MML #025: The Tax Strategy Most Lawyers Get Backwards (And How to Fix It)

Most retirement income projections stop at the basics: "Here's what you'll have if you withdraw X% from your accounts each year."

But what if I told you there's a strategy that could potentially increase your lifetime income, help you meet your legacy goals, and reduce your overall tax burden throughout retirement? It's called a Roth conversion, and the fine-tuning makes all the difference.

If you're like most professionals – especially lawyers who've built substantial 401(k) balances over decades of practice – you're sitting on a lot of pre-tax money. That's great for accumulation, but it can also create a tax time bomb in retirement when Required Minimum Distributions kick in.

The problem is that most people either ignore Roth conversions entirely or approach them without any real strategy. But when you get the timing and amounts right, the impact can be meaningful.

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What Exactly Is a Roth Conversion?

Let's start with the basics. A Roth conversion is straightforward: you take money from your tax-deferred accounts (401k, Traditional IRA) and move it to a Roth IRA. You pay taxes on that money today, but then it grows tax-free forever.

Simple concept. But the execution? That's where things get interesting.

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Why Smart People Make This Mistake

Here's what happens in most financial conversations: Someone mentions Roth conversions are "good," so you do some. Or someone says they're "not worth it," so you don't.

And honestly? That approach makes sense when you're busy building a career or managing demanding responsibilities. You trust your advisors and move forward.

But Roth conversions aren't like picking a mutual fund that performs the same regardless of who owns it – they're more like crafting a comprehensive strategy. The same tool can produce completely different outcomes depending on how and when you use it.

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Different Circumstances Call for Different Strategies

Let’s take a look at an example. Two attorneys - We’ll call them Mark and Sarah. Both 64, both planning to retire in two years, both sitting on substantial 401(k) balances.

Both are incredibly sharp professionals who'd built successful careers. But their conversion strategies? Completely different.

Mark had pension income starting immediately at retirement, plus Social Security kicking in at 67. His tax brackets were going to stay relatively high throughout retirement. For him, aggressive conversions during his lower-income early retirement years made perfect sense.

Sarah? Different story entirely. No pension, planning to delay Social Security until 70, and she had significant charitable giving goals. Her optimal strategy involved smaller, more targeted conversions spread over a longer timeframe.

Same retirement timing. Same level of financial success. Totally different approaches.

Here’s what I find encouraging: Once the framework is built, the strategy is grasped. Most people just need a little help connecting all the pieces together. 

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The Framework That Actually Works

When I work with clients on conversion strategies, I've found we get the best results when we approach it systematically. We gather the facts first, then develop the strategy.

The five critical questions we explore together:

1. What will your tax brackets look like year by year in retirement?
2. When will you have "gap years" with lower income (and lower taxes)?
3. How do state taxes factor into your equation?
4. What are your legacy planning goals? (effects taxation for your beneficiaries)
5. How might tax laws change, and how do we build in flexibility?

Most professionals I work with find this process familiar. It's the same step-by-step approach you'd use for any complex problem:

-Gather information

-Analyze scenarios

-Make informed decisions

Always in that order.

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The Mistake Even Smart People Make

I've seen successful professionals make the same understandable mistake: they treat Roth conversions like a one-time event instead of an ongoing strategy.

They'll do a big conversion one year, then nothing for the next five years. Or they'll convert the same amount every year regardless of what else is happening in their financial picture.

My experience lends me to believe that your optimal conversion strategy evolves as your situation changes. New tax laws, different income levels, changing family circumstances – all of these create opportunities to refine your approach.

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You're Already Thinking Like This

The people who master this aren't doing anything revolutionary. They're applying the same analytical skills they use in their careers to their financial planning.

They know conversions might make sense, and they want a systematic process for making smart decisions about timing and amounts. Once they have that framework, the decisions become much clearer.

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Your Advantage

You already understand that good strategy requires good information. You know the value of planning ahead and adjusting as circumstances change.

Those same instincts that made you successful in your career? They're exactly what you need for smart conversion planning.

I'm not going to tell you whether Roth conversions are right for your situation – that depends on factors specific to your circumstances.

But I will tell you this: you're already equipped with the analytical skills to make these decisions well. You just need the right framework to apply them.