Episode 7
Who Should Pay the Tax? A Family Approach to Roth Conversions
If most of your savings sit in pre-tax accounts and your kids are doing well, this episode helps you think through who should pay that tax, and at what rate, before the decision gets made for you.
November 17, 2026 · 23 minutes
Or listen on Apple PodcastsApple Podcasts SpotifySpotify
About this episode
You did what you were told. You contributed to your 401(k) pre-tax, took every deduction you could find, and kept each year's tax bill as low as possible. For 30 or 40 years, that felt like winning. Then retirement gets close, and you realize a big share of what you've saved has never been taxed. If you don't end up spending it, that bill may land on your children, and if they're doing well, it may land in a much higher bracket than yours. That's hard to see on your own, especially when most tax advice only looks at this year.
In this episode, Greg shares three real family stories that reframe the Roth conversion question. It isn't only about how much tax gets paid. It's about who in the family should pay it, and when. You'll hear about parents whose daughter now out-earns them, a younger couple expecting an inheritance, and a family that planned across two generations, including what changed when one spouse passed away. Greg closes with five questions that help you look at your whole family's balance sheet, so the decision about who pays the tax is made with intention instead of left to chance.
What you’ll take away
- Think lifetime, not just this year. Paying the least tax every year can leave you with a larger tax bill once retirement arrives.
- Ask who will actually spend the money. If you'll live on your pre-tax savings, a conversion may not be needed; if it's likely to pass to your kids, it may be worth exploring.
- Compare tax brackets across the family. When your children are in a higher bracket than you, paying the tax yourself at a lower rate can mean more stays in the family.
- Plan before the brackets change. A surviving spouse who files single has roughly half the room in each tax bracket, which can limit the conversions still available.
- Check your cash before you convert. If you're under 59 and a half, withholding tax from a conversion can trigger a 10% early withdrawal penalty, so you'll want reserves to pay it.
“It isn't always about how much tax we're going to pay, but sometimes it's about who should pay the tax.”
Greg Johnson
Mentioned in this episode
- "Are You Really Ready To Retire? Retirement Readiness Quiz
- Holistaplan Tax Analysis Software
- The Financial Game Plan Our planning process.
Read the full transcript
Welcome to the Retirement Game Plan podcast with Greg Johnson
Welcome back to the Retirement Game Plan podcast. Today, I wanna share some stories about a common conversation I'm having all the time, all centered around Roth conversions. And a lot of times, that conversation may start from some different angles that you may not think about. So one of the common things I hear from our clients, and I love when I have these conversations, is, "Hey, Greg, my kids are doing absolutely fantastic.
My daughter's really excelling at her job. My son's built his own business, and it's really kicking off, and they're making more money than I ever dreamed I would." Well, when I hear that, one, I'm super proud of these folks and their kids' success. But at the same time, I start thinking about, "Well, I wonder what tax bracket their kids are in."
Because when we talk about Roth conversions and the concept behind it, it isn't always about how much tax we're gonna pay, but sometimes it's about who should pay the tax. And that's what I want to explore a little bit with you guys today. So before we get into today's show, and if you're enjoying these conversations, I'd ask that you share the show.
I'd ask that you go and you subscribe and like on Spotify and Apple Podcasts and all those types of things to help us share the message and grow our communities. And if you haven't taken it yet, make sure to click on the Retirement Readiness Quiz so that you can find out how prepared you are for your retirement journey. So today, like I said, I wanna walk through three real-life scenarios that we've encountered looking at the Roth conversion strategy at just some different approaches from the family members that we've worked with.
So the first story we're gonna talk about are the parents who've accumulated significant amounts of dollars, maybe a million, two million, three million dollars or more, with a lot of it being inside of pre-tax accounts. And if their kids are doing as successful as they say they are, we should be having active strategies to help them avoid having to pay more in income tax than they would necessarily want to.
Next, we're gonna flip that situation around. We had a story where we were working with the younger generation who we knew was set to inherit some dollars, so we took the proactive approach on helping them convert pre-tax dollars today. And third, we had the opportunity to work with both generations, so we knew what mom and dad had, and we knew what the son and daughter had, or daughter-in-law, if you will, and so we worked on both sides to help them make wise decisions as a family to pay the right amount of tax instead of the least amount of tax.
So before we get into the stories, let's establish a little bit about the mindset, some things that need to change. You see, for most of our lives, we've been taught that we should pay the least amount of tax as we possibly can. In fact, a lot of accountants often play heroes in our stories by saying, "Hey, we saved you a bunch of tax this year," or, "Let's take on a strategy that has you pay the least amount of tax today," but may not be thinking about what the future would hold.
All right? So you do all the right things, right? You contribute to your 401(k) in a pre-tax fashion. You contribute to an IRA when it's appropriate. You find as many deductions as possible to see if you can get above that standard deduction. You defer income. You do everything you can to reduce this year's tax bill.
So for 30 to 40 years, you feel like you're winning, but then all of a sudden retirement comes around and now you've got a big tax bill. And that even kind of contradicts what we've heard a lot of times is that, well, you'll be in a lower tax bracket when you're in your retirement years. But if we've deferred all these years, maybe that's not really the case.
So we have to, or I encourage you to change your mindset and start thinking about how do you manage your taxes over your lifetime, not necessarily just in this year's tax situation. So let's dive into story one. So these were a couple I've worked with for probably 20-some years. They have done, again, everything right, saved really well, lived within their means, and have built a really nice nest egg, right?
Probably two, three million dollars worth of net worth. Majority of that money is sitting in pre-tax accounts. They've done some Roths, but they had done so much prior to working with us that the bulk of their assets is all in pre-tax money. So as we worked over the last handful of years and did our tax analysis with them, we did some conversions.
Typically, we were maxing out, like, the 12% bracket or getting their income somewhere in the 100 to $130,000 range so they could max out that bracket. But we finally got into a conversation this year where they were talking about their daughter and how well she had been doing, how well her husband had been doing, and the fact that, you know, they really weren't even worried about her because they were making more money and saving more money than what even the parents had.
So I brought up to them, I said, "Well, does it concern you at all thinking about the amount of tax that she may have to pay if you guys were to pass away and not have spent these dollars?" And that took a few minutes for it to sink in, but eventually it did. And as that scenario started playing itself out, it started coming to fruition that they ought to start paying more tax today to help their daughter and her family avoid having to pay that tax down the road.
So what did we do? We didn't just say, "Let's go do all the conversion." We actually took and did some analysis. We used a software called Holista Plan that helps us analyze situation by situation, and did some strategic planning. And I think this year we're gonna look towards converting all the way up to, like, the 22, maybe even the 24% tax bracket to help start moving some of that.
'Cause here was another thing that we had ran into. Like I said, we had done some smaller Roth conversions, but their pre-tax portfolio had gotten to be so large that if we were only converting 20, 30, $40,000 a year, they were earning 150 to $200,000 a year in their pre-tax portfolio, so we weren't making any dents into the situation that they had.
So it all kind of came to fruition, but I share that story with the hopes that you start thinking about that as a parent of successful children, because you may be able to control the tax rate that those income taxes are paid at, versus if you pass away, your kids are basically given 10 years in order to take those dollars out of that portfolio and pay tax at whatever rate they're currently at.
So story one takeaway is really this. You know, over the years, we worked towards paying the least amount of tax. As we moved into retirement and started thinking about, "Hey, we're not really gonna spend these dollars because we live a pretty conservative lifestyle," we should start actively moving some of those dollars over into tax-free buckets so that when we pass away, our daughter and her family can enjoy that without having to pay so much into the Internal Revenue Service. Now let's move on to story number two.
This again, kind of opposite. We were working with the next generation down or the middle generation. Actually, pretty good friend of mine. We had been working together for 20-some years. They had saved really well. We knew that his parents had a decent amount of net worth, had some farm ground, et cetera, et cetera.
And as we were having a recent review, it got brought up that his wife was set to inherit some more dollars. All right? It actually was coming from a grandma or some sort, and it was gonna be a pretty good sum of money. Well, as we had that conversation, it came to my mind that, hey, we ought to look at doing some conversions because if we start projecting forward and start thinking about what kind of tax situation you're gonna be in in your retirement years, the more we can get that tax paid today while you've got a couple kids in the house, so you've got some additional credits.
Your income's not significantly high right now. Why not take advantage of that opportunity to pay a lower tax rate to help prepare you for when you inherit the dollars from your wife's grandma and your parents so that we're in a better tax position 15, 20 years down the road? So we explored that idea.
He really liked it because he felt tax rates were gonna go up significantly in the years to come, but we ran into a little bit of a roadblock there. As we did the analysis, we looked at the amount to convert. I don't remember exactly what it is. Somewhere around $50,000 is what we were looking to convert maybe this year.
But what we ran into is because he's under 59 and a half, we aren't able to withhold the tax without having to pay a 10% early withdrawal penalty, so we would have to pay that tax out of some cash reserves. Well, the current situation told them they didn't have enough cash reserves to allow them to comfortably pay that tax.
So we ended up not doing the conversion this year, but we are planning on reviewing it or coming back to it next year because their hopes are to have that reserve built back up. My point being is that I hope, regardless of what side of the generation you're on, whether you're the parents or whether you're the child, you're thinking strategically about what the future holds, right?
In this scenario, we ended up not being able to do it, but we at least explored it, and I think that's what the goal here was in sharing this story is to make sure you're thinking forward, right? What's coming down the road? Even if you don't know the exact details, if you know some general details, it's gonna allow you to do some more planning in the years to come. Okay, now on to story three.
And this is like the ideal situation in our world, right? Because we were able to work with multiple generations, right? We had worked with Mom and Dad over the years. We had worked with the son and his wife. So we were very familiar with everything going on on both sides of the equation here. And again, Mom and Dad had done very well for themselves, saved and accumulated in some pre-tax accounts, some after-tax accounts, had some businesses, had some farm ground that they were collecting rent on.
So they were in a very good position. We had done all the analysis work, and we knew that they were not gonna have any types of income problems in their retirement world, right? So they were sitting in a very powerful position to try to figure out how do they make the most of the dollars that they had accumulated.
We had also worked with the son and his wife and knew that they were doing very, very well. She was very successful in the corporate side of the world. He was running some of his own businesses, and they had accumulated a nice sum of retirement assets to that point as well. So the conversation quickly became, all right, if we look at both households and the tax brackets that each of you are in, how do we want to strategically pay the tax on these pre-tax assets that both households may be holding?
All right. And what we had found was that the son and his wife were in a 35% tax bracket, whereas Mom and Dad were somewhere in the middle of the 22% bracket. So the conversation became pretty simple as we talked with both families, and in fact, we met with both Mom and Dad and son and wife, and we talked through this a little bit and came to the determination that it would be much better off to have Mom and Dad pay that tax at the 22% or 24% bracket because the son and the wife's tax bracket wasn't expected to change.
So as we did some of that planning, we did a pretty good size conversion in the first year and helped Mom and Dad max out the 24% bracket. They didn't necessarily like it, but they knew that it was the wise thing to do because they didn't want the Internal Revenue Service or the government being their biggest beneficiary of their pre-tax accounts.
They wanted that money to be taxed at the rate they were comfortable paying. Now, what happened in this scenario is we ran into a little bit of a snag. You see, as we had worked with mom and dad, had them positioned really well for retirement, the dad passed away, and that led mom right back into that trap.
We've talked about it in previous shows, but now she was facing the widow trap, right? Because in a married filing jointly return, your amount of income that you can earn is significantly higher than when you file a single tax return. In fact, it's about double. So to max out the 22% bracket as a single filer, you're at about a hundred and some thousand, a little over $100,000, whereas to max out that for a married filing jointly return, you're closer to 200 and some thousand.
So significant difference there. So that changed the plan a little bit. We'll still do the best we can to have Mom max out her 22 or 24% bracket. But my point and why I share this story is I want you to be thinking about this now, not down the road when it may be too late. All right? And that's one of the reasons we've had extremely active conversations with our clients about Roth conversions today versus kicking that can down the road further when you may not have the same opportunities as you once did.
And to finish that story or to emphasize that piece, I think it's important to put some math to that situation. So for simplicity, let's just assume Mom and Dad had a $500,000 pre-tax, call it an IRA or a, a 401(k), whatever it is, doesn't matter. But if they had a $500,000 portfolio and they could pay tax at the 22% rate on that $500,000, right?
Again, I know it's gonna be over a series of years, but the math should still be roughly the same. So $500,000 times 22% is $110,000. If they wouldn't have paid the tax on that $500,000 and passed away and the son and his wife inherited and they had to pay 35%, the number now turns into $175,000. So that's a $65,000 difference that you willingly gave over to the Internal Revenue Service when if you would have thought ahead or planned strategically, you could have avoided.
And again, that's where I think the real math or the real numbers come into play here, and that's why we encourage you to think forward and plan strategically. Okay, so now let's bring all these stories together. All right? And if you're approaching retirement with any type of meaningful wealth, there's five questions that I want you to consider.
All right? Number one, who owns the pre-tax money today? Where's that future income tax obligation currently sitting? Is it with mom and dad? Is it with son and daughter? Who's the pre-tax money currently being held by? Who's actually likely to spend that money? If it's mom and dad that are gonna spend the money, we may not need to do the conversion because they're gonna spend it to live in their retirement world.
If they're not going to spend it and they're gonna pass it down to the next generation, then it might be worth exploring that conversion. If you don't spend it, who gets it? I've worked that angle a lot of times with families, that maybe you have a couple different children. One is doing really well and at a higher bracket.
One may be not doing so well. Well, what if we gave the one not doing so well the pre-tax accounts, maybe even more of the pre-tax accounts because their tax obligation or tax brackets won't be as high as the other one. So again, thinking strategically. Question four: What wealth might eventually come into your household?
This is again more son and daughter angle, but if you're thinking about your own current situation, what kind of wealth may you be receiving and how will that impact your overall picture or your story? And the final question, who may have the opportunity to pay the tax at a lower rate? Is that mom and dad?
Is that one of the kids? Who has the best opportunity to pay the tax at a lower rate? Because one thing's for certain, guys, the tax bill's not going away. All right? Regardless of how it got there, pre-tax money, the only way you avoid the tax is if you give it to a charity. So somebody's gotta pay it at some point along the journey.
We just want you to be really strategic about making that decision of who. And I also wanna make one last point before we wrap up the show, is I'm not sitting here today telling you as a parent you need to go convert all your IRA money and pay the tax on it so that your kids don't have to. There's plenty of reasons why you as a retiree may need that money, whether it's, you know, to maintain your lifestyle.
Maybe you're already in too high of a tax bracket and it doesn't make sense for you to convert. Uh, the children may go down in a tax bracket later in life. Maybe there's some charitable planning that would change that strategy. We talked a bit about that before. Maybe we don't have a whole lot of cash reserves to pay the income tax today.
So things change, right? And I think the important part of this entire Roth conversion conversation is all about thinking ahead. I remember we had a guy at a conference, can't remember his name off the top of my head, but he always said, "Regardless of the age, the client, the situation, the Roth conversion question is this: Do you think taxes are gonna be higher today or higher down the road?"
Right? If you think they're gonna go up in a country with $30, $40 trillion in debt or whatever we're at today, most people believe the tax rates are gonna go up in the future before they come down. So that's like logic one of why we should consider the conversion. But when we apply all these other family circumstances in of who's gonna pay the most amount of tax or who could potentially pay the least amount of tax, I think it makes that story even more legitimate and one that we all have to explore.
So here's what I want you to take away from today's conversation. The portfolio doesn't necessarily exist on its own island. It's more about the family balance sheet or the family situation of who could potentially pay the least amount of tax on those dollars. We can never predict when anybody's gonna pass away.
We can never assume that we'll receive any inheritance. But what we can do is we can look ahead and we can plan strategically around that. So if today's conversation resonated with you at all, if it made you think about your own situation, your family situation, go have a conversation, all right? Talk to Mom and Dad.
Talk to your son or daughter. Have some strategic thoughts or reach out for some help. You know, if you're a client of ours, give our team a call. If you're not a client of ours and you don't have somewhere to go, give us a call. We're here to help. If you work with an advisor, go have a conversation about a Roth conversion to help your family make a strategic decision on who's gonna pay the least amount of taxes.
And as always, help us out. Share the show. Go to the comment section. Leave us a comment. Ask us a question. Subscribe to the show. All right? The way we grow our community is, again, having all of you help us by passing this type of information around and helping all pre-retirees and retirees navigate their journey.
So I appreciate you spending some time with me today, and I ask you all to go be great.
Keep the conversation going
If you found this episode helpful, subscribe to The Retirement Game Plan wherever you listen, and leave a quick review on Apple Podcasts. It helps more pre-retirees and retirees find the show, and we read every one.
Want stories like this one every other week, plus one practical idea you can actually use? Get the Vantagus Wealth newsletter, delivered every other Sunday.
Greg Johnson President and Investment Advisor Representative at Vantagus Wealth in Belle Plaine, Iowa, where he guides pre-retirees and retirees toward clarity, simplicity, and confidence. More about Greg
A simple next step
Wondering if you’re really ready?
If this episode has you taking that question more seriously, that’s a good thing. Our free quiz, “Are You Really Ready to Retire?”, shows you where you stand in about five minutes.
Ready for a real conversation? Learn about our Discovery Session.