Paying 37% in Taxes on Purpose?
Why a Roth Conversion Might Not Be as Crazy as It Sounds, Even if You Are in the 37% Bracket
Let me begin with an honest reaction most people have when this topic comes up.
The idea of voluntarily paying taxes at the highest federal tax rate sounds completely backward. After spending decades saving carefully and trying to minimize taxes, choosing to create a large tax bill on purpose feels almost irresponsible.
And in some situations, it absolutely would be.
But retirement planning has a way of challenging assumptions that once seemed obvious. Every so often, a strategy that feels uncomfortable in the short term turns out to be surprisingly sensible when viewed over an entire lifetime.
Roth conversions fall squarely into that category.
For many years, retirement planning followed a simple script. You contributed to pre-tax accounts, received a deduction during your working years, and expected to withdraw those funds later when your income — and therefore your tax bracket — was lower. That framework worked well for earlier generations whose spending and income often declined meaningfully in retirement.
Today, we see something different. Many clients reach retirement in a strong financial position. They have accumulated significant IRA balances, investment portfolios that continue to grow, Social Security benefits, and in some cases pensions or ongoing business income.
Many retirees today don’t experience a sharp drop in income when they stop working. Instead of retirement being a financial slowdown, it often becomes a transition from earned income to income generated by savings, investments, and benefits accumulated over a lifetime.
As a result, taxes do not always fall the way people expect.
One of the biggest surprises retirees encounter arrives in their seventies when Required Minimum Distributions begin. These withdrawals are mandatory regardless of whether the income is needed. For individuals who have saved diligently, RMDs can become substantial and may keep taxable income elevated for decades. Combined with Social Security and investment income, many retirees find themselves paying meaningful taxes long after they assumed their highest earning years were behind them.
At that point, the planning conversation shifts. The question is no longer how to avoid taxes entirely. Instead, it becomes a matter of timing and control: when do you want to recognize income, and under whose terms?
A Roth conversion moves some of that future taxable income into the present. Taxes are paid today so that future growth and withdrawals may occur tax-free. On the surface, converting while already in the 37% tax bracket seems illogical. Why willingly pay the highest rate?
The answer lies in recognizing that retirement planning is not about minimizing taxes in a single year. It is about managing taxes across an entire lifetime.
One important consideration is uncertainty. None of us knows what future tax policy will look like. Current tax rates are historically low. While no one can predict future legislation, there is a reasonable possibility that tax rates could be higher at some point during retirement than they are today.
For some clients, paying a known tax rate now provides clarity compared to leaving a large future tax liability exposed to unknown rules decades down the road. A Roth conversion, in that sense, is not necessarily a prediction about higher taxes — it is a way of managing the risk that future taxes may not be lower.
That flexibility often becomes more valuable than people expect. Having assets that can be accessed without creating additional taxable income can help retirees navigate changing markets, healthcare costs, or large life decisions without unintentionally increasing taxes or Medicare premiums. It also allows income to be managed more deliberately year by year rather than dictated by mandatory withdrawals.
That said, a Roth conversion at the highest bracket is far from universally appropriate. If income is expected to drop significantly after retirement, paying top rates today may unnecessarily accelerate taxes. If the tax bill itself creates financial strain, or if the conversion triggers unintended consequences elsewhere in the financial plan, restraint is often the better choice.
This is why we rarely frame the decision as an all-or-nothing event. The most effective strategies tend to be gradual and intentional. Instead of asking whether everything should be converted, we focus on how much income should be recognized each year in order to improve long-term outcomes. Small, consistent adjustments over time often accomplish far more than dramatic one-time decisions.
At Stordahl Capital Management, we view Roth conversions not as a trend or a tactic, but as one potential component of a comprehensive retirement income plan. Every decision must fit within the broader context of a client’s goals, lifestyle, tax outlook, and family priorities. Sometimes converting makes sense. Sometimes waiting is wiser. Often, the optimal path lies somewhere between those extremes.
The larger lesson is that retirement planning is not about eliminating taxes. None of us is given that option. The real objective is to be intentional — to make thoughtful decisions today that reduce surprises tomorrow.
Yes, paying taxes at 37% on purpose can sound crazy at first.
But the greater risk may be allowing future tax obligations to build quietly in the background without a plan to manage them. Successful retirement planning is less about reacting to tax bills and more about shaping them over time.
In the end, the goal is simple: create a retirement that offers flexibility, clarity, and confidence — knowing that the decisions made today were guided by long-term thinking rather than short-term discomfort.
Questions? We offer a complimentary 15-minute call to discuss your concerns and explore how we can assist you.
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This material was written in collaboration with artificial intelligence (ChatGPT) and derived from sources believed to be correct.
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