Ep. 581 — Are Roth Conversions Necessary? | Cody Garrett and Sean Mullaney

I think a lot of their premise is geared to typical retiree and not folks in the FI community retiring in their 40'sand 50's. Roth conversations for early retirees benefits us at a much earlier age (in 60s) at a time when we can access the $$ tax and penalty free. A big motivation for converting in my 40s is having a pot of tax free money available to spend in 60s without having to be concerned with tax implications.

The episode was enjoyable, but I couldn’t help but feel that there was a lack of deeper discussion about the connection between Roth conversions and the 5-year rule. Moreover, it seemed like many earlier retirees are challenged to manage their conversions due to healthcare subsidies. I suppose I’m being selfish because these are personal matters that matter to me, and I would have liked to see more time spent on this topic related to Roth conversions. Lastly, for the record (and it sounds like it’s coming back), I’m a BIG fan of the Hot Seat. It was the cherry on top back in the old days of the podcast. Keep up the great podcast, and I’m excited to see Jonathan back.

I don't have anything more intellectual to be said than has already been said above, but I'm just here to say how much I love that there can be discussions weekly related to the podcast that comes out! Most importantly, that its right at the top of my screen in colorful blue, without getting buried by the algorithm. This site is great 🔥🔥

The “garbage time touchdowns” was such a perfect analogy. Everyone panicking about RMD’s is actually saying they’re afraid of having millions upon millions of dollars with less than 20 years to spend it if you’re lucky. At that point, forget the 4% rule, you can make it rain without realistically running out of money and you basically just underspent your entire life to get to that point. Not really a failure in tax planning and the taxes should be the least of your worries.

Man, Sean and Cody always so easily make things make SENSE to me! Thank you two (and Brad of course!) for sharing your expertise and insights so freely. One of the takeaways for me, is who benefits from the ROTH conversions? your 75-year old WEALTHY-ASS self. I've always wondered why people freak out about RMDs, because when I'm 70-something, I'm going to be withdrawing money from my IRA anyway. That's, like, part of the whole plan. I don't have kids. I'm not trying to die with millions of dollars. Always great to hear from these guys!!

Around the beginning of 2025 I was convinced that it was going to be the year that I would finally be able to start solving the "RMD problem" (my portfolio is fairly lopsided, with substantially more in pre-tax accounts than anywhere else). I've been dialing back work and I expected to have some room in the 12% tax bracket this year. So in late spring I made an appointment with my tax advisor to discuss my strategy. I had also decided that I could kill to birds with one stone and size the Roth conversion in order to also allow me to maximize a gift to a DAF (from assets in a taxable brokerage that were a little more than 50% capital gains) which would serve to fund my charitable giving for the next few years.

My tax advisor talked me out of the conversion. Sort of.

In December (once I knew precisely all my income for the year) I went back and beefed up my tax planning spreadsheet with some macros that would calculate the sweet spot for Roth conversion that maximized the size of the DAF gift and the size of the QBI tax deduction (I'm self-employed). To make a long story short, it ended up not being an especially compelling move. (I actually posted a fairly long description of this a few weeks ago in another thread. Search for that if you are interested in the details.)

Once I had disabused myself of the notion that I "had" to do a Roth conversion I looked around to see what other things I could do. It turned out that I still had a bit of room for capital gains harvesting at 0%, something that I hadn't been able to do for the last few years. I think I should be able to harvest more gains this year (2026) than last year, enough that it should basically be the same tax benefit as my planned Roth conversion + DAF gift. And with a lot less in the way of administrative overhead.

Listening to this episode has helped me further cement the notion that I don't really have a "RMD problem" to solve in the first place. I don't plan to sit idly by and let low hanging tax optimization fruit get past me. But I'm also no longer dead set on doing a bunch of Roth conversions, and I'd be surprised if I end up doing any at all. In reality, like @UncleFrank noted, just starting to withdraw from pre-tax accounts at age 59.5 is enough to make RMDs "not a problem" for a lot of people.

I think you missed a huge benefit for the Roth conversion which is the ability to access the principle after 5 years. As a person in my late 40’s going through a career change, I was able to take advantage of a low tax bracket and free up funds in 5 years I otherwise would have had to pay taxes and a penalty to access before retirement age. This can be a great tool for someone looking to retire early and may have a large portion of their net wealth tied up in retirement funds.

In the old days, particularly in the first year of the podcast and before there was an active Facebook group, there were fairly lively discussions post-episode in the episode comments. In keeping with that tradition, I will try to come here and add two cents now and again.

Brad said "a lot of this is fear-mongering and prognosticating on things we can't possible know" [referring to future tax rates in particular.]. And this is the state of a lot of popular personal finance and personal finance media, where "fear of future taxes", long term care and many other issues ("tax trap" babble) are used to fear-monger and attract clicks and market financial products. This kind of fear-mongering is in fact the classic way insurance products and annuities are sold, and most of the loudest voices are connected with that in some way, including people who's names rhyme with Dead Shott. Unfortunately, this kind of fear-based thinking has bled into much of personal finance and is not questioned nearly enough because most finance gurus don't like to criticize each other publicly.

What Cody and Sean are doing is cutting through a lot of this fear and marketing b.s. that goes on in popular personal finance. A lot of it is just bad information and leads to bad decision-making for most people.

To me this gets to an important larger meta-issue, which is "what is the difference between the approaches of popular personal finance, represented by Bogleheads and all those books written 2000 - 2012, etc. and what we are trying to do with a FI community today?"

And its really a particular zeitgeist. If you look at what these older guru types advocate and actually do with their own money, it is largely fear and hoarding based, with the implied goal of dying with the most money possible as the main financial priority. Their personal plans invariably involve (1) work longer than you need to, often to age 70; (2) save twice as much as you need; and (3) continue grossly underspending your wealth. Of course such people are going to have RMD problems! No duh. ALMOST ALL RMD PROBLEMS ARE A RESULT OF HOARDING EXTRA MONEY IN THE PAST AND/OR WORKING FOR MONEY EXTRA LONG.

And that's the dirty little secret of popular personal finance, particularly as it evolved in the early 2000s. Tax problems later in life are invariably related to hoarding issues earlier in life. And so are many inheritance problems and intergenerational relationship problems and serious regrets, as Cody pointed out.

For someone retiring in their 50s or earlier and focused on living their best lives before age 70 by ceasing full-time employment earlier, the whole outlook changes completely (if you just avoid hoarding). All we really need to do to minimize taxes is focus on spreading out our taxable distributions over time, and the more time you have, the easier that becomes. Meaning just spend more of your money spread out earlier in life and you are not likely to face any of these "problems."

Post high employment income, much of that taxable income is going to be in the form of traditional retirement account withdrawals. And there are many mechanisms for doing that that are not limited to Roth conversions, but include SEPP/72t and other options. In our case, just taking out some of that traditional money every year as part of our money to live on effectively solves that problem by spreading out the income over many years. So maybe we'll do some Roth conversions, but its going to be on an opportunistic basis, not a rigid plan.

And the other no-brainer way of dealing with this is proper tax location. If you fill your retirement accounts with all of your bonds and other things that throw off ordinary income and don't grow much, and put most of your growing assets in Roth or taxable to begin with, you will also minimize the growth of those traditional accounts, making them easier to spend down while also avoiding forced taxation on ordinary income every year.

If you don't hoard your wealth, you are unlikely to face many tax problems. And your personal relationships are likely to be a hell of a lot better to boot, especially with family.