From the Retirement Tax Planning hub — Evergreen Wealth Management — proactive year-round tax planning for retirees: Roth conversions, withdrawal sequencing, and Medicare IRMAA strategy.
Why Roth conversions matter more in retirement
During your working years, Roth conversions are often impractical because your income pushes you into higher tax brackets, making the upfront tax cost prohibitive. But retirement creates a unique window of opportunity. In the years between when you stop working and when required minimum distributions begin at age 73, many retirees find themselves in the lowest tax brackets they will experience for the rest of their lives. Your earned income has dropped to zero or near-zero. Social Security may not have started yet. And your RMDs have not kicked in. This period — sometimes called the “tax planning window” or the “gap years” — is when Roth conversions can be most advantageous. You can convert portions of your traditional IRA at low tax rates, filling up the 10%, 12%, and 22% brackets without triggering the higher rates. Once those funds are in the Roth, they grow tax-free and come out tax-free for the rest of your life. If you wait until RMDs begin, the window narrows significantly. Your RMDs are treated as ordinary income, which pushes you into higher brackets and makes additional Roth conversions more expensive. Every year you delay the analysis, the opportunity cost grows.The tax math: when conversions save money
A Roth conversion saves money when you pay a lower tax rate on the conversion today than you would pay on withdrawals from the traditional IRA in the future. For example, if you are in the 22% federal tax bracket this year and expect to be in the 24% or higher bracket once RMDs begin, converting enough to fill the 22% bracket saves you the difference on every dollar converted. On a $100,000 conversion, the tax savings would be $2,000 or more — and that is just the federal savings in a single year. But the real benefit compounds over decades. The converted funds grow tax-free in the Roth. Every dollar of growth on those converted funds will never be taxed again — not when you withdraw it, not when your spouse inherits it, and not when your heirs eventually receive it (though non-spouse heirs must distribute over 10 years under current law, the distributions are still tax-free). For a household with $1 million or more in traditional retirement accounts, a multi-year Roth conversion strategy — spreading conversions across 5 to 10 years of low-bracket retirement — can reduce the lifetime tax burden by $100,000 to $300,000 or more, depending on the tax rates in effect and the growth of the converted funds.The risks and costs to consider
Roth conversions are not free, and they are not always the right move. Here are the key factors that can make a conversion counterproductive. The upfront tax bill is real and immediate. When you convert $100,000 from a traditional IRA to a Roth, you owe income tax on that $100,000 in the year of the conversion. If you are in the 22% bracket, that is $22,000 in federal taxes alone, plus any applicable state taxes. That money needs to come from somewhere — and ideally, it should come from non-retirement funds. Paying the tax from the IRA itself reduces the amount converted and undermines the long-term benefit. Converting too much in a single year can push you into a higher tax bracket, trigger the net investment income tax surcharge, increase your Medicare Part B and Part D premiums through IRMAA, or reduce the tax benefit of other deductions. The optimal conversion amount requires a precise understanding of your current-year tax picture — not a rough estimate. If tax rates decrease in the future — which is possible, though not guaranteed — the conversion may cost more in taxes today than it saves tomorrow. This is a genuine uncertainty, and it is one reason why spreading conversions across multiple years is generally preferable to doing a single large conversion. And if you expect to be in a significantly lower tax bracket in future years — for example, if you plan to move to a state with no income tax — the calculation may favor waiting rather than converting now.How to get the conversion right
The difference between a well-executed Roth conversion strategy and a poorly timed one can be tens of thousands of dollars. The key is precision. Start with a detailed tax projection for the current year. Not a rough estimate — an actual projection that accounts for your income, deductions, capital gains, Social Security benefits, and any other taxable events. This is where tools like Holistiplan, which we use at Evergreen to analyze every client’s tax return, are essential. The software reads your 1040 and identifies exactly how much room you have in your current bracket before the next bracket kicks in. Model the conversion in your financial plan. At Evergreen, we use eMoney to project the long-term impact of different conversion amounts and timing strategies. We can show you exactly how a $50,000 conversion this year compares to a $100,000 conversion, how the tax cost today compares to the tax savings over 20 years, and how the conversion interacts with your Social Security timing, Medicare premiums, and estate plan. Coordinate with your CPA. A Roth conversion affects your tax return, and your CPA needs to know about it before it happens — not after. At Evergreen, we work directly with your CPA to ensure the conversion amount, timing, and tax payment strategy are all aligned. And review annually. The optimal conversion amount changes every year based on your income, deductions, tax law changes, and market performance. A Roth conversion strategy is not a one-time decision. It is a multi-year process that requires ongoing analysis and adjustment — which is one of the key reasons this type of planning benefits from an ongoing advisory relationship rather than a one-time financial plan. For more on what comprehensive financial planning should include, see our services page or our FAQ on advisor costs and services.Roth conversions are not the only one-time income event worth sequencing around. If a meaningful share of your 401(k) sits in appreciated employer stock, a net unrealized appreciation (NUA) strategy can move that growth to capital-gains rates instead of ordinary income, and its timing interacts directly with the years you choose to convert.
Conversions also compete for the same low-bracket space as other tax moves. Before filling a low-income year with realized losses, it is worth understanding when tax-loss harvesting is genuinely worth it and when it is not — in many retirement years, conversion capacity is the scarcer and more valuable resource.
One of the strongest arguments for converting during your own lifetime has nothing to do with your own tax return. Because most non-spouse heirs must now empty an inherited account under the inherited IRA 10-year rule, a traditional IRA left to a working-age child often comes out at 32% or 35%, while Roth dollars you converted at 22% pass to them tax-free.
If you are still working and your income is above the Roth IRA limits, conversions don’t have to wait for retirement. How the backdoor Roth and mega backdoor Roth work, including the pro-rata rule, covers the smaller, annual version of the same idea.