A Roth conversion strategy is one of the most powerful tax-planning tools available to high-net-worth retirees, and one of the most consistently underutilized. A large Traditional IRA can be an important part of a retirement portfolio, but for a household with several million dollars in pre-tax retirement accounts, it can also represent a substantial future tax liability. The money may have accumulated tax-deferred for decades, but eventually the IRS will require taxable distributions, whether you need the money or not.
This becomes particularly important when someone retires with significant pre-tax savings. Required Minimum Distributions can create taxable income throughout retirement, increase Medicare premiums, affect the taxation of Social Security, and leave heirs with an inherited account that may be subject to significant income taxes.
A Roth conversion strategy can help address that problem. A conversion moves money from a Traditional IRA, rollover IRA, or other eligible pre-tax retirement account into a Roth IRA. The converted amount generally becomes taxable income in the year of the conversion, but the assets then have the potential to grow tax-free, and qualified Roth withdrawals aren’t included in taxable income. Original Roth IRA owners also aren’t required to take lifetime RMDs from their Roth IRAs.
For retirees with substantial pre-tax savings, the most important planning question is usually how much to convert, when to convert it, and what the expected tax cost looks like compared with the taxes that may otherwise be paid later. A Roth conversion isn’t automatically beneficial for every household. The analysis becomes much more useful when it considers the entire retirement income picture, including tax brackets, Social Security, RMDs, Medicare premiums, state taxes, charitable giving, investment income, and the possibility that one spouse will eventually become a single taxpayer.
What a Roth Conversion Is and How It Works
A Roth conversion allows you to transfer money from a Traditional IRA, rollover IRA, or eligible employer retirement plan into a Roth IRA. The conversion generally creates taxable income to the extent the amount converted represents untaxed money. There’s no separate income limit that prevents a high-income taxpayer from making a Roth conversion, although the tax consequences of a large conversion can be substantial.
For example, suppose you have $1 million in a Traditional IRA and decide to convert $100,000 to a Roth IRA. Assuming the entire $100,000 is pre-tax, that amount would generally be included in your taxable income for the year. Once the money is in the Roth IRA, future qualified distributions can be tax-free. The original owner also isn’t required to take RMDs from the Roth IRA during their lifetime.
The tradeoff is straightforward: you voluntarily recognize taxable income today in exchange for changing the future tax treatment of those assets. That tradeoff is what makes the planning complicated. A conversion can be extremely valuable when the tax rate paid today is relatively attractive compared with the rate that would otherwise apply to future withdrawals. It can also be unattractive when the current tax cost is too high.
Roth Conversions for Early Retirees
Roth conversions can serve another purpose for people who retire before age 59 and a half. Traditional IRA withdrawals made before age 59 and a half can generally be subject to a 10% additional tax unless an exception applies. Roth IRA distribution rules are different, and properly structured conversions can eventually provide access to converted amounts without that additional tax.
This is the foundation of what’s commonly called a Roth conversion ladder. An early retiree might convert a portion of a Traditional IRA to a Roth IRA each year. Each conversion has its own five-year period for purposes of the early-distribution rules. Once the applicable five-year period has been satisfied, the converted principal can generally be accessed without the 10% additional tax, assuming the applicable requirements are met.
Consider someone who retires at 52 and expects to need $100,000 per year from retirement assets before reaching age 59 and a half. Rather than relying entirely on a taxable brokerage account, the person could begin converting portions of a Traditional IRA to a Roth IRA during the early retirement years and use the conversions as part of a longer-term income strategy.
This requires planning several years in advance. The tax cost of each conversion has to be funded, and the five-year period associated with each conversion needs to be tracked carefully. For someone with sufficient taxable assets and a long retirement horizon, however, the strategy can create substantially more flexibility than simply leaving all retirement savings in a Traditional IRA.
The Roth Conversion Window After Retirement
For many retirees, the most attractive period for Roth conversion planning occurs after employment income falls or stops but before RMDs become a significant source of taxable income. This period can last several years. In some cases, it can last more than a decade.
A retiree might have no salary, limited investment income, no Social Security yet, and no RMDs. That can leave considerable room within the lower federal tax brackets. The opportunity becomes particularly interesting for households that have accumulated several million dollars in pre-tax retirement accounts. Without any planning, those accounts can continue compounding until RMDs eventually become substantial.
Current IRS rules generally require Traditional IRA owners to begin RMDs at age 73. During the years before RMDs begin, a retiree can choose whether to recognize additional taxable income through Roth conversions. Once RMDs begin, the required distribution generally has to be taken first and cannot simply be converted back into a Roth IRA. Additional amounts can still be converted, but the RMD itself isn’t eligible for conversion. That distinction makes the years before RMDs particularly important for planning.
A High-Net-Worth Example
Consider a married couple, both age 63, who retire with a $7 million investment portfolio. They have $3 million in a taxable brokerage account and $4 million in Traditional IRAs. Their annual spending is $180,000, they have no earned income after retirement, and Social Security is planned for age 70.
For several years, the couple can fund much of their spending from their taxable portfolio. Their taxable income may therefore be considerably lower than their actual spending. Suppose the $4 million IRA grows at an average annual rate of 6%. If left untouched for ten years, it would grow to approximately $7.2 million before considering taxes, withdrawals, or market volatility.
At age 73, an RMD would be calculated using the prior year-end account balance and the applicable IRS life-expectancy factor. Under the Uniform Lifetime Table, the factor at age 73 is 26.5, so a $7.2 million balance would produce an initial RMD of roughly $272,000. That $272,000 isn’t necessarily the couple’s spending need. It’s a distribution the tax rules require them to recognize from the retirement account.
Now add Social Security. If the couple each receives $3,500 per month at age 70, their combined annual Social Security benefits would be $84,000. Depending on their other income, up to 85% of those benefits could be included in taxable income. The result could be a retirement income picture in which the couple is receiving substantially more taxable income than they actually need to support their lifestyle, and the tax consequences of that income compound in multiple directions simultaneously.
Why Large RMDs Become a Problem
A large RMD can interact with several other parts of a retirement plan. Higher income can cause more Social Security benefits to become taxable. It can increase Medicare premiums through IRMAA, the Income-Related Monthly Adjustment Amount. It can increase the tax rate applied to other income and, depending on the household’s circumstances, can affect the tax treatment of investment gains.
Medicare’s 2026 IRMAA thresholds illustrate why this matters. For married couples filing jointly, the first IRMAA threshold begins when modified adjusted gross income exceeds $218,000. Higher tiers apply at $274,000, $342,000, $410,000, and $750,000. Because Medicare generally uses income from two years earlier to determine IRMAA, a large Roth conversion in 2026 can affect Medicare premiums in 2028. This doesn’t mean retirees should automatically avoid crossing an IRMAA threshold. Sometimes paying additional Medicare premiums is reasonable if the conversion produces a larger long-term tax benefit. The thresholds should simply be included in the analysis rather than treated as an afterthought.
There’s also a compounding issue with large pre-tax accounts. A retiree might begin with an IRA balance large enough that the account continues growing even after annual RMDs are taken. If investment returns exceed the amount being distributed, the account can remain large or even increase over time, producing increasingly large RMDs later in retirement. For a household that doesn’t need the distributions for living expenses, this can create an unnecessary concentration of taxable assets and leave heirs with a potentially significant future tax liability. This is the retirement tax bomb that many high-net-worth retirees don’t see coming until RMDs have already started.
How Much to Convert Each Year
There’s no universal annual Roth conversion amount. The appropriate amount depends on the household’s entire tax return rather than simply the size of the IRA.
For example, suppose a retired couple has $100,000 of taxable income from dividends, interest, and capital gains. Converting another $150,000 could produce a very different tax result than converting $150,000 when the household has only $30,000 of other taxable income. The conversion should be modeled alongside the rest of the household’s income.
Federal tax brackets are usually the starting point. For 2026, the federal marginal brackets for married couples filing jointly include 10%, 12%, 22%, 24%, 32%, 35%, and 37%, with the thresholds adjusted annually for inflation. A common approach is to convert enough to use available room in a relatively favorable bracket, while considering whether moving into the next bracket still makes economic sense.
That decision should also account for Medicare premiums, Social Security taxation, capital gains, state income taxes, and other deductions or credits. A household might decide that converting into the next federal bracket is worthwhile because the alternative would be several years of larger RMDs at higher marginal rates. Another household might decide that staying below an IRMAA threshold is more valuable. The answer can change from one year to the next, which is why the conversion amount should be recalculated annually rather than set and forgotten.
State Taxes
State income taxes can materially affect the economics of a Roth conversion. For a Colorado resident, the state tax cost of a conversion needs to be included alongside the federal tax cost. Colorado taxes conversions at its flat 4.4% individual income tax rate. A retiree who expects to remain in Colorado may view the conversion differently from someone who expects to establish residency in a state with no individual income tax.
A $500,000 Roth conversion might look attractive when modeled solely using federal tax brackets. Once state income taxes, Medicare premiums, Social Security taxation, and other interactions are included, the effective cost can be meaningfully different. State residency should be incorporated into Roth conversion planning whenever a move is reasonably likely.
Roth Conversions and an Inheritance
Roth conversions can also change the tax characteristics of an estate. Under current rules, many non-spouse beneficiaries who inherit an IRA generally have a ten-year period in which to distribute the inherited account, although the exact distribution requirements depend on the beneficiary’s circumstances. Traditional IRA distributions are generally taxable to the beneficiary, while qualified distributions from an inherited Roth IRA are generally tax-free.
This distinction can become significant when the beneficiaries are high-income adult children. Imagine that a couple eventually leaves a $2 million Traditional IRA to children who are already earning substantial incomes. Withdrawals from the inherited account can add taxable income to the children’s existing salaries, bonuses, investment income, and other sources. They may be pulling $200,000 per year out of that inherited IRA on top of their own income, potentially in the 32% or 37% bracket.
A Roth IRA can produce a substantially different result. The inherited Roth account may still be subject to the applicable ten-year distribution rules, but qualified distributions generally aren’t included in the beneficiary’s taxable income. For families with substantial retirement assets and high-income heirs, the estate-planning implications can therefore be meaningful. Roth conversion analysis shouldn’t stop at the retiree’s expected lifetime tax bill. The expected tax rate of the people who may eventually inherit the account can also matter significantly.
The Survivor Tax
One of the most important considerations for married retirees is what happens after the first spouse dies. A married couple generally files a joint tax return while both spouses are alive. After the death of one spouse, the survivor’s filing status eventually changes to single, subject to the rules that apply in the particular circumstances. That can create a significant change in the tax structure.
The tax brackets for a single filer are substantially narrower than those for a married couple filing jointly. Medicare IRMAA thresholds are also considerably lower for single filers. For 2026, IRMAA begins at $109,000 of modified adjusted gross income for a single filer compared with $218,000 for a married couple filing jointly. The same income that occupied a manageable bracket for a couple can push a surviving spouse into a significantly higher bracket and IRMAA tier.
Consider the couple with the $4 million initial IRA balance. If they make no conversions and the account grows substantially, the survivor could eventually be responsible for significant RMDs while filing as a single taxpayer. The surviving spouse may continue receiving substantial income from the IRA, pension, investments, and Social Security, but now paying more in taxes on it.
Roth conversions made while both spouses are alive can reduce the amount remaining in the Traditional IRA. That can reduce future RMDs and give the surviving spouse a larger pool of assets that can potentially be accessed without creating additional taxable income. For married couples with substantial pre-tax assets, modeling the survivor scenario can therefore change the amount of Roth conversion that makes sense today. We cover this in more depth in our article on the widow’s financial penalty.
Social Security and the Conversion Interaction
Social Security should also be incorporated into conversion planning. Depending on a retiree’s combined income, as much as 85% of Social Security benefits can be included in taxable income. A large Roth conversion can therefore have consequences beyond the income created directly by the conversion.
This is one reason the years before Social Security begins can be particularly attractive for some retirees. For example, a couple who retires at 63 and waits until 70 to claim Social Security may have several years in which they have no wages, no Social Security benefits, and no RMDs. Their taxable income may therefore be unusually low relative to their net worth. Once Social Security begins, the income generated by the benefits occupies part of the household’s tax brackets and can make additional conversions more expensive at the margin.
That doesn’t mean conversions should stop when Social Security begins. It means the annual conversion amount should be recalculated based on the new income picture. Coordinating Social Security timing with Roth conversion planning is one of the more powerful combined strategies available to retirees in the golden window.
A Roth Conversion Strategy Should Change Over Time
A well-designed strategy often changes as retirement progresses. For the hypothetical couple above, the first few years after retirement might provide the greatest opportunity for conversions because there’s no earned income and Social Security hasn’t started yet. The couple might convert a larger amount during those years, subject to the tax brackets and other thresholds that apply.
After Social Security begins, the conversion amount might be reduced because more of the lower tax brackets are already being used. Once RMDs begin, the calculation changes again. The couple must first satisfy the RMD requirement, and any additional conversion has to be evaluated on top of that income.
The strategy also changes after the death of one spouse. The surviving spouse may have a very different tax situation, a different spending requirement, different Social Security income, and a much narrower tax bracket structure. Roth conversion planning after the first death therefore needs to be reconsidered rather than simply continuing the prior year’s strategy.
When a Roth Conversion May Not Make Sense
There are legitimate reasons to convert less than expected or not convert at all.
A retiree who’s already in a high tax bracket may be better off leaving some or all of the money in the Traditional IRA if future withdrawals are expected to occur at a lower rate. Charitable households may also have less incentive to convert retirement assets they expect to donate. Qualified Charitable Distributions can allow eligible IRA owners to direct money to qualifying charities while satisfying RMD requirements, subject to the applicable rules.
A retiree who expects to move from a high-tax state to a state with no individual income tax may also want to consider whether delaying a conversion until after the move produces a better result. And there are situations where a household simply doesn’t have enough liquidity to comfortably pay the tax generated by a large conversion. The objective should be to improve the overall retirement plan, not to maximize the amount converted.
Why Roth Conversion Planning Is More Complex Than It Looks
Reading about Roth conversions can make the strategy sound straightforward: convert during low-income years, fill up the brackets, repeat. In practice, the analysis is considerably more involved, and the margin for error is real.
The variables that need to be modeled simultaneously include your current and projected federal and state tax brackets, Social Security income and the percentage that becomes taxable at different income levels, IRMAA thresholds and the two-year lookback that ties today’s income to future Medicare premiums, RMD projections across potentially 20 or more years, investment return assumptions across different account types, the interaction between capital gains in the taxable account and ordinary income from conversions, the survivor scenario with different ages and health assumptions for each spouse, the tax profile of beneficiaries who may inherit the accounts, and the state tax implications if a relocation is possible.
None of these variables is static. They change every year as Social Security begins, as RMDs grow, as the portfolio’s account mix shifts, and as tax law changes. A conversion strategy that looked optimal three years ago may not be optimal today.
The complexity is also asymmetric. The decisions you make in the first five years of the conversion window have the longest compounding horizon and therefore the greatest impact. A mistake in year one, whether that’s converting too much and triggering a higher bracket than necessary or converting too little and missing the window, can affect the household’s tax picture for the next 25 years.
Good software matters, but so does the judgment behind it. At Inclinevest, we use a professional financial planning platform built specifically for comprehensive retirement planning analysis, to model Roth conversion scenarios across the full planning horizon. Right Capital integrates the retirement income picture, Social Security timing, RMD projections, portfolio allocation, and survivor scenarios in a way that generic calculators can’t.
For the tax calculations specifically, we coordinate with a tax professional using established tax software rather than AI-generated estimates. This distinction matters more than it might seem. AI tax tools, despite their convenience, are known to produce plausible-sounding but incorrect results when applied to complex situations involving multiple interacting variables. A Roth conversion decision that’s modeled incorrectly isn’t just unhelpful, it can lead to a tax bill that’s significantly larger than anticipated, an unexpected IRMAA surcharge, or a missed opportunity to convert in a year when the window was particularly favorable.
The combination of dedicated financial planning software, professional tax modeling, and a financial advisor who understands how all the variables connect is what makes Roth conversion planning reliable rather than speculative. It’s also what allows the strategy to be updated every year as income, brackets, and circumstances change, rather than set once and left alone.
This is one of the clearest examples in retirement planning where the complexity of the analysis genuinely justifies working with a professional. The stakes are high, the interactions are subtle, and the software tools that do this well are not consumer-facing products.
How We Approach This at Inclinevest
At Inclinevest, Roth conversion analysis is incorporated into the broader retirement income plan rather than treated as a standalone tax calculation. We look at projected income year by year, including Social Security, RMDs, pensions, dividends, interest, capital gains, and planned portfolio withdrawals. We then evaluate potential Roth conversions against federal and state tax brackets, Medicare IRMAA thresholds, and the household’s expected retirement spending.
For married couples, we also model what happens if one spouse dies earlier than expected. That can reveal a tax problem that may not be obvious when looking only at the couple’s joint return. We also consider the eventual beneficiaries of the retirement accounts, particularly when substantial Traditional IRA assets may be inherited by high-income children.
Gabriel Motta, CFP®, is a retirement financial advisor in Greenwood Village, Colorado, working with pre-retirees and retirees in the five to fifteen years before and after retirement, when Roth conversion decisions have the most lasting impact. If you have a large pre-tax balance and haven’t worked through a systematic conversion strategy, that’s one of the most valuable conversations you can have before RMDs begin. We’d be glad to start that conversation. You can also review our services and fees.
Frequently Asked Questions
When is the best time to do a Roth conversion? For many retirees, the years after leaving work and before substantial RMDs begin can provide an attractive opportunity because taxable income may be temporarily lower. The best timing depends on income, tax bracket, Social Security timing, Medicare situation, state taxes, and expected future tax rates. Early retirees may also consider a Roth conversion ladder if they need access to retirement assets before age 59 and a half.
How much should I convert each year? There isn’t a fixed amount that works for everyone. The appropriate conversion amount depends on other taxable income, the available federal tax brackets, Medicare IRMAA thresholds, Social Security, state taxes, capital gains, deductions, and projected future RMDs. The amount should generally be recalculated each year.
Do I pay a penalty on a Roth conversion? The conversion itself generally isn’t subject to the 10% additional tax that can apply to early IRA distributions. However, converted funds can be subject to the five-year rules governing early distributions from Roth accounts. The tax treatment also depends on the individual’s circumstances and the type of account involved.
What happens to a Roth IRA when I die? The rules depend on who inherits the account. Many non-spouse beneficiaries are generally subject to a ten-year distribution period, although exceptions and additional requirements can apply. Qualified distributions from an inherited Roth IRA are generally tax-free.
Can I do a Roth conversion after RMDs begin? Yes. You can continue making Roth conversions after RMDs begin, but the RMD for the year generally must be satisfied first. The RMD itself cannot simply be converted into a Roth IRA.
Does a Roth conversion affect Medicare premiums? Yes. Roth conversions increase modified adjusted gross income and can therefore affect Medicare IRMAA premiums. Because Medicare generally uses income from two years earlier, a conversion in 2026 can affect Medicare premiums in 2028.
What happens when one spouse dies? The surviving spouse may face a significantly different tax situation because filing status, tax brackets, and Medicare thresholds all change. A Roth conversion strategy implemented while both spouses are alive can reduce the amount of pre-tax money that remains exposed to the survivor’s potentially higher tax rates.
Key Takeaways
- A Roth conversion moves money from a pre-tax retirement account into a Roth IRA and generally creates taxable income in the year of the conversion.
- Qualified Roth IRA distributions can be tax-free, and the original owner isn’t required to take lifetime RMDs from a Roth IRA.
- The years after retirement and before substantial RMDs begin can provide an attractive window for Roth conversions because taxable income may temporarily be lower.
- Early retirees may use Roth conversion ladders as part of a strategy for accessing retirement assets before age 59 and a half.
- Large pre-tax retirement accounts can create substantial future RMDs that may increase income taxes, Medicare premiums, and the taxable portion of Social Security.
- Roth conversions can be particularly valuable for married couples when the potential tax consequences of the surviving spouse are considered.
- The appropriate conversion amount depends on the entire tax picture rather than simply the size of the IRA.
- State income taxes, Medicare IRMAA, Social Security, capital gains, charitable giving, and estate objectives can all affect the decision.
- A Roth conversion can be valuable for heirs because inherited Roth IRA distributions are generally more tax-efficient than distributions from an inherited Traditional IRA.
- Roth conversion planning should be reviewed annually because income, tax brackets, investment values, Social Security, Medicare thresholds, and personal circumstances change.
About the Author
Gabriel Motta, CFP®, MBA, is the founder and principal of Inclinevest LLC, a fee-only fiduciary retirement financial advisor and financial planner based in Greenwood Village, Colorado. He works with pre-retirees and retirees throughout south Denver, across Colorado, and nationally, including clients in Highlands Ranch, Centennial, Lone Tree, Aurora, Parker, Castle Rock, and Littleton. As a retirement planner and wealth manager, Gabriel helps clients navigate retirement income planning, Social Security strategy, tax-efficient withdrawals, and equity compensation. Gabriel is a NAPFA and XY Planning Network member. Learn more at inclinevest.com or schedule a conversation.
Sources
- IRS, “Traditional and Roth IRAs” — https://www.irs.gov/retirement-plans/traditional-and-roth-iras
- IRS, “Required Minimum Distributions” — https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
- IRS, “Retirement Plans FAQs Regarding IRAs” — https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras
- IRS, “2026 Retirement Contribution Limits” — https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
- CMS, “2026 Medicare Parts B Premiums and Deductibles” — https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles
This article is for general informational and educational purposes only. It isn’t personalized investment, tax, or legal advice, and it shouldn’t be relied on as a substitute for guidance specific to your situation. Tax rates, brackets, Medicare premiums, and retirement account rules reflect current law and are subject to change. Inclinevest LLC is a registered investment adviser. Registration doesn’t imply any level of skill or training. Please consult a qualified professional before making decisions about your own financial circumstances.
