Roth Conversion Now vs MYGA Bucket Deferral: $1M IRA Modeled Over 20 Years
Video: Roth Conversion Now vs MYGA Bucket Deferral in about 2 minutes
1 min 45 sec video. AI narration of this page, accuracy-checked against the review; the tables on this page are the current source. Education, not personal advice.
Video transcript
In the comparison, Roth Conversion Now vs MYGA Bucket Deferral, the Roth Conversion ladder saves this family $414K in total family lifetime tax. Okay, so let's look at the side-by-side cost. The parent is out real money with the Roth. For the parent's lifetime tax, Strategy A is $280,000, while Strategy B is $220,000. Right. So the parent pays $60,000 more upfront just to help the kid. So when does the parent actually win? I mean, or at least the family? Well, looking strictly at the family impact, Strategy A saves the family $414,000 in total family lifetime tax. By absorbing that $60,000 cost now, it delivers $354,000 more to the heir. Which is like a huge difference, right? Massive. It gives her $1.232 million net, compared to just $878,000 under Strategy B. But I mean, doing any of this requires accepting some critical tax law risk, right? Like you're guessing what the government will do. Exactly. And this analysis, which comes from Hans Goldstein, an independent licensed insurance producer, presents a very honest tradeoff. Right. Because the conversion locks in tax certainty for the heir, but at the cost of higher parent level taxes today. Yep. And on the flip side, the MYGA defers the decision, but it exposes the family to whatever tax regime exists 10 to 20 years from now. Which could be anything. You can read the full page and see all the exact math at HansGoldstein.com.
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The setup
Hans's client: 65-year-old retiree, $1M in Traditional IRA, $400K in taxable brokerage, $35K Social Security, $20K pension. Married filing jointly. Current MAGI: roughly $90K. Federal bracket: 12%. State: 9.3% (CA).
RMDs start at age 73. Heir is a 45-year-old daughter, peak-earning physician at $400K/yr, in the 32-35% federal bracket.
The decision: optimize the IRA across the next 8 pre-RMD years.
Two strategies on the table:
- Strategy A: Roth Conversion Ladder: Convert $80,000/yr from Traditional to Roth for 8 years. Pay current tax. Leave Roth to heir.
- Strategy B: MYGA Bucket Deferral: Move $1M into a MYGA ladder at 5.6%. Let it compound tax-deferred. Take RMDs starting at 73. Leave residual to heir.
We'll model both over 20 years (from age 65 to 85), assuming a consistent rate environment and heir distribution within the SECURE 10-year window after the parent's death.
CD vs MYGA, after tax
What $100,000 earns in 5 years: CD vs MYGA, after tax
Rates used: CD 4.50%, the top nationally available 5-year CD (DepositAccounts, September 24, 2026); change it to the rate you are offered. MYGA 5.95%, the best A-rated rate we track as of October 13, 2026: Delaware Life Pinnacle Plus 5-year (AM Best A-, negative outlook, 7/31/2026), $100,000 and up, effective October 6, 2026 (Delaware Life rate sheet).
| CD, interest taxed every year | $118,826 |
|---|---|
| MYGA, tax-deferred, before tax | $133,507 |
| MYGA after paying tax on all the interest at withdrawal | $126,136 |
| Tax deferral alone adds about | $674 |
| MYGA ahead of the CD, after tax | $7,310 |
Assumes 22% federal and 0% state income tax, no withdrawals, rates held for the whole term. MYGA interest is taxed as ordinary income when you withdraw it, not as capital gains. Gains taken before age 59 1/2 can owe a 10% IRS penalty, and cashing out early can cost a surrender charge. In an IRA both grow tax-deferred, so the edge there is the rate alone. Bank and credit union deposits are FDIC or NCUA insured up to the limits; a MYGA is backed by the issuing insurer's claims-paying ability and your state's guaranty association up to its limits, not the FDIC. General education, not tax, legal or financial advice.
Strategy A: Roth conversion ladder, year-by-year
Plan: convert $80,000 of Traditional IRA to Roth every year from age 65 to 72 (8 years). Pay federal + state tax from taxable brokerage (so the full $80K transfers to Roth, not net-of-tax).
| Age | Conversion | MAGI after conversion | Federal tax (22% bracket) | CA tax (9.3%) | Annual tax cost |
|---|---|---|---|---|---|
| 65 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 66 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 67 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 68 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 69 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 70 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 71 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| 72 | $80,000 | $170,000 | $17,600 | $7,440 | $25,040 |
| Total | $640,000 | n/a | $140,800 | $59,520 | $200,320 |
After 8 years: Roth balance ~$760K (with growth at 5%), Traditional IRA residual ~$420K (from compounding on the unconverted portion). Total IRA value: ~$1.18M. Total taxes paid: $200,320 (paid from taxable brokerage; doesn't reduce IRA value).
IRMAA impact: $170K MAGI for 8 years stays under the first IRMAA tier ($206K MFJ), so no surcharge in our example. Note that for single filers, $170K would cross the second tier and add ~$840 of surcharge per year. For our MFJ case, no IRMAA impact.
Year 73-85 RMDs on residual Traditional IRA ($420K, growing to ~$700K by age 85):
- RMD years 73-85: ~$18K-$32K/yr
- Federal+state tax on RMDs (22% combined): ~$5K-$8K/yr
- 13-year RMD tax total: ~$80,000
Total lifetime tax (parent only, Strategy A): $200K conversion + $80K RMD = $280,000.
Heir inheritance (Strategy A): Roth $1.0M + Traditional residual $400K (after Mom uses some for living) = $1.4M, of which $1.0M is tax-free Roth.
Heir's 10-year tax on inherited Traditional ($400K): At 32% federal + ~10% state = roughly $168K. Heir keeps $232K from the Traditional + $1M Roth = $1.232M net to heir.
Strategy B: MYGA bucket deferral, year-by-year
Plan: move full $1M from Traditional IRA into MYGAs (still inside the IRA wrapper) at 5.6% average rate. No conversions. Take only required RMDs starting at age 73.
From age 65-72: full tax-deferred compounding. $1M grows to ~$1.55M by age 72.
From age 73, RMDs begin. The IRS Uniform Lifetime Table factor is ~26.5 at age 73, dropping each year. Approximate RMD schedule:
| Age | IRA balance | Divisor | RMD | Federal+state tax (22%) |
|---|---|---|---|---|
| 73 | $1,630,000 | 26.5 | $61,500 | $13,530 |
| 75 | $1,690,000 | 24.6 | $68,700 | $15,114 |
| 77 | $1,720,000 | 22.9 | $75,100 | $16,522 |
| 79 | $1,710,000 | 21.1 | $81,000 | $17,820 |
| 81 | $1,680,000 | 19.4 | $86,600 | $19,052 |
| 83 | $1,610,000 | 17.7 | $91,000 | $20,020 |
| 85 | $1,520,000 | 16.0 | $95,000 | $20,900 |
RMDs of this size push MAGI from $55K base + RMD = $116K-$150K range. For an MFJ couple this stays under the first IRMAA tier ($206K). For a single filer (e.g., a widow), $130K+ MAGI clears the second IRMAA tier, adding ~$3,000/yr of IRMAA surcharge starting at age 73.
Total lifetime tax (parent only, Strategy B): ~$220K of RMD-related federal+state tax across age 73-85.
Heir inheritance (Strategy B): Full IRA at parent's death (assume age 85): ~$1.52M, all Traditional. Heir 10-year compressed distribution: at 32% federal + 10% state = $642K tax. Heir nets ~$878K.
Side-by-side total cost
| Metric | Strategy A (Roth ladder) | Strategy B (MYGA deferral) | Difference |
|---|---|---|---|
| Parent lifetime tax | $280,000 | $220,000 | Strategy A pays $60K more upfront |
| Parent IRA value at death (age 85) | $1.4M ($1M Roth + $400K Trad) | $1.52M (all Trad) | Strategy B is $120K bigger at death |
| Heir's tax on inheritance | $168K (on $400K Trad only) | $642K (on full $1.52M Trad) | Strategy B costs heir $474K more |
| Total family lifetime tax | $448K | $862K | Strategy A saves $414K |
| Heir's net inheritance | $1.232M | $878K | Strategy A delivers $354K more to heir |
| Parent's living standard during 65-72 | Slightly tighter (paying conversion tax) | Same | ~$25K/yr extra cash needed in Strategy A |
The conversion wins by $414K of family tax savings, but only because the heir is in a high tax bracket. The conversion's advantage exists because Mom pays 22-24% now instead of letting her heir pay 32-37% later (compressed into 10 years).
When MYGA deferral actually wins
Strategy B beats Strategy A in three specific scenarios:
1. Heir's tax bracket is the SAME as or LOWER than parent's
If the heir is a non-working spouse, a college student, or another retiree in the 12% bracket, paying tax now at 22% to dodge a future 12% bill is a net loss. Defer everything; let the heir distribute in their own low brackets.
2. Parent will likely use most of the IRA for living expenses
If life expectancy + spending pattern mean the IRA is mostly depleted by death, there's no inheritance to optimize. Defer, spend it down at the parent's rates.
3. Parent is in a very low bracket and conversions would push them up
If the parent's MAGI is $50K and conversions push them to $130K, they may cross IRMAA, lose ACA subsidies (if pre-65), or push capital gains from the 0% LTCG bracket to 15%. The conversion tax has hidden costs beyond the marginal income rate.
The hybrid recommendation we use most often
For most retirees in their 60s, the optimal strategy is partial conversion + MYGA wrapper for the residual:
- Identify your "tax headroom": how much you can convert each year without crossing into the next federal bracket, the next IRMAA bracket, or the 15% LTCG bracket.
- Convert that amount annually for 5-10 years. Don't try to convert everything; that's wasted tax dollars.
- Hold the unconverted Traditional IRA portion in a MYGA inside the IRA: ~5.6% guaranteed rate, tax-deferred until RMD.
- At age 73, take RMDs from the Traditional IRA MYGA (most carriers allow penalty-free RMD withdrawals); leave the Roth growing untouched as the "legacy bucket."
The hybrid captures most of the conversion's tax benefit at the heir level without forcing the parent to pay tax at the top of their bracket every year.
Critical: tax law risk and where this could break
The Roth conversion strategy assumes Roth distributions remain tax-free. Current federal law treats qualified Roth distributions as tax-free indefinitely. Future Congresses can change this; previous proposals (none enacted) have floated means-testing Roth distributions for high-income retirees.
The MYGA deferral strategy assumes RMD rules and tax brackets remain roughly stable. The SECURE Act already accelerated heir distributions to 10 years (from ~30+). Further compression is possible.
The honest position: both strategies carry tax-law risk. The conversion locks in tax certainty for the heir at the cost of higher parent-level taxes today. The MYGA defers the decision but exposes the family to whatever tax regime exists 10-20 years from now. Most planners (including us) recommend partial conversion as a hedge. You've paid some tax at current rates, so future law changes don't blow up the whole strategy.
Related reading
- IRMAA brackets 2026 explained
- SECURE Act 10-year rule
- QCD rules for 2026
- Best MYGA rates: 2026
- 4% rule vs annuity replacement
Want my independent take on whether this fits your situation?
I'm Hans Goldstein, an independent licensed insurance producer (NPN 20602398), appointed with multiple A-rated carriers. I run side-by-side comparisons against CDs, MYGAs, Treasuries, and MMFs every week for retirees and pre-retirees. Tell me what you're considering and I'll send back a written comparison.
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Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer appointed with multiple A-rated carriers
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Disclosure
This article is general educational information, not personalized financial, tax, or legal advice. All rates, IRS limits, Social Security PIA factors, IRMAA brackets, FDIC/NCUA coverage, and state guaranty fund coverage figures are current as of the publication date and subject to change. IRMAA brackets and Roth/Traditional IRA limits cited reflect IRS guidance for 2026 and may be updated by the IRS or SSA; confirm current figures at irs.gov and ssa.gov before acting. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he does not sell bank CDs, money market funds, or Treasury securities and is not affiliated with any bank, brokerage, or government agency discussed. No compensation has been received from any third party in connection with this article. Bank CDs are FDIC-insured deposit products; credit union share certificates are NCUA-insured; money market funds are SEC-regulated investment products with no FDIC coverage; Treasuries are direct obligations of the U.S. government; MYGAs are insurance contracts backed by carrier balance sheets and state guaranty associations. These are different product categories with different protections, tax treatments, and trade-offs. Always confirm current rates and tax law with the issuer or a CPA before acting.