IRA millionaires often protect their current tax bracket by converting just enough each year, but Craig Wear says this misses the real problem: as the account grows, required minimum distributions will push them into higher brackets later. The damage was done years ago by leaving the IRA untouched in the first place.
So a lot of IRA millionaires think their biggest tax problem is their current tax bracket. Nobody wants to pay more tax than they have to. So they hear advice like, hey, just convert to the top of your tax bracket. That'll be good enough. And they assume that that's the whole game plan. But that's where people go wrong. Because if all you're doing is protecting your tax bracket this year and you're an IRA millionaire, I promise you, you're missing the much bigger tax problem that's built inside that large IRA.
So then what's the real problem?
Well, the bracket is not the real problem. It feels good to stay efficient year by year, but while you're worried about protecting your bracket, your IRA keeps growing, and as it grows, the future tax problem grows with it. The real issue started years and years ago when no one really asked you, "This account too large to leave untouched?" So once the IRA gets just bigger and bigger, it creates pressure with higher RMDs?
Yep, that's exactly right. Man, that's a big mistake.
