Hi Jan,
October is here, which means we're in the final stretch of the tax year. For many of you, that also means it's time to start thinking about how much to Roth convert before December 31.
This week we look at one of the most common ways people make that decision: checking how much room is left in their current tax bracket and converting enough to fill it. It's a convenient benchmark, but it misses much of what actually happens when you add another dollar of income in retirement. Social Security taxation, Medicare surcharges, capital gains stacking, and phased out deductions can all push your effective marginal tax rate well above the bracket you see on the tax table.
We also look at the other side of the equation. Converting too much can leave you with very little pretax income later in retirement, which means future deductions may go unused. A $0 tax bill in your 70s isn't automatically a win if you paid more than necessary to get there.
| | | | Filling Tax Brackets May Be the Wrong Roth Conversion Strategy Paying $0 in federal income tax during retirement might sound like the ultimate tax-planning victory. After decades of paying taxes on your earnings, investments, and retirement savings, reaching a point where you owe nothing can feel like evidence that you planned exceptionally well. But a $0 tax bill can also represent a missed opportunity.
By Retirement Researcher | | | | The Number on Your Tax Return Is Not the One That Matters Every April, retirees review their tax returns and arrive at a number that feels like a summary of their tax situation: their average rate. It is a tidy figure. It tells you what percentage of your total income went to federal taxes for the year. The problem is that this number looks backward. It describes what already happened. It says almost nothing about the cost of the next financial decision you make.
By McLean Asset Management
| | | | Are You Doing Roth Conversions the Wrong Way?
Alex and I take your live questions on how much to leave in an IRA after Roth conversions, using saved HSA receipts to cover the conversion tax bill, timing conversions around IRMAA thresholds, and whether to front load or spread conversions out. We also cover survivor benefits from an ex spouse, MYGA ladders as a Social Security bridge, buffered ETFs, and an early look at research Michael Finke and I have done on using annuities to offset RMDs.
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Our team and our sister firm, McLean Asset Management, are hosting a free webinar, AI: The Double-Edged Sword of Cybersecurity and So | | | |
