The Power Of Zero Show

By: David McKnight
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  • Summary

  • Tax rates 10 years from now are likely to be much higher than they are today. Is your retirement plan ready? Learn how to avoid the coming tax freight train and maximize your retirement dollars.
    The Power Of Zero
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Economics Personal Finance
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Episodes
  • 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 mins
  • 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 mins
  • 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 mins
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Excellent!

Thank you so much for making this podcast available to listen to on Audible.

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Clear communication amd knowledge

David speaks clearly and is very helpful and entertaining. Small facts and helpful hints on retirement planning.

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