Tax Planning Frequently Asked Questions
It depends on your specific situation. Roth conversions make sense when:
Favorable Factors:
Currently in low tax bracket (early retirement, before Social Security/RMDs)
Expect higher taxes in future
Have non-retirement funds to pay conversion taxes
Want tax-free legacy for heirs
Large traditional IRA balance creating future RMD problems
Desire tax diversification
Unfavorable Factors:
Currently in high tax bracket
Need IRA funds for living expenses
Would have to pay taxes from IRA (reduces conversion amount)
Already have substantial Roth balance
Short life expectancy
We model conversions for your specific situation showing total lifetime tax impact under different scenarios.
Ideal Timeline: 5-10 years before retirement provides the most options and opportunities.
Why Early Planning Matters:
More years for Roth conversions
Time to build tax diversification
Coordinate Social Security timing
Optimize final working years
Prepare for healthcare transition
But Don’t Wait: Even if already retired, strategic tax planning still provides substantial benefits. It’s never too late to start optimizing.
Traditional guidance suggests taxable accounts first, then tax-deferred, then Roth. However, optimal sequencing depends on your specific situation:
Factors to Consider:
Current and projected future tax brackets
Account balances and diversification
Age and time until RMDs
Social Security claiming status
IRMAA thresholds
State tax implications
Flexible Approach: We typically recommend drawing from multiple account types each year in proportions that optimize your tax situation rather than rigid sequential drawdowns.
IRMAA is based on income from two years prior, so strategic planning requires looking ahead:
Strategies:
Monitor income two years before IRMAA applies
Use Roth withdrawals in high-income years (don’t count)
Time Roth conversions to avoid IRMAA years
Coordinate capital gains recognition
Consider QCDs to reduce AGI
File life-changing event appeals if circumstances change
Plan RMDs around IRMAA thresholds
We work collaboratively with tax preparers, we don’t replace them:
Our Role:
Strategic tax planning and projections
Roth conversion analysis and recommendations
Withdrawal strategy development
Multi-year tax optimization
Coordination with financial planning
Your CPA’s Role:
Annual tax return preparation
Current-year tax advice
Tax compliance and reporting
IRS communications if needed
Best Outcome: We develop the strategy, coordinate with your CPA, and they implement through tax return preparation. Many clients find this team approach most effective.
If you don’t have a CPA, we can provide referrals to qualified professionals we work with regularly.
Not planning ahead. The biggest tax mistake is waiting until age 73 when RMDs begin to think about tax strategy.
The Cost: Large RMDs can:
Push you into higher tax brackets permanently
Make 85% of Social Security taxable
Trigger IRMAA surcharges
Create taxes on income you don’t need
Last for the rest of your life with increasing amounts
The Solution: Strategic planning 10-15 years before RMDs through Roth conversions, tax diversification, and comprehensive strategy.
Second Biggest Mistake: Not understanding the interaction between different income sources and how they compound tax issues (Social Security taxation, IRMAA, state taxes, RMDs all interact).
Annual Reviews: Minimum frequency to account for:
Tax law changes
Income changes
Account balance changes
Life circumstances
Updated projections
Major Life Events: Review after:
Retirement transition
Social Security claiming
Inheritance or windfall
Health changes
Spouse’s retirement or death
Tax law changes
Ongoing Management: Tax planning is not one-time, it requires ongoing monitoring and adjustment throughout retirement.
We provide annual reviews and updates as part of our comprehensive retirement planning service.