2024 Income Tax Brackets For Roth IRA Conversion

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This is the Truth Network. Welcome to Finishing Well, brought to you by CardinalGuide.com, with certified financial planner Hans Scheil, best-selling author and financial planner, helping families finish well for over 40 years. On Finishing Well, we'll examine both biblical and practical knowledge to assist families in finishing well, including discussions on managing social security, Medicare, IRAs, long-term care, life insurance, investments, and taxes. Now let's get started with Finishing Well.

Oh, I know you're going to be glad you're tuning in today to Finishing Well with certified financial planner Hans Scheil, and today's show we're talking 2024 income tax brackets, especially when it comes to Roth IRA conversions. And so it has a lot to do with what we would say maybe, seize the day. And I don't know if you've ever read the message of Eugene Peterson's translation of the Bible, but in Luke 962, he translated it this way. He said, Jesus said, no procrastination, no backward looks. You can't put God's kingdom off till tomorrow, seize the day. Of course, you might know that verse as Jesus said, no one who puts his hand to the plow and looks back is fit for the kingdom of God.

The issue still is that, you know, as we seize this moment, of course, to grab hold of the kingdom, you know, there's no better day to do that than right now, because believe me, you have a silent partner in Satan that would very much like to get you to stand back and not seize the day in so many different ways. Well, as we're going to find out today, if you have an irregular traditional IRA, you have a silent partner in that too, and he very much would not like you to seize the day, does he, Hans? Well, no, it's just the whole idea of Roth IRAs, it was a tough one for me to get my arms wrapped around, and I didn't really, initially, these things didn't look that good, and CPAs didn't like them. I mean, the Roth IRA came out in 1998, and it's been around since then, and conversions were started pretty quickly after that, and a lot of things, but people were pretty much against them, because they said, you know, why should I pay taxes now on something that I can just wait to pay taxes so I'm older and I need the money and my tax rates are going to be lower?

I mean, so the general thinking was against it. What we're talking about in today's show is the tax tables and the tax brackets, tax rates, I mean, all of that is on one nice people chart that Tom and I refer to daily, and it's in the video, it's on our website, under this 2024 income tax brackets Roth IRA conversion video, it's in the show notes, you can download the chart, and I don't know, you need to keep this by your hand, I don't want people making their monthly decisions about spending their money around tax rates is the kind of thing we use, and we're putting together a financial plan, we're going to try to help you put together a tax plan, and Roth conversions for many people, I'm not saying for all people, for many people, just seem to make sense, okay? I'm going to give you some examples for starters is if you take the top of the 24% bracket for married, filing jointly, the very top, so the last dollars you pay 24% federal tax on, it's $383,900.

So, you know, you say, well, I don't make it anywhere near that. Well, okay, what I'm looking at is that people that make right at $383,000, the highest federal tax they pay is 24%, and if you earn as a couple, like $94,300 after deductions, is the top bracket that you're paying is 12%. That's why when they passed the tax cuts and job debt, taxes went down pretty substantially. So, you know, if you're sitting there, if you're at $70,000 of income, and then you've got, you know, $80,000, $90,000, and you've got, you're a couple, and you've got $32,000 of standard deduction, because you're both over 65, you're not paying a lot in taxes, and you say, well, I like it that way.

Well, this stuff is fixing to change, and let's go over a single person first before we talk about the changes. So, the top of the 24% bracket for a single person, $191,950. So, if you made exactly that after deductions, so it'd really be about $221,000, the highest federal tax rate you're going to pay on some of your dollars is 24%, and, you know, if you are single, and you make $50,000 to $60,000 of taxable income, you're, again, in that 12%, maybe a little bit, 22%, and again, people say, that's what I like.

I want to keep it low. Well, if you got this big IRA 401K sitting over on the side, and, you know, big is kind of relative to you or your income and the size of what you think is big, and sooner or later, you're going to have to start taking distributions. You might even be at minimum distributions, and you're kind of bothered by the 12% tax and then the state tax that you got to pay on the minimum distribution. What I'm going to tell you is most people, as they start going through this, they end up doing some level of Roth conversion. Now, I'm not just saying this for everybody, but if I went to this couple that was right at $90,000, and then they had $600,000, $700,000, $900,000 in an IRA, they could do a conversion and bring themselves up to what level of taxation they can stand through a Roth conversion. They don't have to spend the money, and now they'd have a tax-free account sitting over there. Yeah, and it does seem counterintuitive that, you know, I'm going to have to pay taxes. However, the benefits we talk about by switching that over to a Roth IRA is that, number one, you're buying out that other partner. So as that Roth, not only in the future is it not taxed to your heirs or to you, but the growth on the IRA from that point on is not taxed either, which is huge, especially for young people, right, Hans?

Oh, yeah. I mean, my son and daughter-in-law are both blessed with high incomes, okay? And my son doesn't have a 401k, and they make too much money between the two of them to start up his own deal.

And so we're working on his boss, or the guy that owns the company he works for, to start one. And my daughter-in-law, she has one, and she's doing the traditional. And I'm just talking to them about this, and I think the cap is somewhere around 22,000 that she can put aside. And I said, well, why don't you do that as a Roth? And that way you're kind of getting a double benefit, so you're saving for him, and then you just spend money out of his money.

And she sat there chewing on that. I said, let's just take 2024 as an example. If you put in 22,000 into the Roth, sure, you're going to have to pay some taxes on that deduction, but now you're going to have 22,000 sitting there, and that money is going to double every 10 years at a 7.2% interest rate, if we could average that. And so she's 34. If you took 30 years from now, she's going to have $166,000, but just that portion she contributed in 2022, and all of that is going to be tax-free. If she put it into the traditional, sure, she'd get a tax deduction for the 22,000, but the whole growth of 140-some thousand is going to be taxed later. And when I ran the math on that for her, just off that one year's contribution, she changed it the next day. Trenton Larkin Right. Sure. David Morgan It just makes sense. So what I'm proposing makes sense for you is to utilize this chart when you come into us, and we do the math, to make some strategic decisions now to get rid of your silent partner, buy the IRS out now at a younger age, so that whatever portion we do is going to be tax-free for them.

Trenton Larkin Yeah, or if you're a geezer like me, I'm 68, right? And, you know, interestingly, you know, Truth Broadcasting just came out with our first, you know, 401k, all that stuff, and I could make it a Roth, right? And since I already had a Roth, and I've already had it for a number of years, I can make distributions if I want out of it. But the point of it is, is if I leave the money in there, if I take the money that I'm – and, again, because I'm still working at my age, I can put it in that Roth, and it makes money, you know, tax-free on the growth of it, and I can take it whenever I want it.

So why in the world wouldn't I do that, right? David Morgan Well, and, you know, what a wonderful thing to leave your wife is you go before she does, she's going to have this tax-free account just sitting there that she can use it well. And then if she doesn't use it or need it, she's going to pass it on to your kids. And your kids can leave it in there for another 10 years to accumulate tax-free, then they'll have to distribute it. But it's really – when you start looking at it from the positive side, and, you know, granted, everybody doesn't have money laying around to pay taxes, so I'm not saying this is for everybody. I'm just saying that if you're at your age, Robbie, and you're short of minimum distributions, but yet you're – you know, they're coming pretty quick, and what's better than a tax-free account?

Darrell Bock So that's a good point to say. We're going to go to a break in a minute, and when we come back – of course, we've got a whole lot more to share with you on the income tax brackets and what those look like for Roth IRA conversions. We want to remind you that the show is brought to you by cardinalguide.com, and at cardinalguide.com, they have the seven worries tabs, and one of those seven worries tabs is income taxes, and so this is a great, great resource. You'll see there at cardinalguide.com under the income taxes that they did a video on these tax brackets, and in that video, as Hans suggested, there is in the show notes all these brackets, all this information, tremendous stuff to download, so you would have it right there at your fingertips. It's right there under the income tax worries at cardinalguide.com, as well as Hans' book, The Complete Cardinal Guide to Planning for and Living in Retirement, and again, my favorite, the contact page, where you can contact Hans or Tom to take a look at your individual situation, whatever age you may be.

So this isn't for just folks that are over 65, as we're talking about, wow, if we'd had this advice, if I'd had this advice when I was 28, 29 years old, oh, my goodness, what that would have meant. So that's so helpful. It's right there at cardinalguide.com.

We'll be right back with so much more. Social Security Administration or any other government agency. Welcome back to Finishing Well with Certified Financial Planner, Hans Scheil, and today we're talking about 2024 income tax brackets, specifically when it comes to Roth IRA conversions. And so, you know, there on this video that we've been talking about that's at cardinalguide.com, there's all sorts of strategies, right, Hans?

Well, there are. And so, you know, I just encourage you on this one to look at the YouTube video, which we put one out every week, and you can find that at Cardinal Advisors. And on the YouTube video, there's show notes that you can download. And it's got this tax bracket chart, married, filing, joint, and single, for your use. And you can just see what we're looking at is we put together tax plans for people.

Let's talk about some of these strategies of a Roth conversion. Number one makes the point, it works best if taxes are higher in the future, okay? And that doesn't necessarily mean they have to be higher. But we know they're going to be higher, or we pretty much know, we don't know anything for certain, but we think, and the current law has the taxes low for 2024, low for 2025, or what the current brackets are, and then 2026, they're going to go revert back to what they were in 2017. It's called a sunset provision. So you really got an opportunity to have lower taxes for 2024 and 2025. And then you want to get this done sometime during this year and do it again next year, if that makes sense.

And then possibly still keep doing it. If we got to spread out doesn't mean they're going to be a bad deal. It's just this works best if you have lower taxes now, and you have higher taxes in the future.

Absolutely. Now, the next point we want to consider doing smaller amounts of Roth conversion over several years. And these are the people, I can't tell you how many clients I have, and people who, they're in a pretty low tax bracket, and it's a blessing. I mean, they have their social security check, or perhaps they have two social security checks. If they're still together, and then if one of them is passed, it's one person on the social security check. And then they've got savings, or they've got some income, or they got a pension, or they have something that's set up in addition to the social security check.

And then they're going along, and then they've got this IRA. And if they're, when they make these minimum distributions, they're in the 10 or 12% tax bracket. When they do that, if they're under 73 or 74, they're not taking minimum distributions, and they're living probably comfortably on a lower income, house paid for, and they're just not taking any distributions or small ones out of their IRA. When they haven't really looked at, we could not do a Roth conversion. We could just draw out, say the 12% tax, and just put in a savings account. It's smarter to do a Roth conversion and put it into a Roth, because it'll continue to be tax-free and available to you. But one way or the other, the alternative is, these people just build up these IRAs, and then they pass away in their 80s, and they leave it to their kids who are up in the higher tax brackets. So if you've got a person who's of a very moderate income, and they have an IRA, and they don't want to pay any taxes, it can really make sense to chop it up in pieces, don't go overboard, but just have a plan over their lifetime to do little conversions of it so they won't pay much tax. And then now there'll be a tax-free account that they can go ahead and leave to their kids, which will be much appreciated. RMDs, required minimum distributions, which start at 73 for people born in 1958 and before.

They start in 78, 74 for the 1959 birthdays, and they start in 19, for the 1960 birthdays, and after, it's a 75. So there's a required minimum distribution, you have to take money out of your account, it's a little complicated formula, but once you get there and you face these RMDs, you cannot convert the RMD. I mean, you can't do that.

And so some people are kind of upset about that. Well, now they're making me take money, I don't want to do the conversion. Well, no, you've got to take the money out. Pay the tax, you've got to take the money out. Pay the taxes. And then if you want to convert some over that, we can still do that beyond those ages.

So you just need to know you can't convert RMDs. We have another strategy for those, so if you get in this situation and you want to put that money into something tax-free, we have a strategy. It's not a Roth IRA strategy, but we have something for you. Consider the impact on Medicare IRMA.

This is one we got to talk about a little bit. So a single person starts paying IRMA for their Medicare or the Medicare tax at 103,000. You know, we have clients that have never been anywhere near that in their life, but yet they've still got this significant IRA because they've been good savers. And so now they're interested in Roth conversions. And we all of a sudden do a bunch of conversions, and now they got to pay IRMA because doing these conversions, especially smashing them into 24 and 2025 raises their income. So for a married couple, that number is 206,000. So again, you could have people that have not been near that number of income. They're thinking that's way too high, but all of a sudden we're doing conversions of a couple hundred thousand dollars. Roth conversions count toward IRMA. So, you know, is that a stop sign?

No. Sometimes paying a little IRMA isn't the end of the world if you look at the lifetime tax tax. So once I explain IRMA and the Medicare tax to people, sometimes they get obsessed with it, and then they don't want to pay any IRMA and it stops them from doing a smarter strategy, which is a Roth conversion.

So it sounds like I'm talking out of both sides of my mouth. So I want to just tell you that IRMA is a consideration. It may be a stop sign for you, but if you do this planning with us, we're going to bring up all these extra considerations so that we think about this stuff before we actually make a move and bring on the tax. And then this last point is a really hard one for us, but we do it any hours, sometimes our work. So most people that come into us that have a moderate income to a high income, or they had that before retirement, they come to us for retirement planning to set everything up, Roth conversions are on the table. And then sometimes we're doing them, sometimes with small amounts, sometimes in large amounts.

It's sequentially, some people haven't done any of them. They've just had them suggested they look like a nice thing, but they haven't pulled the trigger. And so what happens when a spouse dies suddenly? And we certainly have that happen from time to time. And now we've got what was a married couple filing jointly, and they were dealing with these much more liberal tax rates. And now they've become a single person. So that's one of the negative effects of the survivor of the two is going to be paying higher taxes on the same amount of income.

I mean, their income goes way down because they're now at single taxpayer rates. So one of the things that was mentioned earlier, it's difficult to do is sitting down with a widower and saying, we've been doing Roth conversions, or we did them, or we considered them. And now you get one more time to file a tax return as a married couple. And I have, as a producer, I have an obligation to tell you that now is that you've got one more chance to file married filing jointly in the year of death.

We might want to consider doing one last Roth conversion in this year. And you can see how that's difficult for us to tell people. And we need to time that conversation properly. Yeah, I can't imagine, but it certainly is applicable because all sorts of things happen when you go back to that single filer, and you'd mentioned Irma before, but all sorts of things hit them, they have a lower check, the tax rates change on them, and then they possibly may face Irma. So all those things happen all at the same time.

Well, they do. And so most couples become a single. And then the single can live on as a single for a lot of years. And so when we kind of jump over into estate planning, that's, that's one of the effects of that is that we plan for and we attempt to plan for, and we do plan for people is when you go from two to one, the smaller Social Security check is going to go away. So your Social Security income is going to go down by the amount of the lower check. And then the second thing is you're going to start paying taxes. Yeah, you could say the same rates, but you're going to hit the bracket twice as fast. I mean, however you want to, you're going to pay more taxes. So those are two things we need to plan for. And what I'm talking about here is in the year of death.

I mean, we just, we'll usually bring it up with the attorney or the son or daughter in law or daughter, somebody first and just, you know, ask if they have a flavor to do some tax planning here. And most people end up doing that. It's just, let's see what makes sense.

Yeah. Well, again, as always, it seems like we've run out of time before we run out of show. So we want to thank you all for listening today and point you back to this show is brought to you by cardinalguide.com at cardinalguide.com. That's Hans's website where you're going to find, you know, the seven worries tabs and the seven worries tabs, one of which of course is taxes.

And so this one being that category, you'll find a wonderful video on 2024 tax brackets, which has, as Hans mentioned, um, these downloadable show notes with all these different brackets and other resources are all there right at cardinalguide.com as well as Hans's book, the complete cardinal guide to planning for and living retirement. And of course, you know, what make life easy for you just to contact Hans or contact, uh, Tom as, as you choose it right there at cardinalguide.com. And again, you know, so many different resources that we all have available to us and, you know, it doesn't help.

I mean, I shouldn't say it helps a lot where many counselors plan succeed and, you know, this is an opportunity to really get some, some help from somebody who really cares. And so thank you, Hans. Great show. Thank you.

And God bless you. The opinions expressed by Han Shile and guests on this show or their own and due not reflect the opinions of this radio station. All statements and opinions expressed are based upon information considered reliable, although it should not be relied upon as such.

Any statements or opinions are subject to change without notice. Investments involve risk and unless otherwise stated or not guaranteed past performance cannot be used as an indicator to determine future results. Any strategies mentioned may not be suitable for everyone. Information expressed does not take into account your specific situation or objectives and is not intended as recommendations appropriate for you before acting on any information mentioned, please consult with a qualified tax or investment advisor to determine if it's suitable for your specific situation. Finishing whale is designed to provide accurate and authoritative information with regard to the subject covered investment advisory services offered through Brookstone capital management LLC, abbreviated BCM, a registered investment advisor. BCM and Cardinal advisors are independent of each other.

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