Retirement Answers

Jacob: 00:01

The purpose of having a Roth is flexibility. You get to control your income, you can control your taxes on your income if you have that account, so it's huge, it's valuable. If you're still still saving for retirement, keep saving into a Roth if you're able to. Find a way to do that because you can use that in the future. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions.

Jacob: 00:26

If you're someone who's either thinking about retirement or already in retirement, well, you're in the right place. Hey there. My name is Jacob Duke, and each week, I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show. Hey friends, and welcome back to another episode of Retirement Answers.

Jacob: 00:47

My name is Jacob Duke. I'm your host as always. This week on the show, I wanted to talk about Roth IRAs and maybe some ideas around how you can be spending those earlier in retirement than you otherwise thought, or maybe some reasons that you should spend those earlier in retirement. So the reason that this, I think this is an important topic to discuss is because in general, a financial planner and I, as well as many other financial planners, the general consensus is that spending your Roth IRA last in retirement is typically a good idea. And there's a few different reasons for that, which one of the biggest ones being the fact that you can allow for more tax free compounding if you don't spend that money.

Jacob: 01:26

So, a Roth IRA as we know, it grows tax deferred technically, but what happens is whenever you have had the account open for five years or longer, and you are 59.5 or older, you can take any money from that particular account type without tax or penalty. So, what happens there is let's say you put a thousand dollars into and it grows to $3,000 once those two rules are met that I just mentioned, now that $2,000 of growth, that is now gonna be tax free to you. So it's tax free money. There's never gonna be any taxes on that. So the benefit of the account is the tax free distributions in the future.

Jacob: 01:59

Now, one of the biggest determinants of how much tax free money you're gonna have in that account in the future is gonna be how long that money can be invested. So in theory, if you don't spend that money earlier in retirement, you delay that into the future years, you're gonna have more tax free money for yourself because you're gonna have the money invested in that account type for longer. So that's kind of the general premise, as well as the fact that there are no RMDs during your lifetime on a Roth IRA, which is the opposite of a tax deferred account like a traditional IRA or traditional four zero one ks where you do have RMDs that start at either 73 or 75 because those ages have increased slightly over the last few years. And then one final important point I think to make here is that whenever you pass on your Roth IRAs to heirs in the future, they might have to take the money out of the account. But the key here is that there is going to be no taxes for your heirs whenever they receive a Roth IRA.

Jacob: 02:49

So that might be another reason not to spend a Roth if you're wanting to leave something for a next generation or something like that. So those are some reasons why in general, would probably delay taking money out of your Roth IRA in retirement. But the hard part for me to grapple with, and I was having this thought the other day is, you know, we get told to save into this Roth as we're working because of the tax free income it'll produce in retirement. But when we get to retirement, I as well as others have said, hey, don't spend that money. Like don't spend your Roth, just wait to spend it in some point in the future.

Jacob: 03:17

And so the thought here is like, would we save it if we're not gonna use it? Like, why are we gonna save into this Roth IRA, pay our income taxes at the point of, in the year in which we're saving that money into the account? And then we get to retirement because, you know, we thought, hey, we're gonna have tax free income at this point, this stage of our life. And then we turn around and say, oh, well, don't actually use that money, use this other money. So what ends up happening here, and I've seen this on many different occasions is, many people actually don't spend as much as they otherwise can in retirement, and so they end up spending and paying taxes throughout kind of their whole life and never actually use their tax free assets.

Jacob: 03:50

And so maybe that's the right thing, maybe it's the wrong thing for their situation, not really sure, but it was just a thought I had the other day, and I wanted to kind of flesh this out a little bit and kind of give you maybe some reasons that you would spend your Roth IRA earlier in retirement, or what are some ideas around why you would do that? So that's just a general thought that I've been having, like, save money for retirement into your Roth IRA so you get tax free income, but then you don't actually ever spend that money or we're kind of recommending, hey, delay that spending out of that account because it gets more tax free growth into the future. So I've just been grappling with that a little bit, But I would argue that maybe, you know, one of the biggest benefits or primary purpose of having a Roth in retirement is for the flexibility that it creates from a tax standpoint. So you have flexibility on where you can pull your money from and when you can pull it from that particular account type. And if you do this at different opportune times, it's gonna help you maybe with your other strategies that you're deploying, such as a Roth conversion or maybe something like that, where you're trying to reduce your income down to a certain spot so that you can benefit from something else you're trying to do.

Jacob: 04:53

And so having a Roth, in my opinion, the greatest benefit of having that in retirement is not so that you get more tax free growth, it's so that you get the opportunity to take money from that account and not increase your taxable income for a particular year. Therefore, you can execute your other strategies that you're trying to do as best you can. So with that said, let's go ahead and jump into six different reasons why you would spend your Roth IRA earlier in retirement. The first one is if you're simply trying to avoid a certain tax rate. Now, this one just might be the most obvious, but, you know, let's say you have a pension and you've got Social Security and you've determined that there's a certain tax rate you're not willing to pay.

Jacob: 05:32

Let's just say that for now it's the 12% bracket. You're not willing to pay more than 12% on any dollars of income that you have, and so that means if you go from 12%, the next jump is to 22%. So you're like, Jacob, 22% seems a little bit high for what I'm willing to do. Let's Let's just keep it in the 12% bracket if we can, and try to not go over that. So your income sources from that pension that we just mentioned and your social security, they're still in that 12% bracket.

Jacob: 05:56

But let's say you've got something come up and you're like, man, I've gotta go do this, or maybe I wanna spend more money this particular year, and like, I'm still not willing to pay 22%, I'd rather just pay 12% at the federal level, is there anything I can do? It's like, well, that's a good opportunity to pull money from your Roth IRA and not pay any income taxes on that distribution, and also not increase above that 12% tax bracket at the federal level. So that's just one example, you know, you might have established an exact tax rate that you're willing to pay above that. It might not make sense for you to do so. And so a Roth IRA taking money from that in that particular instance would be a good way to avoid having any of your income being taxed at that higher rate.

Jacob: 06:34

The second reason that you would maybe use a Roth IRA instead of your other income sources earlier in retirement is maybe you've got a large purchase or a one time purchase that was either unexpected or expected, And so what you've got there is it kind of coincides with number one is you maybe don't want to pay a higher tax rate to go do that thing. So let's say that you're on the edge of that 12% bracket, and if you have much more income, you're going go over that on the next dollars above. And so you remember you don't want to pay a particular tax rate, let's call it the 22% bracket there. And so, but the AC goes out and it's gonna be $10,000 to get that fixed, replaced, everything done. And so you need $10,000 for this one time purchase that was unexpected, obviously, being an AC issue.

Jacob: 07:12

And so now you have a choice. You can take that from your tax deferred accounts, maybe have a brokerage account or some cash on hand, or maybe have a Roth account. And so if you don't want to pay the higher tax rate and you are on the edge of going into that higher tax rate, a Roth IRA to do that one time purchase is going to be something you could do to help stay out of that higher tax bracket. Another situation might be, hey Jacob, we've got our income plan for the year. Again, we're maxing out, we're topping out that 12% bracket, but some friends called and they want us to go on a cruise and it's gonna cost us $8,000 to go do that.

Jacob: 07:43

It's a really nice deal. It's two weeks long, the whole thing. So if you take that money again from a tax deferred source, you're gonna go into that next tax bracket pushing you to the 22% level, and you're like, Jacob, I just don't feel like paying 22. Is there any way we could avoid that? Again, a Roth IRA would be there so that you could take money and go on that trip without having any additional taxes paid.

Jacob: 08:02

And one of the things that I think is not spoken about enough here is that many people, like I mentioned earlier, simply don't spend enough money in retirement. They've got enough money to live how they want to live from a day to day standpoint, their needs are going be met, but there's this fear, there's this underlying fear of running out too soon. And so we feel like if we spend too much, we're not gonna have enough at the later stages of life. And so it's kinda like this line we've gotta walk, this balance we've gotta go down of saying, wanna spend enough money to enjoy life and make sure I don't die with a ton of money left over, but also not spend so much that we run out before we otherwise need to or have some unexpected costs there later in life that we'd need money for. So it's this balancing act.

Jacob: 08:44

We've kind of got to figure this out and kind of maybe it's a little bit of give and take here and there. But what I've found is that many people feel this guilt or burden of spending, like it's something that's really hard for them to do. And so part of my job, half the time to be quite honest with you, someone working with retirees, is to help encourage them to go and spend their money. So it's one of my favorite things to do is say, hey, you can spend more money. Do you want to go do something?

Jacob: 09:07

Is there something else you'd like to do that you're holding back on because you feel like you don't have enough or you're just scared to spend? Let's go do that. Let's figure that out. Let's plan for it. And so whenever you can take money from a Roth IRA and not pay any income tax, it kind of removes that burden or that guilt of spending.

Jacob: 09:23

And so if we can break down that barrier and it takes, hey, let's take $8,000 or $10,000 from a Roth IRA to go do the thing we want to go do. If taxes were gonna be the thing that stopped you, let's take the money from the Roth, right? My goal is to help you enjoy your money in life, rather than have a bunch of money when you die. So that's number two, maybe you've got a larger one time purchase and there are other variables or factors there that have to be considered. Like, And man, I don't want to be pushed into the next tax bracket for XYZ reason.

Jacob: 09:50

And so taking money from that Roth could be helpful in that situation. The third instance or situation where you might want to take money from your Roth IRA than some other taxable source could be that you were on the edge of what's called IRMA income brackets or income limits. So IRMA stands for Income Related Monthly Adjustment Amount, and it's related to your Medicare premiums. And so what happens here is you have a base Medicare premium in 2024 for your Part B insurance. It is $174.70 But once you reach a certain income level, that could actually be increased.

Jacob: 10:23

And so again, here in 2024, that for married filing jointly, that income level is 206,000, and this is a modified adjusted gross, like the gross gross number. And so 206,000 or less, if you're under 206,000, then you do not have any sort of surcharges or increases on your Part B premium. If you go over that, you could have an increase. And so 206,000, that's the amount for married filing jointly, it's 103,000, that's the limit for a single person. So as soon as you go over that, your Medicare premiums would be higher.

Jacob: 10:54

Now, it's important to know here just for the sake of clarity that that your premiums this year in 2024 for your Medicare, and if you're going over that, it's based on what you earned two years ago. So technically here in 2024, your tax return year of 2022, whatever your income was in 2022, that is what's gonna dictate if you have to pay any sort of surcharges based on these IRMA income brackets. So these IRMA income limits, there's something to consider here. Just real quick to kinda flush this out a little bit for is, you know, the premium in 2024, like I said, is $174.70 If you go over that first level, that first tier, your premiums would be for Part B, they would be increased by $69.90 So it'd go from $174.70 a month to $244.60 And so there is an increase if you do go over that and there's more brackets that would increase it more. So you'd have to kind of look up what those brackets are each year because they do adjust for inflation.

Jacob: 11:51

So just know that that is the case. If you do earn too much money, your Medicare premiums could be increased slightly because of that, and obviously it's looking back two years ago to see if you do have to pay higher premiums in the current year. Now, here's kind of a take I've got for you on this. A lot of people talk about Irma, I do as well, and it's something we need to pay attention to. But I think it's overblown oftentimes, and I wanted to actually do maybe a full episode here on this maybe next week or sometime soon, is I think that a lot of people are really concerned about Irma, but it's really not that big of a deal.

Jacob: 12:23

If you do the math on that, just kind of looking at these numbers, let's say we go over that first tier here in 2024, and we're over to it, we're married filing jointly, we're over two zero six of modified adjusted gross income, which means of $2.00 6 to $2.58, if we fall in that range, our premiums will be increased by 69.90 a month. Now that's per person. So let's do 69.90 times two, and then we multiply that by 12, that's an additional $16.77 dollars per year that you would pay for your Medicare. Now, if we're earning a really good income, obviously, if you're gonna be over these, you know, income brackets, you're probably earning a good income. You can probably cover 1,600 extra dollars a year for your Medicare Part B premium.

Jacob: 13:03

So what I would say is this, I think many people, especially financial planners like I included in this, we were kind of overblowing the negative impacts of Irma. It's really not a big deal because here's the other factor, it's not for the rest of your life, like if you don't, if you earn higher income for one time, it doesn't increase your premiums forever, it's just for that twelve month period. So let's say you only have high income for one year, your premiums go back down to the base rate the next year if you're not above those brackets. So I think that Irma is kind of overblown in many instances, but here's the thing that I've found about this. It's not that people are unwilling to pay more whenever they earn more.

Jacob: 13:37

It's that whenever you get caught off guard by having to pay more and you didn't expect to. So it's the unexpected increase on your Medicare premiums that's the hard thing to kind of swallow for a lot of people. So how does this come into play when it comes to Roth IRA distributions? Well, let's say that you are on the cliff of the first level of that IRMAA income bracket and we need another $15,000 to go do something or for a one time expense like we talked about earlier. Well, that's a great time if you don't wanna pay the higher premiums two years from now, what you can do is you can use your Roth IRA to actually pull that money out so you can go do that thing or pay for that expense or whatever it is and not increase your Medicare premium.

Jacob: 14:15

So the key there is planning. If you know that the IRMAA surcharges exist and you know where your income stands year to date and you have a Roth IRA to pull from, the planning and kind of thoughtfulness around where you're gonna pull that money you need to spend, the thoughtfulness around where to pull that from is going be important to say, you know, as an advisor, I'd say, hey, Mr. Or Ms. Client, we've got we've got X amount of income so far this year. If we pull this from your tax deferred IRA to fund that expense, you might be actually pushing yourself over these IRMA income brackets here in the future.

Jacob: 14:45

Now we don't know what those IRMA brackets will be in the future because we don't know what the future ones are. We just know what today's are based on two years ago's income, but because of where they are today, maybe some expectations around how they're gonna be inflated or adjusted, we might be on the edge of that. Do you wanna take that risk or not? And so for them, they have the opportunity to at least know about that and then they can say, okay, great, we're gonna take it from the Roth just to be safe, make sure we don't go over those and don't have a higher Part B premium in the future. So the key here is being aware of it, so it doesn't catch you off guard two years down the road and you're like, why are my Medicare premiums higher?

Jacob: 15:18

Oh, if you look back, I took my money from that particular account, which pushed me over the brackets, therefore I should have maybe done a Roth. And so planning kind of looking forward is so valuable in that way to not have any random unexpected things like that pop up. All right, the fourth time or the fourth reason that you might want to use your Roth IRA for your income in retirement is if you're trying to keep your income low enough to qualify for ACA subsidies on your private insurance before you get to 65. So this is a big one for a lot of people who retire early or retire before 65, and they're not able to get Medicare yet cause 65 is the first age in which you're eligible for Medicare. So you've got to figure out your insurance from a health standpoint.

Jacob: 15:56

You've to figure that out up until the years in which you turn 65. So the thing here is that these Affordable Care Act or Obamacare subsidies are available to those who have a low enough income. So controlling or managing your income could be valuable, and it could change from a $800 a month payment down to a $400 a month payment or something even greater depending on your health and kind of where you stand in regards to your rating overall. So what happens here is if you are trying to manage or maintain a low income and kind of keep that low on paper from a tax standpoint, that's really what matters here is your adjusted gross income, which your Roth IRA income does not fall into that. So, this would be a great time if you are, let's say 62 and you're retired, you got a Roth IRA, a brokerage account, and you've got, you know, a traditional IRA as well, you can actually take money from probably each of those different account types and stay under these different levels so that you do qualify for at least some subsidies, but then also you can use that Roth to actually have the income you need to live and kind of do the things you wanna do, but that income is not gonna be showing up on paper, which would not be pushing you over the income limits for the subsidy.

Jacob: 17:01

So you could get cheaper health insurance, but you could still sustain and live your normal lifestyle because you pulled money from a Roth IRA rather than pulling it all from a tax deferred source. So this is, I think is probably more impactful to be quite honest with you, than the IRMAA surcharge issue that I mentioned before, because of some of the reasons that I already talked through. But keeping your income low, it could help you reduce those insurance premiums and save you maybe thousands of dollars depending on how many years you have to be on a private health plan before you get to 65. So if you retire at 60 and all of your income is gonna come from a taxable source and you need more than whatever the ACA subsidy income limits are, if you need more than that to live, you're gonna pay higher premiums than you otherwise might have to for those four to five years. And if you have a Roth, what you can do is you can supplement your income from your tax deferred sources with a Roth source, and therefore you can stay under these ACA subsidy income limits, and then you would save money on your health insurance and you use your Roth to do so.

Jacob: 18:00

So that's another reason or a time that you might wanna use your Roth dollars earlier than you otherwise thought you would in retirement. All right, the fifth reason or time that you would wanna use a Roth to fund some of your income in retirement is if you're trying to do some tax gain harvesting. Now, this is a big one. I love this idea. I love this potential tax saving strategy, and to be quite honest with you, a lot of people just simply don't know about it or don't pay attention to it.

Jacob: 18:24

But what is tax gain harvesting? You might have heard of tax loss harvesting, meaning you're realizing losses on purpose so that you can offset that against other income or other taxable gains that you've made in that particular tax year. Now, tax gain harvesting is whenever you intentionally realize gains in hopes of doing that at a 0% tax rate. So how is that possible? Well, if we look at what the long term capital gains tax brackets are, you have 0% rate, you have a 15% rate and a 20% rate.

Jacob: 18:57

Now, which bracket you fall in there really depends on your taxable income. So just kind of give you some numbers here for 2024, if you're married filing jointly and your taxable income is less than 94,000, any capital gains that were included in that $94,000 they are taxed at a 0% rate. Okay, if you go from 94,000 to 583,000, you go to 15%. So most people, whenever they have a taxable gain, they realize in like a brokerage account or something, or the sale of a rental property, whatever it might be, they're gonna have a 15% tax rate, really depends on your income. But the key there is that 0% tax bracket for long term capital gains is 94,000 or less for taxable income in 2024 if you're married or filing jointly.

Jacob: 19:42

If you're single, it's half that, it's gonna be $47,025 So to kind of help maybe make sense of some of this, let's just kind of walk through a scenario. I'd rather kind of give you some details so that you can really hear what this looks like in action. So let's just assume that, you know, you're married, let's assume that you've got $74,000 of taxable income this year. Now that taxable income number, that's gonna be less than whatever your gross income number is. And so you could have had $90,000 depending on what sources you have, but your taxable amount of that is only 74.

Jacob: 20:14

So you decide to do because you've got only 74,000 of taxable income and you know that you've got $94,000 of total taxable income before you go to the next rate on the capital gains. So because you've got some room there, you decide, hey, let's do some tax gain harvesting in our brokerage account, and you're gonna realize $20,000 of capital gains, long term capital gains, so that you can use that 0% rate on that money. Now, just to be clear, it's not selling $20,000 in your brokerage account, you have to have $20,000 of gains. So it could mean that you actually sell $60,000 worth of investments in your brokerage account to have a $20,000 capital gain. So you have to kinda at that and see how much you actually have to sell to get the certain amount of gains you wanna realize.

Jacob: 20:54

But the key there is if you do this, you had 74,000 of taxable income this year. And I'm assuming obviously you probably wanna do this towards the tail end of the year if you can, because you know what your true income number looks like. And then you decide, hey, I'm gonna do just $20,000 and throw that on top. So 94,000 of the total, that's under the total taxable income level. Therefore, I've got a 0% capital gain rate on that $20,000 So let's say that you do that.

Jacob: 21:20

All is good, right? But then you realize, man, I need to do something else. Some random purchase, you know, an AC unit breaks, car maintenance, whatever it might be. And I've gotta have the money. Just gotta have some more money.

Jacob: 21:30

You gotta have $10,000 more, right? If you take that money from a tax deferred account to fund whatever the thing is that you gotta do, you're gonna be taxed on that distribution like you normally are, but now you're also gonna be pushing your taxable income above that 0% tax bracket for those long term capital gains. So let's say you need $10,000 like we just said for this random extra purchase you didn't anticipate, that means that $10,000 of the $20,000 that you realized in capital gains, that's gonna be taxed at 15% instead of 0%, which is a $1,500 tax on those capital gains you had. So instead of taking money from that tax deferred account to fund this random thing that popped up you didn't expect, you can actually keep your income below those long term capital gain rates for 0%. You can keep it below that number by taking money from your Roth IRA to fund the expense you wanted to fund or had to fund, and you still get to pay the 0% long term capital gain rate on those gains that you realized.

Jacob: 22:27

So this is a, I think a really big one. This is one that I think many people could benefit from if they knew about or basically say, hey, I've got money in a brokerage account. I want to be able to use that money. So what you can do you can essentially turn your brokerage account, which you've had gains in hopefully over the investment time horizon that it's been there, you can turn that into a Roth IRA. You can have a 0% tax on the gains, which creates free money, that's no tax for you.

Jacob: 22:52

It's essentially a Roth IRA if you do this right. So number five, tax gain harvesting. That's a great time to use a Roth IRA to help fund some additional expenses and stay below a certain taxable income level so that you can use that 0% tax rate to your advantage. One final important point here, that gain has to be long term, meaning you held the investment for more than one year. It cannot be a short term because short term capital gains are always taxed at whatever your normal income tax rate is.

Jacob: 23:17

So just be aware of that. All right, the sixth and final reason to maybe use a Roth IRA earlier in retirement than typically is suggested is if you're trying to avoid taxation on your Social Security. And this might be new information to you. You might be like, Jacob, hey, I didn't even know Social Security was taxable. Is that right?

Jacob: 23:35

The answer is yes. Technically, it is subject to taxation, but it's not even calculated the same way. I'm not going get into the calculation today, but I do want to get into an example here, maybe to kind of show you what this looks like and maybe the potential benefit of using a Roth rather than taxable source like a traditional IRA if you're maybe trying to avoid any taxes on your social security. A lot of people are like, Jacob, I already paid taxes to get my social security, why am I having to pay income taxes on my social security? Which again, I think is a great question.

Jacob: 24:03

I don't have the answer for it though, so sorry about that. So maybe here's an example for you. Let's just say you're single, your social security is $30,000 per year. That's the gross amount that you're getting as a single person. So you've got a decent little social security benefit.

Jacob: 24:19

If social security is your only income, just know that you're not gonna pay any taxes on that $30,000 So if you have no other taxable income sources, then you're not gonna pay any taxes on that. Now I did that some math beforehand here, and I wanted to say that if you add an additional 13,000 of income from, you know, working, from taking money out of your traditional IRA, so just normal income, if you take an, if you have another 13,000, you add that on top of the 30,000, still none of your social security would be taxable. So that means that you can still make your 30,000 from social security and you can take $13,000 out of your IRA, which is a total of 43,000 that you can have this year as a single person and none of that money is taxable. So just as a side note here, if you made 43,000 of income by pulling it from your IRA and you did, let's say you had no social security, so all of that 43,000 was IRA distributions, your total taxes paid would be about $3,100 at the federal level in 2024. So this kind of shows you that your sources of income matter because your social security, because of how it's taxed and how that calculation is and formula works, because of how that works, you are gonna get $43,000.30 of that being from social security, the other 13 being from your IRA, you're gonna pay no taxes on that.

Jacob: 25:37

But if you had $43,000 from your IRA only, then you're gonna pay 3,100 ish dollars at the federal level on that money. So that's just, the reason I share that with you is to say that the sources of your income and retirement matter a bunch. And if you just think all income's the same, that's not true. The source of it matters a lot. Okay, back to our example.

Jacob: 25:58

So we've got $43,000 of total income, 30,000 from social security, 13 from an IRA distribution, no taxes. But instead of 43,000 of total income each year, let's say you need 50,000 to meet your needs. So you got 43,000 taken care of, now you need another 7,000 to really meet your normal basic needs to kind of do what you need to do. If you take that $7,000 from your traditional IRA, you're gonna end up making $5,000 of your $30,000 of social security income, you're gonna make 5,000 of that subject to taxation, which is gonna result in some taxes being paid on the total of 50,000. So just to be fair in this, you know, a $50,000 total income, your tax would be about $1,000 at the federal level, which is not outrageous at all.

Jacob: 26:43

But what if we took that $7,000 from your Roth IRA instead of your traditional IRA? Well, you're not gonna pay any income taxes on any of your income. So now you've increased your income to $50,000 total. You're not paying taxes on social security. You're not paying taxes on your IRA distribution, and you're not paying tax on your Roth IRA distribution because that's never taxable.

Jacob: 27:03

So what you can see here again, is that if you can find a way to have a Roth IRA in retirement, and you can use that to your advantage, use the flexibility it provides, help you lower your tax rate, it's a huge advantage to you. So I know the general consensus around Roth IRAs in terms of when do you need to spend those is delay those and spend those last. But again, some of these different reasons are examples of like why you would use your Roth IRA in certain instances or situations to help minimize your taxes any particular given year. Now, what I'll say is like, you've got to evaluate this in kind of like the comprehensive view of your plan. So zoom out and make sure that this doesn't blow up anything that you're trying to do.

Jacob: 27:44

Because if you've got really large tax deferred accounts, you know, you've got to do something to help mitigate your RMDs in the future perhaps, or maybe you don't want to leave millions of dollars to heirs in the future at a huge tax rate. So it's definitely important to weigh out the benefits of this with your overall plan. But I'd say that this is why ongoing planning and decision making is just crucial. Every year is going to be different. Things are going to change.

Jacob: 28:07

Tax rates are going to change. Your life is going to change. There's just a lot that's going to take place. And so I would say that you've got to evaluate this every single year. And to be honest with you, if you spend all of your tax deferred money first, like in the first stages of retirement and you left yourself only with Roth on the back end, what you're gonna do is you're not gonna be able to use the lower end of the tax brackets in the future.

Jacob: 28:28

You can't use those because you don't have any taxable income to produce outside of maybe social security or something like that, which who knows if that will ever be taxable at that point anyway, I don't know. But the key is if you can still have some money in a tax deferred account, you can use the lower tax brackets to your advantage. So there is kind of a break even point in terms of spending out of your tax deferred accounts first and leaving you more money in your Roth for the future. It's kind of an interesting thing to think about. Now, one final thing here as well is, you know, we all fight to have a lot of tax free money at some point in retirement in our Roth IRAs, and we know that we, hey, save that for the future, don't spend it early defer, defer, defer, that way you can have more tax free income and have more tax free compounding.

Jacob: 29:09

But the thing I found is like, man, once you get to a certain age, it's like, you're not gonna go spend the money anyway, because you might not be able to from a physical standpoint or just a health standpoint, or maybe you're not even here anymore, like you delayed it so long and you never got the benefit from it. And so it's a really interesting thing to think about, you know, what's right, what's wrong, there's obviously a math and mathematically what's right, but then also kind of like life and real, you know, reality what's right. And so that's the value I think of having a, you know, somebody in your corner helping you out on these different things, making sure you're making good decisions for you specifically. So I think the value of having a Roth in retirement is the flexibility it creates from a tax standpoint. The purpose of having a Roth is flexibility.

Jacob: 29:48

You get to control your income, you could control your taxes on your income if you have that account. So it's huge, it's valuable. If you're still saving for retirement, keep saving into a Roth if you're able to. Find a way to do that because you can use that in the future. And hopefully these are some provoking thoughts for you as you evaluate when to spend money from your Roth IRA in retirement.

Jacob: 30:08

Hey, if you enjoyed the show or if you've been listening for a while, I'd love it if you could share a rating or review there on either Spotify or Apple Podcasts. It means a lot to me to hear feedback from you, but also it helps other people just like you find the show and also benefit from these same ideas and strategies that you're learning about today. So again, your reviews, your ratings, they make a huge impact on whether or not the algorithm pushes the show to more people, and so I really appreciate it if you could do that for me if you have not yet. Other than that, I hope you have a wonderful rest of your week, and I look forward to talking with you again really soon. Hey, it's Jacob again, and I wanted to extend a quick offer to you.

Jacob: 30:44

If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show. Also, wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode.

Jacob: 31:05

I look forward to talking with you again next week.