Couple Cuts Annual Retirement Tax Bill by $14,000 With $77,000-a-Year Roth Conversions
Updated
Updated · 24/7 Wall St. · May 17
Couple Cuts Annual Retirement Tax Bill by $14,000 With $77,000-a-Year Roth Conversions
2 articles · Updated · 24/7 Wall St. · May 17
$77,000 in annual Roth conversions from ages 62 to 69 can keep a married couple inside the 12% federal bracket, trimming later retirement taxes by about $12,000 to $14,000 a year.
The strategy works because delaying Social Security until 70 leaves taxable income largely under the couple’s control before required minimum distributions begin at 73.
Without conversions, a $1.4 million traditional IRA could grow to about $2 million by age 70, producing a first RMD near $77,000 and pushing taxable income to roughly $159,000 with a federal bill near $24,500.
With conversions, the IRA is closer to $1.2 million by 73, the first RMD falls to about $45,000, taxable income drops to roughly $115,000, and annual federal tax is closer to $12,500.
Over 20 years, the approach can save roughly $240,000 to $280,000, but it works best when conversion taxes are paid from taxable savings and state income taxes do not wipe out the benefit.
What hidden costs, like Medicare surcharges, can turn a Roth conversion strategy into a financial trap for retirees?
With future tax laws uncertain, is prepaying taxes via Roth conversions a safe bet or a risky gamble?