Was just talking to someone who has almost all their savings (about 1 million) in a traditional IRA, and is able to live on about 40k per year withdrawals, and is considering using the 72t exception to start those withdrawals now around age 50.
It seems to me that in a case like theirs, a Roth conversion may actually be counterproductive (not just a wash as many have argued here might be the case). Reasoning is that with just 40k or so of income, various deductions and exemptions could serve to get that taxable income down into the $20,000 range, where federal taxes would be substantially if not completely in the 10% bracket. It's unlikely they would be able to convert to a Roth at 10%.
I've been thinking all along of IRAs being kept for decades and even modest ones ballooning into huge numbers which would trigger RMDs at large tax brackets, but if you start draining the IRA through a 72(t) in your 50s, it might turn the math around.
Anybody been down this road before and thought through some of the implications?
It seems to me that in a case like theirs, a Roth conversion may actually be counterproductive (not just a wash as many have argued here might be the case). Reasoning is that with just 40k or so of income, various deductions and exemptions could serve to get that taxable income down into the $20,000 range, where federal taxes would be substantially if not completely in the 10% bracket. It's unlikely they would be able to convert to a Roth at 10%.
I've been thinking all along of IRAs being kept for decades and even modest ones ballooning into huge numbers which would trigger RMDs at large tax brackets, but if you start draining the IRA through a 72(t) in your 50s, it might turn the math around.
Anybody been down this road before and thought through some of the implications?