The window most clients
never hear about.

Between the day a client stops working and the day required distributions begin, their taxable income is the lowest it will ever be again. That window arrives once.

The window most clients never hear about

Between the day a client stops working and the day required distributions begin, there is a stretch of years when their taxable income is the lowest it will ever be again.

For most people that window is somewhere between five and ten years long, it arrives exactly once, and it closes quietly. Almost nobody is told it exists.

General information for advisors, not tax advice. Thresholds and rules change, sometimes annually. Verify current figures before applying any of this to a client.

What the window is worth

In those years a client can deliberately realize income at a low rate — converting from tax-deferred to Roth — instead of being forced to realize it later at whatever rate applies then.

The arithmetic is not about predicting tax rates. It is about the difference between income you choose and income the calendar chooses for you. Required distributions are not optional, and they arrive on top of Social Security, pensions and whatever else has started by then.

How much to convert

The usual approach is to fill a bracket rather than to convert a round number. Work out the client's taxable income for the year, then convert up to the top of whatever bracket you have decided is acceptable, and stop.

That means the amount is different every year, and it means the decision cannot be made in January. It is a November exercise, once the year's actual income is nearly known.

The interactions that catch people

Medicare premium surcharges. Income above certain thresholds raises premiums, assessed on a two-year lookback. A large conversion at sixty-three has a consequence at sixty-five that nobody anticipated.

Taxation of Social Security. If benefits have started, additional income can make more of them taxable, so the marginal cost of a conversion is higher than the bracket suggests.

Paying the tax from the wrong place. Using the converted account to pay the tax defeats much of the point. The conversion works best when the tax comes from outside.

The surviving spouse. Single filers hit higher rates sooner. A plan that looks balanced for a couple can be badly wrong for whichever of them lives longer — and that is usually the strongest argument for converting.

Who this is not for

Clients who will be in a lower bracket later. Clients who need the money soon. Clients whose estate will go to charity, which receives the deferred account without the tax problem.

The honest answer is sometimes no. Saying so is worth more than a conversion nobody needed.

What makes it hard operationally

It requires the current year's actual income, every account across the household, and the client's real bracket rather than an assumed one, all in November when everyone is busy.

Firms that cannot see the whole household in one place tend not to do it at all.

How this connects to the withdrawal decision →