I would take option number 1, that is converting to fill up the 12% bracket. This is the most conservative option. I would then evaluate ROTH conversions year by year using Pralana to analyze your situations.
I am retired and my current tax bracket is 12%. At a minimum, I am converting to fill up the 12% bracket - roth conversion of 85K. This option allows me to avoid taxes on cap gains of $35000 which I already incurred this year. I can avail senior deduction too.
My other options are: (both these option make me pay cap gains tax as well as I won't be able to avail senior deduction)
- conversion limited by IRMAA surcharge
- aggressive Roth conversion to reduce RMDs. I can't eliminate them as I do not have enough post tax dollars to pay for the conversion and live off.
I ran Pralana for each of these scenarios. Of course, aggressive conversion is netting most of the assets in Roth with enough left in IRA for later retirement year expenses like medical, charity, etc. The downside is I need to convert 500K for next four years forking huge tax amount at an effective federal income tax rate of 22% converting at 32% marginal rate. Add to this higher IRMAA surcharges in Tier 4 for four years. State taxes are additional.
IRMAA limited conversion allows me convert around 150K for the next 10 years converting at effective federal rate of 15% and 22% marginal rate. Of course Roth portion of my net worth at any given year is roughly half I what I would have with aggressive option.
All these options net me similar net worth at the end of 30 years. Of course net worth of IRMAA option at a given year is higher than the aggressive option but it has in built taxes yet to paid for.
You have a pretty big tax bill for converting $500K over four years, it seems odd to convert at a 32% marginal rate and trigger IRMAA over the next four years when you are now in the 12% bracket. There is a pretty strong time value of money argument here for a tax benefit that may or may not materialize down the road. Life is dynamic, the markets and the economy are dynamic, and the tax code is dynamic. In other words, a lot of things can change. I believe that options 2 and 3 are too aggressive. You might have also made a mistake in Pralana with a simple input error.
Maybe have a CPA model options 1, 2, and 3 for you before you start paying these big tax bills? I would get a second opinion and not fully trust projections from a do-it-yourself program. Too easy to make an error. PlanVision gets great reviews here, their fee is modest compared to the money you will pay in taxes making aggressive ROTH conversions.
Statistics: Posted by nedsaid — Thu Dec 04, 2025 12:06 am — Replies 17 — Views 1404