Spreading Out Roth Conversions to Remain in Lower Tax Bracket
I just finished the “Roth It ” chapter of the new book and did not see this question addressed directly. If someone has enough cash to pay the taxes, all things being equal is it generally better to convert all of your non-Roths asap assuming it can be done without penalties? My thought is it would be better to spread it out over multiple years to stay within the 24% tax bracket for example, instead of converting all at once and getting into the 32% – 37% brackets. Thank you. Bruce
Permalink Submitted by Alan - IRA critic on Sat, 2021-03-20 20:56
Generally, conversions are beneficial if done at a lower marginal rate and in some cases at a rate no higher than your expected marginal rate in retirement. To the extent you avoid converting at higher marginal rates it is more likely that the conversion rate will be favorable compared to what your marginal rate on RMDs would have been had you not converted. So you are correct.
Note that some people are in the top bracket and will always be in the top bracket and the top bracket is expected to increase in the near future. For those people, converting sooner rather than later is recommended since their future conversions will most likely come at a higher rate.