Why conversion timing matters

Roth conversions turn tax-deferred retirement balances into accounts that grow and (typically) distribute tax-free in retirement. The amount converted is taxable in the year of conversion and can push you into higher tax brackets, trigger Net Investment Income Tax (NIIT), or increase Medicare Income-Related Monthly Adjustment Amounts (IRMAA). Because tax rates, surtaxes, and means-tested programs are sensitive to adjusted gross income (AGI) or modified AGI, strategically choosing “conversion windows” around major income events is often the single-highest-impact planning move a saver can make.

Authoritative sources: the IRS explains Roth IRA conversions and rules (see IRS – Roth IRAs) and the Centers for Medicare & Medicaid Services detail how higher income affects Medicare premiums (see CMS/Medicare IRMAA guidance). Always check current-year guidance before acting. (IRS: https://www.irs.gov/retirement-plans/plan-participant-employee/roth-iras)

Note from the author: In my 15 years as a financial planner I’ve helped clients move six-figure sums into Roth accounts using carefully timed conversion windows; many of those plans saved thousands in cumulative tax and reduced Medicare premium surprises.

Common income events that define a conversion window

  • Sale of a business or real estate triggering large capital gains
  • Receipt of a sizable nonrecurring bonus, stock vesting/RSUs, or option exercise
  • A year with low employment or intentionally reduced wages (sabbatical, early retirement transition)
  • Years when RMDs begin or when you otherwise expect taxable Social Security to change
  • Events affecting eligibility for tax credits, ACA subsidies, or state tax considerations

Because these events often concentrate taxable income, you can smooth taxable income across adjacent years by allocating conversions into lower-income windows.

How conversions interact with other taxes and programs

  • Tax brackets and marginal rates: Converting in a low-income year lets you take advantage of lower marginal rates. Avoid stacking conversions on top of large capital gains or other taxable events.

  • NIIT (Net Investment Income Tax): NIIT is applied above statutory thresholds; a conversion can indirectly increase MAGI and trigger NIIT. (NIIT thresholds are indexed and change — confirm current figures with IRS guidance.)

  • Medicare IRMAA: Conversions increase modified adjusted gross income (MAGI) and can raise Medicare Part B/Part D premiums for two years. Plan conversions to avoid unexpected IRMAA increases (see our guide on Roth conversions and Medicare timing). [Roth Conversions and Medicare: Timing to Avoid IRMAA Surprises](