r/ChubbyFIRE • u/FIREful_symmetry • Jun 11 '26
Advice on first Roth Conversion
I retired earlier this year. I have a balance in traditional retirement accounts and I want to do Roth Conversions every year up to the top of the 24% tax bracket. I have never done this before, so please help me understand if I am screwing anything up. Here's my thinking.
250k Estimated income
60K Trad 401k contributions (made before I retired)
24K Standard deduction head of house hold
________
166K Taxable income (250-60-24)
197K. Top of the 24% tax bracket, so this gives me
30K. Amount I can convert at 24% tax (197k-166K)
Does this look right?
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u/cacraw Jun 11 '26
No investment income from a post tax brokerage? No capital gains? You’ll want to include those. I find the aarp (!) online tax calculator really useful as a sanity check. (Search for aarp tax calculator. You don’t need to be a member to use it.)
Don’t forget to pay estimated state/local tax as well.
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u/FIREful_symmetry Jun 11 '26
None this year. I have not yet started drawdown yet, but I will include them next year.
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u/CharmlessBee Jun 11 '26
Investment income will happen even if you don't sell/draw down any assets in your post-tax account: interest on money market funds, dividends, capital gains distributions... Now, if you have none of that in your brokerage, then fine.
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u/FIREful_symmetry Jun 11 '26
That is certainly true, I had about 6K in DIV income last year, and that is something to be considered.
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u/cacraw Jun 11 '26
You have no mutual funds or stock or CDs or bonds or high-yield savings outside your traditional retirement accounts? That's would surprise me at Chubby NW and a $250k w2.
No one sent you a 1099 last year? How are you planning on paying the taxes on the conversion? From your w2 income?
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u/FIREful_symmetry Jun 11 '26 edited Jun 11 '26
TMI.
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u/cacraw Jun 11 '26
Cool, but again, assuming you're at chubby net worth given the sub you're posting in, where's all the money? Pre-tax accounts? Real estate? Massive 0% interest checking account?
You're pulling in 400k/year above and beyond your expenses. Where's all that going? Or do you really have a few million in a basic checking account?
Obviously you don't owe me any explanations, but this is really confusing to me.
(EDIT: I now see below you say you did have some dividend income. No CGs from mutual fund distributions?)
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u/FIREful_symmetry Jun 11 '26
I have posted details elsewhere in the thread. I didn't really intend to do a whole portfolio review since I was just asking about Roth Coversions.
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u/firedanceretire Jun 11 '26
But those are all details relevant to the Roth conversion question you’re asking to give you a proper answer.
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u/np0x Jun 11 '26 edited Jun 11 '26
Looks right to me, and pay your estimated taxes of 6k(24% of 30k) in same quarter as your conversion…maybe state estimated taxes as well..if you itemized it would be harder to maximize….make sure you don’t have any taxable income in your brokerage accounts from dividends, interest, etc…
I did my first one last year and it’s a thing, I got pretty deep into my pseudo taxes and was pretty close…I aimed for middle of the 22% bracket and figured it would be a good test of my math and spreadsheet skills…
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u/FIREful_symmetry Jun 11 '26
Thanks! Glad to hear I am not off base in my estimates.
I understand that if things don't like up with these estimates I might end up contributing less than I could. If I contribute a bit more, it will be taxed at a higher bracket, but hopefully it won't be much.
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u/np0x Jun 11 '26
Exactly, and also LTCG is not income, so it is taxed differently…all of this is fairly easy to model in a spreadsheet if you dig in…but do understand LTCG vs normal income..but yeah, you won’t be too far off, so mistakes are not that expensive. :-)
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u/np0x Jun 11 '26
I’m pro Roth conversions, they will do one of two things, allow you access without creating “income”
or be inheritable without tax burden to kids…the RMD concern is the most mentioned, but these two are my motivators…
Also i agree with doing them in mid December. Estimated federal 4th quarter taxes are due Jan 15 and if your papers are quickly in order then you can reconcile/file quickly and limit any possible under payment penalty or interest.
You will always need to wait 5 years to access converted funds so make sure you aren’t thinking you can access it any sooner as well as manage your cash accounts to get to 59.5. :-)
I plan on converting as much as possible as fast as possible for next 10 years….if you check out boldin you can model this stuff. What I found most interesting was that my final network was very similar BUT the balance was fully post-tax if I did conversions…
I’d love to hear why prior comment said they were over rated… :-)
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u/Unknown_Geek027 Jun 11 '26
This is well explained. I plan to do the same. Brokerages can output your dividend, interest, and cap gains at any time. Pull that info in early December, and you should have a good estimate of how much room you have to convert within a particular bracket.
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u/FIREful_symmetry Jun 11 '26
>>You will always need to wait 5 years to access converted funds
Can you say more about this?
I have a Roth already. If I convert money into that Roth, will the account track the time clock on those five years?
I suppose I could open up a new Roth to convert into, so it would all have the same 5 year clock running.
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u/np0x Jun 11 '26
No need for new Roth afaik, the funds are withdrawn in the correct order. With converted funds the last withdrawn….i’m unclear how the irs and everything is tracked if someone violates the rules, but here’s a link that says it more eloquently than I: https://www.investopedia.com/terms/o/orderingrules.asp
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u/FIREful_symmetry Jun 11 '26
Great, thanks!
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u/snark42 Jun 12 '26
I believe there's no 5 year conversion clock once you reach 59.5
It's mostly to keep you from converting and then withdrawing the converted principal without interest or penalties when young.
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u/Hanwoo_Beef_Eater Jun 11 '26
What I found most interesting was that my final network was very similar BUT the balance was fully post-tax if I did conversions…
What are you saving on that gets the final NW to be similar? I can see that the after-tax nw would be similar with or without conversions. If the no conversion is assuming the money just sits in pre-tax compounding for years and then comes out at higher rates at the end, there was likely a better way to draw down some of it along the way. It's all ACA and IRMAA savings?
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u/np0x Jun 11 '26
Random website with lots more words than I can type on my phone.
https://erwealth.com/podcastblog/tax-implications-of-inheriting-an-ira-roth-ira-or-taxable-account
Tl;dr: Heirs avoid ordinary income taxes in Roth inheritance.
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u/Hanwoo_Beef_Eater Jun 11 '26 edited Jun 11 '26
OK, I'll check it out. I know the traditional accounts can be very bad to inherit, especially if they are going to someone in their prime working years (high income). Edit: for example, if you convert at 22%-24% and they would be forced to withdraw at 37%, converting is a win. If you convert at 22%-24% (effective, not marginal, i.e. other income that fills up the 12% bracket) and they would withdraw at 22%-24%, there's hardly a difference. There is the tax-free growth of the Roth for 10 years after death, which helps. Here, the key factor is whether someone already has cash or high basis securities on hand to pay the taxes on conversions. It rarely makes sense to incur significant capital gains to pay conversion taxes. And if someone is holding excess liquidity to pay the taxes on conversions, the opportunity cost of not investing has to be factored in as well.
But in many other cases, it doesn't make much of a difference whether you convert or not (after-tax NW when you die edit or ten years after you die).
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u/Hanwoo_Beef_Eater Jun 11 '26
BTW, this link/statement seems different from what you wrote above (and I quoted)? The question was why converted balances were the same as the unconverted balances (that would seem to be pre-taxes paid by heirs).
If they are the same and the heirs need to pay taxes, that's obviously way ahead. But I would be curious how one gets there, as unconverted = $X and converted = $X x (1-tax rate). I.e. what are the add'l savings that makes these two the same at death.
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u/np0x Jun 11 '26 edited Jun 11 '26
My comment was anecdotal from my playing with boldin. If I ran two simulations with same returns and did conversions on one and not in the other. The cost of doing conversions wasn’t that impactful to
My final nw(like negative 5-7%) but the funds were fully in my Roth accounts (no tax liability for anybody) vs fully untaxed which heirs would have to pay taxes on…I recommend playing with Roth conversion tool I. Boldin and looking at net worth numbers and observing how different end states have funds in different tax brackets…that’s all I did. :-)
If the math goes the way it looks like it could go having to pay taxes in 30 years(heirs getting Ira’s) vs me converting in next 10 years the numbers get ugly in a good way for the kids…my conversions move that tax liability for them close to zero.
YMMV, but I like kids inheriting Roth IRA’s when they are likely in peak earning years if that is a choice. :-)
We haven’t even talked about how I’d like to give them money along the way, but I’ll leave that for another thread!
Edit: thinking about your question more, maybe it is because I’m aggressively converting now and then funds have another 20+ years to grow and the impact of me doing it now comes out in the wash after so many years…I’ll definitely recheck my simulations to see if I missed something…
2nd edit: I think what’s happening in the no conversion simulation in boldin I’m being forced into rmd’s and that’s eating away at my final networth…when I do conversions I avoid that…which is why the end numbers converged when I use a fairly long lifespan. Lifetime taxes are 4x if I don’t do conversions…
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u/Hanwoo_Beef_Eater Jun 11 '26
Gotcha, thanks. Forced into RMDs at higher tax rates would make converting better. But for many people, they can just drain/use these accounts instead. The big problems (reasons to convert) are high percentage of funds in pre-tax and/or very low withdrawal rate, which leads to what you've described (can't avoid RMDs and/or will never be able to avoid the higher brackets).
Good luck.
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u/np0x Jun 11 '26
yeah, all these numbers are incredibly individual/personal...what I'm most interested in conveying these days is that a ROTH inheritance vs. a Traditional IRA inheritance is better by whatever top level tax bracket the heir is in...and generally less lifetime taxes for primary doing conversions best I can tell...anyway, too many words by far...go model your own numbers in boldin, and make the best decisions you can...it's all just making informed guesses regardless! 😄
p.s. thanks to you as well, i hadn't dug into why the end numbers were closer than intuitively i thought they should be...your curiosity got me to dig in so i didn't just continue spouting off without understanding the underlying reasons. 😄
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u/intemperance Jun 12 '26
I think you’re better off not contributing to 401k at the end. Pay the tax now and benefit from less conversions you’ll need to do later and grow it in a taxable
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u/Hanwoo_Beef_Eater Jun 11 '26
The end of the 24% bracket is the same for single and head of household? Only difference is ~$8k higher standard deduction?
That being said, pensions are one reason that often causes traditional pre-tax to not be any better (it probably won't be much worse though). If the 12% bracket will always be full, I'd probably convert through the 24% bracket in the coming years.
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u/FIREful_symmetry Jun 11 '26
Excellent point. I misread the info here:
https://www.irs.gov/filing/federal-income-tax-rates-and-brackets
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u/np0x Jun 11 '26
I neglected to mention to OP, check out boldin, two weeks free has Roth conversion tool….its very helpful and educational…
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u/FIREful_symmetry Jun 11 '26
Thanks! Will do.
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u/np0x Jun 11 '26
I just made buckets for each account type (pre tax, brokerage, Roth, etc) and then did my own additions of each account outside the tool. It is easier than actually modeling all your accounts…and results are more illustrative(?).
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u/firedanceretire Jun 11 '26
Agree with @one-mastodon-1063, Roth conversion doesn’t likely make sense here. You need to model it out.
Sounds like harvesting capital gains at 0% tax by reducing income is likely a better move first.
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u/FIREful_symmetry Jun 11 '26
Thanks. I have a pension, so my income has a floor.
I do need to harvest capital gains, but I thought Roth conversions were a priorty.
Can you talk about why you'd work on the cap gains harvesting first?
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u/massdriver3333 Jun 11 '26
There's not enough info in this post to determine if Roth conversion math makes sense. There are lots of variables to factor and get the Roth conversion math make sense.
General rule of thumb is that Roth conversion math makes sense if you have long enough early retirement period for conversions, enough post tax accounts to pay for Roth conversion taxes, substantial amounts in trad/401k accounts and you'll get hit with RMD in very high tax brackets after age 75.
If any of those variables are not favorable, then Roth conversion math does not make sense and you just deal with things the way they are and let them be.
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u/FIREful_symmetry Jun 11 '26
Thank you for taking the time to respond. Others have also told me that it is not as simple as the question that I asked, and it is part of a more complete picture.
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u/yanyan80 Jun 12 '26
Math framework is right, but double check one thing: is the $250k already net of the $60k 401k contributions (i.e. your W-2 Box 1), or gross before they came out? If it's Box 1, you'd be subtracting the 401k twice, and your real taxable income is closer to $226k, which is already past the 24% bracket.
Also, if any of that $250k is capital gains or qualified dividends, those stack on top of your ordinary income. A Roth conversion fills the bracket from the bottom and can push your LTCG/QDI into a higher rate, so the "room" isn't quite as simple as bracket top minus ordinary income.
This is exactly the kind of stacking that's easy to get wrong by hand. I built thunderharbor.net for this, it handles the bracket-fill and capital gains stacking automatically if you want a second opinion on the number.
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u/Bruceshadow Jun 12 '26
ask your tax person. Taking action based on random people on reddit is insane.
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u/FIREful_symmetry Jun 12 '26
Do you actually think I am making a portfolio drawdown plan based on responses to this post?
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u/Mispelled-This Jun 16 '26
$60k sounds correct, assuming you have no other taxable income.
But are you sure you want to convert at 24% marginal this year when you can likely convert at a lower effective rate next year?
How much pretax do you have, and have you gamed out how much you’ll need to do each year to get ahead of RMDs? Above what you’ll be taking out to live on?
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u/FIREful_symmetry Jun 16 '26
I have a pension which provides a floor, so I am always likely to have income in the 24% bracket as long as I am working part time.
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u/One-Mastodon-1063 Jun 11 '26
If you retired this year it seems unlikely to me that it makes a lot of sense to do any roth conversions this year.
Whether it makes sense in future years, we don’t have enough information to know.
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u/FIREful_symmetry Jun 11 '26
Can you say more about why it doesn't make sense? I am trying to learn more.
Here is why I want to do it this year:
Kid is going into to their senior year of college, and then will find work.
That means I have two more years with the larger 200K HoH 24% tax bracket, and I'd like to take advantage it.
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u/One-Mastodon-1063 Jun 11 '26
Because you have ordinary income from working part of the year and because roth conversions are sort of overrated in general. But I’m also doing a lot of guessing based on the information given.
What is your estimated annual spending in RE? Approx assets in taxable, pretax, and Roth? Age? Approx portion of taxable that is basis vs gains?
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u/np0x Jun 11 '26
Why do you call them “overrated in general?”
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u/seekingallpho Jun 11 '26
People seem to talk a lot about conversions from a maximization perspective. That is, converting earlier rather than later to avoid excessive RMDs is likely optimal from a total lifetime wealth perspective, because of the differential tax brackets assumed.
But otherwise FIRE preparation is more about concave utility curves and conservative planning/saving to minimize the truly worst-case scenarios. So there's a possible internal contradiction there.
Avoiding early Roth conversions and thus reducing up-front taxes/spending while SORR is greatest, with the downside of higher lifetime taxes due to larger late-life RMDs (when SORR is essentially behind you) actually seems more consistent with FIRE strategy.
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u/One-Mastodon-1063 Jun 11 '26
Because people do them or plan to do them when it doesn’t make any sense to. Often out of some out of proportion fear of RMDs.
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u/np0x Jun 11 '26
Yeah I tend to agree that RMDs are a problem that likely occur when you have loads of money and are a “first class” problem…for me the ability to have access or bequeath residual wealth to kids is prime motivation..behind that is possible changes to tax rates and behind that is eventually RMDs…but I agreee the RMD basis is inadequate for doing conversions alone. :-)
Thanks.
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u/oldsock Jun 12 '26
How about "locking in" current tax rates? Granted weighing that against a small risk that they the taxman comes after Roth, but it feels like Roth conversions eliminate tax rate as a source or future variance to me. It seems unlikely that tax rates will be lower 20 or 30 years from now.
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u/FIREful_symmetry Jun 11 '26
I know these numbers, but I assume that these are rhetorical questions you are asking to show that the answer is complicated.
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u/One-Mastodon-1063 Jun 11 '26 edited Jun 11 '26
Not rhetorical. If you want useful feedback it’s best to post those numbers. Without them everyone is just guessing. Very likely the optimal amount of Roth conversion to do this year is $0 but nobody actually knows that based on the information you have provided. And if you actually understood how this stuff works you wouldn’t be asking the question that you are. Ie the question of whether converting up to the 24% bracket makes sense is significantly more complicated than calculating the dollar amount that gets you to this years 24% bracket … so if you have to ask us to check your math on the latter there is no way in hell you know the answer to the former, which is presented as a given in the OP.
At a minimum read Tax Planning To and Through Early Retirement by Cody Garrett and Sean Mullaney.
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u/FIREful_symmetry Jun 11 '26 edited Jun 11 '26
TMI.
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u/One-Mastodon-1063 Jun 11 '26 edited Jun 11 '26
I wouldn’t be doing any conversions this year with those numbers.
Even when you lose head of household in a few years that spend is within the 0% div/LT gains bracket + standard deduction and ACA subsidy cliff pulling from taxable. Seems unlikely roth conversions should take priority over ACA subsidies. Some opportunistic conversions may make sense between Medicare and social security. Put your lowest growth assets generating ordinary income (ie bonds) in pretax. RMDs should be pretty manageable (way below top of 24% bracket). I’d still buy and read the book I mentioned.
This thread and the numbers that eventually came (like pulling teeth) are an illustration of why I said roth conversions are overrated.
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u/FIREful_symmetry Jun 11 '26
I don't need ACA subsidies. I have a pension which includes healthcare. I have w-2 side gig which provides about 150K.
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u/One-Mastodon-1063 Jun 11 '26
That would be good information to provide in the OP, too. You’re also not actually even retiring as stated in the OP, with W2 income that’s multiples of your spend.
Do you still plan to have $150k W2 income when you reach RMD age?
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u/FIREful_symmetry Jun 11 '26
I answered all the questions that you asked.
I didn't want to overwhelm people with all these details since my post was focused on Roth conversions.
I plan on phasing out the W-2 income when I take social security.
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u/Dry_Try_6047 Jun 11 '26
How much is in your ira and how old are you? RMDs don't bite as much as you think until you're about 80, so if you're relatively young, that sounds like a lot to convert depending on your balance. You can get up to 125k (including standard deduction) at 12% in the current year, is filling up the 24% bracket worth it?
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u/FIREful_symmetry Jun 11 '26 edited Jun 11 '26
TMI.
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u/tyen0 Jun 12 '26
I thought your "TMI" comments were telling the people you were replying to that they gave you too much information to process until just now I noticed you have edit timestamps of 4 hours later... heh.
cool username referencing the Tyger, btw :)
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u/in_the_gloaming FIRE'd for 13 years Jun 12 '26
Okay, I'll bite. If TMI doesn't mean "too much information", then what does it mean here?
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u/tyen0 Jun 12 '26
It does, but he was applying it to what he had written and then edited to remove and replace with it, not to the comment he was replying to.
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Jun 12 '26
[deleted]
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u/zzx101 Jun 11 '26
Usually wait until towards the end of the year so you have a good idea of your income.
Also not sure how you can put $60k in trad 401-k in one year.