Why “fill the 22% bracket” leaves money on the table
“Convert up to the top of the 22% bracket every year” is the most common Roth conversion advice there is. It's simple, it's easy to follow, and it's usually better than doing nothing. It's also rarely the best you can do, because one income line can't see how your income changes through retirement.
The best conversion amount depends on which stage of retirement you're in (before Social Security, before required withdrawals, after them) and on cliffs a bracket line ignores, like Medicare IRMAA and the survivor's single-filer brackets. A strategy that sets a different income level for each stage, and picks when each stage starts, can beat every fixed rule. On the sample household below, it did.
Why the rule is popular
The idea behind it is sound: pay tax now at a known, moderate rate instead of a possibly higher rate later. The 22% bracket is wide, and the jump to 24% is small, so “fill the 22%” (or the 24%) puts a lot of pre-tax money into a Roth at a rate many people expect to beat later. You can follow it with a calculator once a year.
Common variations stop converting when required minimum distributions start, or cap income just under the first Medicare IRMAA threshold.
What a single line can't see
- IRMAA cliffs. Medicare premiums jump in steps when income crosses set thresholds, based on income two years earlier. One dollar over a step costs the whole step for the year, and a bracket top doesn't line up with those steps.
- The Social Security tax torpedo. While part of your benefit is still becoming taxable, each extra dollar of income can make up to 85 cents more of it taxable, so the real rate on that income is far above the bracket rate.
- ACA subsidies before 65. Conversion income can shrink or end a Marketplace premium subsidy.
- The survivor's brackets. After one spouse dies, the survivor files single, with brackets about half as wide, while the pre-tax accounts stay the same size.
- How big required withdrawals will get. A large pre-tax balance can force withdrawals into high brackets later, whatever you do now. A small one may never cause a problem.
- Your heirs' tax rate. Most heirs must empty an inherited IRA within 10 years, often in their peak-earning years. Inherited Roth money generally comes out tax-free.
- How long your window is. The low-income years between retirement and Social Security can be the cheapest conversion years you'll ever have. A rule that converts the same amount every year doesn't use them any differently.
The rules, on a real household
Here's one of the app's sample households, run under the common bracket rules (rules that come out the same are listed once) and under the optimizer. The optimizer was balancing cost and legacy: leaving the most to heirs after subtracting every tax and premium paid along the way, including the 10 years the heirs have to empty inherited accounts. The best bracket rule is the one that does best on that same goal. Not converting at all is shown for reference.
A couple a few years from retiring with large pre-tax balances and a window to do Roth conversions in lower brackets before RMDs and Medicare begin.
| Strategy | Lifetime costs | Left to heirs | Left to heirs after costs |
|---|---|---|---|
| No Roth conversionsfor reference | $1.20M | $9.82M | $8.61M |
| Fill the 12% bracket every year | $1.73M | $13.66M | $11.93M |
| Fill the 22% bracket every year | $1.22M | $13.42M | $12.19M |
| Fill the 24% bracket every yearbest bracket rule | $1.19M | $13.78M | $12.60M |
| Stay under the first IRMAA tier | $1.27M | $13.21M | $11.94M |
| Corvana Studio optimizer | $1.10M | $17.14M | $16.04M |
Against the best bracket rule (Fill the 24% bracket every year), the optimized strategy has $85k lower lifetime costs and leaves $3.36M more to heirs. Against not converting at all: $101k lower lifetime costs and $7.33M more to heirs.
What the optimizer chose instead:
- Until 64: income up to about $142k a year
- From 64 to 68: income up to about $452k a year
- From 68 on: income up to about $70k a year
Lifetime costs are Federal, State, NIIT, IRMAA, Medicare, ACA and estate costs, in today's dollars. "Left to heirs" is the estate after taxes, including the 10 years heirs have to empty inherited accounts. Income targets are in today's dollars; ages are the first owner's. Each rule changes only the income targets; everything else in the model stays the same. The optimizer was asked to balance the two: to leave the most to heirs after subtracting lifetime costs (the last column), and the best bracket rule is the one that does best on that same measure. Sample household with made-up figures; an illustration, not a forecast or advice.
Why stages beat one line
Retirement income usually comes in stages. Before Social Security starts, taxable income can be very low, and every dollar of bracket room left unused is gone for good. Once benefits start, extra income can make more of them taxable. Later, required withdrawals arrive on their own, and Medicare premiums watch your income two years back.
So the best strategy often converts heavily early, holds income just under a cliff in the middle, and converts little or nothing once required withdrawals do the job. Corvana Studio's optimizer searches exactly that shape. It sets an income target for each of three stages, picks the ages where the stages change and how the conversion tax is paid, and tries tens of thousands of combinations. It scores each one on your whole model: federal and state tax, IRMAA, ACA premiums, Social Security taxation, the survivor's years and your heirs' 10-year window. Each year then converts up to that stage's target, so the amount changes with your other income.
When a simple rule is fine
Sometimes a rule lands close. If your income is steady, your pre-tax balance is modest and no cliff sits near your bracket line, a simple rule may do about as well as anything. Corvana Studio checks this for you: the Roth Conversions page shows every rule on your own numbers, and after an optimizer run the Optimize page tells you if a simple rule does about as well, in plain words.
Check your own numbers
Enter your accounts and ages and see every year, in your browser with no account. A free account includes 3 optimizer runs, and the simple rules are compared on your numbers either way.
This guide is general education, not tax, investment or legal advice, and the figures above come from a sample household with made-up numbers. Tax rules change, and your situation may differ. Consider reviewing a conversion decision with a tax professional.