Background
The two dominant U.S. individual retirement strategies are tax-deferred (Traditional) and tax-free (Roth). Traditional accounts (401(k), Traditional IRA) typically give you a tax break today by reducing taxable income for the contribution year; withdrawals are taxed as ordinary income later. Roth accounts (Roth IRA, Roth 401(k)) are funded with after-tax dollars and — if rules are met — withdrawals are tax-free. Roth conversions let you move money from Traditional to Roth and pay taxes on the converted amount today to avoid taxes later.
The law has changed recently in ways that affect near-retirees: required minimum distributions (RMDs) for most employer and IRA-based plans currently begin at age 73 (as of Secure Act updates). Roth IRAs remain exempt from RMDs during the original owner’s lifetime (IRS Pub. 590-A/B) (https://www.irs.gov/retirement-plans). These rules make timing and partial Roth conversions important tools for controlling taxable income in retirement.
How tax bracket management works (practical overview)
1) Map expected taxable income in retirement. Include:
- Social Security benefits (some of which may be taxable) (Social Security Administration, https://www.ssa.gov)
- Pension income
- Withdrawals from Traditional accounts (IRAs, 401(k))
- Part-time work, rental income, capital gains
- Taxes triggered by Roth conversions and taxable rollovers
2) Identify control points. You can influence your taxable income by:
- Choosing Roth vs. Traditional contributions (today vs. later)
- Timing Roth conversions (convert in low-income years)
- Scheduling withdrawals to smooth income across years
- Managing RMD-driven income starting at required age
- Using tax-loss harvesting or capital-gains timing to offset income
3) Estimate marginal tax bracket risk. Large RMDs or a big conversion can push you into a higher marginal tax bracket, increase taxes on Social Security, and raise Medicare Part B/D premiums (IRMAA). Evaluate not only federal brackets but also state income tax and Medicare surcharge risk (Medicare.gov).
Why the Roth/Traditional decision matters near retirement
- Traditional contributions reduce taxable income now, which helps when you are in a high current bracket. But future withdrawals and RMDs add to taxable income and can create bracket creep.
- Roth contributions (or conversions) lock in tax payment now and provide tax-free withdrawals later. Roth accounts can reduce future taxable income, helping you avoid bracket spikes and IRMAA-related premium increases.
Example scenarios (illustrative, not tax advice)
Scenario A — Staggered RMD risk: Alice has a large Traditional 401(k) and modest other income. When RMDs begin at 73, she faces a large mandatory withdrawal that would push her into a higher bracket. She uses a multi-year Roth conversion plan before RMD age to move portions of the Traditional balance to Roth, paying tax now while her other income is lower. This reduced her RMD base and smoothed taxable income.
Scenario B — Low-income conversion window: Ben retires early and has several years of low taxable income before claiming Social Security or starting RMDs. He converts modest amounts each year to Roth, paying tax at lower marginal rates and leaving the Roth to grow tax-free.
These are common patterns I’ve used with clients: identify predictable low-income windows (early retirement, a year with a job loss, or after selling an asset with offsetting losses) and convert within those windows to minimize conversion tax.
Key strategies to manage tax brackets near retirement
1) Build a tax-diversified portfolio now
- Maintain both Roth and Traditional balances when possible. A mix gives you the flexibility to choose withdrawals (tax-free vs. taxable) based on your tax situation in any given year.
- If your employer plan offers both Roth 401(k) and Traditional 401(k), consider splitting contributions.
2) Create a Roth conversion plan — gradual and intentional
- Convert in slices: spread conversions across years to avoid leaping into a higher tax bracket.
- Target specific taxable income bands: convert up to the top of your desired marginal bracket each year, then stop.
- Watch for Medicare IRMAA and Social Security thresholds: a conversion in one year may raise Medicare premiums two years later if it increases your modified adjusted gross income (MAGI) (see Medicare/IRMAA guidance at Medicare.gov).
- See our guides on Roth conversion tactics for low-income years and multi-year conversion ladders for implementation examples (Roth Conversion Strategies for Low-Income Years, How to Create a Roth Conversion Plan Over Several Years).
3) Coordinate withdrawals with Social Security and other income
- Delaying Social Security can boost monthly benefits but also changes the timing of taxable income. Model how Social Security interacts with RMDs and Roth withdrawals.
4) Defer or accelerate income where possible
- If you expect a high-income year (sale of business, large IRA distribution), consider accelerating Roth conversions in a lower-income adjacent year.
- Use capital-loss harvesting to offset gains and reduce taxable income in a conversion year.
5) Consider state tax rules
- Roth conversions are federally taxable, but state tax treatments vary — some states exclude Roth conversions, some tax them. Check state law before converting.
6) Protect against surprises from RMDs
- Where possible, convert or pre-fund RMD exposure early so required withdrawals are smaller later.
7) Use a hybrid withdrawal strategy in retirement
- Start with taxable accounts and Roth withdrawals in low years, and use Traditional withdrawals when you want to use a lower marginal bracket. The flexibility reduces lifetime taxes.
Practical steps and checklist (actionable)
- Step 1: Build a projected taxable-income timeline from current age to RMD age. Include expected Social Security, pensions, part-time work, and projected RMDs.
- Step 2: Identify low-income windows to schedule Roth conversions (early retirement, gap years, loss years).
- Step 3: Estimate tax liability of conversions and plan with withholding or estimated tax payments to avoid underpayment penalties.
- Step 4: Revisit annually — tax laws, market returns, and health events change the plan.
Common mistakes to avoid
- Doing a one-time large conversion without modeling the tax hit, Medicare premium impact, and state taxes.
- Ignoring the interaction between Roth conversions and Social Security/Medicare IRMAA thresholds.
- Assuming future tax rates won’t change — plan for multiple outcomes and use a mixed-account approach.
Medicare and Social Security interactions
Large Roth conversions or unexpected Traditional withdrawals can increase your MAGI for Medicare premium calculations, raising Part B and Part D premiums via IRMAA. This effect typically takes place in the calendar year after the income is reported, so timing matters (see Medicare.gov guidance). Also, taxable portions of Social Security can rise if combined income crosses thresholds, which increases federal tax on benefits (SSA resource, https://www.ssa.gov).
Record-keeping and tax filing tips
- Track conversions carefully: the amount converted is reported on Form 1099-R and taxable on your return unless nondeductible basis applies. Keep year-by-year records to calculate basis and avoid double-taxation (IRS Pub. 590-A/B, https://www.irs.gov/retirement-plans).
- For Roth conversions from employer plans, confirm plan rules before rolling to IRA — some plans allow in-plan Roth conversions.
When to consult a pro
This topic intersects income tax, retirement law, Medicare, and estate planning. Work with a tax advisor or certified financial planner when:
- You plan large conversions or irregular income events
- You have complex income sources (rental real estate, business sales, trusts)
- You’re nearing RMD age and want to reduce future RMD impact
Further reading and internal resources
- How to Choose Between Traditional and Roth Retirement Accounts — a practical decision guide (https://finhelp.io/glossary/how-to-choose-between-traditional-and-roth-retirement-accounts/)
- Roth Conversion Strategies for Low-Income Years — specific tactics and examples (https://finhelp.io/glossary/roth-conversion-strategies-for-low-income-years/)
- Roth Conversions and Medicare: Timing to Avoid IRMAA Surprises — coordinate conversions with Medicare rules (https://finhelp.io/glossary/roth-conversions-and-medicare-timing-to-avoid-irmaa-surprises/)
Authoritative sources
- IRS — Retirement Plans and IRAs (Publication 590-A and 590-B): https://www.irs.gov/retirement-plans
- Medicare/IRMAA guidance: https://www.medicare.gov
- Social Security Administration — taxation of benefits: https://www.ssa.gov
- Consumer Financial Protection Bureau — retirement planning basics: https://www.consumerfinance.gov/consumer-tools/retirement/
Professional disclaimer
This article is educational and not personalized tax, legal, or investment advice. Rules change and tax outcomes depend on your entire financial picture. Consult a qualified tax professional or financial planner before implementing conversions or making sizable account changes.
About the author
As a financial planner with 15+ years working directly with near-retiree clients, I commonly use multi-year Roth conversion ladders and hybrid account strategies to reduce lifetime taxes, smooth RMD exposure, and limit Medicare/IRMAA surprises. Many clients find small, planned conversions each year easier to absorb than a single large tax bill.
