Just a few faulty assumptions/made up numbers here, but per your example, the marginal rate paid on the IRA NOT converted is (36.6-27)/40k = 24%, the "effective" tax of 17% or 18% is irrelevant.Ok, my example assumed your base before conversion was $2million, so the "convert or not convert" looks like this.
No, I don’t think you do understand. I converted $400k last year so add $40k per year to your example and tell me what amount more in tax she would pay? It’s not 18% of $40k, is it?
1. No conversion, she inherits $2m, is forced to take out $200k per year, which is the example above -- 18% tax for 10 years. Tax $36.6k per year or (200-36.6)*10 = $1,634,000 to spend from $2m inheritance.
2. Option 2. Convert $400k leaving 1.6m TIRA less tax paid of 35% or $140k taxes for Roth input of $260k. (taxes paid from TIRA)
TIRA to inherit is now $1,600,000 or $160k per year. -- 17% tax. Tax is $27k per year or (160-27)*10 = $1,330,000 + $260,000 Roth = $1,590,000.
Conclusion: she has $44,000 less after-tax money to spend because of your "one" conversion.
Because your conversion rate was 35% and her spend rate was 17-18%.
To illustrate, let's assume the marginal tax rate on the Roth conversion is 20%...would that be better or worse than paying 18% on an inherited $2M IRA or 17% on a $1.6M IRA plus the $400k Roth minus 20% tax?
This is similar to when we put money in the 401k in the first place, any deferred tax savings was at whatever our tax bracket would have been with the additional income. Likewise, any past Roth conversions we've done would only add to our or our heirs future RMD income and therefore be taxed at the top marginal tax bracket or higher.
Statistics: Posted by murrays — Fri Nov 28, 2025 11:52 pm — Replies 288 — Views 46136