A roth conversion gets recommended so often that it’s easy to assume it’s worth doing in any year you land in a low tax bracket. A real case from Sensible Money’s planning team tells a more complicated story. The client, a single 67-year-old we’ll call Wally, had several years of unusually low taxable income ahead of him before required withdrawals would force his hand.
On paper, that looks like a textbook roth conversion opportunity. When planners actually ran the numbers across three versions of his plan, the conversion strategy barely changed his lifetime tax bill and slightly reduced his funding cushion instead of improving it. This article walks through why, using the same figures the planning team used, so you can apply the same test to your own plan rather than borrowing a rule of thumb that may not fit your situation.
Meet Wally: One Retiree, Three Versions of the Same Plan
Wally is single, 67, and just started Social Security at his full retirement age, which is currently his only income source. His assets break down into three buckets: about $1.3 million in traditional, pre-tax retirement accounts, roughly $75,000 already sitting in a Roth account, and close to $600,000 in a taxable brokerage account.
Before any tax-management question came up, his full financial plan had already been built and verified: income, expenses, and spending needs were settled. The only open question was sequencing. In which order should he draw down these three accounts, and does converting some of the traditional balance to Roth change the outcome?
To answer that, planners built three versions of the same underlying plan and changed only the withdrawal and conversion strategy in each one. Every dollar of income and every dollar of spending stayed identical across all three versions; only the source of the money, and whether some of it got converted along the way, was allowed to change. That structure is what makes the comparison meaningful instead of anecdotal.
The Base Case: What Happens When You Defer Everything
The first version follows what most people would call conventional wisdom: leave the traditional retirement accounts alone for as long as possible, and spend the taxable brokerage account first. Under this plan, Wally pays no federal income tax for several years. His Social Security benefit alone isn’t taxable, and the capital gains he realizes from the brokerage account qualify for the 0% long-term capital gains rate at his income level.
That changes the moment required minimum distributions, or RMDs, kick in at age 73. His first RMD comes in over $66,000. Combined with Social Security, that’s more income than he actually needs to spend, so a small surplus gets reinvested into the brokerage account most years. It also pushes his marginal tax bracket from 10% up to 22%, and by his late 80s, continued RMD growth could push him into the 24% bracket.
Our guide to required minimum distribution planning walks through how to project that jump years in advance, since it’s rarely a surprise if you’re watching for it. The point of building three versions here is precisely to see whether watching for it, and acting early, changes the outcome enough to matter.
Marginal vs Effective Tax Rate: Why the Distinction Matters
It’s tempting to see a 22% marginal bracket and assume 22% of Wally’s income goes to taxes. That’s not how it works. Marginal rate only describes the rate applied to your last dollar of income; every dollar below that threshold is taxed at lower brackets first, the same progressive structure that applies to every filer.
The number that actually tells you how much of your income taxes are consuming is the effective rate: total tax divided by total income. In Wally’s base case, even after RMDs begin, his effective tax rate lands around 15.5%, well below his 22% marginal bracket.
That gap between marginal vs effective tax rate is exactly why the distinction matters so much for retirement income planning. A 22% bracket sounds alarming in isolation; a 15.5% effective rate on total income tells the real story of what’s actually being paid over a multi-decade retirement, and it’s the number planners watch when deciding whether a given year is worth taking action on.
The Hidden Costs of Deferral: Social Security and Medicare IRMAA
Deferring traditional-account withdrawals has consequences that go beyond the marginal bracket. Social Security benefits are taxed based on how much other income you have alongside them. If Social Security is your only income source, none of it is taxable. Add other income, including RMDs, and up to 85% of the benefit can become taxable.
Once Wally’s RMDs begin, more of his Social Security gets pulled into taxable income as a direct result, on top of the RMD itself. That compounding effect, one income source raising the taxable share of another, is one of the more common surprises Sensible Money’s planners walk clients through.
Medicare adds a second, separate layer. IRMAA, the income-related monthly adjustment amount, raises Medicare Part B and Part D premiums once your income crosses set thresholds, using your tax return from two years earlier. Wally’s RMDs push him past the first IRMAA threshold the year after they start, adding real dollars to his annual Medicare bill for the rest of his plan.
The IRS’s own guidance on Roth IRAs explains the account-level conversion and contribution rules behind this analysis, though IRMAA itself is a Medicare mechanism, not an IRS one. See our overview of Medicare Part B premiums and retirement planning for how those thresholds actually work.
A Second Strategy: Filling Up Lower Brackets on Purpose
The second version tests a more deliberate approach. Instead of deferring everything, Wally takes IRA withdrawals early, sized specifically to fill up the 12% tax bracket and stay under the lowest Medicare IRMAA threshold, without going further. The dollar amount isn’t arbitrary; it’s calculated to use up the room available in the cheapest bracket before spilling into a more expensive one.
This shrinks his future RMDs, since less money is left compounding inside the traditional accounts. His marginal rate still eventually reaches 22%, but no longer jumps to 24%, and he gains roughly two extra years before IRMAA applies at all.
Here’s the part that surprised nobody on the planning team but might surprise you: the bottom-line numbers barely move. Lifetime taxes drop from about $308,000 to $305,000. Lifetime medical costs drop from $212,000 to $208,000. His fundedness ratio, a measure of whether his current assets can cover every future withdrawal he’s projected to need, stays at 174% either way. You can read more about how fundedness is calculated and what it tells you about your own plan. Filling brackets strategically clearly beats doing nothing, but the size of the win here is modest, not dramatic.
Why Present Value Changes How You Read These Numbers
One detail easy to miss in a plan like this: every comparison above is stated in present-value dollars, discounted back using an assumed investment return, commonly 4% to 6% depending on the scenario. A dollar of tax saved twenty years from now is worth less today than a dollar saved this year, and the discount rate you assume changes how much less.
Planners typically run this comparison at more than one assumed return, because a plan that looks like a wash at a 4% return can look meaningfully different at a 6% return, and nobody can know in advance which one will turn out to be closer to reality. That uncertainty is a real limitation of any point-in-time projection, this one included, and it’s a reason to revisit the decision periodically rather than treat one run of the numbers as final.
Testing the Roth Conversion Version
The third version replaces those early IRA withdrawals with roth conversions of the same dollar amount, paying the tax now in exchange for tax-free growth and withdrawals later. Because the conversion itself creates taxable income, Wally needs about $10,000 more in gross withdrawals than the second version, just to cover the resulting tax bill on top of his regular spending.
The upside: IRMAA doesn’t apply until roughly age 80 in this version, a few years later than either of the other two.
The downside shows up in the fundedness metric. Instead of holding steady at 174%, it ticks down slightly to 173%, because Wally is paying tax earlier without recovering enough value later to offset it. Lifetime tax and lifetime medical totals land close to the other two versions rather than meaningfully lower. On its own, a roth conversion sounds like an unambiguous win; run against this specific plan, it’s closer to a wash with a small cost attached. That’s the piece a general rule of thumb can’t tell you, and why re-running the actual numbers matters more than following a rule.
It’s also worth naming a real complication that can make conversions less attractive than they first appear: if the taxable brokerage account holds embedded capital gains, funding a larger withdrawal from it to cover conversion taxes can trigger even more taxable income than the conversion itself. Sensible Money’s planners weigh that layered effect, not just the headline conversion amount, before recommending one.
Is a Roth Conversion Worth It? Not for Every Single Filer
The real reason this roth conversion didn’t pay off has less to do with the numbers above and more to do with who Wally is. Roth conversions are frequently most valuable for married couples, because married-filing-jointly tax brackets are roughly twice as wide as single-filer brackets.
When one spouse eventually passes away, the survivor gets pushed onto single-filer brackets at the same income level, often at a materially higher marginal rate. Converting to Roth while both spouses are alive can lock in the wider, lower married rate on that money before that shift happens. A single filer never has that surviving-spouse moment where rates suddenly jump, so this particular advantage simply doesn’t apply to Wally’s plan.
He also told his planning team he had no strong desire to leave a larger Roth balance to heirs, which removes the second most common reason people convert even when the near-term math is close to a wash. So the honest answer to “is a roth conversion worth it” for this client, this year, is no. That answer isn’t permanent; a different single filer with different goals, a stronger legacy motive, or a different portfolio return could reach the opposite conclusion from this same framework.
A Framework, Not a Verdict: Red, Yellow, and Green
Sensible Money’s planners describe conversion decisions using a simple stoplight framework. A green case is one where the math clearly favors converting and the client’s goals support it. A red case is one where converting clearly adds cost with no offsetting benefit. Wally’s case landed in yellow: not a clear win, not a clear mistake, close enough that either choice is defensible.
For a yellow case, the deciding factors are often qualitative as much as quantitative. Wally said he’d be comfortable if his portfolio outperformed the plan’s conservative 5% return assumption and pushed him into higher RMDs and IRMAA tiers later; if it does, tools like qualified charitable distributions exist to help manage that outcome after the fact. Knowing that a later adjustment is available made the “not now” decision easier to live with, since it isn’t a permanent lock-in either way.
What This Case Study Means for Your Own Plan
None of this means a roth conversion is a poor strategy in general. For the right household, tax bracket, and legacy goal, converting can meaningfully reduce lifetime taxes and Medicare costs.
What this case shows is that a conversion’s value depends on filing status, legacy intentions, and the shape of future income and portfolio returns, not on a general rule that any low-bracket year is automatically worth converting in. Sensible Money’s planners revisit this exact decision annually for clients in Wally’s position, since a plan that doesn’t help this year could look different next year as tax law, market performance, or personal goals change.
If you’re weighing whether your own low-bracket years are worth using this way, the same three-version test applied here, run against your own numbers, is the only way to know for sure.
This analysis is based on a hypothetical case study built from real planning methodology; it illustrates a planning process and does not represent individualized investment or tax advice for any specific person. Consult a qualified financial or tax professional before making decisions about Roth conversions or retirement account withdrawals.
