Episode 73: How to Do a Roth Conversion Without Draining Your Retirement Savings to Pay the Taxes Back in 2010, the income limits on Roth conversions went away, and Steve Burton expected clients to line up at the door. They did not. Most people agreed a conversion made sense right up until the moment they had to write the check to the IRS. In this episode, Steve sits down with Ed Lyon, J.D., our certified tax and business advisor and co-author of How to Beat the IRS, Legally, to talk about why so few people convert and what has changed. Ed explains why the traditional CPA approach of converting a little each year guarantees you pay at least your current tax rate on every dollar, and how the Roth Accelerator strategy uses business and investment vehicles that create depreciation deductions and tax credits to offset some or all of the income from the conversion. Ed calls the future tax bill inside a pretax IRA a tumor. It will not kill you, but it is going to hurt, and it grows every year you leave it alone. For a business owner with a couple million dollars in a 401(k) at age 50, those required minimum distributions could become $1 million a year of taxable income they never needed. If you have half a million dollars or more sitting in pretax accounts, this conversation is worth your time. In this episode: Why people did not rush to convert when the 2010 income limits disappeared The fundamental challenge of a Roth conversion: recognizing the income now Why the "fill up your bracket" CPA strategy still leaves you paying today's rate How the Roth Accelerator offsets conversion income with depreciation and tax credit strategies Where the money goes after it leaves the pretax environment The ideal candidate: roughly $500,000 or more in IRAs, 401(k)s, TSPs, or 403(b)s How required minimum distributions at age 73 can turn into a tax problem you do not need The real risk of converting: making a big decision without knowing future tax rates Why bringing your effective conversion rate down to around 10% makes a mistake much less likely Why your kids would rather inherit $1 million in a tax-free bucket than $1 million in an IRA (and the 10-year rule) About our guest: Ed Lyon, J.D., is a tax attorney, a certified tax and business advisor, and co-author of How to Beat the IRS, Legally. He works with business owners and families to legally reduce income taxes, capital gains on business and real estate sales, and the future tax burden sitting inside retirement accounts. Ready to see your numbers? There is no downside to getting an MRI on your pretax money. Schedule a discovery call and our team will run the analysis, show you what your future tax bill looks like, and tell you whether a Roth conversion strategy makes sense for you. Book your discovery call at ScaletoSell.com/discovery Catch these episodes next: Episode 58: How business owners can legally pay less in taxes, with Ed Lyon Episode 71: How to Beat the IRS Legally and Tax Planning Strategies for Business Owners Listen to all episodes Connect with Scale to Sell: Website: ScaletoSell.com Free Business Valuation: ScaletoSell.com/value Podcast: ScaletoSell.com/podcast Facebook: facebook.com/ScaletoSell Instagram: @scaletosell YouTube: Scale to Sell on YouTube Email: info@scaletosell.com Phone: 757-313-4080 This episode is for educational purposes only and is not tax, legal, or investment advice. Every situation is different, so talk with a qualified professional before making changes to your retirement accounts.
