Roth Conversions vs. Smart Social Security & IRA Withdrawal Timing – Which Can Save You More?

 In this episode, George Jameson, CFP® and founder of Capital Wealth Group, explains why retirement isn’t just about what you’ve saved—it’s about how you use it. From Roth conversions and IRA withdrawals to Social Security timing and IRMAA thresholds, the right tax strategy can help you keep more of your money working for you. 

Want to see how this applies to your retirement? Visit Capital Wealth Group to start the conversation. 

 Welcome to "The Retirement Guide" Podcast! I'm your host George Jameson, owner of Capital Wealth Group, a Fee Only Advisory firm. Whether you’re nearing retirement or already retired, Join me each week as we explore the world of retirement planning and equip you with the knowledge and tools you need for a successful retirement.

Thank you for tuning in to this episode of The Retirement Guide. If you enjoyed this episode, please subscribe & leave a review. If you'd like a free 30-minute retirement review, visit our website at www.capitalwealthplan.com to schedule.

This is for education only.It is not tax, legal, or investment advice. Before  acting on any information consult your tax, legal, or investment advisor.

Let's Connect!

Visit our Website: Capital Wealth Group

Schedule a Free Introductory Call Today! (30min)

Capital Wealth Group is a Fee-Only Advisory Firm located in Columbia, SC , serving clients locally in South Carolina and North Carolina and virtually nationwide.

Any Questions or Topic Ideas? Send me an email at George@capitalwealthgroupsc.com

Transcript

George Jameson: 0:19

Hi, and welcome to my podcast. I'm George Jameson. I'm a certified Venture planner and the founder of Capital Wealth Group in Columbia, South Carolina. So let's get started. Today we're talking about taxes and retirement. I know not exactly the most exciting topic, but here's the thing. If you get this right, it could save you tens of thousands, maybe even hundreds of thousands of your lifetime. Now, a lot of people I sit down with assume that Roth conversions are the answer when it comes to cutting retirement taxes. Don't get me wrong, they can be a fantastic tool for many. In fact, I've got several episodes dedicated specifically to Roth conversions, so please check them out. Roth conversions are a great strategy for many people, but they're not the best for everyone. Depending on your financial picture, this alternative tax saving approach could actually work better for you. This strategy really comes down to time. It all ties back to one of the biggest retirement decisions you'll make when to claim social security. Most people think it's just about age. You take it at age 62 because you can't, or you hold off until 67 or 70 to get the bigger check. But what often gets overlooked is how that decision affects your taxes. For some people, the decision to start at age 62 can mean up to 85% of their benefits getting taxed. A lot of that tax could have been avoided. Here's why that may happen. If you decide to do Roth conversions, an entire amount counts as taxable income in the years you do it. If you've already started Social security, your benefits get stacked right on top of that income. So now you're not only paying taxes on the Roth conversion itself, but you could also be triggering more taxes on your social security. Now, please note it still may be beneficial to do Roth conversions after starting Social Security. The real question is what's right for you? Should you do Roth conversions, and if so, when and how much? When's the best time to start Social Security for you, and which strategy will save you the most in taxes? This strategy I'm about to talk about is actually pretty straightforward. Instead of rushing to claim social security, you simply delay it and during those early years of retirement, say between age 62 and 67 or 70, you live off your pre-tax I a accounts and maybe taxable accounts depending how much money you need. I call those years your golden tax window. Why you may ask, because you often have incredible control over your taxable income. For some by pulling from your IRA strategically, you can fill up those lower tax brackets in the 10 to 12% range and avoid being forced into the higher 22 or 24% brackets later in life. When you start RMDs, there are two big potential wins here, depending on your situation. First, you're shrinking your IRA balance Now. Which means your future required minimum distributions, your RMDs will be smaller. Second, by delaying social security, you're locking in a much higher guaranteed inflation adjusted benefit for the rest of your life. Now, let's look at a quick example. Meet John and Mary. They're both age 62, recently retired, and they saved about a million dollars in their IRAs. On top of that, they have about 400,000 in a joint brokerage account. Now let's look at Path A. Which many couples do they claim social security right away at age 62 because it feels good. They've got checks coming in as soon as they retire. On top of that, they decide to do some Roth conversions to try and lower their future tax bill. And here's the potential problem. If they do Roth conversions, those conversions are stacked on top of Social Security, which may push them into higher brackets. Cause more of their benefits to be taxable. They may end up with higher taxes now and they still may face larger RMDs later. Not always the best outcome. Now let's compare that to path B. The strategy we've been talking about. John and Mary, delay social security until age 70. During those eight years, they pull money out of their IRAs and maybe some out of their taxable accounts to cover expenses. That can feel a little nerve wracking at first because your account balances are going down faster. But remember, they're taking money out while in a very low tax bracket. By the time they turn 70, the whole picture shifts. Their IRA balances are now much smaller, which means much smaller R ds down the road and now their social security checks kick in almost double what they would've been if they had a claim at age 62. Higher guaranteed income means they don't need to take nearly as much from their investments when we run the numbers. Delaying social security this way gives John and Mary about 150,000 more over their lifetime, and even better, their odds of not running outta money jumped from 87% to 98%. So that's not just a financial win. That's a big peace of mind for a lot of people. Now let's dig into how much you can actually pull out of your IRA and still stay in those lower tax brackets using the 2025 numbers for a married couple filing joint. The 12% tax bracket goes up to about 97,000 of taxable income, adding the standard deduction, which is about 30,000, and the extra deduction for being over at age 65, and you could potentially pull in over close to 140,000. Ordinary income and still be sitting in the 12% bracket. That's a pretty big opportunity to move money out of your IRA at a very low tax cost. And here's another tool most retirees don't think about, which is 0% capital gains harvest in 2025. If your taxable income is below roughly 97,000 as a married couple, your federal tax rate on long-term capital gains is zero. With capital gains harvesting, you can sell an appreciated stock or fund in your brokerage account and pay absolutely no federal tax on that gain. It can be a powerful way to raise cash and create more flexibility in the future. So what's the bottom line? The years between when you retire and when you claim social security or your golden window for tax plan. By delaying Social security and living off strategic IRA withdrawals. Or even taxable accounts, you can put together a tax game plan. When you take strategic I a withdrawals, you can shrink your future r ds, lock in bigger social security benefits and save big time on lifetime taxes. Now, before you run off and start implementing the strategy, please keep in mind you need to run the analysis through some type of retirement planning software, because often tapping your taxable accounts first. Then your IRAs and then your Roth IRAs makes the most sense. This is often when Roth conversions can be a possibility. Here are a few things to consider. Should you take Social Security age 62 for some, yes. For others, no. Or should you delay social security until full retirement age or even age 70 like we just talked about? Should you do Roth conversions up to the Irma thresholds or a specific tax bracket? For how many years or should you start taking distributions from your IRAs at the beginning of retirement, up to the lowest brackets, 10 and 12%, and delay social security until age 70, which for some can offer big time peace of mind. Everyone's situation is unique, which is why you need a plan that works best for you at the end of the day. Retirement isn't just about how much you save. It's about how you use it, timing of withdrawals, which accounts you tap first, how much to take, when to start social security, where the Roth conversions make sense, and even how to plan around Irma thresholds. Getting those decisions and many more right is what turns simple. Savings into a powerful retirement plan and the right path for you depends entirely on your specific circumstances. The key takeaway though is that you have far more control over your lifetime tax bill than you might realize if you're listening to this and wondering how these pieces fit together for your own retirement. That's exactly the kind of conversations we have every day. It's all about building a plan that's tailored to you. Again, my name's George Jameson, and my firm is Capital Wealth Group, located in Columbia, South Carolina. If you'd like to explore what a proactive retirement income and tax plan could look like for you, I invite you to visit our website at www.capitalwealthgroupsc.com and schedule a free consultation to see if we're a good fit. Thanks for listening. See you next week, and have a great day.