Retiree Evaluates Roth Conversion Strategy Under 2025 Tax Law

A 62-year-old retiree is evaluating a Roth conversion ladder to manage a $1.8 million traditional IRA and reduce future Required Minimum Distributions (RMDs). The proposed strategy involves converting $100,000 annually over five years, which would incur approximately $120,000 in federal taxes at the 24% bracket. If successful, this plan could lower the first RMD at age 73 from $78,490 to $41,509, provided taxes are paid from funds outside the IRA.

This financial planning occurs under the One Big Beautiful Bill Act of 2025, which made current federal tax brackets permanent and established a $6,000 bonus deduction for individuals aged 65 and older. However, the strategy faces risks from market volatility and high inflation, with the Personal Consumption Expenditures (PCE) index reaching 4.1% in May 2026.

Alternative options under consideration include converting smaller annual sums to remain within the 22% tax bracket or utilizing Qualified Charitable Distributions (QCDs) starting at age 70.5 to satisfy RMD requirements at a 0% tax rate.