So holding off on Social Security, unless you and your spouse have a significantly reduced life expectancy, is most likely the best course of action. Okay. Why don’t we go to an audience-inspired question instead of mine?
Absolutely. This question from Win Tao is about Roth conversions primarily. He asks, “How do you decide whether to make a Roth conversion or harvest capital gains?”
I’m not sure it’s always an either-or, but you can decide how you would like to take that, but he also asks, “Is it always a good idea to fill up to the tax bracket, say 22% or 24% before Social Security?” So, I guess he’s asking if it is always a good idea to try to go to the top of your current tax bracket?
Why don’t I take that one? Because that’s not a terrible rule of thumb. Let’s say you’re in the 22% tax bracket (I forget the cutoff on it this year), but let’s just say you’re in the 22% tax bracket. And let’s for the moment, forget about the impact of the taxation on Social Security. Let’s forget about the tax impact of Medicare Part B, which in reality you can’t forget about. But if we did forget about that, would that be a reasonable starting point? Probably. But here’s what I would say.
If you ran the numbers depending on your own personal situation, it might be that it makes more sense for somebody in the 22% bracket to go all the way up to the top of the 24% bracket would put them into a higher bracket than they’re paying now. And if you did long-term projections, depending on what assumptions you might make, you might find that higher or more aggressive Roth IRA conversion will be better for you and most likely better for your family. So, we have run the numbers on a lot of, for example 22% conversion folks, to have them convert a higher amount. Again, not everybody, because everybody is different.
That’s one of the reasons why we like to run the numbers. So, you actually get the mathematically correct answer, assuming that our assumptions are accurate, which of course they never are, but we give it our best shot. So that is the quick answer tying in tax-loss harvesting which really is a different issue.