Taxes
For many retirees there is a quiet, valuable window between the year they stop working and the year required distributions begin. Used well, it can lower taxes for the rest of your life.
Why the gap years are special
When your paycheck stops but before required distributions and, sometimes, Social Security begin, your taxable income often falls to one of the lowest points of your adult life. Low income means low tax brackets — and low brackets make it unusually cheap to move money out of pre-tax accounts.
This window does not last forever. Once required minimum distributions start, they add taxable income you cannot avoid, filling up the very brackets you could have used for conversions.
How a Roth conversion works
A conversion moves money from a traditional IRA or 401(k) into a Roth account. You pay ordinary income tax on the amount converted this year, and in exchange the money grows and can later be withdrawn completely tax-free.
Roth IRAs also have no lifetime required distributions, so the balance can keep compounding untouched — and pass to heirs more tax-efficiently than a traditional account.
When it makes sense, and when to be careful
Conversions tend to pay off when you expect your future tax rate to be as high or higher than today, when you can pay the tax from outside funds rather than the IRA itself, and when you have years for the Roth to grow.
But filling a bracket too aggressively can backfire, and a large conversion can raise your Medicare premiums two years later through IRMAA. This is a decision to model carefully before acting, not a blanket rule.
Key takeaways
- The low-income years before RMDs are often the cheapest time to convert.
- Roth dollars grow tax-free and carry no lifetime required distributions.
- Model the tax and IRMAA impact before converting — more is not always better.
