Will Safe Harbor Rules Protect You If You Do a 4th Quarter Roth Conversion?
Release Date: 06/18/2025
Financial Collapse in 3 Years?
The Power Of Zero Show
This episode of The Power of Zero Show revolves around a recent Ray Dalio video in which he issued warnings about the U.S. debt crisis. In the clip, Dalio appears to be giving America three years to get their act together and to right the fiscal ship of state. Dalio mentions the draft of his new book that goes through the mechanics of the debt – and highlights the supply-demand problem he believes will occur if the deficit doesn’t go from the current 7.2% of GDP to about 3% of GDP. Dalio touches upon what people should do when there isn’t an adequate supply-demand balance. He believes...
info_outline
Will Safe Harbor Rules Protect You If You Do a 4th Quarter Roth Conversion?
The Power Of Zero Show
David McKnight looks at why many people wait until the fourth quarter to do a Roth conversion, the potential penalties, and what can be done to avoid having to pay underpayment penalties to the IRS. David begins the episode by highlighting the fact that a lot of investors wait until Q4 before they do a Roth conversion – and they prefer to pay taxes on it in cash instead of simply having the taxes withheld by the IRS. From a mathematical standpoint, it’s the correct thing to do because it allows you to get 100% of the converted dollars into your tax-free account. However, if you didn’t...
info_outline
How to Avoid the Roth Over-Conversion Trap
The Power Of Zero Show
In today’s episode, David McKnight focuses on whether you should do a Roth conversion, how much you should convert per year, and whether it’s possible to over-convert to Roth. David explains that an effective tax rate is the actual percentage of your income that you pay in taxes after accounting for deductions, exemptions, and credits. For David, the only reason you should do a Roth conversion is if you believe that your effective tax rate in retirement will be higher than your marginal tax rate today. David touches upon a couple of reasons why your effective tax rate in retirement could...
info_outline
The Problem with Target Date Funds
The Power Of Zero Show
David McKnight looks at Target Date Funds (TDFs) and why their set-it-and-forget-it approach to investing is NOT something you should rely on. David kicks things off by explaining how TDFs work, including why they tend to be a popular option for novice investors. While it sounds like an excellent approach, David points out two major flaws. “A lot of the problems with TDFs come down to sustainable withdrawal rates in retirement,” says David. The 4% Rule consists of you being able to withdraw 4% of your day one balance in retirement, adjusted every year thereafter for inflation....
info_outline
I've Maxed Out My 401(k), Now What?
The Power Of Zero Show
In this episode of the Power of Zero Show, host David McKnight discusses the scenario in which you have maxed out your 401(k) and are wondering where you should invest the rest of your money. The episode kicks off with David addressing the type of 401(k)s you should be investing in first. There are two types of 401(k)s: the traditional pre-tax 401(k) and the Roth 401(k). Should you go for a traditional 401(k) or a Roth 401(k)? It all depends on whether you think your tax bracket is likely to be lower or higher in retirement… With the national debt set to hit $62 trillion by the year 2035,...
info_outline
Why Does the Incoming SEC Chair Paul Atkins Have 54 Life Insurance Policies?
The Power Of Zero Show
In this episode of the Power of Zero Show, host David McKnight addresses the claim that sees Paul Atkins owning 54 life insurance policies for an astounding 10% of his $327 million net worth. Someone may ask themselves why someone with such a massive net worth would own so many life insurance policies…and even why someone who has equity in Chinese tech giant Alibaba, holdings in cryptocurrency, and stakes in venture capital firms would also want their wealth growing in cash value life insurance policies. Looking at Atkins, who’s President Trump’s nominee to chair the Securities and...
info_outline
The 8 Taxes You Could Pay When Doing a Roth Conversion (Is it worth it?)
The Power Of Zero Show
In this episode of the Power of Zero Show, host David McKnight looks at every possible tax or cost that may result from a Roth conversion. The first tax you’ll have to pay when executing a Roth conversion is federal income tax. Whatever portion of your IRA you convert to Roth is realized as ordinary income and piled right on top of all your other income. David is an advocate for not converting to Roth unless you think your federal tax rate in retirement is likely to be higher than it is today. The second tax you could end up paying when doing a Roth conversion is state tax. The...
info_outline
Should You Take More Risk in Your Roth Accounts Than Your Other Investments?
The Power Of Zero Show
This episode of the Power of Zero show explores whether you should be taking more risks in your Roth accounts than in your other investments. Host David McKnight kicks things off by stating that if you have Roth IRAs or Roth 401(k)s in your portfolio, you should be allocating 100% of these dollars to a stock allocation. That’s because these are your most tax-efficient investments and they’ll remain tax-free right up until your death – and even 10 years beyond. Remember: you want the biggest returns in your portfolio to take place in a tax-free environment. David explains which of your...
info_outline
Debunking Doug Andrew’s Roth IRA Hit Job Video
The Power Of Zero Show
In this episode of The Power of Zero Show, host David McKnight looks at Doug Andrew’s recent video in which he implored his audience to never use a Roth IRA or a Roth 401(k) again. Andrew sees Indexed Universal Life insurance (IUL) as far superior and believes it should be the source of the vast majority of your distributions in retirement. While David likes IUL in certain circumstances, he isn’t a fan of sales strategies that debase every other viable tax-free alternative in an effort to exalt IULs. For David, the video is riffed with errors, exaggerations and omissions. Moreover,...
info_outline
What Percentage of Your Retirement Savings Should You Have in Traditional IRA vs. Roth?
The Power Of Zero Show
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...
info_outlineDavid McKnight looks at why many people wait until the fourth quarter to do a Roth conversion, the potential penalties, and what can be done to avoid having to pay underpayment penalties to the IRS.
David begins the episode by highlighting the fact that a lot of investors wait until Q4 before they do a Roth conversion – and they prefer to pay taxes on it in cash instead of simply having the taxes withheld by the IRS.
From a mathematical standpoint, it’s the correct thing to do because it allows you to get 100% of the converted dollars into your tax-free account.
However, if you didn’t pay quarterly taxes on that income evenly throughout the year, the IRS can charge you an underpayment penalty!
The IRS’ safe harbor rules can spare you from any underpayment penalty for a Q4 Roth conversion, if certain requirements are met…
David goes over two scenarios in which you wouldn’t have to pay an underpayment penalty, as well as when, and why, you may need to file Form 2210 A1.
Make sure to familiarize yourself with Form 2210 A1 because, as David puts it, it will “become your best friend if you’re hoping to avoid underpayment penalties on a fourth quarter Roth conversion.”
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
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