You do the Roth because you want to reduce your marginal tax rate, or else keep it the roughly the same rate and avoid RMDs and keep more after tax amounts in tax advantaged. The size of the RMDs is dependent on the returns but is otherwise irrelevant (except to the extent it may push you into higher brackets)I’m not interested in theoretical work that ignores the elephant in the room: the unknowability of future tax rates, both legislatively and personally....
When doing a theoretical exercise, certain assumptions are made. In a traditional vs Roth analysis such as this the assumption is marginal rates are the same. Now if you are going to introduce the potential for rates to go down, or up, that pretty much blows up the theoretical example.
Trying to assess and model changing tax rates as a risk is a whole different can of worms.
That’s the point of the paper: of course you can calculate the theoretical payoff of some specific Roth conversion designed to reduce future RMDs, but whether that payoff will be realized, and in full, cannot be known until decades have passed.
In the meantime, the government is delighted for you to prepay the tax estimate. Bird in the hand and all that.
But in the end, this is all basically irrelevant because you are doing NPV analyses on money you will never personally touch or use. It either sits in your traditional Roth account, waiting to be paid to the IRS at a later date, or you can pay it now. If the marginal rate stays the same, you will receive zero utility of it sitting in your traditional account, apart from the fact that your balance looks bigger and make make your feel richer.
What do you see as the flaw in the argument above? What utility is the implicit tax liability in the traditional Ira bringing you while it sits there?
In terms of the bird in hand argument that works both ways. Some may prefer to spend a known amount now at a known marginal rate vs a speculative marginal rate in the future.
Statistics: Posted by JBTX — Sat Nov 08, 2025 10:30 pm — Replies 249 — Views 37582