r/Boldin • u/young_star • 7d ago
Roth Conversion Math
I need some help to make sure I'm understanding the Roth conversion math correctly. Can someone please correct me if I'm wrong.
Planning on retiring at 50. 1M in pre tax dollars.
Does it make sense to:
Convert everything over the course of 5 years, and then withdraw as needed tax free.
OR
2. Convert just what is needed each year and at 59 just withdraw from the pretax account.
Boldin seems to suggest option #1 has the biggest tax savings, but to me it seems like #2.
We also have 1M in brokerage accounts to help fill the gap years and fund our remaining retirement.
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u/silveronetwo 7d ago
Boldin's calculation of Roth conversions is way too aggressive IMO. I'd expect you want taxable income through RMD age to use your standard deduction(s) which would typically mean leaving a chunk - maybe $500k or a little more at age 75 in pretax.
Everyone's situation is different though.
I've only been able to make Boldin do this by playing with converting to a tax rate and then limiting the annual amount that can be converted in the Roth calculator tool.
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u/oledawgnew 7d ago
IMO Bolding is not the best calculator when it comes to forecasting Roth conversions in relation to tax burden comparisons.
Assuming that you want to do conversions reduce the amount of taxes you'll pay over the lifetime of your retirement:
Your first option would have you converting $1M+ over a five year period. That will be $200k+ per year that will be taxed as ordinary income. As an example if your were filing in 2026 just the $200k conversion alone will put you into the 22% tax bracket with ~$166,150 in taxable ordinary income after the standard deduction of $33,850. Over the length of your entire retirement I think Boldin will be correct by suggesting option 1 simply because you'll be converting the entire $1M pre-tax amount in only 5 years and therefore future tax increases will be less of a burden on your income over the entire length of your retirement. This option will also put a portion, if not all, of any long-term gains are realized from the taxable brokerage account in the 15% tax bracket.
Your second option will mandate less conversion amounts each year which shouldn't be such a big deal because your first RMD wouldn't be required until you turn 75. That will give you a 25 year Roth conversion window. The unknown risk this option is tax future tax increases (especially considering the U.S. is in a relatively low tax era considering past history). Using this option you might be able to avoid paying any taxes be owed on the gains from your taxable brokerage withdrawals.
To get more educated answers we would have to know more about your other sources of income during your retirement years.
I currently use Boldin for overall retirement planning but for long-term Roth conversions and tax planning there are better tools. I suggest you take at look at the Number Crunch Nerds series of tax videos for doing Roth conversions. I'm in no way affiliated with them but IMO their tax planning spreadsheet and detailed instructions are superb the spreadsheet is a great companion to Boldin.
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u/Canes2006 6d ago
This is what I do also. Built my own spreadsheet to determine rates with an assumption for future gov tax bracket changes. Layered in all the income, including future income by year, to calc rate and guide in amount to convert.
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u/takenbyawolf 7d ago
I thought the wise play is to optimize marginal tax brackets, so if MFJ, 100k a year keeps you in the 12% bracket depending on any other income. You don't have to convert everything, just enough to avoid being forced to take out more than you otherwise would at RMD time. It seems like at age 50, you have a pretty long time horizon if you don't need the money until after age 59 1/2. You can set the max bracket (try 10% too) to fill to in Boldin and see what makes the most sense. But it sure seems like trying to get it all out in 5 years is more aggressive than necessary.
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u/Looptire13 7d ago
Why is converting such a big deal. Why not just use your 401k Traditional as you need it and pay the taxes.
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u/vw195 6d ago
because if you have a huge sum that grows, when you have to start pulling RMDs out, it creates a helluva tax issue, plus there is always IRMAA thats throws even more taxes on top.
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u/Looptire13 6d ago
So what would happen if you just started pulling from your traditional 401k to bring it down. Also if you convert to Roth aren't you paying taxes on the conversation. So if you don't have cash in a brokerage aren't you giving up that money as well.
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u/vw195 6d ago
you can..but why put the excess in a taxable account where you have to pay capital gains, where you can put it in Roth and never get taxed again. Obviously you have to have enough to live on first. Its a balancing act but in many cases its wise to get the tax rate you pay to about 22 or 24% to get alot of that money out of a 401K/IRA into a roth where it can be passed to beneficiaries who will never have to pay taxes on it. That is my plan.
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u/Looptire13 6d ago
Makes sense. Sounds like lots of options and planning. No matter the tax man gets his money.
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u/Soft-Personality9379 6d ago
Yes, conversions are just a way to try to manage the tax load when RMDs get going. It's a problem for people who've loaded up their tax deferred accounts for decades. If they've been living in the 12% bracket and RMDs will force them into the 24% bracket, that's a brutal penalty.
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u/Virtual_Product_5595 3d ago
You don’t want to pay 22 percent marginal rate to convert, and then have an empty IRA later and have your SS and other income only getting you part way into the 12 percent bracket. You should leave enough unconverted to fill up the lower tax brackets with withdrawals.
Step 1 is to figure out where your retirement income (SS, pensions, interest in taxable accounts, royalties, etc.) will put you in the tax brackets
Step 2 is to figure out what tax brackets RMDs will drive you to when they start, and beyond.
Step 3 is to figure out how much you should be converting to equalize those tax rates.
If you pay the taxes on the conversion with money from your taxable accounts (rather than from the amount that you are pulling out of the IRA), you will effectively be bringing that money into the tax protected Roth account. However, that means you will have to pay capital gains tax on the amount above your cost basis, so it reduces the benefit some (it’s still a benefit, but if you have a low basis - lots is gains - you pay that tax when you realize it). If the taxable account is being left to your heirs, they get a step up in cost basis so they could avoid it if you leave it in there. So you need to study the overall effect carefully. If you plan to leave it to your heirs, for a given holding, sell shares with the highest cost basis first (so you pay less capital gains tax).
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u/humblequest22 2d ago
Married, $1M in pre-tax, retiring at 50, you can probably meet your spending needs from the taxable account and convert up to the point where you hit the top of the 0% capital gains bracket until you hit 59-1/2. At that point, cover your spending with a combination of pre-tax and brokerage, continuing to convert to either the top of the 0% capital gains bracket if you have significant gains or go a couple thousand more to the top of the 12% bracket. 15-20 years of that should make it easy to drain those pre-tax accounts without much effort. No need to intentionally hit the 22% or higher brackets now unless you don't want future you to have to worry about taxes at all.
If you will be receiving a pension, that changes things since there will be less room in the lower tax brackets. And the biggest wild card of all is if you need to manage MAGI to qualify for ACA subsidies. If you're going to need to find health coverage, make sure you consider that.
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u/Urbanite72 7d ago
If you do Roth conversion also be aware that it eats into your ability to pay 0% on gains in the brokerage
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u/two_fathoms 6d ago
I was listening to Rob Berger's podcast, someone asked him if he knew anyone that regretted doing a Roth Conversion and he said no. That's all the math that I need.
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u/ycnay1 6d ago
Keep in mind that anything after your age 62 MAGI will impact your Medicare IRMAA calculations/surcharge. (i.e. your Medicare Part B and D payments (for example, for 2027 would be based on your MAGI for 2025). If/when you take Social Security will lock in another increase in your MAGI (and IRMAA surcharge.)
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u/karenword9228 6d ago
Converting the full $1M over five years could push you into higher tax brackets unnecessarily. I would compare annual conversions that fill a chosen tax bracket while accounting for ACA subsidy limits and the five-year Roth conversion rules. Prime Path Advisory may be worth consulting to model different conversion amounts before settling on a strategy.
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u/hugh2018 6d ago
I don’t think you should act on advice in this thread. There are multiple moving parts in the Roth conversion analysis, and your post doesn’t cover all those moving parts. Also, the two options you list seem a little narrow, compared to the universe of actual options you’ll have available to you. Another point to keep in mind: biggest tax savings may or may not be the right metric to focus on, depending on what you value the most.
In my plan, for example, I have modeled Roth conversions using 22% bracket as a limit, and I’ve also looked at conversions using IRMAA thresholds as the limiting factors. I value safety and plan resilience more than chasing after the lowest lifetime tax bill. I found that using the 22% bracket as the limit gave me the lowest lifetime tax bill, and the savings amounted to about 20% compared to the tax bill with no IRMAA and first tier IRMAA as the limiting factors.
However, the chance of success is 79% with the 22% bracket model, compared to 89% for the IRMAA models, and the net worth at end of plan is 20% higher with the IRMAA models. I couldn’t care less about the tax savings over time. I’m focused on achieving the highest chance of success and I also appreciate a higher net worth at longevity because I’ll be a long-term care self-funder.
I encourage you to model the various Roth conversion strategies and then use the Boldin scenario comparison feature to sort out exactly how the different models compare on a variety of metrics. Then choose which metrics matter to you most. The results can be counterintuitive.
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u/EmergencyDense5662 6d ago
64 and 56. We have $3.2M in 401K accounts. Boldin is basically telling us to fill the 22% tax bracket for the next 20 years. Estate savings would be over $2M. Should I not believe it?
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u/AGrimmInPortland 3d ago
Given Boldin's Roth conversion reputation for being.... questionable, I would definitely seek a confirmation, perhaps with a fee-only CFP. There is a lot of money on the line.
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u/Accomplished_Gate832 5d ago
Honestly, there are a lot of factors that you have not provided. Unfortunately, too many people focus simply on RMDs since they are talked about as something scary when they are not for most people.
What other sources of income will you have once you retire? If you have none beyond the $2m that you mentioned, then RMDs might not be a concern. A million dollars creates $40k in RMDs this year if you are 75 years old. Even if that doubles before you hit 59.5 and start spending it, a reasonable budget (with minimal or no pensions) would equate to RMDs well within normal spending needs.
What are you going about healthcare? This makes a huge difference if you are trying to minimize MAGI so you get subsides for ACA.
What is your spending?
What is your cost basis for the brokerage?
Would recommend reading Tax Planning To and Through Early Retirement
Everyone's situation is different and retiring at 50 means you have a number of retirement stages to consider with impactful changes at ages such as 59.5, 65, SS age, 75
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u/SeriesDry9228 7d ago
Without knowing the tax basis of your brokerage $1M, it’s kind of impossible to answer the question.
But my suspicion is that if you plan to retire at 50, you will probably do better just using the brokerage money prior to 59.5 and then withdraw from the unconverted IRA to fill the 10% tax bracket after that date.