Roth Conversion Withdrawal Penalty

[JohnH]

Sometimes reconversions are wise, but it's almost always when the investment has changed drastically in value in the months following the Roth conversion.  The other situation might involve intentionally over-converting and then topping off by reconverting enough to stay just inside in the 15% bracket.  This is commonly done when income is subject to fluctuations.

Doesn't sound like your client is being that precise with alll this back & forth activity.  She would probably benefit greatly by adopting a reasonable asset allocation, consolidating the accounts into a single holiding for Roth and a single holding for qualified money, and then setting up a  simple 2-fund or 3-fund portfolio that's mirrored in each holding. Chances are she's spinning her wheels while deluding herself into thinking she's engaging in some high finance dealings.  A "set-it-and-forget-it" long term strategy works, but she doesn't sound like the type who has that sort of financial  discipline. 

I think a good rule of thumb is to aim for 25-40% in Roth and the remaining 75-60% in qualified money - for that subset of people who can really benefit from the balancing act in retirement.  But there are exceptions, especially if the Roth conversion can be done at a true 15% net, which almost always means doing them before beginning to draw Social Security benefits. 

[Roberts]

Unless you know the person's entire financial situation, making blanket proclamations can be very dangerous and why people get in trouble. They read somewhere that this is what you should do when in reality it was based upon assumptions that don't reflect their situation at all.

Age of the client, their health, how assured they are tax laws or government entitlement programs will not change in the future, their pension or inheritance expectations and their total of assets are just a few of the factors that make blanket generalizations worthless at best, more likely dangerous to the uninformed who think they are informed.

 

[kcjenkins]

The absolute WORST way to get any sort of financial planning advice is by watching a TV show !!!  And that's not to blame the show, really, because they almost all do warn people at the end to talk to their tax advisor before following this advice.  But the tax code is so complex that even if 5 clients have exactly the same amount of income, from the same sources, the odds are high that at least 3 of them [and probably all 5] are going to end up with different tax outcomes.   

[JohnH]

I agree about TV and radio.  I think the absolute best financial planning advice is found at this site:  https://www.bogleheads.org/forum/index.php

The quality of the discussion on that site is amazing.  Nothing even closely compares to it, including one-on-one sit-down sessions with the majority of financial planners. But it does require spending some time to learn the basics of investing, which really are not very complicated once one cuts through all the noise & nonsense that passes for advice.

[Roberts]

2 hours ago, kcjenkins said:

The absolute WORST way to get any sort of financial planning advice is by watching a TV show !!!  And that's not to blame the show, really, because they almost all do warn people at the end to talk to their tax advisor before following this advice.  But the tax code is so complex that even if 5 clients have exactly the same amount of income, from the same sources, the odds are high that at least 3 of them [and probably all 5] are going to end up with different tax outcomes.   

And yet, those articles and TV shows are out there every hour implying expertise. Everyone is under the impression they are informed if they read a little on the subject. Taxes, medicine, investments or financial planning, legal matters, foreign policy. The danger is that you don't know what you don't know. How many of us haven't complained about a client being uninformed in taxes because they didn't consider ALL the facts? Same is true in everything else yet a few articles almost always gets equated to full knowledge. There is an entire advertising campaign about this phenomena: Did you stay at a Holiday Inn Express last night?

I do rather extensive backpacking trips in the wilderness. You'd be shocked how many people think they have a complete grasp of back country safety from 4-5 outings, a dozen webinars and having grown up in the country. The first true medical emergency when they are 200 miles from a road changes their understanding of the scope of that knowledge.

[JohnH]

I thought of this thread today when I read something on www.bogleheads.org

Financial Advisor: "Your portfolio need changing. It isn't set up to properly pay for college for the kids."

Client: "I don't have any kids/"

Financial Advisor: "I was talking about MY kids."

[SaraEA]

This discussion makes me glad that we mere tax pros aren't permitted to give financial advice.  We can give tax advice--like telling the client who has no tax liability one year they might as well make their IRA contribution to a Roth because the deduction won't help them and the future tax savings might.  We might even go a step further and suggest to a client who has 10 little IRA CDs in 10 different banks that they might consider consolidating to make their life and tax return less complicated.  Or give the same advice to someone who has so many brokerage accounts they have no idea what they actually own and get so much mail they end up forgetting half their tax docs because they are in the habit of not opening those myriad statements.  But as to what they should invest in, we must remain silent.  Good thing, 'cause not all of us watch the same TV shows.