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Carol spent 30 years teaching in Gilbert, and she was proud of what she’d built. Every paycheck, she maxed out her 403(b). She drove used cars, packed lunches, and watched that balance climb — first past $100,000, then $500,000, and finally, at 63, to just over $900,000. All pre-tax. Every single dollar.
When she retired last spring, her income dropped from $120,000 to an $18,000 pension. For the first time in decades, her tax bill was almost nothing. When her financial advisor mentioned Roth conversions, Carol waved it off. “Isn’t that something younger people do when they’re starting out?”
It’s a common assumption — and an expensive one. Because Carol is actually sitting in the most valuable tax window of her entire retirement. She just doesn’t know it yet.
What Is a Roth Conversion — and Why Would You Do One?
The Basic Mechanics
A Roth conversion is the act of moving money from a pre-tax retirement account — a Traditional IRA, 401(k), or 403(b) — into a Roth IRA. The money you move is already invested and growing. By transferring it to a Roth, you’re choosing to pay ordinary income tax on the converted amount now so that all future growth and withdrawals can potentially be tax-free.
Think of it this way: every dollar inside a Traditional IRA has never been taxed. The IRS hasn’t forgotten about it — they’re just waiting. A Roth conversion lets you settle that tab on your terms, at a rate you choose, rather than letting the IRS decide when and how much you owe later.
The Core Logic: Paying Tax Now vs. Paying Tax Later
The fundamental question behind any Roth conversion is simple: Do you believe your tax rate today is lower than what you’ll face in the future?
Consider a retiree in Mesa with $500,000 in a Traditional IRA. If she converts $50,000 this year and her marginal federal rate is 22%, she’ll owe approximately $11,000 in tax on that conversion. But if she leaves that same $50,000 in the Traditional IRA and withdraws it years later when her combined income pushes her into the 24% bracket, she could owe approximately $12,000 — plus tax on any additional growth that occurred in the meantime.
That difference may seem modest on a single conversion, but compounded over hundreds of thousands of dollars and a decade or more of growth, the potential savings can be substantial.
Here’s what makes the current environment particularly noteworthy: today’s federal income tax rates are historically low by modern standards. The current top marginal rate of 37% is among the lowest since the late 1980s — a sharp contrast to rates that exceeded 50%, 70%, and even 90% for much of the 20th century. Given the size of the federal deficit, many retirees we work with are skeptical that rates will stay this low indefinitely. While no one can predict future legislation, this environment may represent a favorable window for conversions.
The Gap Years: Your Narrowest — and Most Valuable — Tax Window
Why Income Drops After Retirement (But Not Forever)
Let’s come back to Carol in Gilbert. At 63, her only income is that $18,000 pension. After the standard deduction, her federal taxable income is close to zero. She’s sitting squarely in the 10–12% tax bracket — a rate she hasn’t seen since her first year of teaching.
This dramatic income drop is common for recent retirees. You stop earning a salary, and for a brief period, your taxable income plummets. Financial planners call this window the “gap years” — the period after you stop working but before Social Security income and Required Minimum Distributions fully turn on.
What Happens When Social Security and RMDs Turn On
Carol’s gap years won’t last forever. Here’s what her income timeline looks like:
- Ages 63–66: Only her $18,000 pension. Taxable income is minimal.
- Age 67: She claims Social Security at $28,000/year. Up to 85% of that may be taxable, adding roughly $23,800 to her taxable income.
- Age 73: Required Minimum Distributions begin. Based on her projected IRA balance, her first RMD could exceed $35,000 — and it grows every year as the IRS life expectancy divisor shrinks.
By her mid-70s, Carol’s taxable income may climb from under $20,000 to over $75,000 — potentially pushing her effective rate from 12% to 22% or higher. The gap years may represent the window where she can convert pre-tax dollars at some of the lowest rates she’s likely to see during retirement.
A sound Roth conversion strategy starts with a 10–20 year tax projection — a multi-year model that maps out Social Security, RMDs, pensions, investment income, and any other sources to forecast where your tax bracket is headed. Without that long-range view, it’s nearly impossible to know whether conversions make sense or how aggressive to be.
Four Reasons to Consider a Roth Conversion
1. Building a Tax-Free Reserve for Large Expenses
Life doesn’t stop being expensive in retirement. Home renovations, vehicle replacements, long-term care costs — these large, lumpy expenses have a way of arriving whether you’ve planned for them or not.
Imagine a retiree in Chandler who needs $150,000 for a major home renovation at age 75. If virtually all of his savings sit in pre-tax accounts, he has no choice but to take a massive taxable distribution. That single withdrawal could push him from the 22% bracket into the 32% bracket, costing him thousands more in taxes than necessary.
Contrast that with a retiree who spent the gap years converting $45,000 per year into a Roth IRA. By 75, she’s built a meaningful tax-free reserve. When a large expense arises, she can pull from the Roth without adding a single dollar to her taxable income. The flexibility is enormous.
2. Shrinking Future Required Minimum Distributions
Once you turn 73, the IRS requires you to withdraw a minimum amount from your pre-tax retirement accounts each year — whether you need the money or not. These Required Minimum Distributions are calculated based on your prior year-end account balance divided by an IRS life expectancy factor.
The math is straightforward: a smaller pre-tax balance means a smaller RMD. By converting pre-tax dollars to Roth before RMDs begin, you may be able to reduce the mandatory taxable income that stacks on top of Social Security and other sources in your later retirement years. For retirees with large Traditional IRA balances, this may be a meaningful component of a long-term tax planning strategy.
3. Managing Medicare Premium Surcharges (IRMAA)
This is the one that catches many retirees off guard. Medicare Part B premiums aren’t the same for everyone. If your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds, you’ll pay an Income-Related Monthly Adjustment Amount (IRMAA) — essentially a surcharge on top of the standard 2025 Part B premium of $185/month.
For married couples filing jointly, income above $212,000 MAGI triggers the first IRMAA tier, raising the Part B premium from $185 to $259 per person per month. That’s an additional $74/month per spouse.
Consider a retired couple in Scottsdale with $211,000 in MAGI — just $1,000 below the threshold. Now imagine a year where an unexpected IRA withdrawal or capital gain pushes them to $215,000. That $4,000 of excess income triggers a surcharge of $74/month × 2 people × 12 months = $1,776 per year in additional Medicare premiums (assuming both spouses are enrolled in Part B). Strategic Roth conversions done during the gap years — when income is lower — can help keep future MAGI below these thresholds and may help avoid these costly surcharges.
4. Leaving a Better Legacy for Your Heirs
If you plan to leave retirement assets to your children, consider this: under the 10-year rule, most non-spouse beneficiaries who inherit a Traditional IRA must distribute the entire balance within 10 years of the original owner’s death — and every dollar they withdraw is taxed as ordinary income at their marginal rate.
If your adult children are in their peak earning years, they could face a 32% or higher federal rate on those inherited distributions. By converting some of your pre-tax assets to Roth during your lower-income gap years, you may be able to shift that tax burden to a time when the rate is lower. Your heirs would then inherit a Roth IRA, which under current tax law can be distributed tax-free over the same 10-year window.
How to Determine the Right Amount to Convert Each Year
Understanding why to convert is one thing. Figuring out how much requires a more disciplined approach.
Step 1 — The Macro View: A 10–20 Year Tax Projection
Before converting a single dollar, a qualified advisor will typically build a multi-year tax projection that incorporates your expected Social Security income, pension, RMD trajectory, investment income, IRMAA bracket thresholds, and any planned large expenses. This macro view reveals whether your future tax rates are likely to exceed today’s — and by how much. Without it, you’re guessing.
Step 2 — The Micro Plan: Filling Your Bracket Without Crossing It
Once the macro picture confirms that conversions may be beneficial, the annual strategy becomes a bracket-filling exercise.
Here’s a concrete example. A retired couple in Queen Creek has $140,000 in combined taxable income from a pension, dividends, and part-time consulting. For 2025, the 22% federal income tax bracket for married filing jointly tops out at $206,700, per IRS Rev. Proc. 2024-40. That means they have approximately $66,700 of room within the 22% bracket.
But they also plan to buy a car this year and will take a $30,000 distribution from their Traditional IRA to fund it. That distribution fills $30,000 of the bracket space, leaving roughly $36,700 available for a Roth conversion — all taxed at 22% rather than the 24% rate that kicks in above $206,700.
The key discipline: planned withdrawals are factored in first. Conversions fill the remaining bracket space. Every year, the numbers shift based on income, deductions, and tax law — which is why this exercise needs to be revisited annually, not set on autopilot.
What to Watch Out For: Common Roth Conversion Mistakes
Converting Too Much in One Year
It’s tempting to convert a large amount all at once to “get it done.” But oversized conversions can backfire. A Tempe retiree who converts $200,000 in a single year may jump from the 22% bracket into the 32% bracket — paying a significantly higher rate on a large portion of the conversion and potentially negating the benefit entirely.
Ignoring the IRMAA Two-Year Lookback
Here’s a detail that trips up even well-informed retirees: IRMAA surcharges are based on your income from two years prior. A large Roth conversion done in 2025 won’t affect your 2025 or 2026 Medicare premiums — but it will affect your 2027 premiums.
That Tempe retiree who converts $200,000 in one year? Two years later, she and her spouse could face IRMAA surcharges costing them over $3,600 annually in additional Medicare premiums — a cost that a disciplined, spread-out conversion strategy could have helped avoid by staying below the IRMAA threshold each year.
Waiting Too Long to Start
Perhaps the most common mistake is simply procrastinating. The gap years are, by definition, temporary. Once Social Security and RMDs begin stacking on top of each other, the bracket room that makes conversions so attractive shrinks — and in some cases, disappears. Every year that passes without evaluating this opportunity may be a year of potentially favorable conversion capacity that’s difficult to recapture.
Making the Most of Your Window
Let’s check back in with Carol from Gilbert. After that initial conversation with her advisor, she decided to run the numbers. Her 10-year tax projection showed that her effective rate could nearly double once Social Security and RMDs kicked in. So she began converting approximately $45,000 per year during her gap years — enough to stay comfortably within the 12% bracket.
Over five years, she moved roughly $225,000 from her Traditional IRA to a Roth — paying an estimated $27,000 in total federal tax on those conversions. By the time her RMDs begin at 73, her pre-tax balance is meaningfully smaller, her mandatory distributions are lower, and she has a growing tax-free reserve she can tap for any purpose — potentially helping her manage bracket creep and IRMAA surcharges more effectively.
Carol’s situation is her own, of course. Every retirement is different — your income sources, tax bracket, health, family situation, and goals all factor into whether Roth conversions make sense and how much to convert each year. The right answer requires a personalized, multi-year projection built around your specific circumstances.
If you’re wondering whether you might be sitting in your own gap years — or whether a Roth conversion strategy could help you manage taxes over the long run — we’d encourage you to connect with a qualified financial advisor who can walk through the numbers with you.
Schedule a conversation with Sonmore Financial →
References
- Tax Foundation. “Historical Federal Individual Income Tax Rates & Brackets, 1862-2025.” https://taxfoundation.org/data/all/federal/historical-income-tax-rates-brackets/
- Bradford Tax Institute. “History of Federal Income Tax Rates: 1913 – 2026.” https://bradfordtaxinstitute.com/Free_Resources/Federal-Income-Tax-Rates.aspx
- Tax Foundation. “2025 Tax Brackets and Federal Income Tax Rates.” Source: IRS Revenue Procedure 2024-40. https://taxfoundation.org/data/all/federal/2025-tax-brackets/
- Centers for Medicare & Medicaid Services (CMS). “2025 Medicare Parts A & B Premiums and Deductibles.” November 8, 2024. https://www.cms.gov/newsroom/fact-sheets/2025-medicare-parts-b-premiums-and-deductibles
- Kiplinger. “Medicare Premiums 2025: IRMAA Brackets and Surcharges for Parts B and D.” November 13, 2025. https://www.kiplinger.com/retirement/medicare/medicare-premiums-2025-irmaa-for-parts-b-and-d
- Internal Revenue Service. “Retirement Topics — Required Minimum Distributions (RMDs).” https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
- Internal Revenue Service. “Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs).” https://www.irs.gov/publications/p590b
- Internal Revenue Service. “Retirement Plan and IRA Required Minimum Distributions FAQs.” https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
- Morgan Lewis. “Estate Tax Alert: New $15 Million Federal Exemption Becomes Law.” August 21, 2025. https://www.morganlewis.com/pubs/2025/08/estate-tax-alert-new-15-million-federal-exemption-becomes-law
Disclosure
This content is for informational purposes only and should not be considered tax, legal, or financial advice. Consult a qualified financial professional before making any investment or tax-related decisions.
Advisory services are offered through Sonmore Financial LLC, an Investment Advisor in the State of Arizona. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding any funds or stocks in particular, nor should it be construed as a recommendation to purchase or sell a security. Past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.
