Strategic Roth conversions: filling brackets before RMDs

For many retirees there's a golden gap: the years after the paycheck stops but before Social Security and required minimum distributions (RMDs) begin. Income plummets — sometimes to nearly nothing — while a large pre-tax 401k/IRA balance sits waiting to generate forced, taxable income later. Roth conversions in that gap let you choose to pay tax at today's low bracket instead of tomorrow's high one. Done systematically, it's one of the largest levers in retirement tax planning.

Why the math works

A conversion moves money from a traditional IRA to a Roth IRA, adding the converted amount to this year's taxable income. The bet is simple: convert when your marginal rate is lower than the rate you (or your heirs) would otherwise pay later. Left alone, big pre-tax balances compound into big RMDs — which can push a surviving spouse (filing single, with compressed brackets) or inheriting children (forced to drain the account within 10 years, often in their peak earning years) into rates far above what the gap years offer.

What conversions collide with

• ACA subsidies (pre-65): conversion income counts toward MAGI and can shred premium subsidies worth $10,000+/year. Often the right move is small conversions pre-65 and aggressive ones from 65 until RMDs.
• IRMAA (65+): Medicare premiums look back two years — a big conversion at 66 raises premiums at 68. Mind the cliffs; they're per-dollar cliffs, not gradients.
• Social Security taxation: conversions can drag more of your benefit into taxable income in the same year. Converting BEFORE claiming is cleaner — one more argument for delaying benefits.
• The tax payment itself: pay conversion tax from TAXABLE savings, not from the converted amount — paying from the IRA shrinks the tax-free result and can add penalties before 59½.
• State taxes: converting before moving from a no-tax state to a high-tax state (or after the reverse move) changes the math meaningfully.

A working playbook

1. Each December, estimate the year's income, then convert just enough to fill your chosen bracket ceiling (commonly the top of the 12%, 22%, or 24% bracket — pick based on your projected RMD-era rate).
2. Sequence the decade: modest conversions while on ACA subsidies, larger ones from Medicare age until Social Security starts, tapering as RMDs approach at 73–75.
3. Convert in-kind during market drawdowns — moving depressed shares converts 'more stock per tax dollar' and the recovery happens inside the Roth.
4. Remember conversions are irreversible (recharacterization was abolished in 2018) — convert in December when the year's income is nearly certain, or in tranches.
5. Rerun the plan annually. Brackets, balances, markets, and law all move; a conversion plan is a habit, not a document.

The bracket map you're filling

Judging whether it worked

A conversion plan needs a scoreboard, and the right one is simple: the effective rate you paid on converted dollars versus the marginal rate those dollars would have faced later. Project the later rate honestly — take the IRA balance, grow it to age 75, apply the first-year RMD divisor (roughly 4%), stack that income on Social Security and pensions, and read off the bracket. If Dana and Sam's untouched $1.6 million grows to $2.6 million, the first RMD alone is about $106,000 — landing on top of $70,000 of Social Security and pushing their marginal rate to 24–32%, before IRMAA surcharges and before one of them someday files single. Against that future, conversions at an effective 13% are a bargain, and even filling the 22% bracket clears the bar. The comparison also tells you when to stop: once this year's conversion would cost more than the projected future rate, the arbitrage is exhausted — park there and reassess next December.

Two refinements sharpen the plan. Widowhood math: after one spouse dies, the survivor faces the same income against single brackets and single IRMAA thresholds — roughly half the room. Couples with health asymmetries should convert more aggressively while both are alive and filing jointly. And heir math: children inheriting a traditional IRA must empty it within ten years, often during their own peak earnings; children inheriting a Roth get ten years of tax-free growth and owe nothing. If the account is likely to outlive you, the relevant tax rate isn't even yours — it's your kids', and it's usually higher.

Keep a one-page log of every conversion — date, amount, and the bracket it filled — both for the five-year-rule clock on each conversion and for next year's calibration.

The bottom line

The years between the last paycheck and the first RMD are a use-it-or-lose-it tax sale on your pre-tax balance. Fill low brackets deliberately each December, pay the tax from taxable cash, respect the ACA and IRMAA tripwires, and convert most aggressively in the window when nothing else is filling your brackets. A retiree who manages that decade well can quietly outperform decades of clever fund-picking — with a spreadsheet instead of a hot streak.