A worked example
What “fill the low bracket” actually costs
Devon, 38, single, earning $250k and planning to stop at 45 — leaving 30 low-bracket years before RMDs begin at 75, and a $600k brokerage account to live on in the meantime.
“A common rule of thumb is to convert enough to fill the 12% bracket in my low-income years. What does that do compared with a smaller conversion?”
What the projection shows
First, that the rule of thumb is stated as a bracket but has to be paid as an amount — and $64,000 is the largest conversion that actually holds a 12% rate here, so a hand-picked $75,000 spends the year in the 22% bracket instead. Then, that filling the bracket properly still costs more: $599,894 of lifetime tax against $577,320 for converting nothing, while the smaller $35k schedule costs $512,079. Both schedules stay inside 12% the whole way and finish $87,659 apart in wealth after the tax still owed on it. What drives it is that conversion dollars also push Devon's own dividends and realized gains out of the 0% capital-gains bracket into 15%, so dollars that look like they cost 12% really cost about 27% — against RMD years taxed at 22%. Planners call this the long-term capital gains “bump zone”.
What else the projection found
Nothing here was left blank. These follow from the figures above, under the assumptions this example states.
- The $64,000 converted this year lifts income past the top of the 0% band, so $42,919 of gains and dividends that cost nothing are taxed $8,237 — no bracket changed, so no bracket table shows it.
- The $35,000 converted this year lifts income past the top of the 0% band, so $41,344 of gains and dividends that cost nothing are taxed $3,829 — no bracket changed, so no bracket table shows it.
The planner arrives with this household already filled in. Change anything — the balances, the ages, the assumptions — and run it as yourself.
A projection under stated assumptions, not financial or tax advice.