Inside the Roth Conversion Calculator: How the Math Actually Works

"Fill up the 22% bracket." You've heard this advice a thousand times. It's fine as far as it goes, but there's a lot it doesn't tell you.

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I spent months building retireclarity's Roth conversion optimizer, and the thing that surprised me most was how many moving parts interact with each other. Tax brackets, RMDs, Social Security taxation, Medicare premium cliffs, ACA subsidies if you're retiring early — they all feed into each other in ways that make simple rules break down pretty quickly.

This post walks through how the optimizer actually works. I'm going to skip the hand-wavy explanations and show you the real mechanics, because I think understanding the "why" helps you trust (or question) the recommendations.

Why Simple Rules Don't Work

The standard advice says to convert enough each year to fill your current tax bracket. And if taxes existed in a vacuum, that would be solid guidance. But they don't.

Think about what happens when you convert $50,000 from a traditional IRA to a Roth. That $50,000 shows up as taxable income this year, which affects your Medicare premiums two years from now (thanks to IRMAA's lookback rules), which might push you into a higher premium tier, which costs you an extra $2,000+ annually for the same coverage you'd get otherwise.

Meanwhile, that conversion also reduced your traditional IRA balance, which means smaller RMDs starting at 73 or 75, which means less taxable income stacking on top of Social Security in your 80s, which means you might stay in the 22% bracket instead of spilling into 24%.

So was the conversion worth it? Depends on the magnitude of each effect, your age, how long you'll live, what state you're in, and whether you need ACA coverage before Medicare kicks in.

The optimizer's job is to weigh all of this simultaneously. No spreadsheet formula can do that without becoming an unreadable mess, which is why a purpose-built Roth conversion calculator makes sense.

Starting at the End: What Balance Do You Want at RMD Age?

Most people think about conversions as "how much should I convert this year?" The optimizer flips that question around: what traditional IRA balance would produce manageable RMDs in your 70s and 80s?

RMDs are calculated by dividing your balance by a life expectancy factor. At 75, the factor is 24.6. So a $1.2 million traditional IRA forces you to withdraw about $49,000 that year whether you need it or not. That $49,000 is ordinary income, stacking on top of Social Security and any pensions.

For a married couple already receiving $45,000 in Social Security, that $49,000 RMD doesn't just get taxed — it also increases how much of their Social Security becomes taxable (the "combined income" calculation that trips people up). The effective tax rate on that RMD ends up higher than you'd expect from looking at brackets alone.

So the optimizer works backward. Given your expected Social Security, pension, and other income, what traditional IRA balance would produce RMDs that fill your target bracket without spilling over? The math involves iteration because Social Security taxation creates a feedback loop — more RMDs means more SS is taxed, which means more total income, which means you might need an even lower target balance than you first calculated.

Once we have that target balance, the total conversion budget is simply: current projected balance at RMD age minus target balance, adjusted for expected growth between now and then.

The Scoring Function: More Than Just Taxes

Now we know how much to convert in total. But when? And what if converting the "optimal" amount creates problems along the way?

The optimizer scores each potential strategy by adding up several factors, all discounted to present value so we're comparing apples to apples:

Lifetime taxes are the obvious one — total federal and state income tax across all years of retirement. Converting more generally means paying more tax now but less later. The question is whether the tradeoff favors you.

Bracket penalties kick in when a conversion pushes you into significantly higher marginal rates. The optimizer treats jumping from 22% to 24% as acceptable, but jumping from 24% to 32% gets penalized more heavily because you're paying a premium for those conversion dollars that probably isn't worth it.

Medicare premium cliffs matter more than most people realize. IRMAA thresholds create hard cutoffs where crossing from $206,000 to $206,001 in income costs you real money — not marginal pennies, but hundreds of dollars per month for years. The optimizer tries to keep income below the next cliff whenever possible.

ACA subsidy preservation is critical for anyone retiring before 65. The subsidy cliff at 400% of the federal poverty level can cost you $15,000-25,000 per year in lost premium assistance. For some people, protecting those subsidies dominates everything else in the calculation, and the optimizer will recommend much smaller conversions to stay under the threshold.

Liquidity checks make sure you can actually pay the tax bill. Converting $100,000 sounds great until you realize the $25,000 tax bill exceeds your available cash and brokerage funds. The optimizer rejects schedules that would leave you short.

Portfolio outflow limits prevent the optimizer from recommending conversions that would drain too much of your portfolio in a single year. Even if you have the cash to pay the tax bill, drawing down 20%+ of your portfolio in year one of retirement exposes you to sequence-of-returns risk. The optimizer caps total annual outflows (spending withdrawals plus conversion taxes) at a sustainable rate, typically around 12% of your portfolio.

Each year of the projection gets scored on all these dimensions, and the scores get summed up (with future years discounted) to produce a single number. Lower is better.

Distributing Conversions Across Years

With a total budget and a scoring function, the optimizer needs to decide how much to convert each year from retirement through age 72 (or whenever RMDs start).

The naive approach would be to divide evenly — if you need to convert $400,000 over 10 years, do $40,000 annually. But that ignores the fact that some years have more room than others.

Take someone who retires at 60 and starts Social Security at 67. From 60-66, they have relatively low income, which means lots of bracket room for conversions. From 67 onward, Social Security fills up part of that space. The optimizer front-loads conversions into the roomier years automatically.

Years with large one-time income events get skipped. Selling a rental property with $200,000 in capital gains? Conversions that year would push those gains from the 15% bracket into 20%, costing you an extra $10,000 in tax on the sale. Better to pause conversions for that year and resume afterward.

IRMAA thresholds shape the schedule too, especially for people in their mid-60s approaching Medicare. The two-year lookback means a big conversion at 64 affects premiums at 66 — something easy to forget until the bill arrives.

Testing Multiple Intensities

One thing I learned while building this: there's rarely a single "optimal" amount. Different people have different risk tolerances, and someone with ACA coverage faces different tradeoffs than someone already on Medicare.

So the optimizer doesn't just test one conversion budget. It tests several intensities — from 0% (no conversions at all) up to 125% of the calculated target — and picks whichever produces the best overall score.

Why would converting less than the full target win? Usually because of ACA subsidies. If you're 58 and converting everything would push your income over the subsidy cliff, you'd lose $20,000+ in annual premium assistance. Converting 50% of the target might keep you just under the cliff, and those preserved subsidies more than offset the slightly higher future taxes.

The optimizer finds that balance point automatically. It doesn't assume aggressive conversion is always better.

Final Polish: Shifting Dollars Between Years

After picking the best intensity, one more pass tries to squeeze out additional savings by shifting small amounts between years.

The algorithm tests moves like: what if we shift $10,000 from age 62 to age 64? Maybe age 62 was bumping against an IRMAA threshold and age 64 had unused bracket room. Or what if we add $5,000 to age 60, where there's space, and remove $5,000 from age 67, where Social Security is already filling the bracket?

These micro-adjustments typically improve results by 1-3%. Not dramatic, but over a 30-year retirement, a 2% improvement in lifetime taxes can mean real money.

What the Optimizer Doesn't Know

I want to be direct about limitations, because overselling this stuff helps nobody.

Tax law will change. The optimizer uses current brackets, inflation-adjusted forward. If Congress raises rates in 2028 or eliminates Roth accounts in 2035, every projection becomes wrong. No model predicts legislation.

Markets don't follow projections. The optimizer assumes some average return for growth calculations. Actual markets deliver returns in random order, and a 40% crash early in retirement changes everything. That's what the Chance of Success analysis addresses — stress-testing against historical sequences rather than assuming smooth returns.

State-specific rules vary. The optimizer knows your state's income tax rate, but not whether your state exempts pension income, has special deductions for retirement distributions, or has its own cliff effects. If you're in a state with unusual rules, double-check the state implications separately.

Your behavior matters. The optimizer assumes you'll follow the conversion schedule it recommends. If you convert $50,000 in January and then sell appreciated stock for a $100,000 gain in November, the year's projection no longer applies. Life doesn't follow spreadsheets.

Trying It Yourself

If you've made it this far, you're probably wondering what the optimizer recommends for your situation. The calculations depend on your specific numbers — age, balances, Social Security, state, retirement date, all of it.

The Roth Conversion Planner — retireclarity's Roth conversion calculator — runs through everything I've described here. You'll see a year-by-year schedule, the reasoning behind each year's amount, and a comparison of lifetime taxes with versus without conversions.

Whether you follow the recommendations exactly or use them as a starting point for conversations with a tax professional, having the math in front of you beats guessing.

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Common Questions

"How much should I convert each year?" — No universal answer exists, which is exactly why a Roth conversion calculator beats generic rules. The amount depends on bracket room, other income, how many years until RMDs, and whether you need ACA coverage. The planner calculates year-specific amounts based on your inputs.

"At what age should I stop converting?" — Usually when RMDs begin, though some people find small conversions still make sense during RMDs if they have room in lower brackets. The planner identifies when conversions stop being beneficial.

"Will converting increase my Medicare premiums?" — Possibly. IRMAA surcharges apply at specific income thresholds, and the two-year lookback catches people off guard. The optimizer avoids these cliffs when the math supports it, but sometimes paying higher premiums is worth the overall tax savings.

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Related Reading

• Roth Conversions: When They Make Sense (And When They Don't) — Broader context on evaluating conversions.
• The RMD Problem: Why Your IRA Might Cost More in Taxes Than It's Worth — More on why shrinking traditional balances matters.
• The ACA Cliff: Why a $1,000 Raise Can Cost You $20,000 — Essential reading if you're retiring before 65.

From the Guide: How Roth Conversions Work · Tax Optimizer Deep Dive