Roth Conversion in Retirement: When It's Smart and When It Backfires (2026)

What Is a Roth Conversion (and Why It Matters)?

A Roth conversion is moving money from a traditional IRA (or 401k) to a Roth IRA. You pay taxes on the amount converted in the year of conversion, but then that money grows tax-free forever.

Simple example: You have a $100,000 traditional IRA. You convert $50,000 to a Roth. You owe income tax on that $50,000 (at your marginal tax rate, say 22% = $11,000). Now you have a $50,000 traditional IRA and a $50,000 Roth IRA. The Roth money grows tax-free, and you never pay taxes on it again.

Why This Matters

A Roth conversion is powerful because:

• You pay taxes now (while you're in a lower bracket) instead of later (when you're forced to withdraw and in a higher bracket)
• Roth IRAs have no RMDs during your lifetime — you keep it growing
• Roth withdrawals don't count as income for Medicare premiums (IRMAA)
• Roth IRAs pass tax-free to heirs

For many retirees, this is the single best tax move available.

When Roth Conversions Make Sense

You're in a Lower Tax Bracket Now Than You Expect to Be Later

This is the core logic. If you're retired and earning little now, but expect to be in a higher bracket later (from RMDs, part-time work, Social Security), convert now.

You Have a Large Traditional IRA Generating Big Future RMDs

If you retire with $1 million in a traditional IRA, your RMD at 73 will be ~$40,000+, which is taxed as ordinary income. Convert chunks before 73 to reduce that future RMD.

You Want to Reduce Medicare IRMAA Premiums

Medicare premiums spike at certain income thresholds per CMS IRMAA guidance. For 2026, single individuals above $106,000 in Modified Adjusted Gross Income (MAGI) pay dramatically higher premiums. Roth conversions now let you manage MAGI carefully to stay below these thresholds.

You Have a Long Time Horizon

If you're 55 and converting, the Roth grows for 35+ years tax-free. If you're 78 and expecting to live another 10 years, the benefit is smaller.

You Want Tax-Free Inheritance for Heirs

If wealth transfer is a priority, Roth conversions are one of the best tools. Your heirs inherit a Roth and it continues growing tax-free.

When Roth Conversions Backfire

You're Currently in a High Tax Bracket

If you're 55, still working, earning $150,000/year, you're in the 24% federal bracket (possibly higher with state taxes). Converting now is expensive. Wait until you retire and income drops.

You Need the Money Soon

If you convert $100,000 to a Roth but owe $22,000 in taxes, where does that $22,000 come from? If you withdraw it from the Roth you just converted, that defeats the purpose. Conversions only work if you can pay taxes from other sources (taxable account, current income, etc.).

You'll Jump into a Much Higher Tax Bracket

Converting $150,000 in one year might push you from the 22% bracket to the 32% bracket. You could pay 32% on the top portion. Better to do smaller conversions across multiple years.

It Triggers Medicare Premium Jumps (IRMAA)

A large conversion can push your MAGI over threshold per CMS IRMAA thresholds, and Medicare premiums jump immediately. For 2026: if single and over $106,000 MAGI, Part B premiums can jump from $164/month to $500+/month. A $100,000 conversion could cost $4,000+/year in higher premiums for 2+ years.

The "Sweet Spot" Window: Ages 62-73

For most retirees, the ideal window for conversions is between retirement (say, 62) and RMD age (73). Here's why:

• Age 62 (or whenever you retire): Income drops dramatically. You're likely in a lower tax bracket than you've been in decades.
• Ages 62-70: If you delay Social Security (smart move for most), you have no Social Security income. Just portfolio withdrawals (which you control) and possibly part-time work. Tax brackets are nearly empty.
• Age 70+: Social Security kicks in (if you waited), which increases income.
• Age 73: RMDs begin, and suddenly you're forced to take large distributions. Now you're in a higher bracket and can't convert as cheaply.

Strategy: From age 62-73, convert $50,000-$150,000/year depending on your specific tax situation. This fills up lower tax brackets while you still have control.

Tax Bracket Management Strategy

The goal: maximize conversions while staying in your current tax bracket (not jumping to the next higher one).

Example: Susan, Retired at 64, 2026 Tax Year

Her situation:

• Single, so standard deduction = $15,000
• Only income: $10,000 part-time work + $2,000 interest
• Total AGI: $12,000
• 22% federal tax bracket starts at $11,600 (2026 numbers)

Her conversion opportunity:

She can convert up to approximately $3,600 ($15,000 standard deduction - $12,000 existing income) without triggering taxes. Beyond that, every dollar is taxed at 22%.

But she could convert $50,000 total and pay:

• $0 on the first $3,600 (fits in standard deduction + existing income)
• 22% on the remaining $46,400 = $10,208 in federal taxes

Result: Susan converts $50,000 Roth by paying just $10,208. That Roth grows tax-free forever. She "rented" the money for 22% and got tax-free growth forever — an excellent trade.

The IRMAA Trap: Medicare Premium Jumps

IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge on Medicare premiums for higher-income beneficiaries.

2026 IRMAA Thresholds

• Single: $106,000 (Part B premiums jump to $328+/month, up from $164)
• Married filing jointly: $212,000

The Trap

IRMAA uses your Modified Adjusted Gross Income (MAGI) from 2 years prior. So a $100,000 conversion in 2026 affects 2028 Medicare premiums. Many retirees make the conversion, feel good about it, then get hit with a surprise premium bill two years later.

Strategy to Avoid It

If you're close to the IRMAA threshold:

• Model your MAGI 2 years forward
• Include the conversion in that projection
• Calculate the IRMAA surcharge (it can be $2,000-$5,000/year per person)
• Decide if the conversion is still worthwhile

Example math: A conversion creates a $2,000 tax liability. But it also triggers $4,000/year in IRMAA surcharges for 2 years = $8,000 total cost. Maybe that conversion wasn't worth it.

But on the flip side, if the conversion saves you $20,000 in RMD taxes at age 80, the IRMAA hit is worth it.

Real Scenarios: When Conversions Pay Off

Scenario 1: Marcus and Linda, Ages 65, Married

Situation:

• Combined portfolio: $1.2 million (mostly traditional IRA)
• No other income currently; delaying Social Security to 70
• MAGI currently: $20,000 (minimal earnings)
• Married filing jointly, so 22% bracket extends to $94,375 income

Strategy: Convert $80,000/year for 10 years (age 65-74). Each year:

• New MAGI = $20,000 (other income) + $80,000 conversion = $100,000
• Taxable income = $100,000 - $30,000 standard deduction = $70,000
• Tax at 22% = $15,400
• Check IRMAA: at $100,000 MAGI (below $212k), no surcharge

10-year result: They've converted $800,000 to Roth, paying ~$154,000 in taxes. At RMD age, their traditional IRA is much smaller (maybe $400,000 instead of $1.2M). Future RMDs are smaller, future taxes are lower. In the long run, they likely save $200,000+ in taxes.

Scenario 2: Jennifer, Age 68, Single, High Income Peak Coming

Situation:

• Portfolio: $600,000 (traditional IRA)
• Currently retired, minimal income
• But: an inheritance of $500,000 is arriving in 3 years (at age 71), which she'll need to manage
• Current MAGI: $15,000

Strategy: Convert $100,000/year now (ages 68-70). At 22% tax rate, that's $22,000/year in taxes.

Reason: At age 71, the inherited $500,000 will need to be invested or withdrawn. If it goes to taxable account and generates dividends, or if she needs to withdraw from it, her income spikes. At age 73, RMDs begin on the original IRA. Having converted $300,000 now to Roth prevents a massive tax spike later.

Payoff: By doing conversions early, she locks in 22% rates. Without them, she'd face 24% or higher rates at 73+ with RMDs + other income.

Action Steps for Roth Conversion Planning

1. Get your numbers: Traditional IRA balance, current income, other sources (Social Security if claiming, pension, etc.)
2. Calculate your tax bracket: What's your current federal tax bracket? What bracket would you be in if you added $50,000, $100,000, or $150,000 in conversion income?
3. Project future income: What will your MAGI be at age 73 (RMD start) assuming NO conversions? How much higher?
4. Check IRMAA impact: What's your MAGI now, projected 2 years from now with a conversion? Will you exceed $106k (single) or $212k (married)? If yes, calculate IRMAA surcharge.
5. Model the math: What's the tax cost of converting $X today vs. the tax cost of leaving it in traditional and withdrawing it at 73+?
6. Decide on amount: Choose a conversion amount that feels right for your situation. Many retirees do $50,000-$100,000/year in the sweet spot window.
7. Execute and track: Work with your custodian to convert. Document everything for taxes.