David McKnight discusses one of the most destructive pieces of retirement advice he has ever heard: that you should never do a Roth conversion in retirement or within five years of retiring.

Dave Ramsey believes you should forego doing a Roth conversion if you’re within five years of retirement or are already retired – because of the so-called Five-Year Rule.

The problem with this approach, according to David, is that Ramsey is misinterpreting what that rule actually means, in addition to confusing multiple rules and applying them to the wrong people.

Ramsey’s advice, continues David, encourages retirees to make choices that could cost them a fortune and taxes over time.

The bigger issue, however, is the fact that Ramsey is focusing on the wrong thing – what he should really focus on is where tax rates are headed in the future.

The current historically low tax rates won’t last, as the U.S. national debt is on track to hit $63 trillion by 2035.

If that were to happen, the U.S. Congress won’t have the luxury of keeping tax rates low anymore.

According to former Comptroller General David Walker, tax rates will likely need to double just to keep the Government solvent.

A recent Penn Wharton study found that if the U.S. doesn't get its house in order by 2040, no combination of raising taxes or reducing spending will arrest the financial collapse of the nation.

David warns that if you’re still contributing to or sitting on a big tax-deferred nest egg like a 401(k) or IRA, you’re setting yourself up to pay massive taxes in the future.

Remember: 2035 is your Roth conversion deadline.

David goes through his suggested strategies to avoid paying higher tax rates and potential penalties in the future.

Something good to keep in mind is that if you’re in the 0% tax bracket and tax rates double, two times zero is still zero…

David sees Dave Ramsey as the go-to expert for get-out-of-debt advice, not retirement planning strategy.

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

Dave Ramsey

David Walker

Penn Wharton