Methodology & sources

1. Federal income tax

Ordinary income tax is computed by filling brackets progressively. A conversion is ordinary income, so it stacks on top of your other taxable income:

Bracket thresholds and standard deductions come from the IRS revenue procedure for the tax year. The seven-bracket structure was made permanent by the One Big Beautiful Bill Act; thresholds still index for inflation annually.

Standard deduction, 2026

Full bracket tables are on the 2026 tax brackets page.

2. How much the tool converts each year

A bracket-fill strategy converts exactly enough to reach the top of a target bracket. Because brackets are defined on taxable income but a conversion is measured in gross income, the ceiling adds the standard deduction back:

That is the simple case. The tool actually solves for the conversion whose taxable portion lands on the bracket top, so it stays exact when part of each conversion is tax-free basis, and from age 65 when the aged deductions below apply. Qualified dividends and long-term gains are not subtracted here: they are taxed on their own schedule above the ordinary brackets.

The 400% FPL strategy is different: it targets a MAGI figure directly, so no deduction is added back.

Each year's conversion is capped by the remaining account balance, and the remainder grows at your assumed rate afterward. A year that converts nothing (a $0 override, or a ceiling your other income already reaches) is skipped rather than ending the ladder; the balance still grows through it.

From age 65 the deduction includes the additional standard deduction for age ($2,050 unmarried, $1,650 per married person) and, for tax years through 2028, the $6,000 senior deduction, which phases out at 6% of MAGI above $75,000 ($150,000 joint). The ladder has one age field, so a joint return is treated as two people of that age.

3. The 5-year seasoning clock

Each conversion has its own clock, and each starts on January 1 of the conversion year regardless of the month you convert. The clock gates the 10% early-withdrawal penalty on converted principal only. Two consequences the calculator makes explicit:

• The clock is irrelevant once you reach 59½, because no penalty applies at that age. The ladder stops there by default.
• A separate 5-year clock runs on the Roth account itself, starting from your first-ever contribution, and gates earnings even after 59½. Enter a first contribution year and it is drawn as its own row.

4. MAGI

Recovered after-tax basis is left out: it is reported on Form 1040 line 4a but not in the taxable amount on 4b, so it never enters AGI, which is where MAGI starts. This is an approximation: it does not model Social Security taxability phase-in, tax-exempt interest, or the foreign earned income exclusion. It is reasonable for the pre-Social-Security age range this tool is built for, and less so from the early sixties onward.

Qualified dividends and long-term capital gains have their own input. They count toward MAGI in full even when taxed at 0%, and are taxed on the 0/15/20% schedule stacked above ordinary income.

5. Federal poverty level

Premium tax credit eligibility for a plan year uses the prior year's HHS poverty guidelines. HHS publishes three separate tables, and which applies depends on your state of residence — not your filing status. Selecting Alaska or Hawaii changes every %-FPL figure in the tool and moves the cliff by a substantial margin.

100% FPL by household size (2026 plan year)

Resulting 400% FPL cliff

6. Premium tax credit

The credit covers the gap between a benchmark plan's premium and what the law says your household is expected to contribute:

The applicable percentage ramps linearly within each band. Under current law the credit is zero above 400% FPL — a hard cliff, not a taper.

Applicable percentage, current law (2026)

The discontinuity at 133% FPL — 2.10% jumping to 3.14% — is correct for this structure, not a transcription error.

Below 100% FPL the credit does not apply at all: those households are Medicaid-eligible in expansion states, or in the coverage gap otherwise. Married filing separately is ineligible outside narrow domestic-abuse and spousal-abandonment exceptions. The calculator labels each of those states explicitly rather than showing an unexplained $0.

7. True marginal rate

This is the number the tool exists to compute:

Federal tax here is only the tax the conversion causes. Tax you already owe on your other income is not a cost of converting, so it is subtracted out. The multi-year average uses the same signed numerator, summed across every rung.

The subsidy change is signed, and the rate is deliberately not clamped. Both choices matter:

• Forfeiting subsidy makes the numerator larger than the tax alone. Filling the 12% bracket can easily cost 22–28% once phase-out lands.
• A conversion can also gain subsidy — lifting a household out of the coverage gap into credit-eligible range. Then the rate is negative, meaning the conversion pays for itself, and the tool reports it that way instead of rounding it up to zero.

The counterfactual is always your own other taxable income with no conversion. No invented reference income is used, because dividing someone else's subsidy difference by your conversion amount would not be a marginal rate.

8. The marginal-rate curve

The chart on the Tax detail tab sweeps a single year's conversion from $0 upward in $500 steps. Each point reports the cost of the last increment, not an average:

Because every point is genuinely incremental, no baseline assumption is involved anywhere in the curve. The 400% FPL cliff appears as a vertical spike, and the applicable-percentage bands appear as visible steps. The same single-year cost function computes both this curve and the per-year table rows, so the two cannot disagree.

9. Pro-rata basis recovery & Form 8606

Under IRC §408(d)(2), all Traditional, SEP, and SIMPLE IRAs are aggregated on December 31 of the conversion year. After-tax non-deductible basis (tracked on Form 8606) comes out ratably across all your IRAs rather than first:

The Backdoor Roth & pro-rata calculator models Form 8606 line-by-line and simulates the three clearance strategies: reverse rollover to an employer 401(k) (which clears pre-tax balance by Dec 31, making conversion 100% tax-free),lump-sum conversion, and status quo.

10. Mega backdoor Roth & IRC §415(c)

Voluntary after-tax 401(k) contributions are governed by the annual additions ceiling under IRC §415(c)(1):

Employer match calculations are capped at the IRC §401(a)(17) compensation limit ($360,000 in 2026). Catch-up contributions for age 50+ ($8,000 standard, or $11,250 for ages 60–63 under SECURE 2.0 §109) sit outside §415(c).

Under IRC §414(v)(7), participants with prior-year FICA Box 3 wages exceeding $150,000 from their employer must designate age 50+ catch-up contributions as Roth. The Mega backdoor Roth calculator models these constraints, paycheck pacing / true-up match exposure, and multi-year compound tax advantage vs taxable brokerage.

11. Bridge-fund solvency

Each year, spending needs are met from seasoned Roth principal first, then from the taxable account, whose remainder grows at the bridge growth rate you enter. That rate is separate from the IRA's and defaults to 0%, because a bridge is often held in cash or bonds. When bracket indexing is set, living expenses rise at the same rate so both sides stay in future dollars. Capital gains realized by selling taxable holdings are not modeled.

Conversion tax is charged against the taxable account deliberately: withholding it from the conversion itself would be a distribution subject to the 10% penalty, which defeats the point of the ladder. If the taxable balance is left blank, the tool reports"not checked" — never a passing result on missing data.

11. Medicare IRMAA

Used by the IRMAA calculator only. The conversion ladder excludes IRMAA entirely — see the next section.

The income test. IRMAA has its own definition of modified adjusted gross income, and it is not the one in section 4 above:

The premium tax credit adds back three things — tax-exempt interest, the non-taxable portion of Social Security, and excluded foreign earned income. IRMAA adds back only the first. The two definitions are close enough to look interchangeable and far enough apart to misprice a household, so they are computed by separate functions that each document the difference. Municipal bond interest counting in full is the consequence most often missed: it reduces income tax without reducing a Medicare premium at all.

As in section 4, the standard deduction does not reduce it, and qualified dividends and long-term gains count in full even in a year they are federally taxed at 0%.

The two-year lookback. Premiums for a year are set from the income reported two tax years earlier:

So for anyone enrolling at 65, the tax year they turn 63 is the first one that can raise a premium, and conversions at 62 and earlier have no IRMAA consequence whatsoever. The calculator reports that as an explicit outcome rather than as a surcharge of zero, because the two mean entirely different things. A later enrollment age shifts the whole window with it.

The tier lookup. Thresholds are inclusive upper bounds, matching how CMS states them — "greater than X and less than or equal to Y". Income landing exactly on a threshold stays in the lower tier, and the surcharge begins one dollar above it. The lookup resolves by upper bound for that reason; scanning lower bounds would charge a full tier to a household sitting precisely on the line. One band is stated differently and is handled differently: the second-highest reads "less than" its ceiling against a top tier of "greater than or equal to", so income landing exactly on that one figure is in the top tier. The schedule records which band that is rather than the lookup assuming a position, because it is a fact about the notice and a future year could move it.

The surcharge. Not a rate on the excess. A flat monthly dollar amount per tier, charged per enrolled beneficiary, on Part B and Part D separately:

Two enrolled spouses therefore pay twice the published figure, which is why the tool reports the per-person amount — the one a reader can check against the CMS notice — alongside the household total. Part D applies only to beneficiaries who carry Part D or a Medicare Advantage drug plan.

Room before the next threshold. Derived arithmetically rather than by scanning the sampled curve, so it is exact to the dollar:

A figure quantized to the sample grid would under-report room, which is wrong in the one direction that matters: a reader who trusts it converts up to it and crosses.

Two costs, two years. The calculator adds federal tax on the conversion to the surcharge it triggers, because the trade only becomes legible as one figure — a one-year tier crossing is frequently worth it against the tax saved by converting in a low bracket. But the tax falls due for the conversion year and the surcharge is paid across the premium year two years later. That sum is deliberately not discounted to present value, and the tool says so wherever it appears.

Beyond the exclusions in the next section, two omissions bite hardest here. Social Security taxation is not modeled anywhere in this project, and a conversion can drag more benefit into taxable income — so a household drawing benefits reaches these thresholds sooner than reported. State income tax is excluded from the total. And an IRMAA increase caused by a conversion cannot be appealed: form SSA-44 covers life-changing events, and voluntary income is not one.

12. What is not modeled

These are exclusions, not oversights. Each one can change a real decision, so they are listed plainly here and in the tool itself.

• State income tax — excluded entirely.
• Medicare IRMAA surcharges — excluded from the ladder. Relevant from age 63 because of the 2-year lookback, and modelled by a separate calculator whose formulas are in section 11 above.
• Cost-sharing reductions — not valued in dollars, though they change what a Silver plan is worth below 250% FPL. This is also why a "subsidy-optimal" conversion is fuzzier than premium math alone suggests: actuarial value steps down at 150% FPL, so the true optimum depends on how much healthcare you expect to use.
• Inflation indexing — off by default, so tax thresholds stay at today's levels. That is consistent only if the growth rate you enter is real (after inflation). An optional indexing rate produces nominal projections instead, for use with a nominal growth rate.
• Benchmark premiums — estimated from age alone unless you enter your own. Not location-adjusted and not tied to any real plan.
• Required minimum distributions — the lifetime comparison is a future tool.

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