In Today’s Podcast Episode of Smarter Money Matters with Dr. Jeff, Lou, & Anna…
We break down one of the most powerful — and most misunderstood — retirement strategies: Roth IRA conversions.
Using new Wall Street Journal research and real client experience, they explore when conversions make sense, when they don’t, and why the way you convert is just as important as if you convert.
Here’s what they cover:
What a Roth Conversion Really Is: Turning pre-tax IRA or 401(k) money into tax-free Roth assets — and paying the tax now to avoid it forever.
What the New Research Shows: Across hundreds of thousands of simulations, one-time Roth conversions often produced higher long-term balances than leaving money pre-tax.
The Tax Bracket Trap: Why dumping a large conversion on top of working income can push you into punitive tax brackets and destroy the benefit.
One-Time vs. Staged Conversions: Comparing lump-sum conversions to multi-year strategies designed to control taxes and maximize efficiency.
Tax Arbitrage: How smart planning exploits lower brackets to legally minimize lifetime taxes — sometimes getting close to zero.
Why Custom Modeling Matters: Cookie-cutter advice doesn’t work. Real optimization requires scenario analysis, projections, and flexibility.
Market Timing Considerations: Why down markets can be an ideal window to convert more at a lower tax cost.
Jeff also introduces Camarda’s proprietary ROTHalyze™ process, designed to go beyond rules of thumb and engineer Roth strategies with precision.
The core message is clear: Roth conversions can be incredibly powerful — or incredibly expensive — depending on how intelligently they’re executed. If your advisor isn’t running detailed tax projections and multi-year scenarios, you’re guessing… not planning.
Video Chapters & Transcript:
Howdy folks. Welcome once again to Smarter Money Matters with your wealth doctor Dr. Jeff Camarda joined by our super CFPs Lou Versil and Anna Wonderlet. Thank you so much uh for watching once again. And uh today we have uh some really really um poignant uh information um on the best ways to do Roth IRA conversions before retirement. Converting IAS pre-tax money that hasn’t been taxed before into tax-free Roth accounts. Um as many of you probably have done or have considered. Uh but there are some uh um some elements to consider because remember when you do the Roth conversion you’re basically paying the tax on the pre-tax IRA and sometimes 401ks uh in order to get it into a taxfree environment. Remember IAS are typically traditional IRAs all pre-tax money which means they never tax. When you put the money in you got a tax deduction. When you take it out you got to pay the tax on the entire amount you take out. None of it’s ever been taxed before. So Roths are really cool because it’s taxfree although it is painful to pay the tax. And these folks and this is drawn from another Wall Street Journal article um have done another study uh which actually drew some interesting conclusions. I I view them as as somewhat um the one-dimensional but we’ll get into that at the end. But they modeled the decision over many different tax and market scenarios running hundreds of thousands of simulations kind of like Monte Carlo, right? It’s probably what they did. Um and uh and to see if making a one-time Roth conversion makes sense in most tax situations um based on their assumptions. Now Lou and and Anna, I’m sure that you counsel clients all the time about gwiz, should I do a Roth conversion, you know, before they’ve retired typically. How do those conversations go? Lou, you first. Sure. So, uh, typically we’ll look at clients, uh, income level if they’re still working and and, uh, and then kind of look what tax bracket they’re they’re currently in and and you know, explore the possibility of doing a Roth conversion if it makes sense for them unless they’re in a in a super super high tax bracket that may reduce in the future in retirement. May not make sense, but typically it does make sense to do that conversion relatively early. And what kind of scenarios do you run? It’s like a one-time conversion or you piece it out or I mean what are the analytics that factors that go into the council? Yeah, I mean so obviously we’re looking at their current income, their expected you know projected income in retirement um and and typically we are looking yearly to see how much we can convert keep them in a certain tax bracket that they’re comfortable with um and try and make the conversions over time um less of a tax hit. Yeah. So I think that really is key. It’s, you know, um, any anybody can do a Roth conversion, but the real question is how much value do you give up. So, if you’ve got, in this example, we’ll get back to in a second, a million dollars, if you’re in a 20% tax bracket, you starting out with $800 grand, right? But if it push you to 40% bracket, you’re only starting out with $600,000. So they these guys ran their their analysis in a lot of different scenarios and I won’t bore you with the technical details but they started with a million dollars u and then looked at the the value of the portfolio 10 years later um and their findings were which may be somewhat surprising to some of you across across all tax regimens investigated the one time Roth conversion yields the best final balance using this method and starting out with a million dollars pre-tax tax, an investor would yield an average difference in a final balances 10 years after conversion of $110,000 over the 10-year period. G- whiz, that’s that’s 11%, right? That’s pretty pretty darn good. Um, and uh um the second most uh uh cost-effective method was doing an equal installment method, maybe taking a fourth of it for four years and so forth. Um, and that’s really, you know, the reason we bring this up to you today is to get you thinking. You know, obviously, you know, the back of the envelope rules of thumb, you know, our our ball and take it so far, you really got to dig in and crunch the numbers. And we’ve actually developed at Kamarda a fairly sophisticated process which we actually trademark with the patent office called ROFE that really gets into the nitty-gritty. Um, so some of the the shortcomings may be gee whiz, if you if you converted the whole thing this year and you’re in a 25% tax bracket and you dump another million dollars on top of that this year, what’s going to happen? You’re going to pay a lot more taxes. Yeah, you’re you’re going to be at the highest tax bracket that year. And as Anna suggested, maybe we piece it out a little bit each year. So, you really want to do the math, folks, to look at optimizing the lowest bracket. Something I call tax arbitrage. Um, but really just ma basically means trying to model your factors and variables so you’re able to enjoy the lowest possible tax bracket when you make that when you make that decision. Um, so that’s something that those of you that are in Kamarta clients, you know, hopefully your your CPA or advisor, you know, is adept enough to to go through. And if you look, I think we’ve run a number of webinars, I think, on this and and seminars if if your adviserss need to bone up if you are Kamar client. So, we have this process at which Anna and Lou and their teams are are trained um to go ahead and optimize and minimize and and the objective is, believe it or not, it is possible to get as close to a zero tax bracket as possible, which obviously is panacea, right? You’re taking what would have been taxable and you’re shooting through the hole when you have the opportunity and getting out, you know, scot-free, which is just great and happens more frequently, you might think. So, one final critique on this article is if we’re looking at folks doing the conversions before retirement, presumably they’re still working and have additional earned income that the Roth conversion income is going to stack on top of to drive you faster to higher brackets. Um, in any event, you know, it’s hopefully you think about this. It really, really is great if you can find a way to convert to Roths and avoid paying tax, you know, or higher tax on a traditional. you just drive a lot more family wealth. Any concluding uh comments here, Lou or Anna? Yeah, just for me just, you know, everyone’s situation is different. So, you know, talk to your financial advisor. If you don’t have one, reach out to to us or or you know, someone who you trust and uh and you know, have these conversations because like I said, everyone convers everyone’s situation is a little bit different and we have to do specific analysis for your situation to to exactly know and and tell you what the best, you know, best case scenario would be for you whether it’s now or to, you know, delay it, do it later. you know, everyone everyone’s uh you know, a little bit along the way or a little bit, you know, after a certain date. Anna, any any parting comments? Yeah, I’d say our clients that we work with that are in the middle of doing a conversion strategy like this, it’s an it’s a discussion that we’re constantly having. Is the market down a little bit? Maybe that’s the time to do a little bit more. Um, it’s not just a blanket, you know, oh, one and done. You want to work with an adviser that can make a robust plan that’s flexible. Well said. Well, thank you so much, Super CF. Until next time, thank you all for watching. This is your wealth doctor, Jeff Kamarta. We’ll see you next time.
