Retirees Can Cut 7% Tax Penalties With Withholding and Use Ages 65-73 for Roth Conversions
Updated
Updated · Morningstar · Sep 10
Retirees Can Cut 7% Tax Penalties With Withholding and Use Ages 65-73 for Roth Conversions
1 articles · Updated · Morningstar · Sep 10
Summary
Withholding from retirement withdrawals can spare new retirees estimated-tax penalties because the IRS treats withheld amounts as paid evenly through the year, even if taken late; Slott said underpayment penalties are running about 7%.
Early retirement often creates a lower-tax window after wages stop and before required minimum distributions begin at 73, making it a prime period to project income, fill lower brackets and convert traditional IRA assets to Roth accounts.
Slott said withdrawal sequencing should generally preserve Roth assets for last and consider drawing more from traditional tax-deferred accounts while rates remain relatively low, even if taxes are paid earlier than required.
IRMAA Medicare surcharges can jump if income exceeds a threshold by $1, but Slott argued retirees should prioritize locking in 22% or 24% tax rates and shrinking IRA balances now to reduce future RMDs and longer-term IRMAA costs.