Using Roth Conversions to Manage Future Tax Brackets

Quick overview

A Roth conversion is the process of moving pre-tax retirement funds (for example, from a traditional IRA or a pre-tax 401(k)) into a Roth IRA and paying ordinary income tax on the converted amount in the year of the conversion. The goal: trade taxable retirement withdrawals later for tax-free withdrawals in retirement, which can reduce future taxable income and lower the chance of landing in higher tax brackets or triggering higher Medicare and Social Security taxes (IRS; Pub. 590-A/B).

This article explains when conversions make sense, how to plan them over time, tax and timing rules to watch, and practical strategies to balance short-term tax costs against long-term tax savings.

Why this matters now

Changes in tax law (including the SECURE Act 2.0 changes to RMD timing) and rising retiree health costs mean retirement tax planning needs more forward-looking design. Converting in years when your taxable income is temporarily lower, or when tax rates appear favorable, can lock in a known tax cost and reduce unpredictable future tax exposure (IRS — Roth IRAs; IRS — RMD rules).

Key 2025-era rules to remember:

• Anyone can convert—there is no income limit on Roth conversions (IRS Pub. 590-A).
• Converted amounts are subject to ordinary income tax in the year of conversion.
• Roth IRAs generally have no lifetime Required Minimum Distributions (RMDs) for the owner; Roth 401(k)s still do unless rolled to a Roth IRA (IRS).
• The SECURE Act 2.0 changed RMD ages: generally 73 starting in 2023 and increasing to 75 in 2033 for most taxpayers—so conversions affect future RMD timing and amounts.

(Authoritative sources: IRS Publication 590-A and 590-B; IRS Roth IRA overview: https://www.irs.gov/retirement-plans/roth-iras)

How Roth conversions can change your retirement tax profile

• Reduce taxable RMDs: Money inside a Roth IRA is excluded from RMD calculations during your lifetime, so converting pre-tax balances can shrink future RMDs and taxable income.
• Smooth taxable income: By converting in measured amounts, you can control taxable income in retirement years and avoid climbing into higher tax brackets or IRMAA surcharges.
• Lock in current tax rates: If you expect tax rates to be higher later—either due to personal income changes or legislative shifts—paying tax now can be advantageous.

Common goals for conversions

• Keep your retirement taxable income within a target bracket (for example, managing MAGI to avoid higher Medicare Part B/D premiums and IRMAA).
• Reduce the portion of Social Security subject to tax (higher MAGI can increase how much of Social Security is taxable — see IRS guidance).
• Create a tax-free source of cash for discretionary retirement spending.

Practical conversion strategies (step-by-step)

1. Establish conversion objectives

• Define success: lower expected lifetime tax bill, reduce RMDs, or create a tax-free cash buffer.

1. Model scenarios

• Use tax-bracket modeling across likely retirement income paths. Consider projecting Social Security, pensions, RMDs, and portfolio withdrawals.
• See our scenario tools such as “Choosing Between Roth and Traditional Accounts Using Scenario Modeling” for structured comparisons (FinHelp guide).

1. Use low-income windows

• Prioritize conversions in years when taxable income (including wages, capital gains, and other income) is unusually low—examples include early retirement years before RMDs and Social Security, sabbaticals, or years with business losses.

1. Partial, multi-year conversions

• Spread conversions across multiple years to avoid pushing yourself into a much higher marginal bracket. This is often called a conversion ladder or phased conversion strategy.
• For a step-by-step planning template, see our “Roth Conversion Roadmap: When and How to Convert for Retirement.”

1. Coordinate with other tax moves

• Bunch deductions, harvest capital losses, or time Roth conversions to pair with charitable contributions or lower capital gains years.

1. Watch Medicare IRMAA and Social Security

• Conversions increase modified adjusted gross income (MAGI) and can trigger IRMAA surcharges on Medicare premiums or increase taxation of Social Security benefits. Run scenarios before large conversions.

Important rules and timing details

• No conversion income limit: There is no IRS cap on how much you may convert in a year (IRS Pub. 590-A).
• Five-year rule(s): The Roth five-year rule affects whether converted amounts are penalty-free if you’re under 59½. Each conversion has its own five-year period to avoid the 10% early withdrawal penalty on the converted principal (see IRS Pub. 590-B).
• RMDs and Roths: Roth IRAs are not subject to lifetime RMDs. Converting pre-tax funds to a Roth IRA reduces future RMD calculations. However, Roth 401(k)s are treated differently until rolled to a Roth IRA (IRS).
• State taxes: State income tax on conversions varies—some states tax conversions fully, others exempt Roth conversions or offer credits. Check state tax law.

(Authoritative references: IRS Publication 590-A, Publication 590-B; IRS RMD FAQs)

Example scenarios

1) Low-income early retirement window

• Age 59½, retired early, no RMDs yet, modest taxable income from part-time work: converting $30,000 at a lower marginal rate can produce decades of tax-free growth and reduce future RMDs.

2) Phased conversion to avoid bracket creep

• A retiree with a $500,000 traditional IRA converts $50,000 per year for 10 years. Each year’s conversion is sized to fill lower tax brackets without pushing the taxpayer into much higher marginal rates.

3) Health-care premium/IRMAA management

• A spouse’s conversion in a single year pushed MAGI above the IRMAA threshold, increasing Medicare premiums for two years. After modeling, the couple switched to smaller annual conversions and avoided the surcharge.

Pitfalls and common mistakes

• Ignoring short-term tax bills: Converting without earmarking funds to pay the tax bill can force you to withdraw from retirement accounts, negating benefits.
• Not modeling MAGI effects: Large conversions can spike MAGI, increasing Medicare premiums and Social Security taxability.
• Overlooking the 5-year rule: Taking converted funds out early can trigger the 10% penalty if the conversion’s five-year clock hasn’t expired and you’re under 59½.
• Forgetting state taxes: Some states treat Roth conversions differently—account for state income tax.

Calculations and planning checklist

• Project your expected marginal tax rate in retirement and compare lifetime-tax outcomes of converting versus not converting.
• Run sensitivity tests: +10% and −10% long-term tax-rate scenarios.
• Plan tax-payment sources: Pay conversion tax from non-retirement dollars where possible to maximize the benefit.
• Coordinate with RMD age changes (SECURE Act 2.0): consider where you will be at ages 73 and 75 and how RMD timing affects conversions.

When not to convert

• If paying the tax requires tapping retirement principal, especially from the same account being converted.
• If you expect to be in a materially lower tax bracket in retirement and can comfortably meet spending needs.
• If a one-time large conversion will trigger IRMAA or materially raise the tax on Social Security.

Tools and resources

• IRS Publication 590-A and 590-B for conversion and distribution rules (https://www.irs.gov/publications/p590a and https://www.irs.gov/publications/p590b).
• IRS Roth IRA overview and RMD FAQs (https://www.irs.gov/retirement-plans/roth-iras; RMD FAQs page).
• For coordination with Medicare and IRMAA, see Medicare.gov and the Social Security Administration guidance on Medicare premiums.

Related FinHelp guides

• For conversion planning steps and timelines: Roth Conversion Roadmap: When and How to Convert for Retirement (https://finhelp.io/glossary/roth-conversion-roadmap-when-and-how-to-convert-for-retirement/).
• To understand bracket effects and scenario modeling: Choosing Between Roth and Traditional Accounts Using Scenario Modeling (https://finhelp.io/glossary/choosing-between-roth-and-traditional-accounts-using-scenario-modeling/).
• For partial conversion timing: Roth Conversion Windows: When Partial Conversions Make Sense (https://finhelp.io/glossary/roth-conversion-windows-when-partial-conversions-make-sense/).

Final checklist before converting

• Model the year-of-conversion tax impact and multi-year effects on MAGI.
• Confirm you can pay taxes from non-retirement funds.
• Coordinate with estate and beneficiary planning—Roth IRAs have different estate-tax and beneficiary-distribution implications.
• Consult a tax advisor or CPA and, if appropriate, a financial planner to align conversions with retirement cash flow and other tax strategies.

Professional disclaimer: This article is educational and not personalized tax or investment advice. Tax rules change and individual results vary; consult a qualified tax professional or financial advisor before making conversion decisions.

Authoritative references: IRS Publication 590-A and 590-B; IRS Roth IRA and RMD guidance; Medicare.gov. Additional planning material and conversion roadmaps are available in our FinHelp glossary (linked above).