Retirement & Tax Planning Answers
Case Study: $1.7M in Lifetime Tax Savings With a 15-Year Roth Conversion Plan
Quick answer
This case study walks through the Roth conversion plan I built for an Arizona couple — Mark Holloway (age 50) and Lauren Holloway (age 50) — who came in with over $20,000 of avoidable taxable interest leaking from their cash position and a Traditional IRA balance heading toward $2M+ at retirement. The aggressive scenario converts close to $970,000 over 15 years (2026-2040) at a blended effective rate of ~13.5%, growing the Roth to about $1.1M by retirement. Total lifetime advantage vs. doing nothing: approximately $1.7 million. That breaks down as direct tax-rate arbitrage on the converted dollars (~$130K — paying 13.5% now instead of 32%+ as forced RMDs later), Roth tax-free compounding over 25 years (~$1.9M of after-tax wealth advantage on a $1.1M Roth balance growing at 7% vs. the same balance taxable at 32%), and avoided IRMAA Medicare surcharges over 20+ years of retirement (~$100K). The plan converts the same dollars at known, lower brackets today instead of forced higher brackets later — and the Roth balance becomes the family's tax-free lever for managing IRMAA and survivor-phase brackets after age 75. Names and a couple of identifying details have been changed for privacy; the numbers, scenarios, and strategy structure are real.
How to evaluate whether a 15-year conversion plan fits your situation
Decision framework for modeling a multi-phase Roth conversion plan against your specific balance, income trajectory, and survivor-phase exposure.
- 1
Project your IRA balance at age 75
Take your current pre-tax balance and compound at your assumed growth rate for the years between now and age 75. A $1.6M IRA at 6% over 14 years compounds to roughly $3.6M.
- 2
Calculate the projected first-year RMD and the survivor-phase RMD trajectory
Divide the projected age-75 balance by 24.6 (Uniform Lifetime divisor at 75). Add projected Social Security and brokerage income. Then project the survivor's age-80 income under single-filer brackets — that's the cliff this plan is designed to avoid.
- 3
Identify your three life phases and conversion capacity in each
Phase 1 (still working): bracket-replacement conversions sized to offset your tax refund. Phase 2 (one spouse retired, other part-time): the high-leverage window — fill the 22-24% bracket aggressively. Phase 3 (both retired, pre-RMD): continue bracket-fill conversions while drawing IRA living expenses.
- 4
Model a conservative scenario
Calibrate annual conversions to fill the 22-24% bracket without overshooting into 32% or crossing the first IRMAA tier. Sum total converted, total tax paid, and projected Roth balance at retirement.
- 5
Model an aggressive scenario
Keep Phase 1 the same but bump Phase 2 conversions to $80K-$120K/year. Recalculate effective tax rate, total converted, and Roth balance. The aggressive scenario typically converts 30-50% more at a similar blended rate.
- 6
Run a survivor-phase projection on each scenario
Apply single-filer brackets to the surviving spouse's projected age-80 income under each scenario. The dollar delta in lifetime tax between scenarios — combined with the Roth balance available to manage IRMAA — is the value of the plan.
- 7
Pick a scenario, fund the conversion tax from cash flow, execute year 1 before December 31
Tax on the conversion must come from outside the IRA (brokerage account or current cash flow). Withhold federal and state from non-IRA accounts so the full conversion amount lands in Roth. Reconcile the 1099-R in January and re-project for year 2.
- 8
Re-project every six months — January for recap, October for year-end calibration
The October session uses 9-10 months of actual income data to calculate the precise December conversion that fills the bracket without crossing IRMAA. This is what turns a static plan into a coordinated multi-year strategy.
The Starting Point: A $20K+ Cash Drag and a Forced High-Income Future
Mark and Lauren came in with a typical high-earner profile: dual W-2 income, a Traditional IRA from earlier 401(k) rollovers, a brokerage account with mutual funds, and a healthy cash position. The first thing I caught reviewing their 2024 and 2025 returns: over $20,000 of taxable interest in each year — generated by money sitting in a federal money-market fund and a regular bank account. Every dollar was taxed at their 22-24% federal bracket plus the 2.8% Net Investment Income Tax, plus 2.5% Arizona state. Effective tax on that 'safe' cash position: roughly 28-29%.
Step one before any Roth strategy: relocate cash to Vanguard's Municipal Money Market Fund (VMSXX). Yield is similar to taxable money markets, but interest is exempt from federal tax and not subject to NIIT. For Arizona residents, only the 2.5% state tax applies — net savings of approximately 25-26 percentage points on that interest. On $200K-$300K of cash, the annual difference is $5,000-$8,000 of recovered after-tax dollars. That is bracket capacity I can now use for conversions.
Step two: build a year-by-year conversion schedule from 2026 to 2040 — 15 years across three life phases. Phase 1 (2026-2029): both still working full-time; modest conversions in the $30K-$40K range calibrated to keep them under the 24% bracket while replacing what would have been a tax refund with a Roth contribution. Phase 2 (2030-2033): Lauren retires at 55, Mark drops to part-time $80K; income falls dramatically — this is the high-leverage conversion window. Phase 3 (2034-2040): both fully retired but pre-RMD; conversions continue while drawing IRA spending money for living expenses and converting additional dollars in parallel.
The conservative scenario sticks to bracket-replacement conversions (offsetting what their tax refund would have been) — approximately $640,000 total converted at a blended effective rate of roughly 15%, total federal+state tax paid: about $115,000. The aggressive scenario keeps Phase 1 the same but bumps Phase 2 conversions to $100K/year — close to $970,000 total converted at a blended effective rate of about 13.5%, total tax paid: roughly $180,000. The aggressive scenario costs $65,000 more in upfront tax but moves over $300,000 more into the Roth bucket — dollars that would otherwise be taxed at 32%+ as RMDs in their late 70s and 80s.
The Roth target by retirement (Lauren age 65, Mark age 70): approximately $1.1 million, assuming an 8% return on aggressive Roth allocation. After RMDs begin at 75, the Roth becomes the family's tax-free income lever for managing IRMAA tiers, surviving-spouse single-filer brackets, and discretionary spending in years when an extra dollar of taxable income would cost more in cascading effects than the dollar is worth.
Two Scenarios Modeled, Year-by-Year — and Why I Recommended the Aggressive Path
The decision matrix here is not 'should we convert.' It is 'how aggressive should we be.' Doing nothing was never on the table once we ran the projection: their Traditional IRA balance growing to $4M+ by 75 forces RMDs above $200,000/year — survivor-rate single-filer 32% bracket dollars. The question is whether to pay around 13.5% now to move dollars out, or 32%+ later to be forced to take them out.
How the $1.7M lifetime advantage breaks down: (1) Direct tax-rate arbitrage on the converted dollars — ~$130K saved by paying 13.5% now instead of 32%+ as forced RMDs later. (2) Roth tax-free compounding — a $1.1M Roth balance growing at 7% for 25 years reaches roughly $5.97M tax-free, vs. the same balance in a Traditional IRA taxed at 32% on withdrawal which nets ~$4.06M after tax. That 25-year compounding gap is approximately $1.9M of after-tax wealth advantage. (3) Avoided IRMAA Medicare surcharges across the survivor's 20+ year retirement — roughly $5K/year saved because Roth withdrawals do not count toward MAGI — totals ~$100K. Plus reduced Social Security taxation and survivor-phase bracket compression effects that are harder to pin to a single number but add to the total. Sum: approximately $1.7M of lifetime financial advantage.
The conservative scenario is the floor — the minimum disciplined plan. The aggressive scenario captures the 'golden window' between Phase 2 (Lauren retired, Mark part-time) and Phase 3 (both retired, pre-RMD). For most households with this asset profile, the aggressive scenario's extra $65,000 of upfront tax cost is recovered within 5-7 years of avoided RMD taxation in the survivor phase — and continues compounding tax-free for decades after that.
My recommendation to Mark and Lauren: aggressive. Pay the upfront tax out of cash flow, keep the Roth allocation aggressive (heavy equity exposure), and do not touch the Roth until 75+ when the bracket-management value is at maximum.
The plan is dynamic, not static. We re-project every six months — January for the prior-year recap and October for the year-end conversion calibration. The October session uses 9-10 months of actual income data to calculate the precise December conversion amount that fills the bracket without crossing IRMAA tier thresholds. This is the difference between a generic 'do Roth conversions' rule of thumb and a coordinated multi-year plan.
What Mark and Lauren Almost Did Wrong
- Letting cash sit in taxable money markets, federal savings, or CDs in any year — the federal tax + NIIT + state tax surcharge silently destroys conversion capacity. For Arizona residents at 24% federal, the right cash position is Vanguard VMSXX, period.
- Assuming the working years are 'too high income' for any conversions. Mark and Lauren still had bracket headroom every year — Phase 1 conversions cost roughly the same as their tax refund would have been, so the net cash flow impact was effectively zero.
- Treating Phase 2 (one spouse retired, other part-time) as a normal year. This is the highest-leverage tax window in your lifetime — most households spend it the way they spent Phase 1, missing a 4-year opportunity to convert at 11-13% effective rates.
- Doing token conversions instead of bracket-filling conversions. Token amounts ($10K-$20K) barely dent a $2M+ pre-tax balance. The math justifies $80K-$150K conversions for households in this asset range during Phase 2-3.
- Starting Roth conversions and then drawing from them too early. The Roth target balance ($1.1M in this case) needs 7-10 years of tax-free compounding before it earns its keep. Touching it before age 75 collapses the strategic value.