We Have $12 Million. Should We Do Roth Conversions? - 597

Full analysis

Joe Anderson, CFP, and Big Al Clopine, CPA walk through four listener Roth conversion questions spanning ages 38 to 76, with portfolios from $1 million to $12 million. The core lesson: whether to convert, how much, and to what bracket depends entirely on your current income, your future RMDs (required minimum distributions — the mandatory annual withdrawals the IRS forces from traditional IRAs and 401(k)s starting at age 73), the widow's tax penalty, and what your heirs' tax brackets look like. One-size-fits-all Roth advice is almost always wrong.

What was covered

• John in Oklahoma, 75–76, $1 million in traditional IRAs: John laid out six reasons not to convert. Anderson and Clopine largely agreed — his RMDs (~$45,000/year) aren't large enough to blow him into a higher bracket, and a new $6,000-per-person senior deduction in the "One Big Beautiful Bill" (OBBBA) legislation phases out between $150,000 and $250,000 of income. Converting on top of his existing income would effectively raise his marginal rate from 22% to 34%, costing him roughly $4,000 in lost deduction value per year. Their verdict: don't convert for at least three years while the deduction is in effect.

• The widow's penalty as a conversion trigger: Both hosts flagged this repeatedly. When a spouse dies, the survivor files as a single taxpayer, losing half the standard deduction and compressing into higher brackets. For John, if his wife survives him and inherits his Social Security, pension, and RMDs, she'll likely land in the 24% bracket as a single filer — but converting now at an effective 34% to protect against a future 24% rate doesn't pencil out.

• Jonathan and Jennifer in Phoenix, ages 64 and 60, $6.3 million tax-deferred, $12 million total: Anderson and Clopine called this an easy yes — convert to the top of the 24% bracket immediately, and possibly to the top of the 32% bracket in a down market year. Clopine ran rough math: at a 4% RMD rate on a $6.5 million account that could grow to $12 million over a decade, RMDs alone could reach $500,000/year, stacked on top of $105,000 in Social Security (85% taxable) and $120,000 in interest and dividends — pushing them well into the 32% bracket. Converting now at 24% beats paying 32%+ later.

• J and C in Hawaii, both 38, $1.1 million saved, targeting retirement at 55: Anderson and Clopine said J doesn't need to build a separate taxable account to bridge the gap to 59½, because anyone who separates from service at age 55 can withdraw from their 401(k) penalty-free at that age. Their advice: roll J's IRA into the 401(k) to preserve access, spend down the tax-deferred account from ages 55 to 60, and let the Roth (already $525,000) keep compounding tax-free. Combined pension and Social Security income of ~$100,000 at 62 covers most of a $120,000 spending target. Hawaii's exemption of retirement income from state tax was flagged as a reason to favor tax-deferred contributions now.

• Bonnie and Clyde, ages 52 and 57, $300,000 income, ~$8 million in assets: They asked whether continued work just grows a bigger future tax bill. The hosts' answer: no — more saving is always mathematically better, and the widow's penalty and future RMDs are the real problem to manage. Clopine noted the top of the 24% bracket (roughly $403,000 taxable income, or ~$433,000 with the standard deduction) leaves room to convert even while earning $300,000. Their advice: all new contributions go to Roth, and convert to the top of the 24% bracket annually. They also questioned why Bonnie and Clyde are carrying a $440,000 mortgage at 6.5% when they have $3.5 million in liquid non-retirement assets, suggesting paying it off immediately.

• The "working for nothing" question: Clopine addressed the math directly — if you contribute a dollar at a 33% marginal rate, you net 67 cents. That's not "nothing," but it's worth comparing to alternatives like paying off high-rate debt or converting existing balances rather than piling on new tax-deferred contributions.

Notable claims & predictions

• Big Al Clopine on the OBBBA senior deduction and Roth conversion timing (John's case): "The 22% bracket becomes 34 [effective rate], and that's not a good idea to convert… I wouldn't convert for three more years." The deduction is temporary and sunsets after roughly 2028 under current law.

• Clopine on Jonathan and Jennifer's future RMDs: "They have six and a half million dollars in tax deferred accounts. They have 10 years. That's going to be… a $500,000 RMD roughly. Plus their interest and dividends and Social Security." His conclusion: converting now at 24% is a no-brainer; the 32% bracket is worth a second look on a down-market year.

• Joe Anderson on the widow's penalty as the most important conversion factor: "The widow penalty is probably the most important thing here" — because a surviving spouse loses single-filer status, compressing into higher brackets on income that doesn't shrink much after a spouse dies.

• Anderson on the 55-and-out 401(k) rule: "You can have access to your retirement accounts at age 55 if you retire at age 55 with a 401(k)… there is no 59-and-a-half [penalty]." This removes the need for J and C to build a taxable account just to bridge early retirement.

• Clopine on Bonnie and Clyde's 6.5% mortgage: "I would pay that 440 off tomorrow" — given the family has $3.5 million in liquid non-qualified (taxable) accounts and the mortgage rate exceeds likely after-tax returns on safe fixed income.

Fact check

The 55-separation-from-service rule for 401(k)s — Anderson's claim is accurate for 401(k) plans: IRS rules allow penalty-free withdrawals if you separate from service in or after the year you turn 55. However, this rule does not apply to IRA assets — only to the 401(k) at the employer you left at 55. That's exactly why Anderson said to roll the IRA into the 401(k), which is the correct workaround. Listeners who have already rolled old 401(k)s into IRAs would need to reverse that — and not all plans accept incoming rollovers. Worth verifying with your plan before counting on it.

OBBBA senior deduction phase-out math — Clopine said the $6,000-per-person deduction phases out from $150,000 to $250,000 and that converting inside that phase-out effectively adds 12 percentage points to the marginal rate (making 22% become 34%). This is consistent with how deduction phase-outs mechanically raise effective marginal rates. The OBBBA's precise parameters are still subject to legislative finalization; listeners should verify current law before relying on these thresholds.

Top of the 24% bracket — Clopine cited "about $403,000" taxable income as the top of the 24% bracket for married filing jointly, with the standard deduction adding roughly $30,000 on top. The 2025 24% bracket for MFJ tops out at $394,600 taxable income (IRS inflation adjustments), so the figure cited is in the right neighborhood but slightly high. The direction of the advice is unchanged; the precise number matters if you're trying to fill the bracket to the dollar.

No claims that fail scrutiny beyond the nuances noted above. The hosts' core conversion logic — compare your rate today against your rate later, factor in RMDs, the widow's penalty, and heirs' brackets — is sound and well-established planning practice.

Why this matters for you

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