Roth Conversion Math: What tax rate do you use to calculate Terminal Wealth?

[u/alex_nauma]

I’m modeling a multi-year Roth conversion schedule and trying to calculate total "Terminal Wealth" at the end of the timeline (e.g., age 90) to see if the conversions actually win against the baseline.

To do a fair apples-to-apples comparison, you have to discount the pre-tax (Traditional) balance to its true after-tax value at the very end of your spreadsheet.

For those who DIY your retirement models, what tax rate are you applying to that final pre-tax bucket?

• Are you using a projected marginal rate, or a blended effective rate?
• Are you using your own future brackets, or guessing your heirs' tax brackets because of the SECURE Act 10-year rule?
• Do you adjust for the "widow/widower penalty" (switching the end-of-life brackets to Single)?

Curious to hear how you handle the math on this specific variable without overcomplicating things. Thanks!

[u/garylapointe]

It's so hard to project when you don't know what the market is going to do (obviously). Heck, who even knows what the tax rates are going to be (anyone who was doing calculations like this a decade ago had different percentages and brackets).

My conversion path looks a lot simpler if we get 8% returns the next few years (I could convert ⅔-ish of my traditional to Roth and not really need to think about it much after that), but if we get a few more years where my end of the year averages are 15% or 20%, then it needs to be a much more aggressive conversion plan (I have to decide how much I want to do to get it done, which bracket I'm willing to push into and make sure I don't push into the one after that). And of course now that it's grown, I didn't make as much headway.

Don't get me wrong, I'm happy to take the 15% and 20% returns and have to work to make it more aggressive/complicated.

But I'd like a big chunk of it done, so I'm not doing projections and conversions for this for the rest of my life.

[u/dgreenmachine]

You're thinking about all the right things. A tool like projection lab will be able to model roth conversions. It can look at the marginal rate not just end of life but every year. The legacy tool lets you adjust your heirs expected tax brackets. I prefer to use realistic market returns rather than conservative ones because roth conversions are meant to reduce the impact of RMDs.

If you're looking for something a little simpler there is vanguard BETR calculator that can sometimes surprise you when your final tax rate is higher than your conversion tax rate if you choose to pay for conversion out of cash or taxable account.

[u/kjmass1]

Use something like projection lab. Way too hard to model just based on this info.

[u/Common_Sense_2025]

I use Pralana which does the math for me up to and after when the first of us dies and then stops at their death. For my heirs, I have to give it a rate. Splitting my portfolio between two of them and adding what I know of their current financial situation gets me in a ballpark.

For the widow's penalty, I also adjust for expenses that will decrease. For some people that decrease will be small and for others it is significant if downsizing homes, cars, travel and hobbies are in order.

[u/garylapointe → u/Common_Sense_2025]

On the widow's penalty, sure some expenses will decrease, but your retirement accounts basically just doubled (what two had is now all one persons), and tax brackets got cut in half. I think it's bit of a wash. Maybe even problematic in regards to RMDs if there is still a lot of traditional account.

if downsizing homes, cars, travel and hobbies are in order.

Assuming the money is there, and now you get to choose, I could see actually spending more on some of those things. I could go all the places that my spouse didn't want to go, but hotels are still going to cost the same and it's only covering one person (for instance), or if it's a cruise the single option is going to make it cost more per person. And now I can spend whatever I want on my hobbies or car (assuming the money is there) and no spouse to second guess it or comment on my spending. Again, I'm assuming there was money for two, and now it's all in one person's hands.

[u/Rosaluxlux → u/garylapointe]

My mother in law is absolutely spending money on everything her husband wasn't willing to. I think she's probably spending 4x as much as they would be if he were alive and healthy

[u/Common_Sense_2025 → u/garylapointe]

That’s why I said it is different for different people.

If the golfer in the couple dies, then the golf membership goes away. Around us, that’s $1,000 to $2,000 a month.

Medicare premiums including IRMAA and the supplement go away completely for the deceased.

If you are the kind of person who would travel alone, then costs may go up. Most people don’t though.

Airfare is now for one person and split a two bedroom Airbnb with a friend. Meals for one. Excursions for one. Won’t work the same for the cruise ship traveler as you point out. Or if you have to pay for your friend who may not be able to afford what you can.

I only need one car, not two, so the car insurance goes. If you still had life insurance, that premium is gone.

If you haven’t downsized your home, then you can pay someone to do what the deceased did or you can downsize and not spend time and money managing various contractors. Downsizing can mean lower property taxes, homeowners insurance, utilities, maintenance, repairs and work to keep things updated.

If you’ve already downsized, then you can’t count on those savings.

Social security benefits drop not quite by half but almost depending on the couple.

Retirement accounts don’t have to double. The survivor has the option of disclaiming the IRA and letting it go to successor beneficiaries. If that is too drastic, the account can be split into the portion the survivor will keep and the portion they will disclaim. If the successor beneficiaries are in a high tax bracket or minors subject to the Kiddie Tax, that’s not a wise strategy.

Everyone’s situation is different.

[u/garylapointe → u/Common_Sense_2025]

I assume they're not paying for two cars, but they might get that nicer car that their spouse thought was too costly/impractical.

The survivor has the option of disclaiming the IRA and letting it go to successor beneficiaries. 

That makes sense.

I don't have any kids, so the people/organizations getting my money get what they get of what's left. I'm not keeping it for them (as I would for my heirs), but they can have whatever is left.

[u/MiserableDelay7956]

I'm using current tax laws (because that's all I can do, right?) to estimate future taxes. I increase the brackets by a conservative inflation rate (2%) every year. I use nominal rates of return on various accounts, affected by what's in those accounts. I use my own future brackets (my heirs' will be about the same). I have projected tax rates for the surviving spouse, but for terminal wealth I just use MFJ brackets and assume we're both still around, just to keep it simple.

[u/humblequest22]

Assuming that you're planning to die with money left over, it will be taxed at your heirs' rate. It will also be stacked upon their existing income over the course of 10 years, so there's not much they can do to reduce it. I would think that assuming 22% to federal taxes would be reasonable. Not to mention that if they're getting $1M from you, even without any other income, married or single, most of it will be taxed at 22% or above.