Tax Planning When You Don't Drop Tax Brackets in Retirement
Episode 46
Tax Planning When You Don't Drop Tax Brackets in Retirement
Published on Aug 5th, 2026
Episode Summary
Episode 46 of Retirement Tax Matters addresses the common assumption that retirees always drop into lower tax brackets once they stop working. For savers in the $2M to $8M range, pension income, Social Security, taxable yield, and future required distributions often keep taxable income in the 24% or 32% brackets throughout retirement. Garrett and Adam walk through why converting at the same tax rate can still make sense by protecting a surviving spouse from bracket compression, managing the 10-year SECURE Act rule for adult children, and suppressing age-75 RMDs to avoid Medicare IRMAA surcharges and Net Investment Income Tax. The conversation also outlines scenarios where keeping money in a pre-tax IRA is the better choice, such as planning for charitable gifts, leaving assets to heirs in lower tax brackets, or relocating to a state with no state income tax. Ultimately, by using a tax-return-driven process to project income in the fall, retirees can evaluate their whole balance sheet and decide whether a Roth conversion fits their family's long-term plan before the December 31st deadline.
Key Tax Planning Questions
Question 1: Do Roth conversions make sense in the 24 percent bracket?
Asking whether or not you should do a Roth conversion in the 24% bracket is too simplified. Regardless of what tax bracket you find yourself in, part of the reason I am a big fan of tax-return driven financial planning is that it gives us a repeatable process. It is very similar to a surgeon going into an operation with a checklist. Checklists are invaluable for making sure you do not overlook critical details.
For retirees in that $2M to $8M net worth range, the goal every year should be to evaluate if a Roth conversion is suitable for that specific year. Making a black-and-white statement yes or no does not take into account all the variables. You have unknown legislative tax law changes coming out of Congress, current health considerations, and whether you file as married or single. As a former engineer, I understand the desire to want to spreadsheet out different Roth conversion possibilities, figure out a break-even age, and solve for tax rates. The issue is that any 30-year forecasting ability hinges on your ability to predict the future, and that is just a really hard thing to do.
That is why we focus on an annual framework. We talk about filing and reviewing your tax return in the spring, setting up a general Roth conversion plan, and then by the fall, you have a much clearer picture of your end-of-year Adjusted Gross Income, itemized deductions, and charitable giving. From there, you evaluate where you stand in the 24% tax bracket:
How close are you to the next Medicare IRMAA threshold or triggering the 3.8% Net Investment Income Tax?
Are you leaving efficient tax space on the table that could be filled with a conversion today under Married Filing Jointly to protect a surviving spouse from future bracket compression?
Will systematically trimming the pre-tax IRA now help suppress forced Required Minimum Distributions when you reach age 75?
If you are married, you have to think through that survivor tax risk. If you are single, you might not have a surviving spouse, but if your income is never going below 24% and you have remaining room before the next IRMAA tier, would it be smart to convert up to the next IRMAA threshold? The premise here is that a conversation about Roth conversions in the 24% tax bracket should happen every single year, and you never want to assume that what worked for you one year will automatically be the right move the next.
Question 2: How does moving states impact a Roth conversion strategy?
One of the most challenging aspects of financial planning for clients across the United States of America is navigating the wide differences in how individual states collect income tax revenue. While federal tax rates apply no matter where you live, state income taxes vary dramatically and can heavily influence whether a Roth conversion makes sense in a given tax year.
In a state like Tennessee (where I live) there is no state income tax. The decision is often straightforward because we only have to evaluate federal tax brackets. However, if a retiree lives in a state with high income tax rates, like California or New York, doing a large Roth conversion means accelerating income into both federal and state tax brackets. That additional state tax can add a real financial friction point to the Roth Conversion conversation.
For high-net-worth retirees who currently live in a high-tax state but plan to relocate to a lower state tax location in retirement, timing can be very important. If you are a year or two away from moving to a state with no-to-low state income tax, deferring large Roth conversions until after you relocate could be a very prudent move. Waiting until you establish residency in your new state allows you to avoid an unnecessary state tax hit on those converted dollars.
On the other hand, if a potential move is just a possibility several years down the road, I usually advise clients against delaying critical planning decisions indefinitely. Trying to time a Roth conversion around a move that may or may not happen often leads to missed opportunities in lower federal brackets. As financial planners, our job is to help families make the best decisions possible based on the facts known today. State income taxes are a critical variable in the equation, especially when relocating, but they should be evaluated alongside your overall timeline and long-term legacy goals.
Full Episode Transcript
Adam: Good morning, and welcome to Retirement Tax Matters. I'm Adam Reed. This is Garrett Crawford, our resident CFP® professional, and we're back with another hard-hitting episode of Retirement Tax Matters. We are on the cusp of another milestone! I feel like we've been wearing you guys out with our one-year anniversary and all this stuff, but we are just two subscribers away right as we record this. So hopefully next week when this goes live, two more of you got suckered into following along with us. You're at 998 subscribers right now, so that's a fun milestone.
Garrett: Absolutely, cool number.
Adam: Today we want to talk about Roth conversions. I feel like it's been a while since that was the central premise of an episode.
Garrett: It has been a little while since we've really dug deep on Roth conversions on the show.
Adam: Yeah, maybe five, six, or seven episodes. This is a pertinent topic for people in this $2 million to $8 million IRA space. Here is the question I want to throw at you: what about the people where it's not a slam dunk home run where they drop from the 32% bracket down to the 12% bracket in retirement? Maybe they have healthy Social Security, a pension, and plenty of traditional IRA money. They were in the 24% or 32% bracket during their working years, and in retirement, they remain right there in the 24% or 32% bracket. Do Roth conversions still make sense for them? Is this something they should consider, or what is the value of converting if you stay in that tax bracket for life?
Garrett: Roth conversions can be a contentious subject because they are multi-layered and unique. Part of the challenge is that we cannot predict the future. If we knew exact market returns for the next 30 years, this calculation would be simple. But people often enter the conversation with their own bias. It reminds me of the debate between Michael Jordan versus LeBron James on who is the greatest of all time. In this case, it is Roth conversions versus the traditional pre-tax IRA. People who prefer Michael Jordan will always say Jordan wins, and people who prefer LeBron will choose LeBron.
Adam: You're telling me arguments in Facebook comments don't actually change people's minds?
Garrett: There is a line from an old John Mayer song: "How many times has paid on a sign ever changed someone's mind?" But to get back to the point: I value Roth conversions and I value traditional IRAs. My job as a financial planner is to help clients achieve their goals. Sometimes that means minimizing aggregate lifetime taxes, and other times it means prioritizing different objectives.
There is a standard rule of thumb that your income will drop in retirement, so you should avoid Roth conversions while working and wait until retirement when your tax bracket is lower. For a majority of Americans, that assumption is often true. But for the $2 million to $8 million demographic watching our channel—people in their late 40s, 50s, or 60s who saved exceptionally well during high-earning careers—that baseline assumption is often false. They were in the 24% or 32% bracket while working, and between pension income, Social Security, taxable yield, and future Required Minimum Distributions (RMDs), their income never drops. They remain in the 24% or 32% bracket throughout retirement.
Even if you stay in the exact same tax bracket, there are four key reasons why that mainstream rule of thumb fails high-income savers:
First is the surviving spouse tax trap, or widow tax shock. When you are married, you file under Married Filing Jointly brackets. Upon the death of the first spouse, the survivor moves to Single filing status. With baseline pension income, Social Security, and forced RMDs from a multimillion-dollar IRA, a surviving spouse can easily get pushed from a 24% bracket into the 32% or 35% bracket on the exact same baseline income.
Adam: A lot of people assume expenses get cut in half when a spouse passes, but we don't see that happening. Comfort, security, fixed utilities, and baseline lifestyle costs remain largely the same.
Garrett: Exactly. Even if expenses drop slightly, forced taxable income distributions do not stop. Second, consider RMDs and the SECURE Act. Older retirees remember the stretch IRA, where non-spouse beneficiaries could spread RMDs over their life expectancies. Under the SECURE Act, adult children inheriting a Traditional IRA must fully distribute the account within 10 years. If your children are in their peak earning years—such as doctors or business owners in 35% or 37% tax brackets—inheriting a large pre-tax IRA creates a heavy tax burden. Converting at your 24% or 32% rate during retirement serves as an intergenerational tax arbitrage for your family.
Third, asset location and cash sourcing. If you hold $2 million in a taxable brokerage account alongside a $3 million Traditional IRA, paying conversion taxes out of brokerage cash rather than withholding from the IRA is a powerful move. You take capital out of an account subject to dividend and capital gain tax drag and shift it into a tax-free Roth shelter, while simultaneously slowing down future RMD compounding.
Fourth, Net Investment Income Tax (NIIT) and Medicare IRMAA surcharges. Remaining in high brackets means unchecked pre-tax compounding will generate large forced RMDs at age 75. High Adjusted Gross Income (AGI) can inadvertently trigger the 3.8% Net Investment Income Tax on your taxable brokerage yield and push you across steep Medicare IRMAA premium tiers. Trimming the pre-tax IRA early suppresses baseline AGI later in life.
Adam: That puts the pros into perspective. Even without current-year rate arbitrage, there are estate planning, asset location, and surcharge suppression benefits. Playing devil's advocate: we are pro-Roth conversion, but financial planning always involves trade-offs. What are the scenarios where a high-income retiree should pump the brakes on Roth conversions?
Garrett: There are just as many reasons to keep money pre-tax as there are to convert. Media thumbnails are usually extreme: either claiming Roth conversions are a trap or promising you can pay zero taxes forever. As financial planners, our role is not to push an extreme agenda.
Adam: Maybe I will make our thumbnail: "Maybe Do A Roth Conversion, Or Maybe Don't!" Total middle of the road.
Garrett: Here are four real-world scenarios where keeping money inside a Traditional IRA is the superior move:
First, charitable intent. Non-profit 501(c)(3) organizations inherit Traditional IRAs completely tax-free. If you plan to leave money to a church, charity, or university, or if you plan to utilize Qualified Charitable Distributions (QCDs) after age 70½, converting those pre-tax dollars today at 24% or 32% means paying tax on dollars that would otherwise pass completely untaxed.
Second, lower-bracket beneficiaries. If your adult children work in lower-paying fields or occupy the 12% or 22% tax brackets, forced 10-year distributions spread across multiple children will be taxed at lower rates than your current 24% or 32% bracket. It is better to let them inherit the pre-tax IRA at their lower rate.
Third, state tax relocation friction. Executing large conversions while residing in a high-tax state like California or New York right before a planned move to a zero-state-tax state like Tennessee, Florida, or Texas incurs an avoidable 6% to 10%+ state tax hit. Wait until you complete your move before executing conversions.
Fourth, health insurance and early IRMAA collisions. For retirees in their early 60s, triggering large conversions can eliminate Affordable Care Act premium subsidies or cross Medicare IRMAA thresholds at age 63 looking back to age 65, creating secondary costs that outweigh the conversion benefit.
Adam: So retirees moving from high-tax states to Knoxville should wait until they land here and work with us before converting!
Garrett: If you are planning a geographical move, factor state tax rates into your conversion timeline.
Adam: To tie this back to our Year-End Tax Planning Checklist: how should a retiree evaluate whether to execute conversions or leave funds pre-tax?
Garrett: The framework is identical for every client: tax-return-driven financial planning. In the spring, we review your recently filed Form 1040 to verify prior-year execution and establish a baseline income estimate for the current year. In the fall, we run scenario analysis in tax software to account for year-to-date dividends, interest, and capital gains. If market dips create an opportunity, or if your income numbers show available bracket space, we make an informed decision before the hard December 31st deadline closes the planning window. It is tax review in the spring, analysis in the fall, and rinse and repeat year after year.
Adam: We love walking through these planning puzzles with you. Be sure to check out the free Year-End Tax Planning Checklist at retirementtaxmatters.com, drop your questions in the comments, and subscribe on YouTube, Spotify, and Apple Podcasts. We appreciate you all. I'm Adam Reed, this is Garrett Crawford, CFP® professional, and we are Retirement Tax Matters.
Garrett: See you next time.