Beware of This Tax Bracket When Doing a Roth Conversion

Today's video is part two of David's interview with Larry DeLegge, the co-founder of Power of Zero. They discuss the tax bracket you should avoid when doing a Roth conversion.

They start the conversation by describing why it's a no-brainer to pay your taxes today at 22 or 24% marginal rates.

Instead of rushing to complete Roth conversions by 2026 and potentially bumping into higher tax brackets, David suggests stretching the conversions over several years.

After 2026, the tax brackets are expected to increase, with the 22% bracket becoming 25% and the 24% bracket becoming 28%.

However, these brackets are still lower than the higher brackets (32%, 35%, 37%) that one might be forced into if they rush the Roth conversion.

David reveals why he advises people to do Roth conversions but only follow a restrained approach to Roth conversions. 

David talks about the ideal balance for saving money in taxable, tax-deferred, and tax-free buckets. 

What will happen to standard deductions come 2026?

David is not worried about the standard deduction. He explains that standard deductions will be around for the foreseeable future, and there are no indications of the government getting rid of them. 

For David, it's more prudent to plan for higher taxes than to speculate on the complete elimination of the standard deduction.

All financial advisors agree that tax rates will be significantly higher in the future, which supports the strategy of paying taxes now at lower rates.

Should people use cash to pay tax on Roth conversions now, or should they contribute it to a Roth 401(k) now? David's advice is for people to go with the Roth 401K. 

 

 

Mentioned in this episode:

David's books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free 3-part video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com