Roth Conversions in Retirement

A Roth conversion moves money from a pre-tax retirement account (Traditional IRA, 401(k), 403(b)) into a Roth IRA. The conversion is taxable in the year executed, but the converted funds then grow tax-free and have no future RMDs.

For many retirees, the years between retirement and Social Security claiming (or RMD age) are the best time to execute strategic Roth conversions. This article walks through when and how.

Why conversions matter

A traditional IRA defers tax — the consumer pays ordinary income tax when withdrawals are taken in retirement. The deferred tax bill grows with the account.

A Roth IRA pre-pays the tax — contributions are made with after-tax dollars, and qualified withdrawals are tax-free forever. The growth is permanently tax-free.

The conversion choice is essentially: “Pay tax today at today’s bracket, or pay tax in retirement at the future bracket.”

If the future bracket will be higher than today’s, conversion now is favorable. If lower, defer.

The early-retirement window

The years between retirement and Social Security claiming (or age 73 RMD onset) are often the consumer’s lowest-tax-bracket years. They’ve stopped earning W-2 income but haven’t yet started drawing Social Security or being forced into RMDs.

A retiree at 65-72 with $50,000 of annual spending from after-tax savings might have $0 of taxable income. The Roth conversion can fill the low brackets (12% and 22%) cheaply.

Conversely, the same retiree at 73+ may be forced to withdraw $40,000+/year in RMDs at 24-32% marginal rates. The Roth conversion eliminates that future tax.

The bracket-filling approach

The simplest Roth conversion strategy: each year, convert enough to fill the next tax bracket without spilling into the higher one.

For a single retiree in 2026 (approximate brackets):

• 10% bracket: $0 to $11,925
• 12% bracket: $11,925 to $48,475
• 22% bracket: $48,475 to $103,350
• 24% bracket: $103,350 to $197,300

A retiree with $15,000 of taxable income from other sources can convert up to approximately $33,475 to stay in the 12% bracket, or up to $88,350 to stay in the 22% bracket.

The bracket-fill approach is repeatable each year between retirement and RMD onset.

Interaction with Social Security

Roth conversions count as ordinary income. They increase combined income, which affects Social Security taxability.

For retirees claiming Social Security early (62-69), the conversion plus Social Security may push combined income above the thresholds where 50% or 85% of Social Security becomes taxable. This raises the effective tax rate on the conversion.

For retirees who have delayed Social Security to 70, the early-retirement window (62-69) has no Social Security in play. Conversions during these years don’t interact with Social Security taxability. This is one of several arguments for delayed claiming combined with Roth conversions.

Interaction with Medicare premiums (IRMAA)

Modified Adjusted Gross Income (MAGI) determines Medicare Part B and Part D premiums via the Income-Related Monthly Adjustment Amount (IRMAA). MAGI above thresholds triggers higher Medicare premiums.

For 2026 (approximate thresholds for individuals):

• MAGI below $103,000: standard premium
• MAGI $103,000-$129,000: ~$70/month additional
• MAGI $129,000-$161,000: ~$176/month additional
• MAGI above $161,000: progressively higher tiers

The IRMAA threshold MAGI is calculated from 2 years prior. So a 2026 Roth conversion pushes 2028 Medicare premiums up.

For conversions large enough to push MAGI across an IRMAA threshold, the additional Medicare premium can offset some of the conversion’s tax savings. Specifically, the marginal effect of an additional $1 of conversion can be significantly higher than the stated tax bracket if it crosses an IRMAA threshold.

When NOT to convert

Roth conversions are not always beneficial. Skip or minimize when:

• Current tax bracket is materially higher than expected retirement bracket (rare but possible for high earners retiring early)
• The conversion would push the consumer into a much higher bracket (the “step” cost exceeds the deferred-tax savings)
• The consumer has no tax-efficient way to pay the conversion tax (paying from the converted IRA itself wastes part of the conversion)
• The retiree expects to use the funds soon and would withdraw tax-free anyway

Paying the conversion tax

The conversion tax should be paid from non-IRA funds. Paying from the IRA itself defeats the purpose:

• $50,000 conversion at 22% = $11,000 tax
• If paid from IRA: $50,000 converted minus $11,000 to taxes = $39,000 actually in the Roth, plus the $11,000 may itself be taxable as a separate distribution
• If paid from taxable savings: full $50,000 in the Roth, $11,000 paid separately from after-tax money

Always pay conversion tax from external funds when possible.

QCDs as an alternative

For retirees over 70½, Qualified Charitable Distributions (QCDs) directly from an IRA to a qualified charity satisfy RMDs and are excluded from taxable income, up to $108,000/year (2026 limit).

QCDs and Roth conversions serve different purposes but interact strategically. A retiree who plans to donate $20,000/year to charity can use QCDs to satisfy RMDs (reducing the tax on RMDs), then use freed-up capacity to convert traditional IRA funds to Roth at a lower marginal rate.

The five-year rule

Roth IRAs have a 5-year holding requirement for the contribution to be “qualified” for tax-free withdrawal. Each conversion starts its own 5-year clock for the converted amount.

For a retiree who may need to access converted funds within 5 years, the 5-year rule can trigger ordinary income tax on the converted portion (though typically not penalties for someone over 59½).

For conversions made in early retirement and held until late retirement, the 5-year rule is rarely a problem.

Annuity interaction

A qualified annuity (IRA-funded) can be converted to a Roth annuity following the same rules as a traditional IRA. The conversion taxes the pre-tax basis as ordinary income. The Roth annuity then grows tax-free.

Roth annuities are uncommon but available. Most consumers maintain qualified vs non-qualified annuities; the Roth annuity is a niche product for consumers with specific Roth-conversion strategies.

Working with a professional

Roth conversion strategy is patient-specific. The optimal annual conversion amount depends on:

• Current and projected future tax bracket
• Social Security claiming strategy and age
• Medicare IRMAA tier
• State tax treatment
• Estate planning goals
• Spouse’s situation (if applicable)

A CPA or fee-only CFP with retirement income specialization can model the multi-year tax impact. This is one of the highest-value planning conversations a retiree can have in the 62-72 window.

For broader tax context, see how annuities are taxed.