"A couple retiring at 63 has roughly 12 years before the IRS forces withdrawals from that $2 million account. During those years, the account keeps growing tax-deferred."
"Using those low-income years to systematically convert chunks of the 401(k) into a Roth IRA allows for paying tax now at controlled rates rather than later."
"The critical constraint is IRMAA, and the first IRMAA tier for married filing jointly begins at $218,001 of modified adjusted gross income, triggering annual Medicare surcharges."
A couple retiring at 63 can avoid required minimum distributions for a decade, allowing their $2 million 401(k) to grow tax-deferred. By age 75, this amount could exceed $4 million, leading to significant tax liabilities. Utilizing low-income years for Roth IRA conversions can mitigate future tax impacts, especially if current tax rates are lower than expected future rates. Careful planning is necessary to avoid IRMAA surcharges, with a focus on keeping modified adjusted gross income below $218,000 to prevent increased Medicare premiums.
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