Planning story · Roth conversions · By Rich LoPresti, CFP®
Two brackets, one pile of cash: how a couple chose their conversion size.
A fictional couple, built from a pattern I see often: two careers ending within a few months of each other, most of the savings pre-tax, and a question that sounds like "how much should we convert?" but is really "how long does our cash last?"
The short version. Dana and Marc retire at 58 with most of their savings in pre-tax accounts and about four years before Social Security. They can fill the 22% bracket or the 24% bracket with conversions each year. The bigger number gets them to their goal faster and costs more tax, which is what everyone expects. What they didn't expect: where the tax money comes from matters more than which bracket they pick. Paying for both living expenses and the conversion tax out of cash drains it in a few years. Living partly from the IRA inside the bracket, and saving the cash for the tax, keeps it going roughly twice as long. The bracket decision came second.
Where they started.
- Both 58Marc stops in the fall. Dana retires in January. No mortgage, no debt.
- Most of it pre-taxSeventeen accounts across two careers. About eight dollars in ten have never been taxed. A small Roth each.
- Cash to work withSavings plus a payout from Marc's old employer. Enough to cover roughly three years of spending on its own.
Dana ran the household numbers on a spreadsheet and had already landed on a target: get the pre-tax pile down to about half its size before required withdrawals start. Marc's first question was about a crash the day after he stops working. Both of them wanted to know which account pays the bills.
The window.
Their first full year without paychecks is the first year of the window. Dana has a small pension that starts right away. Marc expects a little consulting for a couple of years. Dana plans to claim Social Security at 62; Marc is undecided. Required withdrawals begin at 75.
| Years | What's on the return | What it means |
|---|---|---|
| Years 1–3 | Pension, consulting, interest on cash | Low income. No Medicare look-back yet. The cleanest conversion years they will ever have |
| Years 4–8 | Pension, interest, then Dana's Social Security | Still room, a little less each year. From the year either turns 63, income starts setting Medicare premiums |
| Year 9 on | Both Social Security checks, then required withdrawals | The window is closed |
Without any conversion, their year-one income lands in the middle of Connecticut's phase-out for the IRA and pension exemption. That settled one thing early: any conversion would carry them past the band, not leave them inside it.
Two brackets, side by side.
I showed them the same three years two ways: converting to the top of the 22% bracket, and to the top of the 24% bracket.
Illustration · the same three years, two targets
What each path does.
Bar lengths show the share of the starting pre-tax balance remaining after three years of conversions, before any growth, in the illustration. The 24% path converts a little over twice as much and costs more than twice the tax, at a higher average rate.
The 24% path reaches Dana's target in three years. The 22% path takes closer to eight. Dana liked the fast one. Then we looked at the cash.
Where the tax money comes from decides the rest.
Cash has three jobs in these years: the groceries, the conversion tax, and the emergency fund. In the illustration, it can't do all three for long.
| How they pay for the years | What happens to the cash |
|---|---|
| No conversions. Live on cash | Lasts about five years, then living costs come from the IRA |
| Fill the 22% bracket. Cash pays living costs and the tax | Gone in about three years |
| Fill the 24% bracket. Cash pays living costs and the tax | Gone in about two |
| Fill the 22% bracket. Live partly from the IRA inside the bracket. Cash pays the tax | Lasts about seven years |
Illustration only, on round assumptions: level spending, no investment growth, interest on cash, current federal brackets, Connecticut estimated. It is not a projection of any household.
The last row is the one that changed the conversation. The bracket is a target with two uses. Living money comes out of the IRA first, then the conversion fills whatever room is left. The total taxed each year is the same. The difference is that the cash is only paying the tax, so it lasts about twice as long, and the Roth still grows.
Once the cash is gone, every dollar of living costs comes out of the IRA and uses up the bracket conversions would have filled. So "spend cash first, convert as much as possible" sounds aggressive and is actually self-defeating.
What they decided.
- Year one at 22%, not 24%. Marc's consulting was uncertain and the cash had other jobs. The 24% question comes back every fall.
- Living money from the current-employer plans first. Both were under 59½, so withdrawals came from those plans under the rule of 55, not from an IRA.
- Tax from cash, paid by estimate each quarter. No withholding from the conversion, so every converted dollar landed in the Roth.
- Growth into the Roth first. The stock funds moved; the bond funds stayed in the IRA.
- Dana claims at 62. Marc waits. His check becomes the survivor's check, and waiting keeps the window open longer.
What I'd say to anyone in this spot. The bracket is the question everyone asks and it's the second question. The first is: what is your cash for, and how long does it have to last? Answer that, and the bracket usually answers itself.
Bring it back to your plan
Four questions worth asking
- How many full years do I have between my last paycheck and my first Social Security check?
- If my cash had to pay for living costs and conversion tax, how long would it last?
- Am I under 59½, and which account can I spend from without a penalty?
- Which investments would I move into the Roth first?
What this story does not show.
Worth being explicit, because a story like this can imply more than it should.
- It is fictional. Dana and Marc are a composite. Nothing here is a client's result or a testimonial.
- No tax savings are shown or implied. The illustration compares how long cash lasts under different funding choices. It does not say that converting saved anything.
- The assumptions are round. No investment growth, level spending, current brackets held constant, Connecticut estimated. Real numbers move every one of these.
- It is not a recommendation. Whether to convert, how much, and which bracket depends on your own income, accounts, state and goals.
Map your window
Your gap years, your clean years, and what claiming later does to them.
Open the tool →Where the tax comes from
Cash, selling investments, or the IRA itself: what to check first.
Read the article →Bring your own pile of cash.
An hour is enough to see your window, what your cash has to cover, and whether 22% or 24% is even the right question yet.
Talk with Rich →Educational content written by Rich LoPresti, CFP®. Dana and Marc are a fictional composite drawn from recurring planning conversations; this is not a client case study, testimonial or individualized recommendation. Roth conversions are taxable in the year they occur and cannot be recharacterized. Withdrawals before 59½ may be subject to a 10% penalty unless an exception, such as the rule of 55, applies. Investing involves risk, including loss of principal. Consult a qualified tax advisor. Retirement Approaching provides retirement-planning education. Advisory services are offered through Milestone Asset Management Group, LLC, an SEC-registered investment adviser. Registration does not imply a certain level of skill or training. No investment result or tax savings is guaranteed.