Roth conversions before Social Security and RMDs: a worked example

These are modeled amounts in each conversion year’s dollars. Conversions are zero outside this window. Ages below are primary / spouse.

Why does the amount jump in 2032? Earlier cash flows leave this conversion path with no ACA credit in that year even if its conversion is omitted. Its conversion is then limited by the Medicare income target. That does not mean losing the ACA credit is optimal.

The model includes the additional income used to fund conversion taxes when checking the income target. The tax bill and remaining subsidy matter more than the target’s label.

These are the existing demo’s assumptions, not estimates chosen to improve this result. Starting dollar settings are in 2026 dollars unless stated otherwise.

Household and timing

• Married filing jointly; ages 60 and 58; both retire in 2028, at 62 and 60. Entered planning age is 92 for both; the both-horizons option extends the modeled timeline to 2060 (primary age 94, spouse timeline age 92).
• Starting annual wages: $150,000 and $100,000; modeled wage growth 3%. Working years are contribution-driven, not a complete household budget check.
• Social Security starts at primary age 67, with an entered $60,000 yearly benefit at full retirement age. No separate spouse benefit is entered; the model’s spousal/survivor rules remain in both cases. Spouse claiming age: 67. No claiming-date optimization is run here.
• Survivor analysis starts at primary age 84: the spouse dies at timeline age 82. The remaining household uses single-filer assumptions, 75% of lifestyle spending and the entered 65% survivor Social Security factor.

Savings and contributions

• $2,500,000 household pre-tax workplace savings includes the spouse’s $1,000,000 share. $200,000 household Roth savings includes the spouse’s $80,000 share. Household Roth contribution basis: $120,000.
• $600,000 taxable investments with $400,000 basis; $25,000 cash savings; $30,000 HSA. No other retirement, education, rental, private-equity or deferred-compensation balances.
• Annual settings while working: pre-tax 401(k) $24,500, HSA $8,750, backdoor Roth IRA $7,000, brokerage $20,000, cash $5,000. Indexed contribution settings, subject to modeled eligibility/limits. No employer match or separate spouse contribution setting.
• The separate current-year extra-cash ($25,000) and withdrawal ($20,000) tool entries are not applied to this lifetime comparison.

Spending, healthcare and housing

• $90,000 annual lifestyle spending, inflated at 2.5%. Taxes, retirement healthcare and $14,000 annual home carrying costs are separate. No education costs, additional spending events or long-term-care costs are entered. No spending cuts occur in either run.
• Marketplace healthcare before 65: $14,000 yearly, with $11,200 estimated premiums used as the benchmark. These are example estimates, not insurance quotes. Household size: 2.
• Post-65 healthcare input: $9,000 yearly. Mixed-age coverage is blended annually; after the first death, the model uses 60% of the applicable household healthcare input. Medicare surcharges are separate. Healthcare inflation follows the 2.5% general assumption. Working-year employer health costs are not itemized.
• Home: $900,000, basis $400,000, 3% annual appreciation, no mortgage. Downsize at primary age 75, releasing 40% under the model’s downsizing and sale-tax rules. No separate move, rental property or overseas retirement.

Investment, tax and inheritance assumptions

• Steady 6.5% annual return; 1.5% dividend-yield setting; 2.5% inflation. No return glide path. No random market simulations or stress tests are run in this article.
• Custom 4% state rate while working and 4% in retirement. Federal brackets use the model’s 2026 tables with inflation indexing. No assumption of unchanged future legislation is guaranteed.
• The same smart withdrawal and gain-harvesting rules run in both cases. Borrowing is disabled; no debt or annuity is entered. Annual conversion pins, convert-the-dip and drain-all-assets mode are off.
• Inheritance is valued at the end of 2060, after modeled debts, selling costs and federal estate tax. Taxable assets use the same basis step-up assumption; pre-tax and HSA balances use a simplified 24% heir income-tax rate. Home selling costs use the model’s 6% assumption. No state estate/inheritance tax or no-step-up sensitivity is included.

Healthcare is not a free pass

Conversions reduce lifetime ACA credits from $31,121 to $8,976. Medicare surcharges fall from $107,993 to $97,574, but not enough to offset those lost credits. Net healthcare cost rises by $11,727.

At primary age 65, the conversion case retains only about $6 of ACA credit. Staying under an income ceiling does not preserve the full subsidy. Nor does it prove the best effective tax rate.

ACA credits depend on income and coverage; Medicare surcharges usually use income from two years earlier. See the IRS premium tax credit guidance and Social Security’s Medicare premium guidance.

Tax now versus required withdrawals later

A Roth conversion moves pre-tax money into Roth savings and generally recognizes taxable income now. Smaller remaining pre-tax balances can reduce later required minimum distributions (RMDs). Owners generally do not take lifetime RMDs from Roth IRAs. See IRS Publication 590-A and the IRS RMD guidance.

In this example, lower later taxes outweigh higher conversion-year taxes. That is a model result for these assumptions—not proof that everyone should convert or that a 22% target is best.

What is counted

Combined cost = federal and state taxes + penalties + gross retirement healthcare − ACA credits + Medicare surcharges + net long-term-care costs. Capital-gains tax and net investment income tax are already in federal tax; Medicare surcharges are counted only in healthcare. Penalties and long-term-care costs are zero here. Heir/estate taxes belong to the separate inheritance estimate.

• One fixed policy, not a globally optimal strategy. It does not demonstrate a higher sustainable budget, earlier retirement or market-path success rate.
• Steady returns and annual timing are simplifications. Future laws, returns, inflation, lifespan and healthcare eligibility can change the outcome.
• Healthcare targets are safeguards, not optimization of effective tax rates including subsidy loss. Premiums and benchmarks are estimates; monthly eligibility is not modeled.
• Equal retirement spending and no modeled gaps do not certify working-year affordability or all real-world cash needs.
• Inheritance is an end-of-plan estimate using simplified heir taxation and step-up. It is not an estate-tax return or a promise to heirs.
• Educational illustration only—not tax, legal or investment advice. Review your own situation and current rules with a qualified professional before acting.

Review the model methodology and exclusions and calculation validation. The planner’s validation does not independently certify this household’s assumptions or future results.