Episodios

  • The 8 Taxes You Could Pay When Doing a Roth Conversion (Is it worth it?)

    The 8 Taxes You Could Pay When Doing a Roth Conversion (Is it worth it?)
    May 14 2025
    In this episode of the Power of Zero Show, host David McKnight looks at every possible tax or cost that may result from a Roth conversion. The first tax you’ll have to pay when executing a Roth conversion is federal income tax. Whatever portion of your IRA you convert to Roth is realized as ordinary income and piled right on top of all your other income. David is an advocate for not converting to Roth unless you think your federal tax rate in retirement is likely to be higher than it is today. The second tax you could end up paying when doing a Roth conversion is state tax. The situation will vary depending on where you live – in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, you don’t have to pay state tax, including on Roth conversion. Do you live in Illinois, Iowa, Mississippi, or Pennsylvania? Then, you’ll have to pay state tax, but Roth conversions are exempted. If you’re thinking about moving to one of these states to avoid paying these taxes, just know that, while they may not charge income tax on Roth conversions, they do make up for it in other ways (sales and property tax, for example). IRMAA – the Income Related Monthly Adjustment Amount – is the third cost you could end up paying when doing a Roth conversion. IRMAA represents an additional charge you could be required to pay on your Medicare Part B and Part D premiums. The next potential tax you could pay as a result of doing a Roth conversion is Social Security taxation. The fifth cost you could incur because of a Roth conversion is NIIT (Net Investment Income Tax) – also known as the Obamacare surtax. NIIT is a 3.8% surtax on the lesser of your net investment income or the amount of your modified adjusted gross income that exceeds the threshold of $200,000 for single filers and $250,000 for married filing jointly. The sixth tax you could potentially pay as a result of doing a Roth conversion is an indirect one and results from the phase out of certain credits or deductions. The list of credits and deductions includes child tax credits, student loan interest deductions, the saver’s credit, and education credits. Underpayment penalties is the seventh tax you could potentially pay by doing a Roth conversion. David explains that many people opt to pay taxes on their Roth conversion in the fourth quarter. The problem, however, lies in the fact that when you pay the taxes on your Roth conversion out of cash in the fourth quarter, the IRS expects you to have paid taxes on that Roth conversion evenly throughout the year. The eighth and final tax you could end up paying as a result of doing a Roth conversion applies to those who are getting health insurance through the Affordable Care Act. Does your Roth conversion push you above the subsidy threshold? If so, know that you could have a partial or total loss of subsidies or may have to repay subsidies at tax time. “Think of all of these additional taxes or costs as tradeoffs, not problems or unintended consequences,” says David. For example, you may pay increased Social Security taxation during your Roth conversion period, but will then eliminate Social Security taxation altogether by the time your conversion is complete. If President Trump extends his tax cuts, then the national debt will grow to $62 trillion by 2035. Most experts believe that the only way we can service this massive debt load is to dramatically increase income tax rates. According to a recent Penn Wharton study, if the U.S. doesn't right its fiscal ship by 2040, no combination of raising taxes or reducing spending will prevent the nation’s financial collapse. Remember: while it’s true that Roth conversions do cause you to pay additional taxes and expenses in the short term, they do dramatically reduce those costs over the balance of your life, once your conversion is complete. Mentioned in this episode: David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track DavidMcKnight.com DavidMcKnightBooks.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube Get David's Tax-free Tool Kit at taxfreetoolkit.com Penn Wharton
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    11 m
  • Should You Take More Risk in Your Roth Accounts Than Your Other Investments?

    Should You Take More Risk in Your Roth Accounts Than Your Other Investments?
    May 7 2025

    This episode of the Power of Zero show explores whether you should be taking more risks in your Roth accounts than in your other investments.

    Host David McKnight kicks things off by stating that if you have Roth IRAs or Roth 401(k)s in your portfolio, you should be allocating 100% of these dollars to a stock allocation.

    That’s because these are your most tax-efficient investments and they’ll remain tax-free right up until your death – and even 10 years beyond.

    Remember: you want the biggest returns in your portfolio to take place in a tax-free environment.

    David explains which of your assets you should be allocating towards bonds.

    David isn’t a huge fan of bonds because of three words: fixed index annuities.

    He uses a study by the University of Chicago’s Dr. Roger Ibbotson to illustrate his preference for fixed index annuities over bonds.

    Ibbotson’s research showed that the stock FIA portfolio did not just increase, but it did so with less risk, while also protecting the investor to some extent from irrational investment behavior that erodes returns over time.

    David is all in favor of allocating your Roth IRAs to your most aggressive investments, as he thinks you should want your tax-free accounts to house your most explosive investments.

    While conventional wisdom advises people to allocate the rest of their assets to bonds, David believes in a better alternative: incorporating a fixed index annuity into your overall strategy.

    By doing so you’ll increase your return, lower your risk, lower the standard deviation of your entire portfolio, and give yourself a better outcome over time.

    David concludes by pointing out that you don’t have to love annuities for this strategy to work – you just have to love the idea of increasing the likelihood that your money will last as long as you do.

    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com

    University of Chicago

    Dr. Roger Ibbotson
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    7 m
  • Debunking Doug Andrew’s Roth IRA Hit Job Video

    Debunking Doug Andrew’s Roth IRA Hit Job Video
    Apr 30 2025

    In this episode of The Power of Zero Show, host David McKnight looks at Doug Andrew’s recent video in which he implored his audience to never use a Roth IRA or a Roth 401(k) again.

    Andrew sees Indexed Universal Life insurance (IUL) as far superior and believes it should be the source of the vast majority of your distributions in retirement.

    While David likes IUL in certain circumstances, he isn’t a fan of sales strategies that debase every other viable tax-free alternative in an effort to exalt IULs.

    For David, the video is riffed with errors, exaggerations and omissions.

    Moreover, Andrew’s video appears to have an obvious pre-commitment to persuading you to reposition the lion’s share of your retirement savings into an IUL.

    In the video, Doug Andrew’s liking for IUL as the top investment vehicle is evident.

    At the beginning of his video, Andrew says that he will explain why the IUL is far superior to the Roth IRA.

    David believes that the choice should never be between a Roth IRA and an IUL or between a Roth 401(k) and an IUL.

    Remember: your tax-free strategy can incorporate as many as SIX DIFFERENT STREAMS of tax-free income, not just the IUL…

    And every one of these tax-free income strategies has unique qualities that set them apart from all the others.

    Don’t forget about what your #1 goal should be: to take advantage of every tax-free nook and cranny in the IRS tax code.

    David lists the qualities that tools such as Roth IRAs, Roth 401(k)s and Roth conversions have and that IULs do not have.

    One of the unique things about IULs is that they give you a death benefit that doubles as long-term care and helps grow your money safely and productively.

    David touches upon what he considers “wild claims” featured in Doug Andrew’s video.

    An example of inaccurate or untrue information shared by Andrew is that the IUL’s expenses will be paid out of the money that would have otherwise gone to pay a tax… which is wrong!

    Contributions to Roth IRAs and IULs are both made with after-tax dollars.

    “If anyone ever debases a Roth IRA or a Roth 401(k) in an attempt to sell you an IUL, you should run – not walk – the other way,” concludes David.



    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com

    Doug Andrew

    Doug’s video - Why You Should Never Use a Roth IRA Again (6 Reasons Why)
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    12 m
  • What Percentage of Your Retirement Savings Should You Have in Traditional IRA vs. Roth?

    What Percentage of Your Retirement Savings Should You Have in Traditional IRA vs. Roth?
    Apr 23 2025
    What percentage of your retirement savings should you allocate toward traditional IRAs and 401(k)s vs. Roth IRAs and Roth 401(k)s? That’s what this episode explores. Traditional financial guru advice says that it’s impossible to predict where tax rates are going down the road. Therefore, you may hear that your best bet is to simply have 50% of your money in tax-deferred and 50% of your money tax-free. David is somehow perplexed by the guru’s point of view about the future of tax rates being an unknown. However, signs that things won’t be the same appear to be evident. The current national debt is at $37 trillion and the U.S. will be layering another $2 trillion per year over the next 10 years – excluding the $4.6 trillion that will be added to the debt if the Trump Tax Cuts get extended. That means the debt could grow to over $60 trillion by the time 2035 rolls around! Former Comptroller General of the Federal Government David Walker has stated that tax rates would have to double to keep the country solvent. And if the American fiscal ship doesn’t get right by 2040, no combination of raising taxes or reducing spending will arrest the financial collapse of the nation (source: Penn-Wharton). Experts have already weighed in, and there seems to be general unanimity on the subject: in 10-15 years, tax rates are likely to be higher than they are today. David believes that, if tax rates are likely to double in the near future, allocating the vast majority of your retirement savings to tax-free is the way to go. Why not put 100% of your retirement savings into tax-free accounts? Because you’ll still have a standard deduction available to you in retirement. That’s $30,000 if you’re married and retired today, half that amount if you’re single. Remember: if you don’t have a pension, employment, or other residual income in retirement, the ideal amount is $400,000 if you’re married and about half if you’re single. Have a sizable pension? In that case, the ideal amount goes all the way down to zero. David suggests moving your money slowly enough that you don’t rise into a tax bracket that gives you heartburn, but quickly enough to get the heavy lifting done before tax rates increase in 2034. The goal? To stretch that tax obligation out over as many years as possible, so you can stay in as low a tax bracket as you can. Generally, David recommends never bumping into a higher tax bracket than 24% as you execute your Roth Conversion strategy. Instead of reflexively allocating money in a 50-50 split between traditional IRAs and Roth IRAs, David encourages a more surgical approach. This will shield you from the impact of higher taxes down the road and increase the likelihood that your money will last as long as you do. Mentioned in this episode: David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track DavidMcKnight.com DavidMcKnightBooks.com PowerOfZero.com (free video series) @mcknightandco on Twitter @davidcmcknight on Instagram David McKnight on YouTube Get David's Tax-free Tool Kit at taxfreetoolkit.com David M. Walker
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    7 m
  • The Five Cardinal Rules of Roth Conversions

    The Five Cardinal Rules of Roth Conversions
    Apr 16 2025

    David McKnight goes through his five cardinal rules for doing a Roth conversion.

    The first principle is simple: don’t do a Roth conversion that bumps you into a tax bracket that gives you heartburn.

    Not sure about what a heartburn-inducing tax bracket looks like? David shares a simple “rule of thumb” you can follow.

    In your zeal to get your Roth conversion done before tax rates go up for good, don’t bump into the 32% tax bracket along the way.

    The second cardinal rule ties into the almost certainty that Congress will extend the Trump tax cuts through 2033 – make sure to stretch your tax liability out between now and then!

    There’s a strong likelihood that, once Trump’s second round of tax cuts expire, taxes will rise dramatically in 2034.

    The reason for that? The trajectory of the national debt and over $200 trillion in unfunded obligations for Social Security, Medicare, and Medicaid.

    The third principle is “Don’t lose your sleep over IRMAA (Income Related Monthly Adjusted Amount) during your Roth conversion period.”

    Many people are reluctant to do Roth conversions because they don’t want their Medicare premiums to increase.

    Remember: your premiums would only go up over the period in which you’re executing your Roth conversion strategy – that’s nine years or less…

    David recommends having a “rip the band-aid off” approach when it comes to both IRMAA and Roth conversions.

    Cardinal principle #4: whenever possible, pay the tax on your Roth conversion out of your taxable investments like a brokerage account or cash.

    David sees six months of basic living expenses as the ideal balance in your taxable bucket.

    The fifth and final cardinal rule is “know your ideal balance in your tax-deferred bucket before executing your Roth conversion strategy”.

    David shares a good mathematical reason for not converting 100% of your IRA to Roth even if you think that your tax rate down the road is likely to be higher than it is today.

    A cheat code to help you establish the ideal balance in your tax-deferred accounts: if you’re married, it’s about $400,000 (if you don’t have a pension or other sources of residual income).

    Are you single? Then, it’s about half that amount.

    Keep in mind that a lot will depend on how much Social Security you’re planning on receiving in retirement.

    Over at DavidMcKnight.com you can find a calculator to help you with all of this.

    Following these five principles will help insulate your money from higher taxes, pay less taxes along the way, and increase the likelihood that your money will last as long as you do.

    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com
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    8 m
  • How to Take Advantage of the Retirement Income Valley for Roth Conversions

    How to Take Advantage of the Retirement Income Valley for Roth Conversions
    Apr 9 2025

    Wondering when you should start thinking about a Roth conversion? That’s exactly what David McKnight dives into in this episode of The Power of Zero Show.

    The retirement valley is that dip in taxable income that happens after you retire but before RMDs kick in – at age 73 or 75, depending on your birth year.

    David walks through an example: you’ve got $2 million in your IRA and want to convert all of it to Roth.

    If you take action during that valley, you can convert more while staying in the 24% tax bracket the whole time.

    Not taking action now? Think of 2035 as the year tax rates are set to jump!

    Why? Because interest on unfunded promises like Social Security, Medicare, and Medicaid has to be paid somehow.

    Intrigued by the idea of a Roth conversion? Just make sure you move your money slowly enough to avoid jumping into a painful tax bracket.

    A Roth conversion helps protect you from tax rate risk – the chance that future taxes will be much higher than today’s.

    Worried about a financial collapse? A recent Penn Wharton study points to 2040 as a year to watch.

    Even raising taxes or cutting spending may not be enough to stop what’s coming…

    David says 2035 will be a turning point.

    He predicts tax rates then could look like they did in the 1960s, when the top rate hit a jaw-dropping 89%.

    There are two big reasons to take advantage of the retirement income valley while you can.

    David shares two smart strategies to help you boost your tax-free retirement plan, and make your savings last longer.

    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com

    Penn Wharton
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    6 m
  • In What Order Should I Spend Down My Assets in Retirement?

    In What Order Should I Spend Down My Assets in Retirement?
    Apr 2 2025

    David McKnight addresses the most efficient order in which to spend your assets in retirement.

    Online programs and algorithms that forecast and run calculations related to your retirement assets suggest starting with your tax-deferred assets like 401(k)s or IRAs.

    Such tools recommend spending down your tax-deferred assets now, when tax rates are low, and your tax-free assets later – when tax rates are likely to be higher than they are today.

    Reminder: regardless of the distribution strategy you choose, it should aim to maximize the likelihood that your money lasts as long as you do.

    David’s recommended strategy involves spending small slivers of each of your assets all in the same year.

    In other words, instead of mowing through one asset class all at once and then moving on to the next, you spend a little from each asset over time.

    There’s a scenario in which you could receive your Social Security 100% tax-free – this could extend the life of all your other resources by five to seven years.

    David explains why you shouldn’t aim to spend down all your tax-deferred assets in the early years.

    David touches upon using a Roth conversion as a strategy.

    Roth IRAs, Roth 401(k)s, and tax-free Social Security (when you can keep your provisional income low enough) are other sources of tax-free income you may accumulate along the way.

    David discusses why it may be better to take a more nuanced approach, rather than simply spending down your tax-deferred assets first and your tax-free assets later.

    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com
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    7 m
  • Suze Orman Says Have 3 to 5 Years of Living Expenses in CASH During Retirement (Good Idea?)

    Suze Orman Says Have 3 to 5 Years of Living Expenses in CASH During Retirement (Good Idea?)
    Mar 26 2025

    Today’s episode of The Power of Zero Show looks at a recent podcast episode in which Suze Orman recommended having three to five years of living expenses in cash during retirement.

    Experts have long debated the rate at which retirees can draw down their assets while maintaining a high likelihood of not running out of money before they die.

    Since the early ‘90s, the gold standard for sustainable distributions has been the 4% Rule.

    According to the 4% Rule, whether the market goes up or down, you can reliably withdraw 4% each year with high confidence that you won’t outlive your money.

    David McKnight points out that Orman’s advice – keeping money in a volatility buffer account – is at odds with her stance on sustainable withdrawal rates.

    For Suze Orman, you shouldn’t be taking 4% withdrawals from your retirement portfolio. Instead, she recommends a 3% distribution rate.

    Studies show that if you withdraw only 3%, regardless of market conditions, you have a near 100% chance of never running out of money.

    David believes that by promoting the 3% rule AND encouraging people to keep 3-5 years of living expenses in a savings account, Suze Orman is doing a disservice to her listeners.

    The first problem with Orman’s advice is that, while she got the volatility buffer concept right, she failed to adjust her sustainable withdrawal rate accordingly.

    Following Orman’s approach could result in massive loss of purchasing power by keeping a significant portion of your net worth in a low-yielding savings account over an extended period.

    David explores whether there’s a “safe and productive” way to grow your money during retirement.

    Cash value life insurance, specifically in the form of Indexed Universal Life (IUL), is a financial vehicle that protects against market loss and grows at a rate of 5-7% (net of fees) over time – within a tax-free environment.

    David wraps up with some final words of advice for Suze Orman.

    Mentioned in this episode:

    David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

    DavidMcKnight.com

    DavidMcKnightBooks.com

    PowerOfZero.com (free video series)

    @mcknightandco on Twitter

    @davidcmcknight on Instagram

    David McKnight on YouTube

    Get David's Tax-free Tool Kit at taxfreetoolkit.com

    Suze Orman’s Podcast
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    11 m
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