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Roth Conversions in the 22% and 24% Tax Brackets - Is It Worth It?

Wise Money Show

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Are Roth conversions only worth it in the 10% or 12% tax bracket? Not always. In this episode of Wise Money, we explain when Roth conversions in the 22% or 24% tax bracket can make sense and when they don't. We cover estate planning considerations, market downturn opportunities, retirement tax "windows", and whether a seven-figure portfolio can still stay in a lower tax bracket.

Season 11, Episode 17

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Kevin Korhorn, CFP® offers securities through Silver Oak Securities, Inc., Member FINRA/SIPC. Kevin offers advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. KFG Wealth Management, LLC dba Korhorn Financial Group and Silver Oak Securities, Inc. are not affiliated. Mike Bernard, CFP® and Joshua Gregory, CFP® offer advisory services through KFG Wealth Management, LLC dba Korhorn Financial Group. This information is for general financial education and is not intended to provide specific investment advice or recommendations. All investing and investment strategies involve risk, including the potential loss of principal. Asset allocation & diversification do not ensure a profit or prevent a loss in a declining market. Past performance is not a guarantee of future results.
Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with plaque design) in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.

Intro: (0:00)
Segment 1: (0:11)
Break 1: (10:28)
Segment 2: (11:53)
Break 2: (22:09)
Segment 3: (25:41)
Break 3: (35:58)
Segment 4 (38:11)
Outro: (48:28)

20 Comments

@CastingPearlsBeforeSwine-1 5 months ago

Pearls of wisdom.
1. If a couple each have large IRA's, as my wife and I did, DO NOT name each other as the majority beneficiary, perhaps not at all. Name your children as the beneficiaries. Let them benefit after the first loss of a parent while they are younger and perhaps have a greater need. Leaving it to your spouse just bunches up the inheritance later and only allows a single 10 year window to take disbursements of it all. When my wife died at 70 our sons each inherited $400k+ in IRA's. They have 10 years to manage distributions and the tax implications. If I survive at least 10 more years they will have another, separate 10 year window to manage disbursements from the IRA's the will inherit from me. Of course, the portion in an inherited Roth IRA I advise them to leave in the Roth account until the 10th year.
2. Based on my advice, my sons had been making 401k Roth contributions, at least enough to get the max company match. They were largely in the 12% tax bracket, maybe a bit more especially if they took any capital gains in a given year. Once inheritance entered the picture I had them switch to Traditional 401k and max out their annual contribution. Any resulting reduction in (taxable) income they can 'backfill' with taking a disbursement from the inherited traditional IRA. They can manage conversions of their own growing pre-tax retirement account later, perhaps when they retire early.

@James4cycling 9 months ago

We’re in the 24% bracket and will be in the 22% or 24% for the foreseeable future. Currently we’re in year 5 of 9 doing Roth conversions. We’re doing the conversions to:
avoid RMD’s pushing us into a higher tax bracket;
paying IRMAA;
avoiding the widow/er tax;
pushing our children into a higher tax bracket AND having child tax benefits phased out including college assistance;
and finally, with the national debt out of control I can only see taxes going higher in the future.

@victorvale8391 9 months ago

Excellent episode but when you answer good questions with good answers it always makes me think of more questions you definitely got me thinking thanks

@seanschaefer5233 9 months ago

I got the "Princess Bride" quote as soon as it came out of his mouth. I retired on Black Friday this year and this topic was perfect for my situation. Subscribed!

@samapattiyoga 9 months ago

This would have been helpful when I was in the 22 or 24% tax brackets and is just as helpful now that I'm in the 10 or 12% tax brackets. Much appreciated!

@RobWilliams007 9 months ago

Thank you. 12 to 22 is almost double.

@PVLocalFirst 5 months ago

i've been thinking of doing more roth conversions, i'm currently in the 12% tax bracket and i'm almost 56 years old. Nice video. I love how the words economy and ecology have the same Latin root word, eco, basically translating to home. To me this shows we need solutions that are economically and environmentally intelligent.

@curtiswfranks 9 months ago (edited)

If the tax rate on the money is going to be the same and the future market is unknown or projected or assumed to be the same, then I would favor Roth (assuming that current circumstances can support the immediate tax burden). Having total control over the money and not needing to worry about taxes in the future, paying for advice or management or help, or playing games with it is a win unto itself. The psychological, logistical, and practical value of those benefits is valuable and could even be worth some financial loss. Plus, if someone else is managing the money, they may not do what you feel to be wise, meaning that the family as a whole loses out.

@sasbeo 9 months ago

Yes there is a reason to do a Roth conversion in 22% tax bracket… single, pension…avoid IRMAA and RMDs

@MayurShah-o2c 9 months ago

Nice episode.

I did exercise with IRMAA taxes and higher brackets than 24%.

@kersting13 8 months ago

Regarding Roth conversions at 24%: My wife and I will be retiring at 56/54 with over $2 million in trad 457b (immediately eligible for conversion or withdrawal at separation with no penalty). Pension income will have us squarely in the 22% Bracket. Pension and dividend income will most likely cover all of our expenses. Waiting to take SS at 70 probably adds another $100K in guaranteed income. So, it seems to me that there's a very real possibility of RMDs or widow's penalty pushing income well into the 32% bracket after age 75. As well as possibilities of large legacy. My current thinking is that we should either convert or simply "live up to" the top of the 24% bracket for the first few years of retirement in an attempt to keep out of the 32% bracket in the future. As you say, we have to run all of the numbers, but the large portfolio could turn into a tax bomb if not treated carefully, which very well could mean converting at 24%.

@lesliek4954 9 months ago

Now I understand how "most retirees are in the 12% tax bracket." They're married! As a single person, 22% starts at $48,476 for 2025.

@EBMB21 9 months ago

I’ll be converting at zero tax bracket (part of my living expenses) for several years before RMD kicks in.

@grandaddycrypto6616 9 months ago

LOVE THE PRINCESS BRIDE QUOTE!!!

@deannariley8817 5 months ago

This is my exact question. Thank you

@matthewharrigan3568 9 months ago (edited)

Answering what tax bracket is complicated. Might be 12% in terms of ordinary, but each dollar also causes another dollar of long term cap gains to get 15%, so you could say 27%, which technically isn't even a bracket. Add in various deductions and credits, IIRMA, Obamacare surcharge, and a tiny fraction of people actually know their marginal rate

@MayurShah-o2c 9 months ago

Agreed- there is no escape from paying taxes. I am aware of widow penalties and inherited IRA where living family members may have to pay higher taxes. In my situation, it may be more taxes.

@apai811 8 months ago

Excellent video

@junkiemail78 9 months ago (edited)

As a single tax filer, the income for 10% or 12% tax bracket is so low; most people will easily fill them with taxable investment accounts, rental, pensions and/or social security income. It's almost guaranteed; we would need to convert in the 22% and 24% tax bracket. We also need to account for higher premiums on IRMAA for medicare at age 65. Or higher taxes when RMDs come into play. Those who already accumulated 7 figures in Traditional 401K/IRAs in their 40's would absolutely need to convert ASAP during their working years before retirement. Possibility of reaching (multi-millions) in the Traditional 401K/IRAs at retirement ages. Also that 10-year withdrawal rule for TRAD 401K/IRAs will impact recipients (for Estate Planning). Future tax laws may change again to make unfavorable again.

@guest4996 1 month ago

Having a tax-free bucket of money to withdraw from in retirement gives you the ability to keep your tax bracket lower in retirement. You can take some money from your taxable accounts up to a particular tax threshold, and if you need more that year, take it from your tax-free bucket.

Also, with ROTH 401k's, your employer match will often be tax-deferred in a separate bucket within your 401k. So make sure you know how much of your money is actually tax-deffered or Roth when making your plans.