Large traditional 401(k)s can lead to high tax rates
Retirees with large traditional 401(k)s can face effective marginal rates near 40% when required minimum distributions, Social Security taxation, and Medicare IRMAA surcharges stack simultaneously at age 73.
A strategy called bracket smoothing can prevent this, by converting pretax 401(k) to Roth at a lower rate. Married couples can convert roughly $133,000 annually at a 12% rate.
The 12% federal bracket ends at $100,800 of taxable income for married couples filing jointly, and at $50,400 for single filers. The standard deduction is $32,200 for married couples and $16,100 for single filers.
Bracket smoothing can help retirees avoid high tax rates, but the window to use it closes the day the first required minimum distribution hits.