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I thank everyone in advance for any assistance and advice you can provide regarding my Roth conversion scenario. I am currently 56 with a potential retirement age of 58 (approx. 2 yrs). My wife is younger and will continue working for another 8 years following my retirement. I plan on deferring Social Security as long as possible, age 70. I have $850,000 in a regular IRA and an additional $600,000 in a company sponsored 401K. My wife and I file jointly and are currently in the 24% tax bracket ($206,700- $394,600).
I understand the benefits and general tax implications of a Roth conversion; foremost to pay the IRA conversion tax from a taxable account, not the IRA. In my case, I will cover Roth conversion taxes from selling index funds in a brokerage account. I am looking for clarity on when to start converting my IRA to a Roth. General convention says that you convert when you retire and earn less income. However, I have a wife that will continue working for 8+ years. At my retirement my wife’s salary and my residual income will put us in the 22% tax bracket but very close to the max $206,700 threshold.
Wouldn’t this threshold significantly limit the amount I can convert to a Roth and still stay in the 22% bracket?
As I am already in the 24% bracket, wouldn’t it make sense to start converting now? I would be able to convert about $75,000 in 2025 and still stay in my current 24% tax bracket.
Is there a way to file taxes separately and convert more of the IRA at a lower tax bracket? I don’t think this is an option.
I have listened to podcasts and heard different conversations about the importance of the Right Timing & Right Amounts to maximize the Roth conversion. What am I missing?
Are there advanced Roth conversion calculators that can provide individual conversion timing breakdowns with amounts based on tax brackets and future income?
All comments and assistance are greatly appreciated. Regards, John
Looks like you’re on track for a great retirement financially speaking. My concern is that what are you going to do for the first 8 years while your wife is still working? I’m on year number four of retirement and loving it. What I’ve found is that it’s best when both spouses retire at the same time. So my recommendation is have your spouse retire early. You have more than enough money and you will quickly find that both of you being free is the ideal choice. Enjoy this season of your life together. Don’t worry about the additional money your wife would have made during the next eight years. Your time together far outweighs this. Plus when you hit 70 you can cash in on your social insecurity. And your wife can begin collecting as soon as she’s eligible. Enjoy this season of life. You never know when your last day will come.
The difference in ages between you and your wife makes me wonder if it will make sense until you have both retired.
For me, I decided the best time to start converting was when I had stopped working but wasn’t yet required to take RMDs.
This probably doesn’t apply to most people, but I eventually realized that I had converted too much. My only close relative is my younger sister, who won’t need any inheritance from me. We have discussed it and both plan to leave most of our estates to non-profits. While I’m living, I plan to donate as much as prudent through QCDs. I’m almost 76 and my traditional and Roth IRAs have over $1 million each. It seems unlikely that I will exhaust my Roth during my lifetime so much of it will go to non-profits. Since they won’t pay any tax on it anyway, the amount I spent paying taxes on my conversions will be wasted.
John, we’re about one year apart in age so this topic is of interest to me as well. You said you already reviewed a number of resources. At the risk of sharing something you’ve already seen, I recently watched this video by Kevin Lum. He would argue for earlier Roth conversions. I appreciate reading a variety of opinions — including opposing opinions — to help me come to an independent informed decision. As others mentioned, the math on Roth conversions is but one factor among many in making a decision for your specific situation. I also agree 100% with David that that the future is unknowable. I’m at 25% Roth and 75% traditional but will look for good opportunities to convert (convert at the dip) to get this closer to 50%-50%.
I strongly recommend using sophisticated planning software to help analyze your situation. The various considerations, such as IRMAA, interact, and it’s impossible to model it accurately on your own. I use Maxifi with its Roth Conversion optimizer, and recommend it. Its default assumptions can be adjusted so you can see what would happen if, e.g., inflation is higher than the default or your investment returns are lower. But the program’s default assumptions are very conservative, including that you’ll live to the age of 99.
Roth conversions are obviously beneficial if your marginal tax rate now for the conversion is lower than you anticipate it will be in retirement (i.e., pure tax arbitrage). But as others have mentioned, Roth conversions are usually advisable even if they move you to a higher tax bracket now. This is because one of the main advantages of Roth conversions is that, when you pay the tax on the conversion out of a taxable account, the conversion in effect moves the amount you paid in tax from your taxable to your Roth account. That reduces the yearly tax drag that would occur if you did not convert and that amount stayed in your taxable account. Over time the tax drag from a taxab