Bracket filling
Deliberately adding income, often from Roth conversions or IRA withdrawals, until you reach the top of a chosen tax bracket.
Room to fill = Top of target bracket − current taxable income
Explanation
Your income often dips in the years between leaving work and starting Social Security and required minimum distributions (RMDs). In those years, the 10% and 12% brackets may go mostly unused. Later, RMDs from large traditional balances plus Social Security can push you into higher brackets.
Bracket filling smooths this out: in low-income years, you convert traditional IRA money to Roth (or withdraw it) just up to the top of a target bracket. You pay tax at a known, low rate now instead of a possibly higher rate later.
Things to watch:
- Stacking: long-term gains and qualified dividends sit on top of ordinary income. Adding conversion income can push gains from the 0% rate to 15%.
- Other thresholds: ACA premium credits, Social Security benefit taxation, Medicare IRMAA and NIIT can make the true marginal rate higher than the bracket rate.
- Paying the tax: paying conversion tax from a taxable account, not from the converted amount, keeps more money in the Roth. Using retirement money to pay the tax before 59½ may trigger penalties.
In scenarios, you can set a target bracket, and the app converts enough each year to fill it, then shows the long-run effect on taxes, RMDs and ending balances.
Example
A married couple, both 62, retire in 2026 with a $40,000 pension and a large traditional IRA.
- Taxable income before conversions: $40,000 − $32,200 = $7,800
- Top of the 12% bracket: $100,800
- Room to fill: $100,800 − $7,800 = $93,000
Tax on the conversion:
- 10% × ($24,800 − $7,800 = $17,000) = $1,700
- 12% × ($100,800 − $24,800 = $76,000) = $9,120
- Added federal tax: $10,820, an average of 11.6% on the $93,000 converted
If that money were instead withdrawn later as RMDs taxed at 22% or 24%, the same $93,000 would cost $20,460 to $22,320.