Financial Guru Loses $400k to Ill-Advised Roth Conversion (Is Your Money Safe?)

David starts the conversation by describing how a financial guru, Derek Sall, allegedly lost $400k in an ill-advised Roth conversation.

According to Sall, you're way more likely to have a lower income in retirement than you have today, so you'll likely be in a lower tax bracket in the future.

But as we all know, tax rates must go up as early as 2026 to pay for unfunded government obligations. 

David made 3 observations to counter Derek's claims:

Your income in retirement is not likely to be way lower than it is today. This is one of the huge myths foisted on a generation of baby boomers.

The single largest factor that should determine whether you do a Roth conversion is whether you believe the taxes you pay will be higher now than in the future.

You're not necessarily guaranteed to be in a lower tax bracket in retirement. More and more experts are beginning to predict that tax rates in the future will have to rise dramatically to pay for unfunded obligations.

David explains that Derek might have unknowingly made a wise financial decision by making a Roth conversation at the 22% tax bracket. 

You should always consider doing a Roth conversion, especially when young. Chances are, you will make a lot of money in your later years, so it makes sense to pay taxes now since taxes will likely go up in the future.

For David, Derek Sall did not make the wrong move by converting his 401K into a Roth. 

In fact, he didn't go far enough. He should have taken advantage of the 24% tax bracket as well.

David reveals whether there are certain times it doesn't make sense for some people to do a Roth conversation.

 

 

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)

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