Roth conversions in a low-income year: the window most retirees miss

For many people, the lowest-tax years of their adult life arrive right after they stop working. Salary is gone, Social Security may not have started, and required minimum distributions are still years away. Those years are a window, and it closes.

What a conversion does

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. The amount converted is taxed as ordinary income this year. In exchange, the money grows tax-free, qualified withdrawals are tax-free, and Roth IRAs have no required distributions during your lifetime.

The question is never “is a Roth better?” It’s “is the tax I pay on this conversion today lower than the tax I, or my heirs, would pay on the same dollars later?”

Why the gap years matter

Once required distributions start (at 73 for many people today) and Social Security is flowing, taxable income often rises for the rest of retirement. Large traditional IRA balances make it worse, because each year’s required distribution is bigger.

Converting in the gap years fills the lower brackets on purpose, while they’re empty. A common approach is to convert up to the top of the 22% or 24% bracket each year, rather than all at once.

Four things to check before converting

1. Medicare premiums. Income two years earlier sets your Medicare Part B and D premiums. A large conversion at 63 can raise premiums at 65.

2. Health insurance subsidies. If you’re buying insurance on the marketplace before Medicare, higher income can reduce the premium credit.

3. How you’ll pay the tax. Paying it from a taxable account keeps more in the Roth. Paying it from the conversion itself shrinks the benefit.

4. The five-year rules. Converted amounts withdrawn within five years can face a penalty if you’re under 59½.

Conversions can’t be undone. Since 2018 there’s no “recharacterizing” a conversion if markets fall, which is one reason we size them in November, with most of the year’s income already known.

A simple example

A couple retires at 64 with most of their savings in traditional IRAs. For the six years before Social Security and RMDs, they live on taxable savings and convert enough each year to stay inside the 22% bracket. By 73, their IRA is smaller, their required distributions are lower, and a growing share of their money will never be taxed again. This is an illustration, not a projection. Your numbers will be different.

How we plan it

Conversions are part of every retirement plan we build. We map ten years of income and tax, pick the years and amounts, and confirm each conversion at the November projection, with your return prepared from the same numbers in the spring.