Craig Wear explains why most people botch Roth conversions. Converting small amounts wastes your unused tax bracket each year. Converting up to the top of your bracket sounds smart but can spike Medicare premiums and lifetime taxes compared to a real long-term plan.
Most people approach Roth conversions like this. They convert a small amount, add it to their income, and that makes them feel responsible. And yes, they're doing something. But here's the problem. Each year there's unused space inside your current tax bracket. And if you don't use that space, it disappears forever. So people learn this and they make another understandable mistake. They convert every year right up to that bracket line. Well, man, that sounds smart, doesn't it? But compared to a customized strategy, this often leads to a higher lifetime tax and higher Medicare costs. So the key is this. Don't base conversions on your comfort, base them on long term strategy.
