Quick Read – Retirees who wait for RMDs at 73 can face a ~40% effective marginal rate when mandatory distributions, Social Security, and IRMAA surcharges stack together. – Converting ~$133,000 annually to Roth between ages 65 and 72 shifts ~$1.1 million at a blended rate under…
%, well below the eventual 24% bracket. – Conversions done at 63 raise Medicare premiums at 65 via a two-year IRMAA lookback, so sizing conversions below the ~$212,000 MAGI threshold is critical. – A married couple, both 65, retired last year with $1.5 million stacked inside traditional 401(k)s. They delayed Social Security to 70, live off a taxable brokerage account, and figure they will just start withdrawals when the IRS forces them to at 73
It is also the setup for the most expensive tax mistake retirees in this balance range make. A caller on the Clark Howard podcast framed the alternative cleanly: “If you in dribs and drabs each year move money from the traditional 401k into the Roth and because your income’s lower, you’re lowering the tax”. That is bracket smoothing, and for a $1.5 million balance it is worth roughly six figures over a retirement.
Why The Do-Nothing Path Ends At 24% Assume the portfolio compounds at 7% from 65 to 73. The $1.5 million grows to roughly $2.6 million. First-year RMDs at 73 use a divisor near 26.5, producing a mandatory distribution around $97,000.