Roth Conversions in the Sweet Spot Years

We tell every client the same thing: the years between retirement and age 73 are pure gold from a tax-planning perspective. Income is usually at its lifetime low, tax brackets are wide open, and you still have time to move money out of traditional accounts before Required Minimum Distributions force your hand.

Pete came to us at age 66 with roughly $950,000 in traditional IRAs, a pension of $38,000 per year, and Social Security he planned to start at age 70. His taxable income before touching the IRA was only about $48,000 per year, comfortably inside the 12% federal bracket. When we modeled doing nothing, Pete’s RMDs starting at age 73 would push him into the 22% bracket, make 85% of his Social Security taxable, and trigger Medicare IRMAA surcharges. Lifetime tax bill on the IRA distributions alone: roughly $286,000.

We built a six-year Roth conversion plan instead. Each year we converted just enough to fill the 12% bracket and stay under the IRMAA limits. Pete paid an average of about $18,000 per year in federal and state tax on the conversions. Total tax paid upfront: $108,000. When the dust settled at age 90 in our projection, Pete’s remaining traditional IRA was only $112,000 instead of $1.4 million, his RMDs were tiny, his Social Security taxation dropped from 85% to 0%, and he avoided all IRMAA surcharges. Lifetime tax savings: $178,000 and counting, because every future dollar of growth in those Roth accounts will also be tax-free.

Pete’s comment after we reviewed the final numbers still rings in my ears: “I can’t believe I almost paid the IRS an extra $178,000 just because I didn’t know this was an option.”

If you are retired or within a few years of retirement and your income is lower than it will be once RMDs and Social Security start, you are sitting on the single biggest tax-planning opportunity of your life. Let us show you exactly how many dollars you can move, at what tax cost today, and how much you will save over the rest of your life. The consultation is complimentary, and the math usually speaks for itself.

About Keystone Tax LLC

At Keystone Tax LLC in Eau Claire, Wisconsin, we specialize in retirement tax planning — helping clients reduce unnecessary taxes, maximize income, and build confidence for their financial future. To schedule a no-cost consultation, visit www.keystone-tax.com or call (715) 835-6022.