Roth convert 500k - tax only 125k

[JoeWras]

My mistake: I turned on the radio on a Sunday afternoon and on pops one of the multitude of local and national "finance guys" selling their products.

My ear perks up when said guy says: "Other finance guys have it wrong. They have clients convert 500k, then pay 37% tax. I have them convert 500k, only pay tax on 125k, and pay 5% tax."

What? Then he starts babbling about something about a "re-evaluation" then goes into a big fit about good annuities, blah, blah, blah.

I really have no desire to do this, but what on earth kind of strategy is he using? To find out, of course, I'd have to go to his seminar. No stomach for that. Anyone have an idea?

 

[RetiredAndLovingIt]

Who was this guy and if you don't know can you look at the radio station schedule to find the show name?

 

[COcheesehead]

Whatever it is, it includes a big commission for him.

 

[Al18]

Off the top of my head, those numbers sound about right if:
1. You convert 50K per year
2. Married Filing Joint
3. Have less than 10K of taxable income
4. Aren’t collecting SS

 

[JoeWras]

Who was this guy and if you don't know can you look at the radio station schedule to find the show name?

https://raleighwealthsolutions.com/radio/

And as for "converting 50k per year," I believe he was specifically talking about an immediate one time conversion.

 

[JoeWras]

Whatever it is, it includes a big commission for him.

Well he did say his strategies are only for very special wealth advisors who have licenses, tools and pull that others don't.

I'll let you interpret that as you want.

Hey, he also said 90% of annuities are bad. But that 10%...

 

[COcheesehead]

Well he did say his strategies are only for very special wealth advisors who have licenses, tools and pull that others don't.

I'll let you interpret that as you want.

Hey, he also said 90% of annuities are bad. But that 10%...

Master salesman. It’s exclusive, only he can provide it.
Just don’t bite on the hook dangling in front of your nose.

 

[RunningBum]

https://raleighwealthsolutions.com/radio/

And as for "converting 50k per year," I believe he was specifically talking about an immediate one time conversion.

Your first mistake is assuming anything he says is straightforward and truthful.

And what finance guys out there have people convert $500K @ 37.5% tax? He's arguing against a straw man that doesn't exist, except for someone advising the uber-wealthy.

 

[braumeister]

Master salesman. It’s exclusive, only he can provide it.

You forgot "for a limited time only -- act fast to get in on this while it lasts!"

 

[MarieIG]

Married filing jointly
No other taxable income (thus no NIIT)
No state income tax
Progressive tax brackets

It looks like 25% - I'm not sure where the 5% came from.

 

[JoeWras]

It looks like 25% - I'm not sure where the 5% came from.

Join the club!

 

[MarieIG]

Join the club!

 

[Alex The Great]

Huge capital loss with tax harvesting? And carryover for the next year.

 

[CardsFan]

Funny. When I first read the header for this thread I read "Roth convert 500k - tax only 125k".

And I thought, that sounds about right.

 

[JoeWras]

Huge capital loss with tax harvesting? And carryover for the next year.

You know what. It is probably something like that. A loss doesn't match a Roth conversion, but his language is so vague that I'm guessing it is something like that.

Funny. When I first read the header for this thread I read "Roth convert 500k - tax only 125k".

And I thought, that sounds about right.

Whoops. Yeah, I see what you mean.

----

I think ya'll are spot-on about this. There's no magic new transaction here, and he's a salesman using vague and mixed language, mixing up well known techniques.

I mean, I can say: "On the day I bought my used car this year, I didn't pay anything, I actually gained $3k. You can do this too!"

How? Well on that day, I paid $7k (true statement), and on that day my portfolio went up $10k (true statement). Therefore I "made" $3k on that day.

I'm tired of this crap and doublespeak. Probably enough brain energy spent on this BS. Thanks for putting me back on the tracks after I slightly derailed.

 

[Sunset]

You could convert $500K and pay $0 in taxes....

Do Roth Conversion in amount of $500K.
Withhold zero taxes on the Conversion form.
Withdraw the $500K from the Roth.
Go on the run the rest of your life and change identity, but it can be done.

 

[SevenUp]

Only $500K? What a piker!

Steve Martin figured this out in 1978:

You.. can be a millionaire.. and never pay taxes! You can be a millionaire.. and never pay taxes! You say.. “Steve.. how can I be a millionaire.. and never pay taxes?” First.. get a million dollars. Now.. you say, “Steve.. what do I say to the tax man when he comes to my door and says, ‘You.. have never paid taxes’?” Two simple words. Two simple words in the English language: “I forgot!” How many times do we let ourselves get into terrible situations because we don’t say “I forgot”? Let’s say you’re on trial for armed robbery. You say to the judge, “I forgot armed robbery was illegal.” Let’s suppose he says back to you, “You have committed a foul crime. you have stolen hundreds and thousands of dollars from people at random, and you say, ‘I forgot’?” Two simple words: Excuuuuuse me!!“

 

[frayne]

The sad thing is, somebody is going to give this guy their money.

 

[SecondCor521]

He's some combination of wrong, confused, and/or lying.

The only way I know to Roth convert $500K and pay tax on only $125K is to have basis in the traditional IRA. And someone who has basis in an IRA has forgone the tax deductions on that $375K, so it's not a fair comparison.

Secondly, the only way to pay 5% tax on $125K of taxable Roth conversion is to pretty much have no other income. Yes, you could construct a scenario where that would be the case, but all the ones I can think of probably include making dumb decisions elsewhere.

It's a standard enticement based on FUD and greed. Deceptive IMHO too, but the guy might know enough not to get sanctioned or fined or imprisoned for it.

 

[JoeWras]

I actually found his strategy on his website.

It involves a Land Conservation Easement.

Not for everyone for sure. Complex.

https://raleighwealthsolutions.com/ultimate-conversion/

So you are balancing income with a specific deduction. It ain't free, and "owning" a conservation easement has long term consequences.

 

[SecondCor521]

I searched around for a while - looking at google, the actual 170(h) section of the tax code, an IRS page on LCEs - and nowhere was able to find anything discussing the 5:1 leverage stuff he mentions in his first video. Based on what I saw, I'm doubtful it exists - as far as my cursory research showed, an LCE is just a type of charitable deduction, so a $50K LCE would get you a $50K charitable deduction.

It should be obvious, but the LCE and charitable deduction have little or nothing to do with the Roth conversion other than they might happen on the same tax return in the same year.

I'm not going to bother researching the 60% REIT thing mentioned in the second video. The whole thing doesn't make sense - if LCEs were 5x lucrative, we would have all heard about them by now.

 

[JoeWras]

Yes, agree SecondCor521. I had seen enough on the first video to stop, thanks for taking one for the team and watching the second, which apparently strays even further.

My joke about making $3k on the same day I spend $7k to buy a used car apparently applies here. Sheesh.

Oh, but I'm sure there's advanced secret sauce only he has, and so on. I'm going to turn my radio to another station and rip off the knob.

And for the record, here's what the IRS says about LCE's straightaway. This 5x strategy sounds like a great way to get unwanted attention:

https://www.irs.gov/charities-non-profits/conservation-easements

Background — Abusive Transactions Involving Charitable Contributions of Easements

In recognition of our need to preserve our heritage, Congress allowed an income tax deduction for owners of significant property who give up certain rights of ownership to preserve their land or buildings for future generations.

The IRS has seen abuses of this tax provision that compromise the policy Congress intended to promote. We have seen taxpayers, often encouraged by promoters and armed with questionable appraisals, take inappropriately large deductions for easements.

 

[frayne]

I read the website and watched the videos and me thinks the guy is selling snake oil to some poor unsuspecting soul. But hey, call Buster at Raleigh Wealth Solutions and I'm sure he will have all the answers.

 

[Koolau]

I actually found his strategy on his website.

It involves a Land Conservation Easement.

Not for everyone for sure. Complex.

https://raleighwealthsolutions.com/ultimate-conversion/

So you are balancing income with a specific deduction. It ain't free, and "owning" a conservation easement has long term consequences.

Cha CHING! No sale.

 

[COcheesehead]

The dude is using it as a prospecting tool. Bait and switch. “Oh, the easement won’t work for you? How about a nice safe annuity that I get a $10,000 commission on.”