviously that’s oversimplified and requires that a MBD be available – I’m currently at 50% Roth, 40% 401k, and 10% brokerage, due to conversions I did while under-employed during the 2010’s. (ie, my tax rate was relatively low as a contractor, so I transfered my 401k from my contrating agency into my IRA, and converted up to the next tax bracket for 10 years or so.) My income is higher now, so I’m currently splitting 50/50 with my Roth/401k, via the backdoor and Mega-Backdroor strategies.
Lucky me wen I retire all my money 💰 will be I’m my Roth I.R.A
Thank you for posting this video. It was nice to watch a quick, right to the point video without all the other nonsense.
I try to get to the point as quickly as possible while providing enough context for it all to make sense! Thanks for watching!
He did not go into the difference between qualified dividends and non qualified dividends. Qualified dividends you pay no tax but non qualified dividends you pay tax, with some income limits. Is there a limit on qualified dividends amount of total dollars? I want to build up a no tax dividend portfolio income. I find it hard to find someone with the knowledge of stocks and taxes as retirement planning. My CPA is no help and I have talked to a planner with no help. All they said I was doing great! I just found your videos and will start looking thru them. Thanks for your help!
Great content, but I think the terminology is a little mis-leading to investors. I think you mean “Tax-Deferred”. Pre-tax is a term investors use for gains that have not been taxes yet on investments using after tax funds. In a 401k or IRA, all the money will be taxed. Thus, the investment holistically is tax-deferred.