Why Your Roth Conversion Probably Won't Work

What if everything you've been told about retirement tax planning is wrong?

In this eye-opening episode of Yield to Reason, host Brandon Roberts tackles the sacred cows of retirement planning head-on. Spoiler alert: that fancy tax footwork everyone's raving about might not be the game-changer you think it is.

What You'll Discover:

The Roth Conversion Controversy 🔥

• Why the "heretical" truth about Roth conversions might shock you
• Real-world data showing modest benefits (hint: it's not the wealth preservation miracle you've been promised)
• Which retirees actually benefit the least from conversions (the answer will surprise you)

The Withdrawal Sequencing Myth

• The standard "taxable first, tax-deferred second, Roth last" approach—and why it's leaving money on the table
• How a married couple can withdraw $53,850 from their traditional IRA and pay just 4.43% in taxes
• The simple strategy that beats complex tax planning every time

The Brutal Truth About Tax Optimization

• Why all that sophisticated software and complex analysis falls short in the real world
• The fatal flaw that undermines every tax strategy study
• What actually moves the needle in retirement (hint: it's not what the "experts" are selling)

The Episode's Biggest Bombshell:

A solid income plan that increases your withdrawal rate from 4% to 6% delivers a 50% boost in annual income—dwarfing the measly 5% bump you might get from perfect tax planning.

Perfect For:

• Pre-retirees drowning in conflicting tax advice
• Current retirees wondering if they're missing out on tax strategies
• Anyone tired of complex solutions that promise the moon but deliver pocket change
• DIY investors ready to focus on what actually matters

Key Takeaway:

Stop obsessing over tax avoidance and start building bulletproof retirement income. Your future self will thank you for focusing on the strategy that actually creates wealth—not just preserves it.

Listen now to discover why the retirement planning industry's favorite tax strategies might be keeping you from the retirement you actually want.

Transcript

00;00;00;00 - 00;00;48;00
Brandon
You are listening to the Yield to Reason podcast, where we strive to help you build the most important part of your retirement strategy. Because a retirement plan built with robust income sources is a retirement plan built for success. I am Brendan Roberts. This is episode number five, and today I'm looking at a boatload of research to determine if all the effort of fancy tactical tax strategies produces any real net benefit.

00;00;48;03 - 00;01;12;11
Brandon
It's time to get serious about maximizing your portfolio value and the practical use of your money. As we set off on a journey to help you build the retirement you deserve and the one you actually want, so modern retirement planning is just as much about strategic tax planning as it is investment planning. And sadly, not nearly enough income planning goes into it.

00;01;12;11 - 00;01;32;14
Brandon
But hey, that's why I'm here tooting my horn. So Roth conversions have become all the rage, and that's especially true after the Tax Increase Prevention and Reconciliation Act of 2005. That's right. It's been 20 years. Time flies when you're being really boring, I guess. And you're a heretic today if you don't advocate for the Roth conversion. But do they actually work?

00;01;32;14 - 00;02;07;24
Brandon
And who really benefits the most from them if anyone? And closely related in the world of tax strategy or tax strategizing for retirement planning, arguably a little less complicated is the withdrawal sequencing, concept, which really boils down to the idea that you are going to withdraw a specific asset of specific dollars from specific assets based on their tax features at different times to minimize tax liability and hopefully maximize distributions and overall legacy value as measured by dollars remaining in your accounts on the day you die.

00;02;07;26 - 00;02;26;21
Brandon
The way, way oversimplified version of this is basically you're going to withdraw your taxable money first. Then you go to your tax deferred assets. And lastly, you'll touch your tax free accounts like your Roth. Does this really work? Is there any evidence that it actually provides a benefit to people? And does it potentially sacrifice a number of benefits offered to you by the U.S. tax code?

00;02;26;27 - 00;02;58;07
Brandon
Because it's just not dynamic enough to account for such nuance? These are the things that we're going to dive into. We've got the research in front of us to parse through and talk about what it actually tells us about things like Roth conversions and withdrawal sequencing. So let's start with Roth conversions, because they're the ones that have primarily all the buzz behind them when it comes to various articles written on the subject of retirement planning, specifically in the context of how you can employ a tax strategy to maximize your retirement dollars.

00;02;58;10 - 00;03;28;09
Brandon
So the idea is pretty simple. If you have traditional IRA money, either because you contributed to a traditional IRA, or because you rolled money in a 401 over into an IRA, you should seriously think about converting that money over to a Roth IRA account, because you will then start paying taxes on the distributions. But but if you do this, you are going to have a pretty substantial tax bill on your hands as you convert that money to Roth money.

00;03;28;11 - 00;03;42;07
Brandon
Now, you don't have to it all once you can break it up into chunks and try to minimize some of the tax burden that would be associated with it. But that's the general idea of what a Roth conversion is. Now, for much higher income individuals, Roth conversions are also the way that they end up with Roth IRAs through a concept.

00;03;42;07 - 00;04;16;08
Brandon
We've, come to call the backdoor Roth, which is essentially the idea of contributing to an I.R.A. regular IRA or a nondeductible IRA, and then converting it to a Roth in order to get Roth money that is not done, by waiting any period of time. So in theory, the tax liability in a back to a Roth is not nearly as substantial as is the case for an individual who's making a Roth conversion from something they've been accumulating for a number of years again, either the traditional traditional IRA or by rolling money out of a 401 K and then making a Roth conversion.

00;04;16;10 - 00;04;51;08
Brandon
So what is the actual benefit that we can expect from doing a Roth conversion? Well, there is a bunch of research that has attempted to quantify the overall benefit of going through the hassle of a Roth conversion, and that data suggests that you get a rather modest bump. Overall, 5.5% roughly, is the increase in overall value that is attained by individuals who go through the process of Roth conversion, and there's some other research that suggests the value may be higher than that.

00;04;51;11 - 00;05;17;16
Brandon
But there's a very, very wacky, modeling that they did where they assume that after you Roth convert, you're going to invest in more aggressive things. I don't know why you'd make that assumption. So when we hold the rate of return assumptions equal, we still find that the rough estimate on an increase net net is about 5.5% more value to the individual who did the Roth conversion, which really isn't all that much.

00;05;17;16 - 00;05;42;15
Brandon
When you think about the things that have to line up correctly to make Roth converting even makes sense. And interestingly, this data really falls back on a very, very not easy to quantify concept that basically tells us, well, how you feel about future tax ability is really going to be the primary driver in determining whether or not a Roth conversion makes sense for you.

00;05;42;17 - 00;06;09;16
Brandon
So in other words, if you believe you will be in a situation where your tax liabilities will be higher later on in life retirement. In other words, then you know, you should you should convert. You should do a Roth conversion. But if you don't think that's going to happen to you, well then no, you really shouldn't do Roth conversion, which okay, fine, that's understandable, but not particularly helpful to the individual who's sitting on a pot of money trying to determine, okay, do I Roth converted?

00;06;09;16 - 00;06;26;13
Brandon
Do I not Roth convert? Let me speak for a second on some personal experience here, because we have some, I've mentioned before that I've been in the retirement planning world for quite some time, and there's a practice that that we have where we do consult on the subject of an array of various financial considerations. And Roth conversions have absolutely been one of them.

00;06;26;16 - 00;06;53;25
Brandon
And at one time, we actually signed up for and paid for some pretty sophisticated software that was supposed to take someone's entire financial life and make an array of computations that determined what, if at all, they should do regarding Roth conversions. And it didn't just say yes or no. What it actually did was give us kind of 20 different potential scenarios that involve Roth conversions of varying styles.

00;06;53;25 - 00;07;18;08
Brandon
So all at once drawn out over a five year period, drawn out over a 20 year period, whatever it was. So we got these these kind of ranked order of various scenarios and conceivable roadmaps to do a Roth conversion. And the idea was this would give us the the plan that we needed with the individual to say, yep, here is the quantifiable benefit to the Roth conversion.

00;07;18;08 - 00;07;32;20
Brandon
And here is the step by step approach we should take to make this all happen. Now big picture with this software was the ability to go to an individual and say, here it is. This is how much money you will have if you do nothing. This is how much money you will have if you do the conversion that we're recommending.

00;07;32;23 - 00;08;06;12
Brandon
And of course, the company that sold the software had a number of hypothetical examples where they showed overwhelmingly the value of a Roth conversion. But in practice, for us, the clear and convincing evidence, by inputting real world data from real people with real assets and real planning concerns, what we found is that the net impact of Roth conversion almost all of the time was extremely little real, and that's putting it very politely.

00;08;06;14 - 00;08;27;26
Brandon
So the the problem for us is we would take all this data, we would run these numbers, we would have these scenarios, and we would have the do nothing, scenario. We would have the Roth conversion of a bunch of different possible ways to approach it. And ultimately the best Roth conversion scenario really only gave us a modest bump at 5%.

00;08;27;26 - 00;08;54;24
Brandon
Was was probably the best we ever saw in terms of what the net amount left over at life expectancy was expected to be. Now, here's the issue for us as we're looking at this, this this speaks this makes a ton of assumptions that that have to all hold true in order for this to work out. So dare I say that if we're only seeing a small bump in overall legacy value, we could be wrong?

00;08;54;27 - 00;09;30;25
Brandon
And this might actually turn negative and be a worse idea then just staying the course. Now, interestingly, interestingly, there were a few insights that did come from this practice. One was that individuals looking to retire early, we're talking like 55 years old roughly on average. They got very little benefit from even looking at a Roth conversion. And also, counterintuitively, those with much higher pre-retirement incomes who were seeking much higher than average retirement incomes, of course, generally had higher assets they didn't really see any meaningful benefit to a Roth conversion.

00;09;30;25 - 00;09;48;28
Brandon
They were far less better off with a Roth conversion than people of of lesser income. Lesser lesser assets accumulated, which seemed odd since Roth conversions have always been touted as this thing that that people with higher incomes and higher supposed income tax liabilities would definitely be all over. What what really was the impediment? There was their already high tax burden.

00;09;49;00 - 00;10;14;03
Brandon
So the fact that they had high incomes and they were paying a high marginal income tax rate meant that the timeline to pay off for a Roth conversion was significantly longer for them. And it made it a lot harder to actually advocate strongly for a Roth conversion. In those cases. Now, in the same neighborhood of tax planning for retirement is the notion of withdrawal sequencing.

00;10;14;10 - 00;10;39;15
Brandon
And as I already mentioned, withdrawal sequencing is simply the concerted effort to withdraw from certain asset styles or certain types of accounts because of their taxable features. And in general, the the paradigm here is you're going to sell from your taxable accounts first. So think your brokerage account, your savings bank account, things like that. Then you're going to move into your tax deferred account.

00;10;39;16 - 00;10;55;21
Brandon
So this is your traditional IRA. For most people it's their 400 and K because Roth contributions for one case are relatively new. So there's not that many retirees who are sitting in a boat where they've got a bunch of Roth for one K money. And then the last thing you'll touch is the tax free money. That's your, your your Roth IRA.

00;10;55;22 - 00;11;20;05
Brandon
Or for those who have chosen something like life insurance, cash values, that would be another tax free, potential account that you would treat similarly to, to Roth money. So that's how you would go with it. Taxable first tax deferred, then tax free. And that supposedly gives you the best bang for the buck when it comes to strategically sequencing your withdrawals to, maximize benefit and value.

00;11;20;08 - 00;11;37;10
Brandon
But now that idea does have some research behind it. It is a little bit easier in the sense that there's not much you have to do, in order to, to, to execute this strategy, like you would, for example, having to do a Roth conversion and pay the tax liability of the conversion in the year that you did it.

00;11;37;13 - 00;11;59;26
Brandon
But the the overall benefit of withdrawal sequencing is up to a lot of debate in terms of the correct way to sequence. And I think there's a lot of times it gets oversimplified, makes people believe that it is kind of a, a almost the panacea of unlocking great value in your retirement assets, when in truth, it's fairly limited.

00;11;59;28 - 00;12;32;26
Brandon
And it also needs a great more deal of nuance, understanding of various things you have at your disposal. Thanks in large part to the U.S tax code. Take for example, the standard deduction in the United States got a massive boost in 2007 thanks to the Tax Cuts and Jobs Act. At that time, we saw the standard deduction get a large increase, and we saw a number of other things that people would deduct to itemization go away or become far less impactful.

00;12;32;28 - 00;13;03;22
Brandon
Now, today in 2025, a single filer gets a standard deduction of $15,000, a married couple gets a standard deduction of $30,000. So what that means is you can have taxable income as a married couple of $30,000 in pay, zero income tax, federal income taxes on that. And we're assuming that you have no other no other income sources. So if you're withdrawing $30,000 from an IRA as a retired couple, you get a $30,000 standard deduction.

00;13;03;24 - 00;13;27;15
Brandon
No other income sources, none of that distribution, that $30,000 that you're taking out of the IRA to go live your life, spend it on whatever you want to do. None of that carries an income tax liability to it, at least for federal income tax purposes. Now, in addition to all of that, if you're a married couple, you can take an additional $23,850 out of your IRA and remain in the lowest federal income tax break bracket, currently 10%.

00;13;27;15 - 00;13;54;12
Brandon
That means that your total distributed income from your IRA, again, assuming no other sources of income $53,850 and your total federal income tax liability on that would be 23,085 bucks. So effective tax rate is 4.43%. That's way better. Way, way better than capital gains. Long term capital gains tax rates. I don't care what bracket you fall into there.

00;13;54;15 - 00;14;19;06
Brandon
So the idea that you should sell your taxable money first because capital gains rates are generally lower than than federal income tax rates. Nuh. Nope. Not true. There are several things that you should be thinking about that might make you go after the tax deferred dollars first, in order to optimize what you have in distributable income by virtue of how the US tax code works for federal income taxation.

00;14;19;06 - 00;14;52;10
Brandon
In fact, in fact, for a large number of people that we have done analyzes for, on Roth conversions, our most common recommendation is don't do the Roth conversion, just plan to spend the tax deferred dollars first. Maximize things that you have at your disposal like the the standard deduction, and you'll end up way better off. But there's something else to to address here, because you may be a married couple with the ability to to withdraw $53,000 from your IRA and pay very, very little income tax on it.

00;14;52;15 - 00;15;15;20
Brandon
But you may look at it and go, oh, I don't need $53,000 of income. Well, there may again be a strategy here to withdraw $53,000, have that very, very low tax liability on it, and then take those dollars out of the IRA and put them somewhere else, like your brokerage account, which will long term create a different tax implication than if it stayed in the IRA.

00;15;15;20 - 00;15;36;04
Brandon
And you ended up having to recognize higher and higher incomes as you get older and run into required minimum distributions, for example. So you're probably getting the sense that I much prefer withdrawal sequencing to Roth conversions. And you're reading the signs correctly here. But I want you to understand that the net benefit of all of this is modest at best.

00;15;36;04 - 00;15;51;17
Brandon
It's not going to completely change your life by doing this. And I'm also going to tell you, there's a number of people who look at the complexity of this and go, oh, I'm afraid I'm going to make a mistake. If I make a mistake, that could cost me, and I don't want to do that. And quite frankly, for a lot of people, that's the right decision.

00;15;51;17 - 00;16;08;24
Brandon
Nothing bad is going to happen if you ignore all of this and say, we're just going to keep doing what we've been doing and withdrawing from the accounts that we're withdrawing from, we're not going to worry about the tax implications of that. Plenty of people who do that and their life is not really that much worse off, because the research shows us something else as we look at it.

00;16;08;24 - 00;16;36;05
Brandon
And that is the fact that all of these various analyzes that look at either Roth conversions or even withdrawal sequencing do have to admit that there are a number of variables that are held constant that will never, ever unfold that way in real life. There's just too many things that we're trying to to, to evaluate and not necessarily capable of fully appreciating the impact in terms of their variability in real life.

00;16;36;08 - 00;16;51;26
Brandon
And the optimization for these things is often done in retrospect, meaning we already know what happened. We already know what the tax rate was going to be throughout the time period, and we know what the rate of return on the market was going to be throughout the time period. And so we can look back in hindsight and say, yeah, that was the right decision.

00;16;51;28 - 00;17;16;24
Brandon
But moving forward, we don't know where any of that is going to go. And there is zero data, absolutely none that shows us anybody has ever been able to consistently employ things like Roth conversions to bring more value to retirees in very limited data that shows us withdrawal sequencing has done much with real sequencing, does have a little bit of a leg up here because it's a much shorter time span.

00;17;16;24 - 00;17;52;17
Brandon
We can point out that if somebody, for example, stops selling shares in a brokerage account and starts taking money out of an IRA and making use of their standard deduction, they may actually come out ahead in that individual year. So it's a different timeline. The Roth needs more time to unfold to actually identify a victory there. But given the fickleness of tax treatment in the United States and the fact that life is very complex and it's changing all the time, the likelihood that the decisions you make today are going to necessarily result in a huge benefit that you project 20 or 30 years out.

00;17;52;19 - 00;18;22;06
Brandon
It's just not that high. But I don't want you to take all of this as a way of saying you should completely ignore the strategy of Roth conversion or withdrawal sequencing forever and always. There are some situations where a Roth conversion could have significant impact. I'll give you one example. And it's only one of many possibilities if you are thinking about taking IRA money and purchasing an annuity, a Roth conversion for the annuity purchase inside the IRA could be extremely beneficial.

00;18;22;14 - 00;18;53;21
Brandon
Some annuities have very high yields and the potential to pay for a very long time, with a life contingent payout that could result in really maximizing the tax free nature of distributions from a Roth IRA. But it's also not an all or nothing situation. While many people look at annuities as income is either on or it's off, there are a number of annuity contracts today that will allow you to use the income benefit, but not necessarily force you to take all of the income out of the IRA that holds the annuity.

00;18;53;27 - 00;19;13;18
Brandon
So if you happen to not be in a position where a Roth conversion makes a lot of sense and you're worried about the tax liability in terms of the income you'll receive from an annuity moving forward, you do have some selection opportunities to choose annuities that don't necessarily force all of the income out as a distribution, so you have some more control over that.

00;19;13;20 - 00;19;40;13
Brandon
And the one thing that we should totally take from scenarios involving withdrawal sequencing, and this is especially important for younger individuals listening to this. There is value in tax deferred accounts. So while Roth conversions and Roth contributions get a lot of airtime when it comes to financial retirement planning, discussions don't necessarily buy into the idea that everything you do must be in Roth accounts.

00;19;40;13 - 00;20;09;18
Brandon
That is not true. There is definitely a benefit to taking the deduction, and definitely a benefit to entering retirement with tax deferred dollars. But all of this having been said, I am going to tell you that the process that you follow to turn your retirement savings into income will be wildly more important than the process you follow. To try and figure out what to do about the taxability of the distributions you take from your assets.

00;20;09;20 - 00;20;49;18
Brandon
There are some meta analyzes that have consistently shown us that a perfectly executed tax strategy with poor income producing planning falls way behind a complete disregard for tax planning that also encompasses a solid plan to produce resilient retirement income. Consider the fact that this research shows us a 5% bump, roughly in net benefit from a Roth conversion. Now, think about think about the real world implications of an income plan that can bring your distributed income from your portfolio from 4% up to just 6%.

00;20;49;21 - 00;21;15;11
Brandon
That's a 50% increase in annual income you will generate from your assets. You compound that over a 20 year period. That is a substantially more life changing strategy to pursue. Then figuring out how to get 5% more net lifetime value. Now, of course, the best approach is thinking about both the process you'll follow to create income, as well as thinking about the taxable implication of everything.

00;21;15;16 - 00;21;42;09
Brandon
That is the formula that will create retirement harmony. And of course, there are many different tax implications to the various assets that exist to produce retirement income. That's a fairly complex discussion and best saved for another day. But this all begs the question why? Why spend any time at all talking about tax planning and retirement? If income generation is so much more meaningful?

00;21;42;11 - 00;22;15;01
Brandon
And really the honest answer is the tax planning side of the discussion is the easier one to talk about. It's easier information to dispense in a lot of cases, because giving people kind of quick tax tips tends to be something that's a little easier to do with far less pushback, and almost seems a bit more magical. And a lot of cases, income planning involves a lot more explanation.

00;22;15;01 - 00;22;39;13
Brandon
In a lot of cases, though, there is a far larger payoff. People are also going to have a lot more questions, because they don't tend to get it quite as readily as they do something like, hey, we can save you X amount of dollars in tax liability if you do this. And in general, you don't even really need to quantify the tax savings in a lot of cases to get people's attention.

00;22;39;15 - 00;23;04;03
Brandon
It turns out a lot of people hate paying taxes. And for retirees, this is especially true according to research. So if you tell an individual retiree or not that you can save the money on their taxes, you likely have their attention. And the financial services industry, as well as the tax planning industry is well aware of this fact.

00;23;04;05 - 00;23;34;22
Brandon
It's it's a data point that has proven very reliable for gathering eyeballs and attention for a number of years. And I can certainly speak from personal experience on the effectiveness of getting people's attention. When you tell them you have some ideas that can certainly reduce their tax burden. Taxes are certainly a pain point for a lot of people, but I do think in a number of cases we're focusing on the wrong thing.

00;23;34;25 - 00;24;17;10
Brandon
And I'm not necessarily telling you that financial advisors are out there manipulating you with tax discussions to get you to do things you don't want to do. I think they believe they're doing extremely virtuous work, and in some cases they may actually be doing virtuous work. But I do also think they approach this somewhat myopically, and they oftentimes overlook some really critically important aspects to financial planning, retirement planning, and the way life unfolds in general that bring them to the conclusion, with respect to recommendation, that may not be the best thing you can do, diverting your attention away from more significant things like the actual income you generate and into things that are far

00;24;17;10 - 00;24;43;04
Brandon
less meaningful, like the taxes that you're paying is something that is going to lead you oftentimes down the wrong road. The old aphorism is, if you're not getting the right answers, it's probably because you're not asking the right questions. And I think in this case, the problem is we're asking far too many questions about taxes and not merely enough questions about how the income process works.

00;24;43;06 - 00;25;08;23
Brandon
But I don't want to sound completely apathetic about the tax discussion, because personally, I'm not. I know taxes suck. I have paid a lot of them over the years, and I've been from various times in the past very, very bitter about it. But as time went on, my thinking about taxes, the way that I approached them, it evolved quite a bit.

00;25;08;26 - 00;25;29;10
Brandon
And look, I still don't like it. I don't, and I don't think I'm ever going to come to a point where I can tell you I like paying taxes, but there is an acceptance that I have come to you regarding taxes and really thinking of taxes as being a testament that I'm probably doing something at least marginally correct.

00;25;29;13 - 00;25;50;19
Brandon
Bye bye by the amount of taxes that I have been paying, as a good friend of mine's wife remarked to him one year when they calculated their tax liability, and it was quite lofty, it's far better than being broke. And in that context, I think to myself, yeah, I'd much rather have an annoying tax liability than than have no money.

00;25;50;19 - 00;26;12;08
Brandon
And unfortunately, outside of some things that are pretty much illegal, there's very little ways to have a lot of income and a lot of money and not pay any taxes. That's certainly not to suggest we totally give up, and we just accept taxes as they are and pay them without any regard to trying to to reduce them to some degree.

00;26;12;12 - 00;26;50;23
Brandon
That's that's certainly a worthwhile pursuit for those who have a substantial tax liability and care enough to go through the process of trying to minimize it. All I'm saying is there are other things you could be spending your time focusing on that are probably going to produce wildly more meaningful things to you than just, how do I get my tax liability down, especially if it's going to involve tons and tons and tons of consideration and computation and and all kinds of paperwork and additional considerations to think about and worry about and stress about whether or not you did it right or wrong, and if it's actually going to create a net benefit to you.

00;26;50;26 - 00;27;11;22
Brandon
There's there are other things that have much more immediate impact that are much more easily identifiable as having moved the needle in the right direction of improving your life. That's all I'm saying. And really, today I'm far less worried about how much I pay in taxes and far more worried about how I can generate income and where it's coming from, and what I can do to create it, and how much of it I'm getting.

00;27;11;24 - 00;27;41;11
Brandon
And in my experience, something interesting happens when the income side of the equation grows at a rate that far exceeds the expenses side. Life just gets a little less scary. And sure, there are taxes that are that are there, but if your income plan is solid and reliable, you can generally shift your thinking to taxes just being a byproduct of the process versus a scary monster you're constantly attempting to evade.

00;27;41;14 - 00;27;59;25
Brandon
That's it for me today, but have no fear, I'll be back next week with more tips and tricks to help you build a rock solid retirement. In the meantime, feel free to join us on YouTube at Elder Reason. You can also check us out online. Yield horizon.com. And until we meet again, please, please, please remember that real wealth doesn't just add up.

00;27;59;27 - 00;28;11;00
Brandon
It writes, checks.