From 24/7 Wall St. · David Beren · · 1m
Roth Conversion Timing
Retiring in March at 65 pushes Roth conversions into higher tax brackets.
In brief
Retiring in March at 65 pushes Roth conversions into higher tax brackets. Retiring mid-year with salary already earned increases Roth conversion tax rate from 12% to 22% by stacking income. Originally reported by 24/7 Wall St..
Roth Conversion Timing
Retiring mid-year feels like the perfect moment to start a roth conversion.
“Retiring mid-year feels like the perfect moment to start a roth conversion”
Salary Stacking Problem
Wages earned before conversion push income into higher tax brackets.
“Wages earned before conversion push income into higher tax brackets”
Tax Bracket Impact
Thirty thousand dollars of wages plus sixty thousand conversion pushes taxable income into 22% bracket.
“Thirty thousand dollars of wages plus sixty thousand conversion pushes taxable income into 22% bracket”
January Conversion Benefit
Converting in january avoids stacking and keeps conversion at 12% tax rate.
“Converting in january avoids stacking and keeps conversion at 12% tax rate”
Medicare Surcharge Risk
Roth conversion pushes medicare premium from $202.90 to $81.20 monthly.
“Roth conversion pushes medicare premium from $202.90 to $81.20 monthly”
Waiting Can Be Wrong
Severance, bonuses, and stock options can reload low tax brackets after retirement.
“Severance, bonuses, and stock options can reload low tax brackets after retirement”
Social Security Impact
Social security claimed in retirement year increases taxable income and tax burden.
“Social security claimed in retirement year increases taxable income and tax burden”
Conversion Window
Losing one year out of eight costs little, but losing one year out of two costs much more.
“Losing one year out of eight costs little, but losing one year out of two costs much more”
What it means
Retiring mid-year with salary already earned increases Roth conversion tax rate from 12% to 22% by stacking income.
