Taxable Income For Long Term Care
Taxable Income for Long Term Care: Is this a Roth Mistake?
Is going “all-in” on a Roth conversion actually a costly retirement mistake? In this video, Tom Mullooly discusses the critical relationship between taxable income for long term care expenses that the “100% Roth crowd” often completely misses.
Many people treat Roth conversions as an automatic win, aiming to make all future retirement income tax-free. However, if you don’t generate any taxable income for long term care expenses – which may happen to you later in life, a massive (potential) tax deduction may become completely useless.
Is this anecdotal? Yes.
Is this a “needle in the haystack” kind of outcome? Also yes.
But it goes to show the “all-in on Roth” approach may not have been completely “thought-through.”
Using recent data from the Care Scout 2025 Cost of Care Survey, Tom breaks down the staggering costs of nursing homes—especially here in New Jersey—and shares a deeply personal story about his mother-in-law to show exactly how traditional IRA distributions can create the necessary taxable income for long term care deductions to potentially wipe out a large amount of your tax bill.
Before you convert your entire 401(k) or IRA to a Roth, watch this video.
See why having a mix of pre-tax assets provides the flexibility you need when expensive healthcare bills arise.
You may just need some taxable income for long term care expenses.
Special thanks to Rebel Planner (@MrNQDC on X – link below) for the inspiration!
Taxable Income For Long Term Care – Links
Catch all our Mullooly Asset videos here
Subscribe to the Mullooly Asset YouTube Channel
Watch this episode (“Taxable Income For Long Term Care”) on our YouTube Channel
Read the Care Scout 2025 Cost of Care Survey
Special thanks to @MrNQDC for the inspiration (Twitter – Rebel Planner)
Taxable Income For Long Term Care – Transcript
“I converted my entire 401k to a Roth, so all my retirement income will be tax-free.”
Hmm.
Sounds good??
But that could potentially be a costly mistake.
This was the subject of a tweet thread that I read recently from “Mr. NQDC,”
And I thank him for bringing this up.
“Here’s what the 100% Roth crowd (sometimes) misses…”
See, the big expense that can wipe out your retirement savings might wind up being tax deductible.
But if you don’t have taxable income for long-term care, the tax deduction becomes…..pretty useless.
I’m talking about generating taxable income for long-term care.
If you’re new here, my name is Tom Mullooly.
I own a financial planning firm in Wall Township, New Jersey.
I work alongside my three sons, who are all CFPs like me.
So we’re talking about long-term care.
Medicare doesn’t cover it.
The Care Scout “2025 Cost of Care Survey” reported that a private room, in a nursing home here in New Jersey is over $14 grand a month.
That’s $168,000 a year.
Nationwide, the monthly average is approaching $11,000.
And you (might) say, “Okay, but I’m not going to need help when I get older.”
Are you sure?
From the very same report, 70% of people turning age 65….. SEVENTY percent….. will need some form of long-term care in their remaining years.
Now, a chunk of that is going to come from family members who are going to “try and help Dad….”
But about 20% are going to need care….. for five-plus years.
Here’s why that “all-in-on-Roth” idea could really backfire:
Someone who needs long-term care is probably not working.
They may not have much taxable income.
But if they’re taking money from a taxable retirement account to pay for long-term care, that IS a taxable distribution.
And you can usually deduct medical expenses that exceed 7.5% of your adjusted gross income.
If you don’t have much income….. you may be able to clear that 7.5% adjusted gross income threshold pretty quickly.
You need taxable income, however, for that.
If you pull money from a traditional IRA….. you’re deliberately creating taxable income for long-term care.
Because your medical bills at that point are so high, the deduction (may) wipe out a large amount of the tax.
But hey, if you go “100% all-in” on Roth conversions….. you leave yourself with zero taxable income for long-term care.
Meaning…… if all your assets are in Roth accounts….. where there is no tax.
It means you paid the taxes yesterday.
You paid the taxes in the past.
I saw a similar situation with my own mother-in-law, nearly 20 years ago.
Her medical expenses were skyrocketing.
The only asset she had was a large IRA.
She was draining her traditional IRA, generating the taxable income she needed for her long-term care expenses.
This allowed her to claim a pretty massive deduction.
Yeah, she racked up a lot of taxable income.
But she was able to deduct a significant amount of those withdrawals.
If she had previously converted that to a Roth IRA….. think about it…… she would have paid the tax.
And then later need to drain the account.
And she wouldn’t be able to deduct any of the expenses.
There’s a lot of people that treat Roth conversions as “an automatic win.”
Are they really an automatic win?
I’m not so sure.
I’m a little skeptical.
The circumstances matter, and so it’s case by case.
The right answer should be, “It depends.”
What could change the math in these situations?
Well, what’s your current marginal tax rate ….. versus what’s your expected marginal tax rate going to look like….. in the future?
Which we talked about recently in this video.
Having at least “some” traditional pre-tax money can provide flexibility….. precisely when some expensive long-term care may be needed.
And if you want a closer look at what medical expenses in retirement may look like, watch this video next……
(Thank you for watching “Taxable Income for Long Term Care”)
