Craig Wear explains why many people wrongly limit Roth conversions to their current tax bracket out of fear. Converting more, even into a higher bracket, often makes sense because taxes on traditional IRAs just get postponed and grow larger, especially if you have over $1 million saved.
People say, I'll just convert up to the top of my current tax bracket so I don't have to pay too much tax. That sounds logical. It feels safe. But usually it's driven by fear not math. Think of taxes like this. When you leave money in an ira, you're not avoiding taxes, you're just postponing them. And for people with at least a million in their IRAs and 401ks, postponing often makes the bill much bigger. What we've seen over and over when moving people through our proprietary software is that people who get the biggest benefit from Roth conversions usually have to go into a higher tax bracket than they're comfortable with stopping at your current tax bracket. This is the most common mistake I see by far.
