Many investors assume their taxes will be lower in retirement.
Sometimes that’s true. Often, it isn’t.
Income doesn’t disappear in retirement; it just changes form. Required Minimum Distributions from large IRAs, two Social Security benefits, pensions, rental income, and portfolio dividends can stack together in ways that push taxable income higher than expected.
That’s where Roth conversions become powerful.
Consider a couple with $2 million in traditional IRAs at age 62. If those accounts grow at 6% annually, they could reach roughly $3.6 million by age 73, when Required Minimum Distributions begin. Their first RMD alone could exceed $130,000. Add $70,000 in combined Social Security, and their taxable income is already around $200,000 before considering any additional income.
Now assume that during their 60s — before RMDs begin — they deliberately convert $80,000 per year while staying within the 22% tax bracket. Over ten years, that moves $800,000 into a Roth account at a known 22% federal rate, creating a total tax cost of $176,000.
If that same $800,000 had instead remained in the traditional IRA and grown for a decade, it could be worth roughly $1.43 million. If future income pushes them into the 32% bracket, the federal tax on that amount would be about $457,000.
Paying 22% today instead of 32% later on that balance represents a difference of roughly $281,000.
That’s not financial magic. It’s bracket management.
Of course, this only works if future tax rates — or future income — are likely to be higher. For retirees with modest savings, no pension, and limited income, a conversion may offer little advantage.
The point is not that Roth conversions are universally good. It’s that they allow you to choose when you pay taxes. And when you understand your future income trajectory, that choice can translate into meaningful lifetime savings.
Taxes in retirement are not automatically lower. But they are plannable, if you act before the IRS acts for you.