I turned 59½ this year. As we get close to the end of the 2025, that means we now have a green light into our 401Ks.
With paid corporate board work behind me, our income has dropped sharply—in a good way. No W-2s, no consulting, just modest interest and dividends. We’ve been living off cash from selling our rental property, which has pushed our federal tax rate down to an amazing 2–3%. When the tax code gives you a window like that, it’s time to act!
This is our first year doing a Roth conversion since we did my wife’s 401K about 10 years ago. The timing is ideal. Instead of letting my MegaCorp 401(k)s grow into a future tax headache, we’re deliberately pulling money out now. We simply convert enough to a Roth IRA to take advantage of today’s low tax rates, while keeping total taxable income safely inside the 12% bracket.
At the same time, we’re using our family foundation / Donor Advised Fund to push even harder. Part of what comes out of the 401(k)s goes straight into the DAF to build that balance. The charitable deduction helps offset the conversion income, the money is set aside for causes we care about, and we retain flexibility on when grants are made. Tax planning and values alignment don’t have to be separate decisions.
The real motivation is what’s coming later. Required Minimum Distributions (RMDs) will eventually force taxable income higher whether we want it or not. By doing steady Roth conversions over the next 10+ years, we reduce that future burden in advance. Paying modest taxes now beats getting shoved into higher brackets later.
There’s nothing flashy here. No market bets, no clever tricks—just using low-income years wisely. We’ll repeat this annually, stay under the 12% bracket, fully fund the DAF for the future, and shrink future RMDs. It’s a financially fun way to end the year and get ready for tax season.
How much experience do you have with Roth Conversions?
Image: Pixabay / ChatGPT AI
MrFireStation 
Interesting update. I’m a couple of years from 59.5 and I am also debating starting Roth conversions at that time. The other option is just to start taking some distributions (penalty free) from pre-tax to fund living expenses and let taxable brokerage continue to grow. It’s a complicated balance of ACA credits, tax brackets, RMDs, standard deductions, etc. Thanks
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Yes, it is complicated to figure out the best strategy. We spent $395 with our CPA modeling this out for tax year 2025!
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I have been retired in the 22% bracket, so have so far avoided Roth Conversions. I was notified recently by the company who bought my old employer that they are intend to break the terms of my Deferred Compensation Agreement and pay it out as a lump sum instead of over the next for years in 2026. This would bump me into the 35% bracket for 2026. Of course, I let them know that if they violate the terms of the Deferred Compensation Agreement, I will sue for breach of contract. Amazing what HR reprobates will do to try to save a buck.
If I do receive the lump sum, then I could probably sneak a Roth Conversion in during 2027.
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What was there response to your threat of litigation? Might they negotiate the tax impact difference to make it worth your while?
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The company assigned my situation to outside counsel. He came back with a an additional $40,000 counteroffer that is 20% of what is needed to true me up. I told him that I would rather receive the original amount and I retain my right to sue, so I can chase after 10X California punitive damages.
Here is the ironic part. The company gets to keep the Deferred Comp funds invested in their company at their excellent 15% ROIC until they pay me out. I am synthetically invested in short term treasuries yielding around 4.25% to avoid market loss (they wouldn’t let me invest in dividend stocks). The company gets to keep the difference in returns, which I am okay with. I prepared a spreadsheet that showed the company’s loss of income would be about the same as mine. I asked him to run this plan by their Treasury. HR trying to save a few thousand in Fidelity administration fees, would be costing the company a $120,000 loss of financial returns by losing the float on my Deferred Comp Payout. I offered to walk the attorney through my math. He told me that he was a math major before going to law school.
Hopefully they do what is right and we both win. Really sad, having to show them the gun to get them to live up to their side of a contract. These are the types that were my inspiration for creating my Quadrant of Corporate Reprobates!
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Wow – that’s hilarious! I wonder what conversations he had internally after that phone call. Some companies just INSIST on cutting off their nose to spite their face, don’t they?!
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