Taxation of Social Security: The Tax Torpedo & Roth Conversion Tightrope

I was always working under the assumption that once we claim Social Security, 85% of our benefits will be counted as ordinary income on our federal tax return. That may also be a good assumption for a lot of retirees, especially if their overall income in retirement – pensions, capital gains, dividends, distributions from retirement accounts, Social Security, etc. – is high enough. Then, indeed, exactly 85% of your benefits will be taxed. This 85% figure is also the absolute maximum you’ll ever have to include in your federal taxable income. So, as a conservative estimate, it’s fine to use this 85% figure for our retirement cash flow and tax planning.

But in practice, the calculation is a lot more complicated. In fact, that share is calculated through a pretty convoluted formula that takes into account not just your Social Security benefits but also other income, even some ostensibly tax-free income like Municipal bond interest. In the chart below, the x-axis is for the annual Social Security benefits for a married couple filing a joint return (0-$80k), and each line corresponds to a level of all the other income (e.g., pensions, annuities, interest, capital gains, dividends, etc.) also going from $0 to $80,000 in $1,000 steps, so there are exactly 81 lines going from blue via yellow to red. When I plotted this function it looks like the folks at the IRS created a piece of art; that portion in the upper left looks almost like a Bifurcation diagram or Mandelbrot fractal!

SocSecTaxes Chart01
The share of Social Security subject to Federal Income taxes (Married filing Jointly). x-axis=Social Security benefits and each line is for a different level of other taxable income (e.g., pensions, annuities, interest, capital gains, dividends, etc.). There are 81 “other income” lines corresponding to income levels from $0 to $80,000 in steps of $1,000.

In any case, for retirement planning, doing a more thorough analysis of our tax on Social Security rather than using the lazy rough estimates has at least four advantages:

  1. The 85% estimate is likely way too conservative so you may over-prepare for retirement and over-accumulate assets. Why not enjoy your money now? Case in point, the Becky and Stephen case study last week; I was way too cautious with the tax assumptions in retirement and underestimated the sustainable, historical fail-safe retirement budget by about $2,500 per year!
  2. The exact calculation of taxes on Social Security benefits has implications on your Roth conversion strategy: There’s no need to be aggressive with your Roth conversions if only a tiny fraction of Social Security is taxable and you have not much other income to fill up your federal Standard Deduction!
  3. But for others, the convoluted formula also has a different, not-so-nice side effect. For some retirees, 401k or Traditional IRA distributions might be taxed at a higher rate than you might think. It’s called the retirement “Tax Torpedo,” more details on that below. So, if you don’t do enough Roth conversions and then later distribute money from a 401k you might face a higher tax burden than expected!
  4. Even some of the ostensibly tax-free income (municipal bond interest or dividends/long-term capital gains in the first two federal tax brackets) may not be so tax-free after all. Because that income is included in the Social Security tax computation, you might face backdoor taxation of seemingly tax-free income. How sneaky!!! It might be optimal to do some tax gain harvesting prior to claiming Social Security!

So, in any case, I will go through some detailed calculations here today, and also link to an easy-to-use Google Sheet I created for you if you want to calculate your own retirement tax estimates. Let’s take a look…

Here’s what the IRS says

To determine the amount of Social Security benefits taxable we’d have to go through an IRS “worksheet.” Ahh, don’t we all love the IRS worksheets? I think some lobbyists from the tax preparer and tax preparer software guild must have taken lawmakers out for lots of expensive steak dinners to push for adding some more of those confusing and convoluted “worksheets” into the tax code. And this one here is a real beauty, see below. For something that really only depends on two variables for most folks (Line 1 – Social Security income & Line 3 – other income), there is a lot of worksheet mumbo jumbo going on, with the annoying “take the smaller or line x and line y” and “subtract line y from line z” language:

SocSec Tax IRS Table
This convoluted mess of a table is how the IRS determines how much of your Social Security benefits are taxable.

So, let’s take a look at what this formula spits out in Line 19, i.e., the amount of Social Security that’s taxable, for different values of lines 1 and 3. I plot this as a function of Line 1 (Social Security Benefits) on the x-axis and each line corresponds to a level of Line 3 “Other Income”:

SocSecTaxes Chart02
Social Security benefits subject to federal income taxation. The x-axis is for the annual Social Security benefits, and each line is for a different level of “other income” =Line 3 in the IRS worksheet. (Married filing Jointly)

A few observations:

  • You’ll never pay taxes on more than 85% of your SS income. That maroon line is y=0.85*x.
  • If you have no other income at all, you can receive more than $60k in SS completely tax-free!
  • There are several kink points and slopes smaller than 0.85. They are related to the fact that in lines 2 through 17, only half of SS income is factored into the formula and then there are two slopes, 0.5 and 0.85 floating around in lines 14 and 16, respectively. So, $1 more of SS would increase your taxable income by only $0.250 or $0.425.

Also, if we divide the taxable Social Security amount by the benefits, we get the share of Social Security taxable on your federal return again. This is the same chart as above in the introduction, but the “Other Income” steps go from $0 to $80k in $10k steps rather than $1k. Not quite as pretty as the bifurcation plot above, but a little bit easier to see what’s going on.

SocSecTaxes Chart04
The same as the above chart, but divided by the Social Security benefit amount. This is the share of Social Security that’s taxable. (Married filing Jointly)

What does this all mean for a typical (early) retiree?

OK, OK, information overload. What does this mean for me? And you? Let’s plug in some real numbers into a Google Sheet I prepared. Here’s a numerical example of what I envision a typical (early) retiree couple would look like. But feel free to plug in your own numbers!

  • A married couple filing jointly.
  • The number of filers above age 65 doesn’t have any impact on this part of the worksheet, but it will impact your Federal Standard Deduction and your tax calculation downstream. I assume both spouses are 65+.
  • A combined $30,000 of Social Security benefits. Not a bad assumption for early retirees with only a limited number of years paying into the system.
  • $20,000 in long-term capital gains and/or Qualified dividends.
  • $10,000 in other ordinary income: This could be taxable interest, side hustle income, a pension, or 401k/Traditional IRA distributions.
  • I also assume $0 in tax-exempt interest.
  • I also assume $0 in lines 5 and 7. But please check with your tax experts if any of those apply to you, e.g., if you’re a “bona fide resident of American Samoa” (see line 5). I mean, I get millions of readers from American Samoa every day, so you better make sure! 🙂
SocSecTaxes Table02
Screenshot from the Google Sheet. Enter the inputs in the orange-shaded fields.

The results are quite stunning. Only a small fraction of your Social Security benefits, around 23%, is even taxable on your federal return! Notice the big difference between the sloppy way and doing it the right way:

  • The rule of thumb formula: 0.85x$30,000+$10,000=$35,500 of ordinary income would put you above the standard deduction and into the 10% federal income tax bracket!
  • The correct way would generate only $6,850+$10,000=$16,850 of taxable ordinary income and that doesn’t even fill up your standard deduction! You pay $0 of federal taxes.
  • (and in both cases, the $20,000 in LT capital gains were also tax-free because they stayed way below the top of the second federal tax bracket!!!)

Also, notice that the total annual retirement budget might even be much larger than the $60k. A portion of your withdrawals from a taxable account would be the tax-free cost basis. Thus, if for example, your $20k in capital gains came from a $40k withdrawal (20k cost basis and 20k capital gains) we’re now looking at an $80k annual retirement budget! Completely tax-free, all due to the way Social Security is taxed and the generous standard deduction. Talking about the standard deduction, this brings us to the next point…

How much “space” do we have to fill up the Standard Deduction?

So, how much of that standard deduction is wasted and how much in other income can we still generate tax-free before we fill up the “0% bracket”? That’s also in the Google Sheet:

SocSecTaxes Table05
Tax calculations in this example: Not only do you pay zero federal taxes. You even “waste” $10,150 in potential ordinary income that would have been taxed at 0%!

Notice that the Standard Deduction is now $27,000: the $24,400 base amount plus $1,300 per spouse over age 65. So, does that mean we can safely earn another $10,150 in ordinary income and still owe zero taxes? Unfortunately not! That’s because for each additional dollar we earn (or distribute from a traditional IRA) we also push more of our Social Security benefits into the taxable bucket! See the chart below where I plot the amount of SS subject to taxes as a function of Line 3 (other income) for different fixed (!) levels of Social Security benefits:

SocSecTaxes Chart03
Social Security subject to federal income taxes as a function of your other income (x-axis) for fixed Social Security benefit levels. The 9 lines are for benefits between $0 to $80k in steps of $10k. (Married filing Jointly)

So, how much additional income can we still generate to exhaust the Standard Deduction? It turns out that you can have only about $5,486 of additional income to fill up the remaining $10,150 in the standard deduction. Still pretty cool: we can have $65,486 in taxable income and not face any federal income tax! And add to that your tax-free cost basis in the taxable account withdrawals and you have a pretty sweet retirement budget!

SocSecTaxes Table03
If we like to precisely max out the Standard Deduction (and not a single dollar more!), we can earn another $5,486 in ordinary income! Notice that this is exactly $10,150 divided by 1.85 in this example!

Watch out for the Social Security Tax Torpedo

So, assume now that we’ve filled the standard deduction with additional ordinary income. Our sample retired couple now has $30k, $20k and about $15.5k income from the three major sources Social Security/Dividends and capital gains/Ordinary income. How about if we now increase income beyond that point? What’s the impact on our federal taxes? I calculate that in the Excel sheet below. I simply add three more columns where I increase the 3 different sources (ordinary income, dividend income, Social Security benefits), one at a time:

  • The marginal tax on ordinary income is 18.5%. It’s not 10% as you’d expect by looking purely at the tax brackets. 10% comes from entering the first bracket but the other 8.5% comes from pushing $850 more of your Social Security benefits into the 10% bracket!
  • The marginal tax on qualified dividends and long-term capital gains is 8.5%. Not 0% as you’d expect when purely looking at the tax brackets for long-term gains!
  • The marginal tax on Social Security benefits is only 4.25%. It’s the 42.5% marginal impact on the amount taxable times the 10% marginal tax in the first Federal tax bracket.
SocSecTaxes Table04
The Tax Torpedo! The IRS worksheet causes an extra 8.5% marginal tax on both ordinary income and even ostensibly tax-free income like qualified dividends and long-term capital gains!

The Roth Conversion Tightrope

Let’s look at what that quirky math means for planning Roth conversions. The idea of the Roth conversion is that if our current marginal tax rate is lower than the marginal tax rate we expect on Traditional IRA distributions, then it’s worth converting a Traditional IRA to a Roth today.

So, let’s look at our example of the typical retiree above with the $30k in Social Security and $20k in capital gains. Let’s plot the future expected marginal tax along the ordinary income dimension. We already knew that below the $15,486 mark the marginal tax is zero and then jumps up to 18.5% beyond that point. And once you’ve exhausted the 10% federal bracket and you move into the 12%, that too is multiplied by 1.85 for a total of 22.2%. Ouch! Also, if you look at the chart really carefully you’ll notice that the width of the 10%/18.5% bracket is only about $10,000 wide. How is that possible? Isn’t the width of the 10% bracket supposed to be $19,400 in 2019? Well, that width of the 10% bracket also gets compressed by that nasty 1.85 factor. So, because of the side effect of the ordinary income through the IRS worksheet, you reach the 12% bracket 1.85-times faster. At some point, right about $32,000 ordinary income, the marginal tax falls down again to 12%. That’s where according to the IRS worksheet, line 3 stops having any further effects on the taxable portion of Social Security! Also notice that as ordinary income increases even further, there will be another bump in the marginal rate to 27%. That bump though has nothing to do with the IRS Social Security worksheet. It’s because you push the $20,000 of capital gains into the 15% bracket. I wrote about this effect back in 2016.

SocSecTaxes Chart05
Assuming a fixed $30k in Social Security and $20k in dividend income, what’s the marginal tax when varying the other ordinary income (e.g., 401k distributions)?

In any case, what does this all mean for your Roth conversions? You’re potentially walking a real tightrope here:

  • If you convert too much of your 401k or T-IRA and you push your ordinary income in retirement down so much that you end up in the 0% marginal tax region then you wasted the 12% taxes you paid on the conversion today!
  • But if you convert too little and your ordinary income gets hit by the Social Security “Tax Torpedo,” i.e., a marginal rate much higher than the 12% you might have paid before claiming Social Security benefits.

This is a very different kind of problem from what I had expected. I already knew that you don’t want to be so aggressive in your Roth conversions today that you end up in a lower tax bracket in retirement. But I also previously believed that you can err on the other side. If you can expect a 12% marginal rate in retirement and pay 12% today, then it’s a wash, right? Wrong. And the reason is the tax torpedo. You don’t want to err on either side. But that “point landing” where you convert neither too much nor too little is impossible to accomplish in light of uncertain asset returns and uncertain future values of your portfolio and thus the uncertain required minimum distributions in the future!

Further reading on this issue:

Conclusion

This tax torpedo issue and the implications for the Roth conversions surely is very fascinating! And a lot more complicated than I had thought!  In fact, it’s complicated enough that I didn’t even get to where I wanted to take this post today, i.e., an updated recommendation on how to perform the Roth conversions in the Becky and Stephen case study from last week. I’m working on a post (hopefully out next week) to let you know my thoughts on that one, so stay tuned! 🙂

Thanks for stopping by today! Please share your thoughts in the comments section below!

Picture credit: Flickr

64 thoughts on “Taxation of Social Security: The Tax Torpedo & Roth Conversion Tightrope

  1. Masterful! Mention of the Tax Torpedo, Capital Gains Bump Zones, and fractals all in one place! A PhD worthy art exhibit! It’s worth noting that the brackets for SS taxation haven’t been inflation adjusted but the ordinary income tax brackets and the standard deduction do inflate over time. In addition, who knows what the tax code will be like in 2026 when TCJA expires!

    1. Thanks, David!
      Actually, I didn’t know that the kink-points of the worksheet don’t get ajusted every year. That’s bad news because then you push more an more SS income into the taxable portion over time.
      That might make a difference for a lot of retirees, including the Becke&Stephen Roth Conversion case study I am working on. Will update my calculations! Thanks a bunch for the info!!!

      Also, I’m hopeful that politicians will find a last-minute comprmise in late 2025 to extend the TCJA, at least for us middle-class folks. Just as they did with the Bush tax cuts. 🙂

      1. The kink-points not being adjusted lessens the effect of the tax torpedo in the future. When a large portion of the benefits is already taxable anyway, additional income will turn less benefits from not taxable to taxable.

        1. I think this assumes you are on your way out at the top end of the scale. Lack of inflation adjustment will sweep people in from the bottom who otherwise wouldn’t have any of their benefits taxable, but now do

        2. From your comments on Twitter and here I sense that you don’t think the Tax Torpedo is really much of a big deal. That’s fine, it’s certainly not the biggest issue ever in the history of taxation.
          But I like to disagree with you (again) and note that the Torpedo is actually quite important and the non-CPI-adjustment will make the TT even worse. Three observations:

          1) the TT kink points will slowly be deflated by inflation, sure, but at a rate of 1.8-2.0% p.a., this will still have a half-life of 36-40 years. That’s a long half-life! Over the course of 40 years, I’d easily expect lots of other changes in the tax code, including a rise in marginal rates. If the marginal rates rise as fast (or slow) as the TT window closes, the total impact will still stay the same. One easy start to that process could be the jump in the 12% rate back to 15% in 2026, which would actually vastly increase the impact of the TT because the marginal rate jumps by a quarter but the kink points will have eroded only very marginally by then.

          2) as someone pointed out in the other comment, the erosion of the kink points will expose MORE people to the higher marginal rates. So, the inflation erosion will make the TT a problem for more tax payers.

          3) even for the people whose TT window shrinks, note that their total tax liability still INCREASES!

          1. I think as social security becomes more of a political talking point in the next 2 decades (since the Net assets are expected to be depleted in the mid 2030s) we can expect that congress will give notice to the way SS is taxed and I wouldn’t be surprised to see the kink points re-indexed to inflation, or at least change dramatically within the next 20 years.

            1. I think that the kink points in the SS taxation calculations will not be adjusted for CPI anymore and they will slowly rot away until everybody’s SS will be 85% taxable eventually.
              Most retirees don’t understand the concept and this is an easy way for politicians to raise revenue without the bad publicity.

  2. Fascinating! Looking forward to the next installment – any chance you will also assess strategy for ROTH conversions prior to age 70 for “Fat FIRE” crowd? Or when one spouse keeps working? Or should we just assume that 85% of our SS benefit will be taxable, convert as much tIRA to ROTH as possible to remain under relevant bracket and move on?

    1. Depends on how Fat you FatFire is. There are ranges of this tax torpedo, just enter your personal numbers and see if varying your baseline income from line 3 impacts your taxability of SS.
      But point well taken: I’ll probably post a chart next week to show some of these tax torpedo ranges. 🙂

      1. Well, Per the site mentioned in the prior post re SS claiming strategies, we stand to collect $92k/yr in combined benefits, starting in 8 yrs…and I’m also trying to anticipate IRMMA impact re Medicare as long as hubby keeps working…Lots of moving pieces!

        1. You’ll likely be wayyyy into the tax torpedo zone with two spouses getting the max SS benefit plus probably a ton of other income. You might even be way beyond the hump where the tax torpedo has already hit and your marginal taxes fall back to the values in the tax table.

  3. Thanks, Ern, for muddling through this morass of IRS mumbo jumbo so that we don’t have too (well, we sort of have to, but you made it easier).

    A bit of a rant; I just can’t fathom that in the USA one must be nearly a tax accountant or a PhD economist to maximize the fruits of a lifetime of work/toil/savings. The founders of this republic would be rolling over in their graves at the complexities (corruption?) of our system of government that creates and perpetuates this sort of tyranny. But, heh, manipulations such as this do increase the opportunity/payoff of graft for those who get their carve-outs from the beauracracy, so at least there must be some benefit for someone! 🙂 Thanks again for doing your part in making us more well educated citizens.

  4. Hi ERN, as you mentioned it is difficult to achieve a “point landing” to end up with the correct amount in Ordinary Income to cause $0 taxes by doing Roth conversions before SS Pensions start in light of uncertain asset returns and uncertain future values of your portfolio. One approach to reducing tax on Roth conversions after Social Security Benefits have started is the following 2-year strategy. I will describe it graphically based on your final graph (your “2 hump graph”) shown above in this posting. This approach is useful if a retiree receiving SS Pension falls into the “Roth Conversion too small!” zone as shown in your graph (ordinary income above $15,486) and still wants to Roth convert at minimum tax cost for his/her benefit or for his/her heirs benefit.
    To simplify the numbers, let’s assume the retiree wants to convert $37,700 per year from IRA to Roth. Graphically it is clear he is incurring the tax cost of “pushing thru” the Hump every year.
    Approach:
    Year 1: just convert IRA to Roth up to $15,486 ordinary income. So, $0 taxes.
    Year 2: convert IRA to Roth up to $60,000 ordinary income. So approximately $0 taxes up to $15,486, then ~$1,850 for $15,486 to ~ $25,486 (18.5% hump), then $1,554 (22.2% hump) for $25,486 to ~$32,486, then $3,302 (12% zone between humps) for ~$32,486 to $60,000 (right before 2nd Hump starts. The total tax amount is then $6,706 for an extra $44,514 in Roth conversion which is at 15.1%.

    So, the cost for 2 years with this approach is $6,706 for to convert an average of $37,700 per year from IRA to Roth. Converting each year $37,700 will cost $8,059 so a savings of $1,354 over the 2 years.
    Rinse and repeat for as long as necessary.

    (This is a similar strategic approach to using a Donor-Advised Fund (DAF) for making charitable contributions and bunching 5 years’ worth of contributions (say $20k per year for $100k total) in 1st year and then dispersing over 5 years and itemizing deductions in the first year and taking standard deductions in subsequent years to maximize tax benefits while benefiting the charities.)

    The moral of the story is that if you are going into the Hump every year, then best to “push thru” the hump to the other side where your marginal tax rate falls back to 12%,(and go as far as you can before you reach the next hump ).

    So, thanks, ERN, for producing the clear and colorful graphs, since this lets us visually understand what strategies can be used to minimize taxes in different situations.

    1. Good point.
      But the problem at hand here is even a lot more complicated than this 2-year example.
      We’re looking at a 35-dimensional optimization problem. And in this example it might be possible (stay tuned!) to NEVER go over the hump:
      Early in retirement, do aggressive Roth conversions and never go beyond 12% marginal tax.
      Once SS kicks in, stay always just below the starting point if the Tax Torpedo.

      But I agree with your approach in general: for folks who have so much money that they KNOW they’ll go over the hump, it’s ideal to do it once or a few times only and consider that a fixed cost/ sunk cost. And then live worry-free the other years! 🙂

      1. Hi Karsten, Looking forward to seeing the solution to this 35-dimensional optimization problem. I think a lot of people will benefit from your approach.

  5. Hi. Is your Google Sheet also appropriate for traditional retirees (age 64) who will begin collecting social security at age 70 and are trying to determine how much Roth conversion to do prior to age 70 1/2 when RMDs kick in? Are there any rules of thumb or guidelines for traditional retirees (vs early retirees) regarding converting not too much or too little?! Want to avoid that tax torpedo but don’t want to pay tax on unnecessary Roth conversions….. Thank you!

    1. Great question.
      The Google Sheet for the withdrawal rates is done with a complete disregard of taxes (for now). It’s up to you to gross-up your retirement budget to account for taxes.

      But I will (hopefully) have a case study for a Roth conversion strategy in light of the Tax Torpedo out soon. Stay tuned! 🙂

  6. Hi ERN, I now worked thru the spreadsheet, which works well, but was confused for a few minutes due to the following. On lines 9, 10 and 11, you used these labels:

    3 Fed Return: 1040 lines 1, 2b, 3b, 4b, Sched1 line 22
    Long-term Cap Gains + Qual’d Dividends
    Other Income (Interest, 401 Distrib., etc.)

    But in your first 4 colorful graphs you use Other Income as equal to Fed Return: 1040 lines 1, 2b, 3b, 4b, Sched1 line 22.
    (This is the way the spreadsheet works and make sense.)
    So a potential relabeling in the spreadsheet that may help some readers (like me! 🙂 ) would be:

    3 Other income [Fed Return: 1040 lines 1, 2b, 3b, 4b, Sched1 line 22]
    Long-term Cap Gains + Qual’d Dividends
    Additional Income (Interest, 401 Distrib., etc.)

  7. Hey ERN, any chance you could update your Google Sheet template to support up to 80 years? Right now it’s limited to 60 years which is problematic for me given that I’m aiming for FIRE at ~30 and have a likely life expectancy beyond 60 years at that point.

    1. If you want to into the Excel Formulas feel free to hack it yourself, but I’m fine with 60 years. Why not do 60 years and leave a final value target of ~50%.
      You may also noice that going from 60 to 80 years will not make that much of a difference in the SWR. Time value of money: years 61-80 make very little differnce. 🙂

  8. Thanks for the article and the spreadsheet. This is all very complicated, and you simplify it. After running all the numbers, including a rather high SS benefit, an RMD from an inherited IRA, it looks like I can roll into the Roth about $30k per year and in an incremental rate of 22%. After running all the numbers in a side spreadsheet to compare leaving it in the Traditional, vs. moving to the Roth, and beginning to take the Traditional RMD in about 3 years, it look like I have a 5 year breakeven point after the Traditional RMDs begin until the additional taxes from conversion are made up. Assuming same investment in both of a preferred stock CEF yielding about 7%. So does that make sense? Convert if the payback is 5 years? This would also apply to conversions in two more years. The deferred tax free income grows rapidly if left to compound.

    1. Lol he wrote all that and got a pathetic answer. And I’m sorry but he didn’t simplify anything. Just math fantasize to brag how intelligent Germans are

      1. Hmm. The vast majority of participants in this blog appreciate Big Ern’s distillations of the complex in a manner that educates and makes understandable. Rather than, as you put it, “Just math fantasize to brag how intelligent Germans are”, I think it instead highlights how dim you must be in that you cannot grasp it, and can’t think to pose questions whose answers might illuminate the material for you. Good luck to you each time you cross the street. I worry that you lack the faculties required in the decision of when to cross and at what speed to walk.

        1. Agree with why we are here. At a minimum, I have taken the spreadsheet and added columns for out years, updated the 2020 and future years for the new standard deduction and tax brackets, assumed increases in SS, and added rows for estimated payments down below. Additionally, side calcs out to the side where you can apportion the cap gains/qual divs and for ordinary income interest, STG and distributions. You can update anytime your situation changes and get a revised calculation. This is a wonderful base to compute your estimated tax payments and manage your distributions. It sure beats reopening Turbo tax and modifiying last years tax return to see where you are.

          1. Sorry, again, but I can’t comment on spreadsheets that I haven’t seen. (though Jeff in the comment above seems to have some clairvoyance skills and might be able to help out).
            Also, the pro/cons of Roth conversions normally hinge on marginal taxes today vs. marginal taxes in the future. Not really sure what that talk about “payback in 5 years” is all about. According to the marginal tax rule: if you pay 22% today and you believe your future marginal rate is >22% then it’s good to convert. If your future marginal rate is lower then you shouldn’t convert.

      2. I can’t answer a question without all the pertinent information.
        But I will make sure to forward all vague requests to your personal email from now on. Because your are so much smarter!
        Also, I’m a US citizen.

        1. Karsten, I firmly believe the majority factor in influencing you to write this blog, is simply to help other people. I have been researching how to manage my own retirement investments for years and yours is the single most useful material I have found anywhere. I especially like your case study of Becky and Stephen. It helps a lot that you are walking us through your analysis applied to situations that are more similar to our own than yours (less means and thus likely older before FI). You and the other bloggers are inspiring me to try and figure out how to make financial independence planning more accessible for people who have less knowledge, are less skilled at math, financial analysis and with more modest means. My guess is the person who wrote the nasty response above is just frustrated over the background knowledge and skill required to adapt this information to their personal situation. I am a software product manager (formerly a software engineer) approaching financial independence and I am curious if you think there is a way to create a software application that could help people adapt much of your financial analysis to their personal situations in a scalable way, e.g., some kind of open source software project and/or a not for profit corporation to support more work like yours and make it more accessible.

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