Tax Strategy · Retirement Planning · 2026
Roth Conversion Strategy: The Complete 2026 Guide
Roth conversions can save you hundreds of thousands in lifetime taxes — but only if you convert at the right time and in the right amount. Master bracket-filling, IRMAA limits, and the conversion ladder.
The Case for Conversion
Why Convert Traditional IRA / 401(k) to Roth?
A Roth conversion is a taxable event today that eliminates taxes forever on the converted funds and all future growth. The case for converting rests on three pillars:
No RMDs. No future tax.
Roth IRAs have no required minimum distributions. Converted funds and all future earnings grow and come out completely tax-free in retirement.
Pay tax now at a lower rate
If you convert during low-income retirement years (before RMDs and Social Security), you may pay 12% now vs. 22%+ later — a permanent, compounded savings.
Tax-free inheritance
Heirs inherit Roth IRAs tax-free and must distribute within 10 years — but those distributions are not taxable income to them.
Shrink future mandatory withdrawals
Every dollar converted to Roth reduces your future traditional IRA/401(k) balance — lowering future RMDs that could push you into higher brackets.
Timing
When Is the Best Time to Convert?
Roth conversions make the most financial sense when your current tax rate is lower than your expected future rate. The prime window is the "Roth conversion corridor":
📌 The Conversion Corridor: The years between retirement (when your wage income stops) and when Social Security and RMDs begin (typically ages 62–73). During this window, your income may drop to its lowest point of your adult life — making it the ideal time to fill lower brackets with Roth conversions.
| Life Stage | Typical Income Level | Conversion Attractiveness |
|---|---|---|
| Working years (high income) | High — in 22%+ bracket | Generally not attractive |
| Early retirement (before SS & RMDs) | Very low — may be in 10–12% | ⭐ Most attractive window |
| After Social Security begins | Moderate — SS + withdrawals | Moderate — depends on SS amount |
| After RMDs begin (age 73+) | High — RMDs push income up | Less attractive; forced income |
How Much to Convert Each Year: Bracket-Filling Strategy
The optimal approach: convert enough each year to fill your current bracket without crossing into the next one. This is called "bracket filling."
✓ Example — Married couple, ages 64–65:
Pension income: $30,000/year
Taxable Social Security (50%): $12,000
Standard deduction (both 65+): −$32,600
Current taxable income: ~$9,400 (in 10% bracket)
12% bracket top (MFJ): $96,950
Conversion headroom: $96,950 − $9,400 = $87,550
Converting up to $87,550 of traditional IRA keeps them in the 12% bracket.
Repeat this analysis every year during the conversion corridor. Each conversion increases the amount of Roth assets that grow tax-free, reducing future RMDs and the taxes they'd generate.
Medicare IRMAA Warning
Medicare IRMAA: The Hidden Roth Conversion Trap
Medicare Part B and Part D premiums increase significantly for higher-income beneficiaries through Income-Related Monthly Adjustment Amounts (IRMAA). IRMAA is based on income from two years prior. A large Roth conversion in 2026 determines your 2028 Medicare premiums.
| 2026 MAGI (Single) | 2026 MAGI (MFJ) | 2028 Part B Premium/mo | Premium Increase vs. Base |
|---|---|---|---|
| ≤ $106,000 | ≤ $212,000 | $185.00 | Base rate |
| $106,001–$133,000 | $212,001–$266,000 | $259.00 | +$74/mo (+$888/yr) |
| $133,001–$167,000 | $266,001–$334,000 | $370.00 | +$185/mo (+$2,220/yr) |
| $167,001–$200,000 | $334,001–$400,000 | $480.90 | +$295.90/mo (+$3,551/yr) |
| $200,001–$500,000 | $400,001–$750,000 | $591.90 | +$406.90/mo (+$4,883/yr) |
| > $500,000 | > $750,000 | $627.90 | +$442.90/mo (+$5,315/yr) |
⚠️ The cliff problem: IRMAA is a cliff, not a slope. Being $1 over the $212,000 threshold (MFJ) costs you $888 more in Medicare premiums the following year. For couples, convert carefully to stay below each IRMAA tier. Adding Part D IRMAA makes the dollar stakes even higher.
The 5-Year Rule for Roth Conversions
Roth conversions have a 5-year holding requirement before the converted funds can be withdrawn penalty-free (if you're under age 59½). Each conversion starts its own 5-year clock from January 1 of the conversion year.
- Age 59½+: No 5-year rule applies to conversions — you can withdraw converted funds immediately without penalty (though earnings have a separate 5-year rule from when you first opened a Roth IRA)
- Under 59½ (FIRE retirees): Must wait 5 years from each conversion before withdrawing those specific funds without the 10% early withdrawal penalty
- Ordering rules: Withdrawals from a Roth IRA come out in this order: (1) regular contributions (always tax and penalty-free), (2) conversions in chronological order, (3) earnings last
The Roth Conversion Ladder for Early Retirees
FIRE retirees who retire before 59½ often use the Roth conversion ladder to access pre-tax retirement funds without paying the 10% early withdrawal penalty:
- Year 1 of retirement: Convert $X from Traditional IRA to Roth. Pay income tax on conversion. The 5-year clock starts.
- Years 2–4: Continue converting each year. Live off taxable brokerage accounts, Roth contributions, or small Roth IRA withdrawals (contributions are always accessible).
- Year 5+: The first year's conversion is now accessible penalty-free. Each subsequent year, the next rung of the ladder unlocks.
📌 The key insight: By converting small amounts each year and waiting 5 years, you create a perpetual stream of penalty-free withdrawals — using today's low tax rates to fund your future withdrawals with tax-free Roth dollars. This strategy requires at least 5 years of non-Roth assets to live on while the ladder builds.
How to Actually Execute a Roth Conversion
- Where to convert: Contact your IRA custodian (Fidelity, Vanguard, Schwab, etc.) and request a conversion. They'll ask how much and whether to convert in-kind (transfer investments) or as cash.
- Tax withholding: Do NOT withhold taxes from the conversion amount. Pay the tax from outside the IRA. Withholding reduces the amount converted and is treated as an early distribution if under 59½.
- Timing: Conversions can be done any time during the calendar year, including up to December 31. The conversion counts as 2026 income regardless of when in 2026 you do it. There is no longer a "recharacterization" (undo) option for conversions.
- Reporting: Your custodian will send you Form 1099-R showing the conversion. You'll report it on Form 8606 (Part II) with your tax return.
Frequently Asked Questions
The best time is the "Roth conversion corridor" — the years between retirement and when Social Security and RMDs begin (typically ages 62–73). Your income is at its lowest, so you pay the least tax on conversions. Specifically, convert each year to fill your current bracket without crossing into the next one or triggering Medicare IRMAA surcharges.
Yes, in most states. A Roth conversion adds to your state taxable income just like it does federally. Exceptions: states with no income tax (FL, TX, WA, NV, WY, SD, TN, AK, NH) owe no state tax on conversions. Some states like Illinois fully exempt retirement income, which may include conversions depending on how the state defines retirement income. Check your state's specific rules.
Yes. There is no minimum or maximum conversion amount. You can convert any portion of your Traditional IRA to Roth in any given year. In fact, partial conversions are the standard approach — converting just enough to fill a specific tax bracket without crossing into the next one.
At age 70, RMDs are approaching (begin at 73), Social Security is likely in full swing, and your income is probably higher than earlier in retirement. Conversions are still worthwhile if: your current effective rate is below what you'd pay on future RMDs; you want to reduce RMDs; you're focused on estate planning (leaving tax-free Roth to heirs). Model it carefully with IRMAA thresholds in mind.
- IRS Publication 590-A — Roth Conversions
- IRS Publication 590-B — Distributions from IRAs (5-year rules)
- IRS Form 8606 — Roth conversion reporting
- CMS 2026 Medicare Part B Premium Schedule
- SECURE Act 2.0 (P.L. 117-328) — RMD age changes
- Plootus Research — April 2026
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