High Earners: Stop Making This Roth vs. Traditional Tax Mistake!
The Power Of Zero Show
David McKnight addresses one of the most common questions he gets: “If tax rates are going to be dramatically higher in the future, shouldn’t I be putting every dollar into a Roth 401(k)?”. Moreover, people often wonder whether they should be converting as much of their IRA to Roth as quickly as possible. David is a firm believer that the current tax rates are as low as we’re likely to see in our lifetime. The U.S. has over $39 trillion in debt and it’s going to increase by two trillion per year over the next 10 years and over $200 trillion in unfunded obligations for Social...
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What REALLY Happens When Your Kids Inherit Your IRA
The Power Of Zero Show
In today’s episode, David McKnight discusses what many people don’t get about the IRS and what happens to their IRA and what their children are supposed to get at some point. Many people spend decades building up tax-affirmed retirement accounts without fully appreciating what happens when those accounts pass to the next generation. When a spouse inherits an IRA, they get the most favorable treatment under the tax code. In fact, they have options that nobody else gets - like the spousal rollover. David touches upon the so-called Stretch IRA, which he considers one of the greatest estate...
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The Hidden Reason Married Couples Need Roth Conversions
The Power Of Zero Show
David McKnight kicks off this Power of Zero Show episode by stressing that, in his opinion, tax rates in the future are likely to be much higher than they are today. Why? Because the U.S. has a national debt that continues to grow at an alarming rate. It has hundreds of trillions of dollars in unfunded obligations for programs like Social Security, Medicare, and Medicaid. At some point, the Government is going to need huge infusions of cash to meet such obligations. The so-called “Widow’s Penalty” is a very compelling reason, David believes, to consider doing Roth conversions while...
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Did Suze Orman Just Endorse Annuities?
The Power Of Zero Show
David McKnight discusses the Woman’s World article Suze Orman Reveals When to Buy an Annuity - and the One Question You Must Answer First. For years, Orman has warned investors away from annuities, often lumping them into the category of expensive financial products that enrich salespeople at the expense of consumers. David has been surprised by what the current views of Orman appear to be, completely in line with what David has been preaching for years. Orman’s analysis begins with a key consideration: annuities can be a helpful tool in retirement, but whether they make sense for you...
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The Truth About Buy-and-Hold Investing in Retirement
The Power Of Zero Show
In this episode, David McKnight addresses one of the biggest myths in retirement planning: once you retire, you need to dramatically reduce your exposure to stocks. The reason why most financial advisors recommend reducing stock exposure in retirement has very little to do with stocks and everything to do with sequence of returns risk. Sequence of returns risk is what happens when you’re forced to withdraw money from your investment portfolio during a market downturn. If the market falls 30% and you’re simultaneously taking withdrawals to pay for your living expenses, you’re locking in...
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The New Case Against Bonds in Retirement
The Power Of Zero Show
David McKnight kicks this episode off by explaining how, for decades, conventional financial wisdom has been saying that, as you approach retirement, you should begin dialing down your stock exposure and increasing your bond allocation. A 60-year-old, for example, would have 40% of their portfolio in stocks and 60% in bonds. Historically, bonds served three primary functions: They provided income, they reduced portfolio volatility, and they protected retirees from so-called sequence of returns risk. David touches upon how the sequence of returns risk works. Retirees who get hit early...
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This Small Trick Could Increase Your Retirement Income by 22%
The Power Of Zero Show
A recent landmark study from BlackRock caught David McKnight – he shares what it was all about and why you should care in this new episode of the Power of Zero Show. For decades, Americans were told that if they simply contributed faithfully to their 401(k) and avoided emotional decisions during market downturns, they would have enough money in retirement. According to the BlackRock study, retirees who incorporated guaranteed lifetime income in the form of an annuity into their retirement portfolio experienced an average increase of 22% in potential retirement spending. That number became...
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Should I Do a Roth Conversion in my 60s?
The Power Of Zero Show
Today’s episode of The Power of Zero Show revolves around a question host David McKnight gets asked all the time: “Should I still be doing Roth conversions in my 60s, even if I’m already retired?” In short, David believes that you should not only do a Roth conversion in your 60s, it’s actually one of the most optimal times in your entire life to do it. When doing a Roth conversion, you’re choosing to pay the IRS its portion of your IRA now, on your terms, instead of paying it a much larger portion later, on their terms. That’s why Roth conversions don’t only make sense for...
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The 5 Most Common Objections to Roth Conversions (and Why They’re Wrong)
The Power Of Zero Show
David McKnight unpacks the five most common objections to Roth conversions and why they simply don’t hold up under scrutiny. The first objection has to do with people not wanting to voluntarily pay taxes before the IRS requires them to. While on the surface, postponing this may sound logical, it ignores a fundamental aspect: the state of the U.S. national debt. It has just passed $39 trillion, and it’s slated to grow by $2 trillion per year for the next 10 years, and $3 trillion after that. In other words, interest on the national debt is becoming one of the largest line items in the...
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How Roth Conversions Affect Social Security Taxes and IRMAA
The Power Of Zero Show
David McKnight dissects a topic that causes a lot of confusion for retirees and pre-retirees: How Roth conversions affect social security taxation and Medicare premiums (IRMAA). Some warn against Roth conversions in retirement as they can cause your Social Security to become taxable and could also raise your Medicare premiums. While that’s true, David believes that the long-term benefits of Roth conversions can far outweigh the temporary, short-term pain they can cause. In order to determine whether your Social Security benefits will be taxed, the IRS tracks the so-called provisional...
info_outlineDavid McKnight discusses the allocation of $1M if he had it to invest in 2026.
David sees a taxable brokerage account as the least efficient investment account you could possibly own – since it’s taxed every year and it’s exposed to both short- and long-term capital gains.
While this type of account is liquid and can serve as an excellent emergency fund, it’s the most tax-unfriendly of all the investment alternatives.
The goal, says David, isn’t to grow wealth within this type of account, rather to use it as a funding source to systematically build multiple tax-free income streams for retirement.
Roth IRAs, which can be funded for a combined $17,200 per year (for your and your spouse’s Roth IRA) is the first place David believes the money should go.
Next, you should aim at maxing out your Roth 401(k)s – which is $24,500 a person for people under 50 and $32,500 per person.
David explains how you can convert taxable money into tax-free money without triggering a massive taxable event and without disrupting your lifestyle.
70% total U.S. stock market index fund, 30% total international stock market index fund is the only allocation you’ll ever need, says David.
Having to properly structure and fully fund an indexed universal life policy (IUL) is the most misunderstood piece of the strategy discussed by David.
The idea is to see an IUL as a way to grow a portion of the $1M portfolio safely and productively, and not to use it as an investment replacement or stock alternative…
Historically, IULs have grown 5-7% in net fees over time – with zero stock market risks.
The goal of day one of retirement is to have 3-5 years of living expenses sitting in your IUL’s cash value, tax-free. This is your volatility buffer.
According to a recent Ernst & Young study, the strategy discussed in this episode provides far more income, a far greater likelihood that your money will last through life expectancy and far more money to the next generation compared to the investment-only approach.
Suze Orman recommends the exact same strategy but with a difference: Instead of using an IUL she suggests using a savings account that has rock bottom taxable rates of return.
However, an IUL is a more effective tool, as it grows far more productively as tax-free, protects your principal, and the death benefit can double as long-term care protection.
David’s strategy doesn’t include bonds as an IUL is safer: No sequence of returns risk early in retirement, not being forced to sell stocks in a down market.
“I generally don’t ever recommend bonds. There are far better instruments that are safer, more productive, and more tax-efficient tools, with IUL being one of them”, illustrates David.
Many experts expect tax rates to rise dramatically by 2035 to pay interest on the national debt, bail out Social Security, and bail out Medicare and Medicaid.
When that happens, you just don’t want to be sitting on a massive taxable account..!
The goal is to shift as much as possible from the $1M portfolio into tax-free accounts before 2035 – you want to have them in your Roth IRAs, Roth 401(k)s, and IUL cash value.
Conversely, you only want about six months’ worth of living expenses sitting in your taxable account.
Mentioned in this episode:
David’s new book, available now for pre-order: The Secret Order of Millionaires
David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track
Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight
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