New Resource: Roth Conversion Strategy Guide for Pre-Retirees
The Tax Window Most Pre-Retirees Ignore
The years between your last paycheck and your first Required Minimum Distribution represent one of the few times in your financial life when you have genuine control over your taxable income — and most people let that window close without using it.
This guide explains how Roth conversions work in that window, how to evaluate whether they make sense for your situation, and how to execute a multi-year strategy that reduces your lifetime tax burden in a meaningful way. It is not a pitch for Roth accounts as universally superior. It is a framework for making a clear-eyed decision with the variables you actually have.
Why the Pre-RMD Years Are Different
When you stop working but before Required Minimum Distributions begin at age 73, your taxable income often drops sharply. Social Security may not have started yet, or you are receiving only a portion of your eventual benefit. You have no wages. Your portfolio is producing returns but not necessarily taxable distributions. The result is a temporary gap — sometimes a decade or more — where your marginal tax rate is lower than it was during your working years and potentially lower than it will be once RMDs start forcing distributions out of your traditional accounts.
This gap is the conversion opportunity. You can move money from a traditional IRA or 401(k) into a Roth IRA, pay tax on that amount now at your current lower rate, and then let it grow tax-free for the rest of your life. The question is never whether Roth accounts are good. The question is whether paying tax now at your current rate beats paying tax later at your expected future rate, adjusted for the time value of money.
Two forces tend to push future rates higher than people expect. First, RMDs are calculated on a shrinking divisor each year, so the mandatory distributions — and the taxable income they generate — grow larger as you age. Second, tax law is not permanent. Brackets and rates that exist today will not necessarily exist in ten years. Planning for future tax rates requires some humility, but the base case for most pre-retirees with significant traditional account balances is that their taxable income will be higher in their mid-seventies than it is at sixty-five.
Understanding the Tax Mechanics Before You Convert
A Roth conversion is straightforward in execution: you instruct your custodian to move a specific dollar amount from a traditional IRA to a Roth IRA. The converted amount is added to your ordinary income for that year and taxed accordingly. There is no penalty if you are over 59½. The converted funds then grow tax-free, and qualified Roth distributions — generally those taken after age 59½ from an account that has been open at least five years — are completely free of federal income tax.
What makes conversions complicated is everything that connects to that added income. Key interactions to understand before you calculate a conversion amount:
- Marginal bracket thresholds: Federal income tax brackets are progressive. A conversion that pushes you just over the boundary of the 22% bracket into the 24% bracket is not as damaging as it appears — only the dollars above the threshold are taxed at the higher rate. Model the exact dollar amount that fills your current bracket before spilling into the next one.
- Medicare Income-Related Monthly Adjustment Amounts (IRMAA): Medicare Part B and Part D premiums increase significantly once your modified adjusted gross income crosses certain thresholds. These surcharges are calculated using your income from two years prior, so a large conversion at 63 affects your premiums at 65. The IRMAA surcharges can add several hundred dollars per month in premiums for a couple, and they apply in tiers — so a conversion that crosses a tier boundary carries a real and immediate cost.
- Social Security taxation: If you are already receiving Social Security, adding conversion income can increase the percentage of your benefit that is taxable, from 50% to as much as 85% of your benefit. This effectively raises your marginal rate beyond what the bracket table shows.
- Net Investment Income Tax: Once your MAGI exceeds the relevant threshold, an additional 3.8% tax applies to net investment income. Large conversions can push income across this threshold.
None of these interactions make conversions inadvisable. They make precise annual sizing important. The goal is not to convert as much as possible; it is to convert up to the point where the marginal cost of the next dollar converted exceeds your reasonable estimate of what that dollar would be taxed at in the future.
How to Size Conversions Year by Year
A practical approach is to calculate your target taxable income ceiling for each year, then work backward to determine how much you can convert. Start with a simple worksheet:
- Estimate your baseline income for the year: Social Security (if applicable), pension income, dividends and capital gains from taxable accounts, and any other ordinary income.
- Determine the top of the tax bracket you are comfortable filling. For many pre-retirees in the conversion window, filling the 22% or 24% bracket is the target zone. The exact dollar amounts of these brackets adjust annually for inflation — use current IRS bracket tables for the relevant tax year.
- Subtract your baseline income from your target ceiling. The difference is your available conversion space for that year.
- Check that amount against IRMAA thresholds for the relevant Medicare year (two years forward). If you are near a tier boundary, it may be worth reducing the conversion to stay below it.
- Repeat this exercise each year for as many years as the pre-RMD window allows.
A worked example in rough terms: suppose a retired couple at 66 has $30,000 in Social Security income, of which $25,500 is taxable, plus $10,000 in qualified dividends. Their total income before conversions is approximately $35,500. If the top of the 22% bracket for married filing jointly is around $94,000, they have roughly $58,000 of conversion space before reaching that threshold — assuming no other income and ignoring the standard deduction adjustment. After factoring in the standard deduction, their taxable income is lower still, creating additional room. The specific numbers change annually, but the framework holds.
Over a decade, even moderate annual conversions — $40,000 to $60,000 per year — can shift a substantial portion of a traditional IRA balance into Roth, dramatically reducing the RMD burden in later years.
Which Accounts to Convert and How to Pay the Tax
If you have both traditional IRAs and an old 401(k), you generally convert the traditional IRA first for simplicity. 401(k) plans can often be rolled into an IRA as a preliminary step, after which conversions proceed normally. Within IRAs, if you have multiple accounts, there is no particular order requirement — but keeping the math clean by converting from a single account makes record-keeping easier.
How you pay the conversion tax matters significantly. Pay the tax from outside the converted account — from taxable savings — whenever possible. If you withhold tax from the conversion itself, you are effectively converting less money and the withheld amount may also be treated as a distribution subject to penalty if you are under 59½. Paying from external funds keeps the full converted amount working in the Roth and dramatically improves the long-term outcome. This is one reason having a pool of taxable savings during the conversion years is useful — it serves as the tax payment fund.
The Estate Planning Case for Roth Accounts
Even if you do not personally exhaust your Roth account during your lifetime, Roth assets have distinct advantages for heirs. Under current law, inherited Roth IRAs are subject to the same ten-year distribution rules as inherited traditional IRAs for most non-spouse beneficiaries. The critical difference is that distributions from an inherited Roth IRA are generally not taxable to the heir, while distributions from an inherited traditional IRA are taxed as ordinary income at the heir’s marginal rate — which, if they are in their peak earning years, could be substantial.
This means a Roth conversion you make at a 22% or 24% rate today might spare your heirs from paying 32% or 37% on those same dollars in the future. That arbitrage can justify conversions that do not quite pay off on a purely personal time horizon.
The estate planning lens is especially relevant for pre-retirees who have more assets than they are likely to spend, or who have identified a specific heir — a child, a grandchild — who is likely to be a high earner. In those cases, the Roth conversion calculation extends beyond your own life expectancy and the math often becomes more favorable.
The Time Horizon Question
Roth conversions require you to pay tax now to avoid tax later. The break-even point — the year at which you come out ahead compared to never converting — depends on your tax rate differential, the investment return of the converted funds, and your time horizon. In general, a longer time horizon and a larger gap between your current and expected future rate makes conversions more attractive. A shorter horizon or a small rate differential makes them less so.
A common rule of thumb is that conversions break even somewhere between eight and fifteen years after the conversion, assuming typical equity returns and a moderate rate differential. This is a wide range because it is sensitive to the specific inputs. What it tells you practically is that starting early in the pre-RMD window — at 60 rather than 70 — matters. The years compound the benefit.
Where to Start
If you are within ten years of retirement or already in the pre-RMD window, the first concrete step is to estimate what your taxable income will look like at age 75 with no conversions — Social Security, RMDs from your current balance projected forward, any pension. Compare that to what it looks like if you convert steadily over the next several years. The gap between those two pictures is the case for acting. A fee-only financial planner or a tax professional who works with retirees can model these scenarios with your actual numbers, but you can get directionally right with a spreadsheet and current bracket tables.
The pre-RMD window does not last forever. Once RMDs start, they add to your income whether you want them to or not, filling the brackets you were hoping to use for conversions. The time to act is before that clock runs out.