Roth vs. Traditional IRA: Which Cuts Lifetime Tax?
A planner's comparison of Roth and Traditional IRAs — bracket arbitrage, RMDs, IRMAA, state tax and conversion windows — with the math simple calculators skip.
The one question that actually decides it
Traditional contributions deduct at today's marginal rate and are taxed at your future marginal rate. Roth contributions do the reverse. Everything else is detail: if the rate you avoid today is higher than the rate you'd pay later, Traditional wins; if it's lower, Roth wins. The hard part is that your future rate is not a guess about tax law — it is mostly a function of your own balance sheet.
Why RMDs make "I'll be in a lower bracket" wrong so often
Required minimum distributions begin at age 73 (75 for those born in 1960 or later) and are calculated from your prior-year IRA balance. A pre-tax IRA compounding at 5–6% for a decade of retirement can produce a first RMD far larger than the retiree's actual spending need. That forced income stacks on top of Social Security and pensions, and it grows as a percentage of the account every year. Many households retire into the 12% bracket and are pushed back into 22–24% by their own RMDs.
The costs a simple Roth calculator ignores
- Social Security taxation. Additional ordinary income drags more of your benefit into taxable income, producing effective rates well above the stated bracket.
- IRMAA. Medicare Part B and D surcharges are cliffs, not ramps. One dollar of extra MAGI can cost a couple over a thousand dollars two years later.
- Capital gain stacking. Ordinary income pushes qualified dividends and long-term gains from the 0% band into 15% or 20%, plus the 3.8% net investment income tax.
- State income tax. Treatment of IRA distributions, pensions and conversions varies enormously across the 41 income-tax states and DC.
- The survivor year. When one spouse dies, the survivor files single — roughly half the brackets and half the IRMAA thresholds on similar income.
- Heirs. Most non-spouse beneficiaries must empty an inherited IRA within 10 years, often during their peak earning years.
The conversion window
The years between retirement and the start of Social Security and RMDs are usually the lowest-income years of a lifetime. Filling the 12%, 22% or 24% bracket with Roth conversions during that window converts future high-rate dollars at today's low rate, shrinks the pre-tax balance that RMDs are computed from, and leaves tax-free assets to heirs. Convert too aggressively and you trip an IRMAA tier or pay tax at a rate you would never have faced. The optimum is a specific dollar amount per year, not a rule of thumb.
How Bracketwise answers it
Bracketwise runs a full year-by-year projection rather than a single-rate comparison. It models bracket-fill strategies at 12%, 22%, 24% and 32%, an IRMAA-aware variant that stops just below each surcharge threshold, and an IRA-first drawdown — then ranks them by lifetime total tax and by ending after-tax net worth. State tax is modeled for every income-tax jurisdiction, and a Monte Carlo engine with fat-tailed and regime-switching returns stress tests the winner against sequence risk.
Educational modeling only. Bracketwise is not tax, legal or investment advice.