I just read a recent NYTimes article titled "The Retirement Maneuver More People Should Be Making" (paywall) by Peter Coy in which he talks about the benefits to making large (eg, $1M+) Roth conversions in a short period of time. These are in defiance of conventional wisdom which says that you should only Roth convert up to the limits of your current tax bracket.
Peter's article quotes a number of respected folks: First, Laurence Kotlikoff (BU Prof & the creator of MaxFi) and his article Optimal Roth Conversions -- Go Big or Go Home!. That article asserts "In short, federal income taxes are only part of the optimal Roth conversion story and converting only when federal income tax brackets are low — the typical practice — is rarely best and may cost you money.". The idea being, pay your taxes up front, even if they are a higher tax bracket, because over time the benefits (ex: IRMAA, avoiding SS taxes, lower RMDs) of the large Roth conversion will more than pay back the initial tax bump
He also quotes Joel Dickson of Vanguard and Steve Chen of Boldin/New Retirement who also agree with this strategy.
This surprised me as I find it hard to believe that paying taxes in a higher bracket now (going from say 24 to 32 or 35) would have a payback. What do BH'ers think?
EDIT: Although the NYTimes article I reference is paywalled, it's worth reading the free article I posted above by Kotlikoff Optimal Roth Conversions -- Go Big or Go Home!. This the basis for the NYTimes article.
Peter's article quotes a number of respected folks: First, Laurence Kotlikoff (BU Prof & the creator of MaxFi) and his article Optimal Roth Conversions -- Go Big or Go Home!. That article asserts "In short, federal income taxes are only part of the optimal Roth conversion story and converting only when federal income tax brackets are low — the typical practice — is rarely best and may cost you money.". The idea being, pay your taxes up front, even if they are a higher tax bracket, because over time the benefits (ex: IRMAA, avoiding SS taxes, lower RMDs) of the large Roth conversion will more than pay back the initial tax bump
He also quotes Joel Dickson of Vanguard and Steve Chen of Boldin/New Retirement who also agree with this strategy.
This surprised me as I find it hard to believe that paying taxes in a higher bracket now (going from say 24 to 32 or 35) would have a payback. What do BH'ers think?
EDIT: Although the NYTimes article I reference is paywalled, it's worth reading the free article I posted above by Kotlikoff Optimal Roth Conversions -- Go Big or Go Home!. This the basis for the NYTimes article.
Statistics: Posted by techbud — Sat Feb 01, 2025 5:10 pm — Replies 19 — Views 803
