04.28.25 Prime Time For Roth Conversion / The Return of Big Bank Fees

Today, Clark - Man From Roth, talks about why now might be the best time to do a Roth conversion. Also - why big bank fees are back and how you can prevent getting your wallet pinched in this way. Roth Conversion: Segment 1 Ask Clark: Segment 2 Beware Bank Fees: Segment 3 Ask Clark: Segment 4 Mentioned on the show: Clark.com - The ROTH IRA & 401(K) Retirement Calculator: With Social Security and Pension How Often Should You Re-Shop Insurance? How to Shop for Lower Car Insurance Best Free Checking Accounts // Best Savings Accounts High-Yield Savings Account Calculator Automatic Bill Pay: How It Works and How To Do It Safely Best 529 College Savings Plans By State Should I Contribute to a 529 Plan Only To Roll It Into a Roth IRA Later? Clark.com resources Episode transcripts Community. Clark.com / Ask Clark Clark.com daily money newsletter Consumer Action Center Free Helpline: 636-492-5275 Learn more about your ad choices: megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:00Speaker 00

  This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed sponsored jobs.

• 0:27Speaker 01

  Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.

• 0:42Speaker 02

  Price and participation may vary. Promotion pricing may be lower than meal pricing.

• 0:44Speaker 03

  It's great to have you here with us on the Clark Howard Show. You know, our mission is to serve you with advice and information that empowers you so you make better financial decisions in your life. And I've been accused, actually self-proclaimed, I'm the man from Roth. But all kidding aside, I want to talk about why right now is a really good time for you to consider doing what's known as a Roth conversion. I'm going to tell you what that means. And also, you've got to know something.

• 1:26Speaker 03

  There are some new fat fees maybe on the way to your bank or credit union account or bank or credit union credit card. It will be really a situation bank by bank, credit union by credit union. I'm going to make sure you know what's coming, just so you're prepared. So, a lot of people have money in traditional IRAs.

• 1:56Speaker 03

  And you've heard me talk over and over again, Roth, Roth, Roth, Roth, Roth. So why am I obsessed with the Roth? Because when you do a Roth 401k, a Roth IRA, you're done with tax because you put in after-tax dollars that grow tax-free all through the years. And then you spend the money tax-free. And you don't end up in this crazy punitive tax formula with Medicare when you turn 65, where you're charged extra premiums because of the money you might be getting from traditional 401ks or IRAs,

• 2:39Speaker 03

  where the government then not only taxes you on the money you pulled out of the IRA or 401k, but then they charge you higher premiums for Medicare because it now reflects like you have higher income. It's a double whammy that you get hit with. So a conversion to a Roth is something that you don't do willy-nilly, but you really think about. When we go into a cycle, which we may have this year, where stock values go down a whole lot, then it's a lot cheaper to do a conversion from a traditional IRA to a Roth IRA. Because the money you move across,

• 3:24Speaker 03

  you have to pay tax on everything you move across. But if the values of your investments have come down, it's how you turn a bad thing into a good thing. Lemons into lemonade. Because you can do that conversion, pay the tax now. When markets recover, you're then having that money grow till you retire, tax-free, spending tax-free, and no Medicare penalty either. It's really good stuff.

• 3:56Speaker 03

  I love the Roth because you don't have to worry about what tax rates are going to be in the future. And by the way, if you're young and you're saving money for retirement and your employer has a 401k plan, odds are about 80% that they have a choice where you go traditional or Roth. You have to elect Roth 401k. When you're young, there is no doubt, unless you're an athlete earning $12 million a season, you want to be in the Roth version of the 401k. If you're in the half of employees who aren't offered a retirement plan at work, that means it's up to you to save money in an IRA that should be a Roth

• 4:41Speaker 03

  IRA. Roth, Roth, Roth. Because the upfront tax benefit you get with pre-tax dollars going into a traditional 401k or IRA, the tax benefit is not worth it. But much later in life, the benefit of all that money growing tax-free and being able to be spent tax-free is worth it. One has a tax time bomb doing traditional. The other is a tax deal, not having to worry about any taxes you have to pay down the road. So again, if you're an NBA player, an

• 5:22Speaker 03

  NFL player, or a college athlete earning tremendous NIL money, then you want to do traditional. But if you're not earning crazy amounts of money, which is a lot of money, we're talking about 400, 500, 600, $1,000 a year, you want to be in Roth stuff, not traditional.

• 5:41Speaker 04

  Speaking of retirement, I thought maybe we could announce our new Clark-approved retirement calculator we have at Clark.com.

• 5:49Speaker 03

  Oh, man, I am so excited about this. I didn't know we were...

• 5:53Speaker 04

  It's launched.

• 5:54Speaker 03

  Launched officially. We've been playing with the beta steadily improving it for I guess six weeks. I am really excited about this because we have developed a dynamic retirement calculator where whatever age you are, whether you're really young or you're pre-retirement or whatever, you can see the variables. You put in this, you put in that, and you're able to see, okay, I'm on track, I'm not on track. And it's a very easy to use and at the same time, an incredibly sophisticated result that's available with the retirement calculator

• 6:35Speaker 03

  tool. And I'm thrilled that our team led by James developed this, refined it, improved it. It accounts for inflation. It accounts for what you might receive from social security. In short, it's great.

• 6:53Speaker 04

  All right, we'll go to some questions. Lori in Georgia wrote this one. Clark, you often talk of traditional as well as Roth IRAs. However, I've contributed to a non-deductible IRA for several years in the past because my husband didn't qualify, but I as a non-working spouse did. As we are three years away from my husband retiring, how should we handle these? We have a lot of money in traditional IRAs that we realize will hurt us greatly when we have to take RMDs down the road. Currently, my husband makes over $350,000 a year, so converting to Roth has not been on our radar. We pay top premiums for our Medicare coverage tax-wise. Will these non-deductible IRAs hurt us when withdrawing? Will we have

• 7:38Speaker 04

  to take RMDs on them? Thank you.

• 7:41Speaker 03

  All right. So Lori, thank you very much for this question. With the income that you have as a couple, If you don't do so now, you need to do so very soon. You need to go sit down with the CPA who does tax and talk this through. Because what the proper course is with the nondeductible IRA is using it as what's known as a backdoor Roth. There's a stupid provision in the law that allows people that are income ineligible for a Roth IRA to contribute to this oddball thing called a nondeductible IRA regardless of income limit.

• 8:25Speaker 03

  Then you immediately convert it, which there's no prohibition in the law, into a Roth. The reason it would have been better if you were doing that all along is then all the growth in that IRA would have been tax-free. Now you have a much more complicated situation that you're going to need first, your statements of when you contributed, I hope you have those all through the years, and you're going to need, you know, the current value of those nondeductible IRAs. Because the accountant will have to go through a bunch of machinations

• 9:04Speaker 03

  to figure out what tax is owed on the earnings from the nondeductible IRA. The original contributions are not subject to tax where normally in a traditional IRA, the contributions are also subject to tax. Did I make your eyes water and your head spin? Nondeductible IRA is a very complicated thing. And that's why figuring this out tax-wise and when you should do any kind of conversions and anything like that.

• 9:40Speaker 03

  Need the help of a tax professional and it needs to be, could be an enrolled agent, which is a different kind of tax expert, or a CPA who does tax. Based on your husband's earnings, I think it's most appropriate that it be a CPA who does tax.

• 10:00Speaker 04

  Logan in Oklahoma says, "I have about $35,000 in CDs at my credit union, two 12-month ones at $10,000 and two six-month ones, one with $5,000 and the other with 10. My question is, with stock prices falling, should I cash out early on one of my CDs and invest in the market, or use some money in my savings, which has around $50,000? I'm in my mid-20s, single, and wanting to build a solid future, faith, family, and finances, and see this as a time to diversify some more. I don't always get to listen, but I tune in when I can, and I appreciate people like you and the work you do to encourage and motivate us with sound financial tips." Wow, in his 20s.

• 10:41Speaker 03

  20s, I love this. You already have all this money saved. So no, I don't want you to terminate any of your CDs to put money into investing. We don't know, there's too much financial uncertainty right now, to know when the bottom is for the market. That's why people are not doing what they historically do during a market decline, is buy the dips, because nobody knows, there's no clear vision in the short term at all what's going to happen with the market. Long-term, I can't think of any exception in history, markets always recover. So I would rather see you, instead of doing something like suddenly

• 11:26Speaker 03

  pulling money out of a CD and paying a 90-day penalty, I would much rather see you get in the habit of contributing every single month to your own Roth IRA, man from Roth, that you do that consistently. You're allowed to put up to 7,000 a year into it. If you take some of the money out of savings, so you can fund the Roth. Roth IRA in equal chunks, month after month. We don't have that many months of the year left. What we've got. So let's say over the next seven months, you put in a thousand dollars a month to get your 7,000 in. Again, dollar cost averaging. And because you're

• 12:06Speaker 03

  in your twenties, I'd like you to look at a fund that would be a 2065 target date fund. A target date fund is a widely diversified, single holding, that all the money you put in your Roth goes in there. Where would I like you to do the Roth? First choice among my favorite children, open a Vanguard Roth IRA and put it in the target retirement fund 2065 or 2070, based on your age. And I'm so proud of you with how much money you've saved. Just live your entire adult life contributing on steady as you go into that Roth IRA.

• 12:50Speaker 04

  Okay, Edward in California says, since the cost of insurance has been going up so much, especially in California, where are the best places for me to find home and auto insurance coverage? I'm a Navy veteran with a USAA credit card and a member of Navy Federal Credit Union. I have been with my insurer for over 35 years.

• 13:11Speaker 03

  Okay, first of all, thank you so much for your service to our great nation. My brother, one of my, my oldest brother was a naval officer in Vietnam and served after the war in the naval reserves. And I'm just so thankful to people who have served. My other brother was in the Air Force reserves and would be very upset if I didn't mention that. So as far as the answer to your question, your insurer that you're with right now has probably been putting a world of hurt on you. They've been having trouble losing money.

• 13:54Speaker 03

  They've been losing a lot of money in recent years. And so they've been very aggressive about raising premiums. You said especially in California, but this has been a problem for them all over the country. And to shop around, you could start your, you're with USAA. Have you not gotten quotes from USAA, one of the nation's largest insurers? And there is no online shopping service I can send you to that's legit to compare rates for auto and homeowner's insurance from different companies. You have to actually go to the individual websites of insurers and get quotes from them.

• 14:38Speaker 03

  In California, there are a number of insurers, California is such a large market, that have been around a long, long time, that are not big, known national brand names. I bet if you go to the California Department of Insurance website, you can see the names of insurers licensed in California to write auto and homeowner's insurance and get quotes from them. Depending on Edward, on where you are in California, if you're in a high wildfire zone risk, insurers aren't that interested in writing homeowner's insurance. That's not an issue with auto.

• 15:19Speaker 03

  If you're not in a wildfire danger zone, then insurers are happy to quote you and compete for your business. So the more you shop, the better it'll be. Coming up ahead, I talked about this at the top of the podcast, there are bank fees that are about to get bad, ugly again. And I want to tell you the backstory and tell you what to watch out for and things you've got to be aware of to prevent being subject to these fees anyway.

• 15:55Speaker 00

  This episode is brought to you by Indeed. You're ready to level up your business, but the pressure to find the right person to make that happen is intense. Indeed sponsored jobs can help carry the load. It boosts your job post to help it reach quality talent fast. Cut through the chaos with Indeed sponsored jobs. Get a $75 sponsored job credit at indeed.com/podcast. Terms and conditions apply. Hiring now? Then this is a job for Indeed sponsored jobs.

• 16:24Speaker 01

  Your sausage McMuffin with egg didn't change. Your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5. Only at McDonald's for a limited time.

• 16:36Speaker 02

  Price and participation may vary. Promotion pricing may be lower than meal pricing.

• 16:40Speaker 05

  Low energy, unfocused, foggy? You might be dehydrated. Gatorade Zero powders have been scientifically designed to help improve hydration balance in the body. With a clinically proven electrolyte blend and no artificial colors or flavors, great tasting hydration, no matter where you're going. Shop now online or at retailers nationwide. Gatorade hydrates better than water. Is it in you? Symptoms noted are signs of mild to moderate dehydration. Consult a healthcare professional if symptoms persist.

• 17:09Speaker 06

  Now at Kroger, your points add up to more ways to save every trip. Use them your way to take dollars off groceries at checkout or save at the pump. You can even save up to $35 on your next fill-up. Same points, more choices. And with low prices on fresh, quality food, plus digital and personalized offers tailored to how you shop, your dollar goes further. Redeem your points online or in the app. Kroger, fresh for everyone. Restrictions apply. See site or store for details.

• 17:40Speaker 03

  There's some stuff you need to know about the banks that, based on court rulings and administrative decisions in Washington, things that were going to be a benefit to banking customers are gone now. There were two really high junk fees that were subject to very tight caps that now are fully deregulated. One is if you ever bounce a check or, in the more common circumstance today...

• 18:15Speaker 03

  You have a debit card with a bank and you use it for purchases you make around town and wherever you go. Banks do something really crooked terrible with the debit cards. They approve a transaction when you could even be a dollar short for that transaction. They approve it so that they can then charge you ugly, ugly junk fees that were subject to a cap now no longer are. And we're going back to the bad old days where there will

• 18:54Speaker 03

  be banks that charge and sadly, some credit unions do this ugliness too, where they trick you approving a transaction and then may charge you $30, $35 fee for every one they approve, even though they knew you didn't have the money. It's a massive profit center for the banks and credit unions. So what you need to know is that just because you get an approval code on a debit card transaction or writing a check somewhere, you're not getting an approval code, but people write a check thinking they're okay because what you don't

• 19:37Speaker 03

  know can hurt you here. Before you do a transaction, you need to look at your app for your bank or credit union and make sure you're good for the money. But the bigger thing with debit cards, do not let a credit union or bank trick you. Can't believe I'm having to throw credit unions into this, but there are credit unions that unfortunately, they may have gotten their management from banks that play just as dirty, ugly as the banks. They trick you into approving them ripping you off by approving transactions when they know you don't have the money. You have to give a bank or credit union permission

• 20:21Speaker 03

  to cheat you and they word it in a way that they treat it like, and the wording, like they're giving you a benefit when they're actually trashing your wallet.

• 20:34Speaker 03

  So you don't want them to approve a transaction when you don't have the money. Because they're just using it as a trap to cheat you. And it's legal again for them to cheat you. Another thing, if you're a longtime listener or viewer, you know I changed my position two years ago on credit card payments. And because of the hurt that can happen to your credit report and your credit score. And now again, because credit card late fees are no longer capped. And they can be back to the ugly, ugly late fees that banks and credit unions were charging,

• 21:18Speaker 03

  mostly banks in this case. I want you to set up where your credit cards are automatically paid. You just sign into your account or go on the app for your credit card. And you set up where they automatically on date do either pay if you're somebody who pays your bill in full, it's automatically paid. Or if you're not somebody who's able to do that, that the minimum payment is always made automatically. This is so important because now we're back to a twofer. One, you could forget to make a payment. Or the bill doesn't show up or whatever it is, or you get your bills by email and you

• 22:02Speaker 03

  overlook it. And you don't pay the bill on time. You get hit with a monster late fee and you can end up with a 30 day late on your credit report, which will devastate your score. So the whole thing here is prevention is the best cure. And it's not your job to make the stockholders of the bank filthy rich. Because let's go back to the overdraft thing. The cost to a bank apparently is pennies to deal with the overdraft thing. And they're charging these massive fees that they're, well, they were, and now they'll be able to again.

• 22:44Speaker 03

  Why a credit union would engage in this despicable practice too? I got no idea. But there are credit unions that do too. Just got to tell you. Not all credit unions are wonderful, even though I love credit unions. And then with the credit cards, they have a right to their payment on time. So if you know in your scattered life, you're going to forget things, set it up where it's automatic pilot. So you don't put yourself at risk to the junk fees or to trashing your credit.

• 23:21Speaker 04

  All right, we'll go to some questions. Logan in Wisconsin says, I'm a relatively new listener, but I'm already a huge advocate of your advice. I've learned about personal finance through digital mentors over the years, and you've quickly become my favorite. I grew up without any financial education or guidance. And now with my first child, a baby girl due in June, congratulations.

• 23:42Speaker 03

  Congratulations.

• 23:43Speaker 04

  I want to change that trajectory for her. My goal is to have investment accounts set up within her first week of life to give her the best possible financial foundation. I'd like to avoid education specific accounts and instead focus on broader flexible investment options that will serve her well into adulthood. What are some practical steps I can take to start her on the right path from day one? Thanks for all you do and P S. I don't think you stink.

• 24:12Speaker 03

  But I do stink all the time. You know, when you buy that cheap deodorant and use it, what happens?

• 24:19Speaker 04

  Not true. I stand next to you.

• 24:23Speaker 03

  So congratulations on your child coming. So I'm going to surprise you. You specifically said you didn't want an education oriented account. And now I'm going to say, but you actually do want an education oriented account for your child because of a change that Congress made in the law three years ago? I forgot exactly when, but it's totally been a game changer. So you're now allowed to grow money in a tax free 529 education account for a child.

• 25:04Speaker 03

  Who then decides not to go to college, or scholarships out, or whatever it is. And then you've got that money sitting there, and you're able to then transfer that money tax-free when your baby becomes a young adult, where it's grown tax-free from birth all the way to adulthood. You're then able to take up to $35,000 and move it tax-free into a Roth IRA. So it sets up a child at birth to have an enormous financial advantage

• 25:46Speaker 03

  through adulthood, all the way into retirement. It's phenomenal. And it is the best tool available for saving money for a child. I mean, because I used to say, okay, what's the culture in your family? Do people go to college? And if somebody said, nah, yeah, maybe. I couldn't recommend a 529 account. Now, the 529 account is the best answer for family cultures where college is not important, and family cultures where it is, to achieve the goal you want, which is the best possible, most efficient place to put money aside for your child.

• 26:28Speaker 04

  Vern in South Dakota says, "I'm lucky that my employer shares profits via an annual payout, given early in the next calendar year as in a separate paycheck. I'm unlucky that the IRS keeps 22% every year as if I won the lottery. Although I get back last year's bonus every April, they just take another 22% for the current year. In effect, a perpetual free loan to Uncle Sam until I'm fired, quit, or die." People say to just adjust withholding, but the IRS changed to W-4, so you can no longer simply name the number of exemptions. You have to name the number of dependents. So increasing mine would be lying to the IRS. A big no-no. Are there any solutions, or does Congress need to act?

• 27:10Speaker 03

  So Vern, here's what's interesting in what you said.

• 27:15Speaker 03

  Normally, it's just a flat thing that happens with bonuses that are taxed at a flat rate and that you're getting that money back later, meaning that your tax rate is so low that the 22% they're taxing the bonus is way in excess of what your tax rate is. That's an unusual situation. And so, this is a tough one because you're right, you are making an interest-free loan to the IRS. And I don't know if you've talked to HR at

• 27:54Speaker 03

  your company to see what ways you can reduce withholding on the W4 that works in their payroll system. But I don't like making interest-free loans to the IRS. And I understand your frustration. But it's also great that your tax rate is effectively low enough, even including this bonus, that you're now getting back a lot of that 22% withheld.

• 28:25Speaker 04

  Okay. And Kelly in California says, "My question is about cosigning a loan for my 82-year-old mother to purchase a fifth wheel to live in, but the situation is different from the norm. She is older and no longer has credit due to not owning a home or having any credit cards, but she does have investments. The loan is not large enough for her to obtain a securities-backed loan, but it's large enough that she doesn't want to buy the vehicle outright and lose the earning power of her money. If we cosign, she would be eligible for the loan that she would already be eligible for had her credit not gone dark. Do you see any issues?"

• 29:00Speaker 03

  So, the only issue is that she needs to put in her will that you inherit the fifth wheel so that you're still responsible for the loan while it's there as a cosigner. You should at least know that you have it secured by the value of the fifth wheel. Securities, see, you could do a margin loan, but those carry too high a rate. And so, I wouldn't recommend that. I assume that the loan that you're cosigning is at a lower interest rate than a margin loan. I just want you protected as a cosigner.

• 29:43Speaker 03

  So yeah, in terms of issues, I think that's all you got to worry about right here. And I hope that you've heard something today that's been really helpful to you. And speaking of helpful, know that all week long, our team at the Team Clark Consumer Action Center is available to provide free one-on-one advice to you, as we've been doing now for almost 33 years, providing free one-on-one advice. If there's a question you have, a problem, there's something you just don't know how to navigate with your wallet, you can see how to get that free one-on-one advice if

• 30:27Speaker 03

  you go to clark.com/cac. And I hope you have a great rest of your day and that you are empowered by this podcast, because what we're all about is you being empowered with knowledge. So you can save more, spend less, and avoid getting ripped off. And I'll see you on Wednesday.

• 30:54Speaker 01

  Your sausage McMuffin with egg didn't change, your receipt did. The sausage McMuffin with egg extra value meal includes a hash brown and a small coffee for just $5, only at McDonald's for a limited time.

• 31:06Speaker 02

  Price and participation may vary. Promotion pricing may be lower than meal pricing.