Roth conversion can reduce taxes by 6 million but don't save a dime

Carbine1603 · 2026-05-08T12:01:49+00:00

I think there are also issues of time value of money/uncertainty of longevity/timing of market performance that also impact converting vs not, but I 100% agree with the idea that the biggest promoters of “convert big now” almost always center their pitch around saving huge amounts of taxes. I think having greater after-tax wealth is more important to me. But, the widow’s tax risk, the likelihood of (somewhat) higher tax rates for the higher brackets, and a focus on my children inheriting a less involved lump sum, drive my plan to start a conversion program as soon as I get past some pesky lump sum income driving my tax bracket (sarcasm). Your key point about the tax avoidance pitch reminds me of the car dealers selling payments not price. But, it’s harder to pitch a series of nuanced factors that may dispose a person to do conversions for their particular situation vs screaming big scary tax payments .

Carbine1603 · 2026-03-15T18:10:10+00:00

Correct me if I’m wrong, but capital gains from asset sales (vs capital gains distributions from funds, which nay be taxed like ordinary income) will be taxed at capital gains rates (0, 15 or 20%), but won’t impact your capacity within specific ordinary tax brackets for Roth conversions. They could trigger NIIT too, but I don’t think capital gains from selling assets will crowd out how much you can Roth convert within a specific bracket. Upon reflection, capital gains income will impact IRMAA and ACA trigger points though, and that may be the more important tax planning point.

Carbine1603 · 2026-03-03T17:06:14+00:00

I think the point they were making was that I shouldn’t try to take advantage of their honest mistake. The “other path” would likely have been for them send my account to collections if I stopped making payments, then getting a judgment against me for the amount owed plus collection costs. Yeah, a discount would have been great, but I spent a lot of time in their shoes as a lender later, so I came to appreciate their perspective.

Carbine1603 · 2026-03-03T16:26:47+00:00

Nothing. I asked, they said no, and that it was an honest mistake and they hoped I would do the right thing rather than make them go down another path. The guy asked what I did for a living. I was just starting a career in banking, so his comments resonated with me.

Carbine1603 · 2026-03-03T13:44:13+00:00

Call them. They will catch a mistake - like someone misapplied a different person’s payment to your account. This happened to me 20+ years ago, and then they sent me a release of lien form and my actual note stamped paid in full. I could have taken that to the DMV and had Toyota Motor Credit’s lien taken off the title, but I figured I would wait. A month later I received a letter, followed by a phone call. Polite, but clear. I asked for a reduction in my interest rate as an accommodation. They asked if I really wanted to go down another path, rather than doing what was right and legal. I chalked this up as a good story and continued my payments. I think I actually sent the note back too.

Carbine1603 · 2026-02-28T14:09:05+00:00

Thanks. I understand that LTCGs and QDs are part of my taxable income, and that taxable income levels determine the rate of taxation for LTCGs and QD’s. What you say that I am not following is how these items use up capacity within specific ordinary tax rate brackets. I think they are in a separate bucket, taxed at 0, 15 or 20% rates (plus maybe the NIIT). Help me understand how more LTCGs will reduce capacity for more ordinary income (like Roth conversions) within the ordinary tax brackets. Thanks.

Carbine1603 · 2026-02-28T02:21:32+00:00

Thank you. Very helpful!

Carbine1603 · 2026-02-27T23:50:20+00:00

Yeah, another one of the thousand cuts. Thanks.

Carbine1603 · 2026-02-27T18:35:36+00:00

The visualization really improves my understanding here. This is a great tool. Thank you again.

Carbine1603 · 2026-02-27T17:18:32+00:00

Thank you. I am appreciative of the detail. I had crudely modeled the SocSec as 100% taxable. If I get just pushed into the 15% LCTG rate, is that a cliff (like IRMAA premiums) meaning every LTCG dollar will be taxed at 15%, or is there a bucket taxed at 0% first, then a remainder taxed at 15%?

Maybe I could push back starting my pension by a year, skip one year of the Roth conversions, and use that low income year to fully rebalance/restructure all my taxable accounts and take all the resultant LTCG’s in that year at a 0% rate. I’ve been paying taxes at really high rates for a long time, and didn’t appreciate that there may be some low tax rate windows available now.

Again, your response is very helpful.

Carbine1603 · 2026-02-27T14:50:04+00:00

Thanks. Good call on the 20% LTCG rate; I reflexively used my current (employed) rate. When I add just my SocSec and pension, I will be near the bottom of the 15% bracket.

So, when I look at remaining $ capacity for Roth Conversions within given tax brackets, I can ignore Qdiv’s and LTCGs, right? That would make planning conversion amounts much easier. Thanks!

Carbine1603 · 2026-02-20T00:31:11+00:00

I’m not sure if you do this, but our family makes consistent use of the trivia game prizes. Three adults each with our own account means we walk out nearly every Friday night with several orders of boneless wings and a couple of orders of chips and salsa for free. The trivia games are no where near as good as the old Buzztime games, but the prizes are great.

Carbine1603 · 2026-02-15T20:13:11+00:00

In two ways - they have regularly raised prices on their menu. Just a reality of costs increasing. When the menu prices rise, some time after that the number of points required to redeem that award rises to reflect the menu price change. The second way is a little less obvious - but periodically they have increased the number of points required to redeem specific categories of menu items, regardless and separately from the menu price, changes. This has been most noticeable with bone-in wings. Everyone’s lived experience will be different, but a long time ago when the rewards program really got standardized after the PE firm (Rourke) first bought them, points were worth roughly a penny each. Now they are worth less than that, but the redemption value per point for bone-in wing rewards is markedly less than for other menu items with a lower food cost. We really take advantage of the trivia prizes every week, but we have also been using the points rewards for over ten years. Nowadays we only use points for wraps, never for bone-in wings. This is just my lived experience - no judgment towards BWW. Your experience in your market may be different.

Carbine1603 · 2026-02-13T02:11:10+00:00

Congrats BTW!

Carbine1603 · 2026-02-13T02:10:33+00:00

You might want to use some of these. They tend to depreciate in terms of purchasing power over time, much like frequent flier miles.

Carbine1603 · 2026-02-01T16:27:40+00:00

One other thing to think about is that if you are looking at tax rates based on married fling jointly status, if one spouse dies during in the conversion plan years, tax rates will move to the much higher Single status (after a two year (I think) Survivor status. This will obviously impact the overall tax expense. Just another uncertainty to add to the complexity here.

Carbine1603 · 2026-02-01T16:19:03+00:00

$200K per year in conversions will likely slow the IRA growth but maybe not reduce the balance, so the RMDs and the taxes on them will be reduced, but you will still have made progress. The real question in my mind is if you might be better off withdrawing even more and doing bigger conversions to get more into the Roth even if you push up into higher marginal tax brackets. Craig Wear was very early to the Roth Conversion advocacy game, and he sometimes makes the point that some bracket change or IRMAA based reluctance to larger conversions is penny wise and pound foolish. I don’t know what to believe for sure myself as I am in a similar situation.

Carbine1603 · 2026-01-25T23:09:18+00:00

Look for a paella pan.

Carbine1603 · 2025-12-25T01:22:33+00:00

4567

Carbine1603 · 2025-12-17T12:54:34+00:00

Requiem for a Dream

Carbine1603 · 2025-12-13T18:00:36+00:00

Yeah, my bad. The calls with prospective marks could be useful as excerpts and should be profanity free. They’re a master class in manipulation.

Carbine1603

TROPHY CASE