Maximizing your Roth IRA after you retire

How do you get the most out of that wonderful tax-free Roth IRA?

Today we’re discussing 3 steps to optimize your Roth IRA as you approach and get into retirement.

Maximizing your Roth IRA after you retire


Full transcript:


Alex Okugawa & Anthony Saffer

Alex Okugawa 0:00
So how do you get the most out of that wonderful tax-free Roth IRA? Today, we’re going to discuss three steps to optimize your Roth IRA, as you approach and enter retirement. Hey there, it’s Alex and Anthony, from One Degree Advisors, and we help you gain confidence in your retirement. So Anthony, let’s be honest, a lot of people they get into retirement, and a lot of people wish they had more money inside of a Roth IRA. And it’s not a surprise, because it’s such a powerful account. I mean, if I had to give it an analogy, Roth IRA is kind of like a super powerful sports car. And the problem is, is that it’s like a retiree driving a super powerful sports car, right, you can go over 100 miles an hour in this super powerful sports car, but a lot of retirees, they’re not going to drive it that way. So they’re not taking full advantage of how powerful this Roth IRA really can be.

Anthony Saffer 0:54
Yeah, and the power comes in tax-free distribution, so who doesn’t want to not pay tax on their retirement income. So we take a look at this chart, and this is just a hypothetical example. It’s someone that’s contributed $300,000 of their own money, pays tax on that money already. The good news is that all the growth that comes along with that, in this case, 700,000, would be tax-free when you go to take it out. You combine that with other taxable sources of income, it can create a lot of dynamic retirement income capability.

Alex Okugawa 1:24
It really is one of the best accounts, not just for most people, but especially for retirees. So let’s talk about three steps to optimizing that Roth IRA, not just for people that are getting close to retirement, but for those that are right at the beginning stages and entering into retirement.

Anthony Saffer 1:39
Yeah, so the first one is really just build your Roth up. So if you are in those final years approaching retirement, or even if you’re into retirement, there are ways to add more money to the Roth. Mean, one way is just simple contributions. If you’re over age 50, you can contribute $7,500, as long as you’ve earned that much in earned income. There also is the ability for a spouse to contribute. You can convert money from a traditional or a pre-tax retirement account over to a Roth, you do need to pay attention because in the year that you do that you pay taxes on what you do convert over well.

Alex Okugawa 2:13
I know one of the other really powerful tools to get some money inside of a Roth IRA, and we’ve talked about this before in previous videos is called a mega backdoor Roth IRA. It’s been on the chopping block for years, Congress never seems to pass a law on it, disallowing the rule. But essentially, you can stuff money, and supercharge it into a Roth IRA by using special rules inside of your current 401k plan if you have one. So that’s another way to get more money into a Roth IRA. The second thing we have here is especially if you’re in retirement and thinking about what’s the right way to take withdrawals, which accounts should I take money out of, if you can defer Roth withdrawals, that can be a really smart thing to do.

Anthony Saffer 2:54
Yeah, we have to remember that the power of the Roth IRA comes in growth that’s deferred over time, that is, if you can get that compound growth, it comes out tax-free. So by default, kind of a rule of thumb is that you do want to allow it plenty of time to grow. And then the more earnings you get, that really builds up that tax-free income. Also, if you’re intending to pass on assets to the next generation to have children Roth can be a great asset to pass along more time, more tax-free earnings come out tax.

Alex Okugawa 3:26
Well, I know like a lot of clients that we talked to, they talk about leaving an inheritance for their children. And oftentimes one of the top concerns or priorities they have is, well, I don’t want my kids to have to pay a ton of taxes right on the money that they’re going to inherit. So if they do inherit a thing, like maybe a traditional IRA, yeah, when the kids take money out, they are going to pay taxes. But the beautiful thing about a Roth and the way the laws currently stand, is they don’t have to take it out or they don’t have to pay any taxes when they inherit that Roth IRA and they eventually take money out, which is super powerful. All right. The third thing here is work your tax brackets,

Anthony Saffer 4:00
right? This really gets into that sports car analogy that you’re talking about the high performance ability. So let me put a chart up here just to show you an example. This is where we want to try and navigate the tax brackets and where the Roth can really give you that good amount of flexibility. So in this in this hypothetical case, someone has a good retirement income, you can see over there on the right where it says you $326,000 Is their taxable income. And you’ll notice as you move over to the left there where the brackets that they only have a very little bit of room before they jump from the 24% tax bracket into the 32% tax bracket. Yeah. So let’s say you want to buy a new car, you want to take a trip, and you need more retirement income, but you don’t want to jump into the next tax bracket. That’s where taking some money out of the Roth and avoiding that jump can really make a huge difference.

Alex Okugawa 4:49
And so there’s the traditional ordinary income brackets, which I think most people are familiar with, but there’s also these like sneaky Medicare premium brackets that a lot of people are not familiar with, and they end up paying a lot more medical Medicare premiums in the coming years that they didn’t know they were going to have to do.

Anthony Saffer 5:06
Yeah, this is sneaky. And that’s a good way of putting it. And so when we look at this chart, you can see in the initial bracket, someone that makes over $194,000. And this is based on a couple that if you go over that you start paying more every month, even if it’s dollar over. So with this particular couple, they have income of $192,000. If they add any more taxable income, over that 194, they’re going to jump up pay more premiums, at least for another year.

Alex Okugawa 5:33
And honestly, this is just why we continue to harp and we say a financial plan is so important when you’re in retirement. I mean, if you don’t have a financial plan, if you’re not taking a look at your taxes, how do you know the right way to take money out of your retirement accounts? How do you know what money you’re leaving on the table or potentially paying more taxes than you needed to? If you don’t have that plan, and you don’t have that tax plan in place, you don’t know the best strategy. And the other thing too is that, especially with markets down so far in 2023 at the time of recording this video, they are especially in 2022 I mean down markets can be some of the best times to perform Roth conversions. We recently posted a video about that, people can watch that above. Once again, this is Alex Ogawa with One Degree Advisors and if you’d like to learn how we can help you with your retirement, visit our website at

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