"Every dollar in that 401(k) has never been taxed, and when Required Minimum Distributions begin at 75, the IRS will force withdrawals whether the partner needs the money or not."
"Paying the tax now at a known rate beats paying it later at an unknown rate. A systematic Roth conversion strategy executed over the next 15 years is the mechanism for doing that."
"The 24% bracket runs from $211,401 to $403,550. A partner who has retired or stepped back to counsel status with reduced income has a conversion window."
"Many retirees cap conversions at the first or second IRMAA threshold rather than at the top of the 24% bracket to avoid thousands of dollars in annual Medicare surcharges."
A 55-year-old equity partner with a $1.8 million 401(k) faces significant tax liabilities due to Required Minimum Distributions starting at age 75. These distributions could push taxable income above $200,000, leading to high tax rates. A Roth conversion strategy over 15 years, targeting the top of the 24% federal bracket, is recommended to manage this liability. However, income thresholds for Medicare surcharges may limit conversion amounts, necessitating careful planning to balance tax efficiency and healthcare costs.
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