Brick Oven Pizzas
We moved into our new house almost a year ago. One of my favorite features of the house was/is a built-in outdoor brick oven. Funny enough, I didn’t use this oven until a few weeks ago. Now, I’m obsessed.
Pizzas, steaks, and roasted vegetables have been some of the meals we’ve made in the oven so far. I love to cook, and it’s one of the hobbies I most enjoy. Cooking in a brick oven at 800 degrees is a whole new world for me, and it’s been a fun adventure so far.
I also love pizza, so I’ve become sort of consumed with trying to determine all the right ingredients, dough recipes, cook times, etc. All in search of the perfect pizza – a finish line never to be reached but a journey that is oh-so enjoyable.
To have the perfect pizza, you first have to figure out the dough. The dough is an interesting riddle – just yeast, flour, water, and salt. Simple, right? Not so much. How you mix the ingredients, how long you proof the dough, and a lot of other nuances will determine the outcome. Trust me, I’ve experienced a wide dispersion of outcomes; the good, the bad, and definitely the ugly.
Let’s take proofing, for example. For my first batch, I mixed, kneaded, and then allowed to proof (sit out) for four hours, then refrigerated to be used the next day. This worked, but it wasn’t perfect. So, I adjusted. I allowed the dough a longer proofing time for the next batch, skipped refrigeration, and went straight to pizza making. This was an improvement and made for a superior pizza. This proofing process – shorter or longer – will impact the taste and texture of your dough.
Timing is Everything
This is just one example of how pizza is all about timing. Do you know what else is all about timing? Roth conversions. Yup, just as the title alluded to, today we are discussing pizza dough and Roth conversions.
I get a lot of questions about Roth conversions, and I think there is a lot of confusion about what or what not to do a Roth conversion. This decision has a lot to do with timing. The real question is this: Is it advantageous to pay these taxes now or later? As I said, your dough will look, taste, and feel different, all based on timing; it’s the same for Roth conversions. You have to compare different scenarios/options to conclude what is best for your situation.
The What and Why of Roth Conversions
Let’s start simple, what is a Roth conversion? This is the process of converting a traditional IRA (pretax money) to a Roth IRA (after-tax money). When you move the money out of the traditional IRA into the Roth, you will be responsible for paying ordinary income tax on the monies converted. The investments in the Roth IRA will grow tax-free, and there will not be a Required Minimum Distribution.
So, why do people execute or even consider Roth conversions? It seems almost counterintuitive to pay taxes now versus later, right? Again, it’s a timing thing. If you can reasonably conclude that you could pay less taxes today versus tomorrow, then it’s worth considering.
One of the main factors that drive this decision for people revolves around Required Minimum Distributions (RMD) and/or Estate Tax. A Roth conversion allows the investor to be in the driver’s seat of when to realize that income versus an RMD or Estate Tax which is forced by an outside party. Many financial plans will reflect a spike in tax expenses (marginal tax rates) once these RMDs begin. Some investors find themselves distributing more money (taxable income) than needed to cover their lifestyle/expenses.
Let’s Make a Deal
So, again, this is a timing decision. You, the investor, are making an agreement with Uncle Sam about how much of that dollar distributed belongs to you or him (Uncle Sam). A Roth conversion can introduce a bit more control and allow you to drive a better bargain for that split with the government.
Luckily we have software (fancy financial calculators) that helps us scenario plan and understand the impact of no conversions versus conversions. Ultimately we need to answer these four questions:
- What will be the lifetime tax savings if I execute this conversion strategy?
- How long do I (or my spouse) need to realize this benefit/savings? (Breakeven point)
- What impact will this conversion have on my heirs and my estate?
- If I move to a different state in the future, does that have an impact on my decision today? (Varying tax rates and rules across different states)
If all four of those questions yield a positive response, then you are probably on the right track with exploring a conversion.
Varying Variables
Now, keep in mind to run these types of comparatives, you will need to make some assumptions. We don’t know how long you will live, and we don’t know what future tax rates will be. This is why financial planning leans on probabilities and risk mitigation for making decisions. You can make a good decision, but you will only know if you made the best decision in hindsight.
Of course, we need to have the disclaimer of “don’t try this at home.” This really is a decision that should be wrestled with alongside a professional that has the competency and experience to guide and advise you.
I’ll end us with this reminder, and there is no “right” answer here. It’s partly preference and partly what you assume regarding taxes. I believe the exercise and process are worthwhile, and the data should help lead you to what conclusion is best for YOUR plan. There is no perfect pizza dough. You make adjustments and modifications to match your taste buds, and it’s a personal preference.
Hmmm… Maybe I should’ve named this article Fermentation & Taxation 🙂
Until next time, friends…
