Several online conversion calculators pretty much give me the same or similar results if before and after retirement tax brackets are the same i.e. 25%. If my tax bracket drops to 15% after retirement the results are highly in my favor to not convert now but to pay taxes on withdrawals at the Lower 15% rate.

I am 59 years old, married and plan to retire in 3-5 years with a retirement income around $70,000 per year (15% tax bracket). Would it still benefit me to convert one of my IRAs to a Roth to supplement my income if necessary regardless of the online conversion results if more income may put all my income in a higher tax bracket?

  • My understanding is that with the Roth, the gains are not taxable. So you may pay an extra 10% taxes on the principle, but then you won't have to pay any taxes on the earnings from the Roth when you withdraw. If you can let it grow long enough, you'll probably come out ahead. – Neal Fultz May 23 '15 at 17:23
  • @NealFultz: This is incorrect. You are forgetting the time value of money. The principal now has the same value as the principal + gains later on. The same tax on either one is equivalent and will produce the same result. – user102008 May 27 '15 at 10:12

You are in an interesting income range. At 59, do you have a good idea what your Social Security benefit(s) will be? If so, you need to take that into account. Some time ago, I wrote an article titled The Phantom Couple’s Tax Rate Zone in which I analyzed how a 15% bracket couple experience a phantom 27.5% rate as their social security benefit becomes taxed.

There are a number of variables to consider, but the point remains -

file a joint return, and you and your spouse have a combined income

  • that is between $32,000 and $44,000, you may have to pay income tax on up to 50 percent of your benefits
  • more than $44,000, up to 85 percent of your benefits may be taxable. are married and file a separate tax return, you probably will pay taxes on your benefits.

*Note – Your adjusted gross income+ Nontaxable interest+ ½ of your Social Security benefits= Your “combined income”

For the article, I assumed $40K in SS benefit, which meant that once taxable other income exceeded $24K, you were paying tax on the benefit in addition to the tax on the withdrawal.

I suggest you use some tax software, free, or paid, and do some simple forecasting. One strategy is to retire at 64, as you suggest, but don't take the SS benefit so soon. Use the first few years to fill up the 15% bracket and draw down your account a bit. This extra time will increase your benefit. Even converting at 25% might make sense, but you still have to run the numbers.

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