Yes, I know Ed is revered as the world’s greatest expert when it comes to all things IRA-related. I’m not disputing his knowledge except for his understanding of Roth IRA Conversions.
When I asked Ed 10+ years ago what he thought of conversion, here’s what he told me:
“Tax-free is always better than tax-deferred or taxable”
Ed’s opinion hasn’t changed, and it’s still 100% incorrect. Why is Ed wrong? Well, that’s why we wrote our new book Deconstructing Roth IRA Conversions: Myth vs. Reality (to explain, in writing and with extreme detail, what works and what doesn’t work and why when it comes to Roth conversions).
Ed’s 5 Reasons People Skip Roth IRA Conversion
This online interview is indisputable proof Ed doesn’t understand the math of conversions.
Ed did a YouTube video with “Erin Talks Money” where he went over his top reasons people don’t implement conversions. Here are those reasons that he thinks are all wrong:
1) People don’t want to pay the tax up front
2) Perceived “opportunity costs” (time value of money)
3) Higher current taxes + ripple effects
4) Expectations of a lower tax bracket later
5) Distrust of the government/tax rules
Ed’s video comments are so stunningly ignorant that I created a multi-page commentary with my thoughts as to why he is wrong. To download my comments, click on the following link:
https://deconstructingrothiraconversions.com/ed-slott-commentary
To watch Ed’s YouTube interview, click on the following image:
Today I want to point out the two biggest flaws in how Ed evaluates Roth conversions.
Our OnPointe programming team spent over a year building the industry’s only accurate Roth conversion software. What became clear is that the #1 and #2 reasons that Roth conversions DO NOT work for most people (they will not have more money because of the conversion) are:
1) Lost opportunity cost on the money used to pay the tax
2) Most people will have a lower effective income tax rate in retirement
Ed gives an example in the video where someone converts with 30% effective tax rate, and then when they take the money out of the Roth, they also have the SAME effective rate.
This is a mathematically flawed assumption. The following chart is for middle to upper-middle earners from 1950-2025. Besides that, the effective rate while working isn’t anywhere near 30%; what’s most important is that when retired (the dotted line), the effective rate DROPS SIGNIFICANTLY.
In the YouTube video Ed brings up a big/bold chart showing his 30% effective rate example. It’s hard to believe Ed believes what he’s saying, but he’s been consistent for years.
Most Misleading/Inaccurate Part of the YouTube Video—The Marriage Penalty
In the video, Ed reminds viewers that with a married couple, eventually one spouse will die. When that happens, the other spouse can NO LONGER file as married filing jointly. This change will typically result in higher income taxes being paid unless income is reduced. There could also be an increase in the IRMAA penalty, if any.
Then he gives his faulty and misleading example—the assumption is that while alive, the couple is in the 24% bracket. When one dies, the other jumps to the 35% bracket. That’s a “45% increase.”
This example is so flawed. First, the client isn’t paying 24% in taxes while married and the surviving spouse won’t be paying 35% in taxes when filing as a single. So, Ed’s 45% higher rate is misleading/wrong.
If an example couple had $225,000 of income today, they would be in the 22% bracket. Their effective rate would be 16.19%.
I did run my own full example in OnPointe for this newsletter, but I’m not going to take up the space to list all the variables. I will say that it’s just a typical couple with tax-deferred IRA and NQ brokerage account assets, and Social Security income.
If the 2nd spouse died 25 years later and had “retirement income” of $291,493(includes social security and IRA withdrawals), the effective income tax rate for the “single” spouse = 18.42%.
That’s an 13.77% increase, not the 45% increase Ed touts in the video. I don’t know why Ed is using numbers that are not based in reality to scare people into conversions, but that’s what it seems.
And, by the way, I did run a Roth conversion on this example couple, and it was a FAILURE.
Ed is Awesome on Everything…Except Roth IRA Conversions
I have Ed’s green book, and it’s a terrific book except for the content on Roth conversions. If Ed would take the time to learn the math, I’m sure the light bulb would go on. Doing so would be good for the Ed Slott Elite Advisors, and it certainly would be good for consumers.
Have I reached out to Ed recently about conversions? The answer is several times. He doesn’t seem interested in engaging. When he’s ready, I’m ready, and if he can tell me and our team of programmers why our numbers are wrong, I’m all ears.
Want to Learn the Math of Roth Conversions?
Just get our new book (the redesigned cover should be updated on Amazon soon).
