Putting it that way, I see it now. I was always thinking of it as holding onto the IRS’s share, $50K tax money, and allowing it to grow in my brokerage account. However, I wasn't accounting for the fact that the government's 25% claim on the Traditional IRA grows right along with the IRA. If both grow at the same rate, the two effects offset each other and it's a wash.
I actually ran the numbers using your $200K/$50K example, assuming an 8% return for 10 years, and the math comes out exactly as you described. Thank you for taking the time to explain—it finally clicked for me!!
Another important cost of Roth conversions that is rarely addressed is the opportunity cost of the money used to pay the conversion tax.
If someone had $50,000 of taxable money available to pay the tax, that $50,000 isn’t just “spent” — it’s $50,000 that can no longer remain invested and compound. The comparison shouldn’t only be today’s tax cost versus the potential future tax savings. It should also consider what that tax money could have grown to, on an after-tax basis, if it had remained invested.
I’d be interested in seeing a Roth-conversion analysis that includes the opportunity cost of the tax payment itself, along with the future tax savings.
If you are retired, or when you do retire, you should consider rolling over the funds to Fidelity, Vanguard or Charles Schwab.
In regard to protection.... If you were to ever file for personal bankruptcy, all your 401(k) rollover funds are 100% protected with no dollarlimit under the federal Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). As long as the funds were rolled over from a 401K they will always be protected. However, federal law does not protect IRAs from civil lawsuits (such as car accidents, business liabilities, or personal injury judgments). Instead, your level of protection is dictated exclusively by the state where you reside. The way around the lawsuit protection is just what Mark Crothers suggested- look into an umbrella insurance policy. I live in Michigan which means only $1.5 million is protect. Check your state protection amount and consider umbrella insurance.
Stress? I don't haggle, I don't shop dealers and haven't needed any spreadsheets,-I never have. I always manage to get the price 4% below dealer cost. A good perk for spending most of my career in the auto industry. 😉 Although, now that I am thinking, I must have been doing it wrong all these years! I've never received a coffee mug!
Mark, The funny thing is that Monte Carlo in engineering and Monte Carlo in retirement planning are really solving the same problem: nobody knows exactly what the future will be, so we run lots of possible scenarios and see what happens. 😂
As an automotive mechanical designer, we used Monte Carlo simulations every day. They were used in tolerance stack-ups to determine the probability distribution of assembled dimensions based on expected machining variations and to predict how well components would fit together.
Comments
Putting it that way, I see it now. I was always thinking of it as holding onto the IRS’s share, $50K tax money, and allowing it to grow in my brokerage account. However, I wasn't accounting for the fact that the government's 25% claim on the Traditional IRA grows right along with the IRA. If both grow at the same rate, the two effects offset each other and it's a wash. I actually ran the numbers using your $200K/$50K example, assuming an 8% return for 10 years, and the math comes out exactly as you described. Thank you for taking the time to explain—it finally clicked for me!!
Post: Roth Conversions and Taxes
Link to comment from August 10, 2026
Another important cost of Roth conversions that is rarely addressed is the opportunity cost of the money used to pay the conversion tax. If someone had $50,000 of taxable money available to pay the tax, that $50,000 isn’t just “spent” — it’s $50,000 that can no longer remain invested and compound. The comparison shouldn’t only be today’s tax cost versus the potential future tax savings. It should also consider what that tax money could have grown to, on an after-tax basis, if it had remained invested. I’d be interested in seeing a Roth-conversion analysis that includes the opportunity cost of the tax payment itself, along with the future tax savings.
Post: Roth Conversions and Taxes
Link to comment from August 8, 2026
If you are retired, or when you do retire, you should consider rolling over the funds to Fidelity, Vanguard or Charles Schwab. In regard to protection.... If you were to ever file for personal bankruptcy, all your 401(k) rollover funds are 100% protected with no dollar limit under the federal Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). As long as the funds were rolled over from a 401K they will always be protected. However, federal law does not protect IRAs from civil lawsuits (such as car accidents, business liabilities, or personal injury judgments). Instead, your level of protection is dictated exclusively by the state where you reside. The way around the lawsuit protection is just what Mark Crothers suggested- look into an umbrella insurance policy. I live in Michigan which means only $1.5 million is protect. Check your state protection amount and consider umbrella insurance.
Post: When your 401(k) excludes target date funds
Link to comment from August 5, 2026
Stress? I don't haggle, I don't shop dealers and haven't needed any spreadsheets,-I never have. I always manage to get the price 4% below dealer cost. A good perk for spending most of my career in the auto industry. 😉 Although, now that I am thinking, I must have been doing it wrong all these years! I've never received a coffee mug!
Post: Buying a car in retirement
Link to comment from July 14, 2026
Mark, The funny thing is that Monte Carlo in engineering and Monte Carlo in retirement planning are really solving the same problem: nobody knows exactly what the future will be, so we run lots of possible scenarios and see what happens. 😂
Post: The Solitaire Solution
Link to comment from June 24, 2026
As an automotive mechanical designer, we used Monte Carlo simulations every day. They were used in tolerance stack-ups to determine the probability distribution of assembled dimensions based on expected machining variations and to predict how well components would fit together.
Post: The Solitaire Solution
Link to comment from June 24, 2026
Thank you! I pay close attention to those expense ratios. It is amazing how much we can give away over our lifetime if we don't pay attention to them!
Post: What’s in your portfolio ?
Link to comment from June 15, 2026
40% FZROX (Total Stock Market Index) 20% FZILX (International Index) 10% FNILX (Large Cap Index) 10% FIMVX (Mid Cap Value Index) 10% SGOV (0-3 Month Treasury) 10% FIPDX (Inflation-Protected Bond Index)
Post: What’s in your portfolio ?
Link to comment from June 13, 2026
LOL, I had to use ChatGPT to translate his comment. :) In the sentence you quoted:
he means: :)Post: Taste Bud Training
Link to comment from May 23, 2026
Unfortunately, No.
Post: HSA Tips
Link to comment from March 5, 2026