"By age 73, the traditional IRA shrinks from $1.8M to roughly $1.1M after conversions and growth. The first RMD on $1.1M is about $41,509, versus $78,490 on the un-converted $2.08M balance."
"That is $36,981 less in forced income each year, or about $8,875 in annual tax savings at a 24% rate, permanently."
A 62-year-old retiree with $1.8 million in a traditional IRA and $200,000 in a Roth IRA plans to convert $500,000 over five years. This strategy aims to minimize future Required Minimum Distributions (RMDs) that begin at age 73. The retiree faces a tax cost of $120,000 at a 24% federal bracket. The decision hinges on whether taxes can be paid from outside the IRA. Successful conversions can significantly reduce RMDs and associated tax burdens, providing long-term financial benefits.
#roth-ira #required-minimum-distributions #tax-strategy #retirement-planning #financial-independence
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