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Roth Conversion Revelation
Posted on 8/28/26 at 3:58 pm
Posted on 8/28/26 at 3:58 pm
I'm a few years out from retirement, and I'm modeling my retirement spending and taxes to pass my Friday afternoon. I have much, much more in my traditional 401k than in my Roth account, so Roth conversions are interesting to me. I realized something that is not inherently obvious.
Let's say I'm projected to be in the 24% federal bracket during my 60's and 70's. Conventional wisdom says don't convert at 24% if you're going to be in the 24% bracket in the future. The problem is that my traditional 401k will cause me to take RMDs at 75. Those RMDs calculate out to be enough to push me into the 32% bracket quickly. That means that I should strongly converting more of my 401k to Roth while I'm in my 60s. Many advisors and videos seem worried about IRMAA and Medicare surcharges and will avoid converting because of them. It seems to me that high RMDs will cause far more IRMAA charges in my 70s and 80s than I'll pay in my 60s.
Tldr: Convert more to Roth than you think. Otherwise, RMDs will raise your taxes and surcharges.
Let's say I'm projected to be in the 24% federal bracket during my 60's and 70's. Conventional wisdom says don't convert at 24% if you're going to be in the 24% bracket in the future. The problem is that my traditional 401k will cause me to take RMDs at 75. Those RMDs calculate out to be enough to push me into the 32% bracket quickly. That means that I should strongly converting more of my 401k to Roth while I'm in my 60s. Many advisors and videos seem worried about IRMAA and Medicare surcharges and will avoid converting because of them. It seems to me that high RMDs will cause far more IRMAA charges in my 70s and 80s than I'll pay in my 60s.
Tldr: Convert more to Roth than you think. Otherwise, RMDs will raise your taxes and surcharges.
7
Posted on 8/28/26 at 4:56 pm to FortunateSon
Make sure to evaluate traditional withdrawal at effective tax rate vs Roth contribution at marginal rate.
Posted on 8/28/26 at 5:17 pm to FortunateSon
The IRMAA is temporary. I’d rather pay more in my 60’s. The other thing supporting Roth conversion is the surviving spouse penalty. The RMD won’t change, but after one spouse passes the surviving spouse is taxed at a single filer rate.
Posted on 8/28/26 at 5:31 pm to FortunateSon
If you have so much money in RMDs that it pushes you into the 32 percent tax bracket you're a fortunate son.
Posted on 8/28/26 at 6:04 pm to FortunateSon
Quick AI search
So how far above those dollar thresholds are you anticipating being into the 32% threshold?
Unless you are anticipating going significantly over the thresholds, then extra from the higher rate on that portion will be somewhat negligible in relation to your overall effective rate on al earnings.
quote:
Entering the 32% marginal tax bracket in retirement means any additional ordinary income above $201,776 (for single filers) or $403,551 (for married filing jointly) in 2026 is taxed at that 32% rate.
So how far above those dollar thresholds are you anticipating being into the 32% threshold?
Unless you are anticipating going significantly over the thresholds, then extra from the higher rate on that portion will be somewhat negligible in relation to your overall effective rate on al earnings.
Posted on 8/28/26 at 7:41 pm to FortunateSon
First, there are a ton of variables and many of the tax rates etc. can and will change.
IRMAA is the Medicare surcharge so I’m not sure what you mean when you say “IRMAA and Medicare surcharges.”
Age 60-65 is the sweet spot to be aggressive with conversions. At 65 it’s important to be cognizant of IRMAA but the first few levels are not huge and you can convert into those charges.
In the end, there is no definitive answer no matter how many calculations you do because the variables will change.
That’s why it’s important to do what you feel is best for your personal situation.
IRMAA is the Medicare surcharge so I’m not sure what you mean when you say “IRMAA and Medicare surcharges.”
Age 60-65 is the sweet spot to be aggressive with conversions. At 65 it’s important to be cognizant of IRMAA but the first few levels are not huge and you can convert into those charges.
In the end, there is no definitive answer no matter how many calculations you do because the variables will change.
That’s why it’s important to do what you feel is best for your personal situation.
Posted on 8/28/26 at 8:34 pm to TX_Tiger23
Medicare surcharges look back 2 years so the year you hit age 63. I have been doing roth coversions and will continue and pay the medicare surchare up to tier 2. You have to have balance. Enjoy our healthy years while we can.
Posted on 8/29/26 at 6:29 am to IbalLSUfaninVA
Taxes in a surviving spouse situation would absolutely brutal not to mention inheritance for the kids. Definitely gonna fill up the 22 bracket and depending on the market probably have to go deep into the 24 at some point and just deal with the tier2 Irma
Posted on 8/29/26 at 7:35 am to FortunateSon
There's only a 2% bump in federal income tax using joint numbers, after 206k to 394k. Tax sale at 22% rate (if you subscribe to taxes being something you really want to buy), then tax rises 8 points on next 100k of income. There is a current tax sweet spot.
Posted on 8/29/26 at 10:37 am to BestBanker
quote:This.
There's only a 2% bump in federal income tax using joint numbers, after 206k to 394k.
I’ll be under the higher number in retirement each year and probably around the lower one.
Modulation rather than moderation
Posted on 8/29/26 at 6:42 pm to DTRooster
I want to convert filling 22% and perhaps 24% bracket but keep getting hung up on the idea of paying LTCG at 15% to free up cash to pay for the taxes. It's probably.the right move to avoid widow penalty, IRMAA and higher bracket RMDs later. I'm finding it hard to justify paying 15% LTCG though when I could pass to widow or heirs with stepped up basis and they pay zero.
This also leads me to realize I will have a difficult time spending Roth eventually and losing the tax free growth so maybe I should work on using my $ instead of tax optimization.
This also leads me to realize I will have a difficult time spending Roth eventually and losing the tax free growth so maybe I should work on using my $ instead of tax optimization.
Posted on 8/29/26 at 10:28 pm to FortunateSon
quote:
Let's say I'm projected to be in the 24% federal bracket during my 60's and 70's. Conventional wisdom says don't convert at 24% if you're going to be in the 24% bracket in the future. The problem is that my traditional 401k will cause me to take RMDs at 75. Those RMDs calculate out to be enough to push me into the 32% bracket quickly.
There is another part of this.
What if everyone’s rates go up because the Feds raise rates?
What if 24 goes back to 28… or maybe 31?
No one has a crystal ball of course. But there is risk in converting as well as risk in not converting…
Posted on 8/30/26 at 11:25 am to LSUFanHouston
quote:
No one has a crystal ball of course. But there is risk in converting as well as risk in not converting…
The 2028 election cycle will answer this question.
Posted on 8/30/26 at 11:40 am to kywildcatfanone
quote:
The 2028 election cycle will answer this question.
I would expect any changes to come in 2029
The last 6 weeks of 2028 are going to be WILD for tax planning…
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