Roth conversions in low-income years: how to fill a tax bracket after you retire, and what else to watch

The years after you retire and before Social Security and required minimum distributions are often the lowest-income years of your life, which makes them a good time to convert part of your traditional IRA and 401(k) to a Roth. The converted amount is ordinary income that year, with no 10% penalty; later Roth withdrawals are tax-free, and Roth IRA owners never have RMDs. The key is converting only up to the top of your current bracket each year, while counting Medicare premiums, health insurance credits, state tax and estimated tax. Since 2018 a conversion can't be undone, so run the numbers first.

Why low-income years are the window

The rate gap: Many people work in the 22% or 24% bracket or higher, then drop to the 10% or 12% bracket for a few years after retiring. Once RMDs start at 73 (75 if born 1960 or later), on top of Social Security, the rate climbs again. The years in between are the window.

RMD pressure: The bigger the traditional IRA, the larger the forced withdrawals later, which can push up your bracket, make more Social Security taxable and raise Medicare premiums. Converting some now shrinks future RMDs.

Leaving money to children: Heirs of a traditional IRA generally must empty it within 10 years and pay tax, often in their own peak earning years. An inherited Roth generally comes out tax-free.

How to fill a bracket

Start with taxable income without a conversion: Interest, dividends, annuities, part-time income and any taxable Social Security, minus the standard deduction ($32,200 joint and $16,100 single for 2026, plus the additional amount at 65).

Then look at the top of your bracket: For 2026 on a joint return, the 12% bracket runs to $100,800 of taxable income, 22% to $211,400 and 24% to $403,550; for single filers, $50,400, $105,700 and $201,775.

Conversion amount = top of the bracket − taxable income without the conversion. Redo it every year and spread conversions over several years instead of jumping a bracket in one.

Example: a married couple fills the 12% bracket

Example (hypothetical numbers, to show the method): Mr. Lee is 63 and Mrs. Lee is 62. Both retired in 2026, neither has claimed Social Security, and they file jointly. Interest, dividends and a small annuity total $40,000; after the $32,200 standard deduction, taxable income is $7,800. Their traditional IRAs and 401(k)s hold $1,200,000.

No conversion: About $780 of federal income tax.

Convert $93,000: Taxable income becomes $100,800, exactly the top of the 12% bracket. Federal tax = 10% × $24,800 + 12% × $76,000 = $11,600, or $10,820 more, about 11.6% on average. North Carolina adds about $3,711 at 3.99%.

Is it worth it? If RMDs and Social Security would later put them in the 22% or 24% bracket, every dollar converted now at about 12% is never taxed again. Converting up to the top of the 22% bracket is another option; it depends on the rate they expect later.

Knock-on effects to count

Medicare premiums (IRMAA): Part B and Part D premiums at 65 are based on income from two years earlier, so a large conversion at 63 can raise premiums at 65.

ACA premium credits: If you buy ACA coverage before 65, a conversion raises the income used for the credit and may reduce it.

Taxable Social Security: If you already collect Social Security, conversion income can make more of it taxable.

The senior deduction: For 2025 through 2028, people 65 and older get an extra $6,000 deduction each, phasing out above $150,000 joint or $75,000 single. Conversion income can reduce it.

The 3.8% net investment income tax: Conversion income isn't investment income, but it raises MAGI, making it easier for investment income to cross the $250,000 joint or $200,000 single threshold.

State tax

North Carolina taxes Roth conversions at 3.99% for 2026. If you plan to move to a state with no income tax, converting after the move may save the state tax, and federal law bars states from taxing nonresidents' retirement income. In the year you move, split the year at the move date.

Paying the tax efficiently

Pay from outside the IRA: That keeps the full conversion growing tax-free in the Roth.

Avoid withholding from the conversion: Withheld tax counts as a distribution and, before 59½, gets the 10% additional tax.

Estimated tax: For a large conversion, make quarterly estimated payments or increase withholding elsewhere to avoid an underpayment penalty. Withholding from an IRA distribution is treated as paid evenly through the year by default, so extra year-end withholding from an IRA can also fix a shortfall.

Other rules

Finish by December 31: There's no April 15 grace period for conversions.

Five years per conversion: Before 59½, the taxable part of each conversion has to stay five years to avoid the 10% tax when withdrawn. Conversions after 59½ aren't affected.

Once RMDs start: Take the year's RMD first; the RMD itself can't be converted.

The pro-rata rule: If you have nondeductible basis, conversions are taxed pro rata across all your traditional, SEP and SIMPLE IRA balances at year-end, reported on Form 8606.

For the full set of IRA rules, including choosing traditional or Roth, backdoor and mega backdoor Roths, conversions, early withdrawal exceptions, RMDs, inherited IRAs and cross-border status, see our guide to IRAs from first contribution to final withdrawal. To run your own numbers, book a free 15-minute call or add WeChat YCLUSA. YCL CPA doesn't sell financial products or manage investments; we get the tax right and the forms filed, and results depend on your facts and IRS rules.