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Couples who retire at age 63 with traditional 401(k)s have roughly a decade before required minimum distributions begin at age 75; During that time, they can convert up to $129,000 per year into a Roth IRA at lower tax rates while staying below the $218,000 MAGI threshold that triggers Medicare surcharges (IRMAA), converting about $1.29 million over 10 years and saving over $160,000 in future taxes. and Social Security taxation compared to annual RMD of over $160,000 in ’75.
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Roth conversions made during low-income retirement years provide tax-free income starting in 2031 (for 2026 conversions) before Social Security and RMDs arrive in full, but require careful coordination with capital gains and strict adherence to IRMAA limits, making professional retirement tax planning tools or fee-only advisors necessary for optimization.
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A recent study identified a single habit that doubled Americans’ retirement savings and took retirement from dream to reality. Read more here.
Let’s say a couple retires at 63 with $2 million in a traditional 401(k) and no RMDs for ten years. Their taxable income is low, and this window is the most valuable tax planning opportunity they will have; Leaving it unused is the most expensive tax mistake they can make.
Under SECURE 2.0, anyone born in 1960 or later does not face required minimum distributions until age 75. (Those born in 1959 start at age 73.) A couple who retires at 63 has roughly 12 years before the IRS forces them to withdraw that $2 million from the account. During those years, the account continues to grow due to deferred tax. With a 6% annual return, $2 million grows to well over $4 million by age 75. RMDs on this larger balance will be very large, and every dollar will be taxed as ordinary income.
One potential strategy is to use these low-income years to systematically roll parts of the 401(k) into a Roth IRA, paying the tax at controlled rates now rather than at the potentially higher rates that might apply later when RMDs arrive; But whether this makes sense depends on whether your current tax rate is lower than your expected future rate.
To read: Data Shows One Habit Doubles Americans’ Savings and Boosts Retirement
Most Americans vastly underestimate how much they need to retire and overestimate how prepared they are. But the data shows that people with one habit They have more than twice the savings of those who do not.
For a married couple filing jointly in 2026, the 22% bracket covers taxable income of up to $211,400. The standard deduction is $32,200, which means the couple can earn up to $243,600 in gross income before falling into the 24% bracket. Subtract $50,000 from hypothetical other income, and the remaining conversion area is approximately $129,000 per year.
The critical restriction is IRMAA, and the first IRMAA tier for marriage filing starts at $218,001 of jointly modified adjusted gross income and triggers an annual Medicare surcharge of $1,148 per individual ($2,297 per couple). Because IRMAA uses a two-year lookback, a conversion made in 2026 will appear in 2028 Medicare premiums. The couple should consider $218,000 as a hard ceiling not only for taxable income but also for MAGI.
With a MAGI ceiling of $218,000 and other income of $50,000, the annual conversion goal is around $129,000. Over 10 years, this turns into roughly $1.29 million of the original $2 million balance. The remaining balance will remain in the traditional 401(k) and generate RMDs starting at 75, but these RMDs will be manageable rather than draining the accounts.
The annual federal tax cost of converting $129,000 annually at a 22% to 24% marginal rate is roughly $31,000. This is real money, but consider the alternative.
If the entire $2 million grows without being converted to $4 million by age 75, the first year’s RMD for age 75 on the IRS Uniform Life Table factor is roughly ~4% of the balance, or $160,000. That’s on top of $160,000 in Social Security income.
When combined income (adjusted gross income plus half of Social Security benefits) exceeds $44,000 for joint filers, up to 85% of Social Security benefits become taxable. A couple receiving $60,000 from Social Security may suddenly find $51,000 of it counted as ordinary income, pushing their effective marginal rate to well over 30%. The conversion ladder eliminates much of this risk by tapping into a traditional 401(k) before RMDs begin.
Each Roth conversion carries its own independent five-year clock for penalty purposes. If you are under 59½ and withdraw the converted amount within five years of conversion, the withdrawal is subject to a 10% penalty (but no tax will apply because you have already paid taxes at the time of conversion). Withdrawals of earnings from a Roth IRA are tax- and penalty-free only after the account has been open for five years and you reach age 59½.
Conversions made in 2026 are fully accessible and penalty-free from 2031 onwards. Conversions made in 2027 are unlocked in 2032. Establishing the ladder early means that the earliest conversions will be possible before the couple turns 70, providing a tax-free source of income before Social Security and RMDs fully kick in.
Capital gains from a taxable brokerage account are included in MAGI. A year of $30,000 in earnings would compress the available conversion space by the same amount or cause the couple to exceed the IRMAA threshold entirely. Coordinate asset sales and conversions in the same tax year.
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Run the numbers through a special tool. Boldin (formerly NewRetirement) and other comprehensive retirement planners, such as ProjectionLab or the RightCapital model, offer multi-year Roth conversion programs based on IRMAA thresholds and Social Security taxes. (i-ORP is an older tool that some still use, although it is no longer actively updated.) A session with any of these tools will help clarify how much conversion is needed each year to minimize lifetime taxes.
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Set a MAGI ceiling before performing any conversion. Take the prior year’s tax return, identify each source of income included in MAGI (including capital gains distributions from mutual funds), and calculate the remaining conversion room. The initial IRMAA threshold for joint filers, currently around $218,000, is an important line to note, although it is adjusted annually for inflation.
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If your total income already exceeds the initial IRMAA threshold, the complexity alone may justify consulting with a fee-only advisor who specializes in retirement tax planning. The mathematics at this level of balance are complex enough to require frequent consideration of professional guidance.
Most Americans vastly underestimate how much they need to retire and overestimate how prepared they are. But the data shows that people with one habit to have more couple savings of those who do not.
And no, this has nothing to do with increasing your income, increasing your savings, cutting your coupons, or even reducing your lifestyle. It’s much simpler (and more powerful) than these. Frankly, it’s surprising that more people don’t adopt the given habit how easy.
