Tax-Efficient Retirement Planning: The Roth Conversion Window Most People Miss

By Navigant Advisory Group

The years after a paycheck stops can look very different from the years that follow. Before Social Security, pension income or required minimum distributions (RMDs) begin, or before they reach their full levels, some retirees have a temporary stretch of lower taxable income. That can make these years worth examining for a Roth conversion.

A conversion moves eligible money from a traditional IRA or retirement plan into a Roth account. The taxable portion is generally included in ordinary income for the year of conversion. In return, qualified Roth withdrawals may be tax-free, and original Roth IRA owners do not have lifetime RMDs. The trade-off is a current tax bill for potential future flexibility, not a guaranteed tax saving.

For people seeking tax efficient retirement planning, this is a useful window to model rather than an automatic reason to convert. These retirement planning tips can help you identify the opportunity and understand the costs before deciding.

First, identify the years when income may be lower

The potential window often begins when employment income falls and ends as other income sources build. For one household, that might mean retiring before claiming Social Security. For another, pension payments, investment income or part-time work may keep taxable income elevated.

RMD rules matter, too. Under current law, many account owners must begin RMDs at age 73. The applicable age rises to 75 for individuals born in 1960 or later. The change takes effect for people attaining age 74 after 2032; it does not mean everyone affected starts taking RMDs in 2033. The IRS explains the applicable ages in its RMD guidance and final regulations.

The precise starting point can depend on your birth year, account type and plan terms. Some workplace plans allow eligible employees to delay RMDs until retirement, while traditional IRAs generally follow the age-based rule. Check the rules that apply to each account.

What to do: Build an income projection for each year from retirement through the year RMDs begin. Include wages, pensions, Social Security, investment income, planned withdrawals and one-time events such as a home sale. A low-income year is a possibility to investigate, not an assumption.

Estimate the tax bracket before choosing a conversion amount

A conversion’s taxable amount generally adds to your income for that tax year. To estimate its effect, start with projected taxable income before the conversion, then compare it with the upper limit of the tax bracket you are considering. The difference gives a rough estimate of how much conversion income might fit within that bracket.

For example, if projected taxable income is below the top of a chosen bracket, the gap can serve as a first-pass ceiling for modeling. It is not a final conversion recommendation: deductions, other income, state taxes and income-related thresholds can change the result. Tax brackets apply to layers of taxable income, so crossing into a higher bracket does not mean all your income is taxed at that rate.

Use the tax rules and bracket thresholds for the year of the proposed conversion, and ask a qualified tax professional to run the calculation. The IRS’s Publication 590-A explains IRA conversions, while Publication 590-B covers distributions and RMDs.

Why filling only a lower bracket can matter

The aim is not necessarily to convert the largest amount possible. A large conversion may push some income into a higher federal or state bracket, increase the taxable portion of Social Security benefits, or trigger a higher Medicare premium tier. Those effects can make the effective cost of the next dollar converted higher than the tax bracket alone suggests.

Instead, compare several amounts: no conversion, a smaller partial conversion, and one or more larger amounts. Look at the total estimated cost, not only the headline federal bracket.

Account for Social Security and Medicare

Social Security taxation. The IRS determines whether benefits are taxable using a calculation that includes other income, tax-exempt interest and half of your Social Security benefits. Depending on filing status and income, up to 85% of benefits may be included in taxable income; that is not an 85% tax rate. Because a conversion adds income, it can cause a larger portion of benefits to be taxable. Review the IRS’s Social Security tax guidance, Publication 915 and the Social Security Administration’s benefits tax FAQ.

Medicare IRMAA. Medicare uses income reported on a tax return from two years earlier to determine whether income-related monthly adjustment amounts (IRMAA) apply to Part B and Part D premiums. As a result, a conversion can affect Medicare costs later, even if you are not yet enrolled when you make it. Check the current Medicare cost information and Part D income-related premium guidance. Thresholds and premiums can change, so use the figures for the relevant years.

Model these effects alongside income tax. A conversion that appears to fit within a bracket may still have a meaningful cost once Social Security taxation and a possible future IRMAA tier are included.

Why a partial conversion may be the more useful approach

A Roth conversion is not an all-or-nothing choice. Converting a portion of an account can let you test a tax target, retain pre-tax assets for future expenses, and reassess the plan each year as income and tax rules change.

Compare the estimated tax now with possible future circumstances, including RMDs, tax rates, investment growth, spending needs and the tax position of a surviving spouse or beneficiaries. The outcome depends on assumptions about how long the money remains invested and where the tax payment comes from. A conversion can be costly if the tax is paid from retirement funds that would otherwise remain invested.

Remember: conversions are generally irreversible. The IRS says conversions made in 2018 or later cannot be recharacterized back to a traditional IRA. Before authorizing one, confirm the amount, tax year and source account with your tax professional and custodian.

Gather these details before deciding

A more reliable estimate starts with a complete picture. Bring these items to a discussion with your tax and financial professionals:

Your prior-year tax return, including filing status, taxable income, deductions and any relevant tax forms.
Projected income by year, including wages, pensions, Social Security, investment income and planned withdrawals.
Available cash outside the IRA to pay the conversion tax without reducing the amount moved to the Roth.
Charitable giving and QCD plans. Qualified charitable distributions may affect taxable IRA withdrawals and RMD planning; coordinate their timing and eligibility with your tax professional.
Your beneficiary picture, including a spouse, other beneficiaries and any planned estate arrangements.
Account and plan details, including traditional IRA balances, after-tax IRA basis and workplace plan distribution or conversion options.

A practical next step

Ask a qualified tax professional to model several partial-conversion amounts across the years before your RMDs begin. Have the analysis include federal and state income tax, Social Security benefit taxation and the possible two-year-later IRMAA effect. Revisit the estimate each year: income, tax thresholds, Medicare premiums and your plans may change.

Navigant Advisory Group provides retirement education and resources to help people prepare informed questions about major financial decisions. This article is for educational purposes only; it is not tax, legal, investment or Medicare advice, and it does not recommend a specific conversion. Rules and individual circumstances vary. Consult a qualified tax professional and a financial professional before acting.