Why Roth conversions in low-income years are the biggest tax lever most people miss
The classic scenario: you retire at 62, pension + Social Security haven't started yet, and you're living off a taxable brokerage account for three years. Your ordinary income is near zero. That window is a once-in-a-lifetime chance to move traditional IRA money to Roth at a 10% or 12% rate, avoiding the 22–24% rate you'll face once RMDs kick in at 73.
Example: a retiree at 65 with $40,000 of Social Security (85% taxable = $34,000) and no other ordinary income has $14,475 of room before hitting the 12% bracket ceiling ($48,475 single for 2025). Converting $14,475 costs about $1,737 in federal tax — 12%. The same $14,475 pulled from a traditional IRA at age 75 when the retiree has $110,000 of income would cost $3,474 — 24%. Over a five-year ladder, that's $8,685 of tax saved per $72,375 converted.
The bracket-fill strategy
You don't convert "as much as possible" — you convert up to the top of your current bracket and stop. A married couple with $70,000 of taxable retirement income has $26,950 of room in the 12% bracket (the 12% MFJ bracket tops out at $96,950 of taxable income in 2025). Convert $26,950. Don't convert the next dollar — that dollar costs 22%, which is probably more than your future rate.
The planner above caps conversions at your target bracket ceiling automatically.
Five-year ladder example
Married couple, both age 63, retired. Traditional IRA: $450,000. Social Security deferred until 70. Cash cushion covers living expenses. Each year they convert $96,950 (top of the 12% MFJ bracket) for five years.
Year 1–5: Convert $96,950 × 5 = $484,750 total moved to Roth. Tax cost per year: about $11,157 federal (blended 11.5% since it spans 10% and 12%). Five-year total federal tax: $55,785, or 11.5% blended rate.
Alternative: leave the money in the traditional IRA, start RMDs at 73. Assume the IRA grows to $700K. RMDs plus Social Security push them into the 22–24% bracket. Total tax on the same money over a 20-year withdrawal window: $140K+. Net savings from the ladder: around $85,000 of federal tax over the rest of their life.
Watch the IRMAA cliff
A conversion adds to MAGI, which determines Medicare Part B and D premium surcharges two years later. 2025 IRMAA brackets for a single filer: under $106,000 MAGI = base premium. Cross into $106,000–$133,000 and Part B jumps from $185 to $259/month — an extra $888/year. The next tier ($133,000–$167,000) adds another $1,260. For couples, double the thresholds.
If you're 63+, stage conversions so MAGI stays just under an IRMAA breakpoint — or accept the surcharge knowingly. A $5,000 "extra" conversion that tips you into the next IRMAA tier effectively costs you 12% tax + $1,260 IRMAA = a 37% marginal rate. Don't do that accidentally.
Pro-rata rule for anyone with pre-tax IRA balances
If you have any pre-tax money in a traditional, SEP, or SIMPLE IRA, the pro-rata rule says every conversion is partially taxable based on the after-tax vs pre-tax ratio across all your IRAs combined. Convert $7,000 with a $93,000 pre-tax IRA sitting alongside and 93% of the conversion is taxable.
Workaround: roll the pre-tax IRA into your current employer's 401(k) (if it accepts rollovers-in). That clears Form 8606's denominator and makes the next conversion fully non-taxable (if from a non-deductible contribution) or cleanly taxable at your current rate.
Conversions must sit five years before tax-free withdrawal
Each conversion starts its own five-year clock. Convert $30,000 in 2025, and you can withdraw that $30,000 principal tax- and penalty-free starting January 1, 2030. Convert again in 2026 and that amount has its own 2031 release date.
This rule only matters if you're under 59½ at withdrawal. Over 59½ the conversion amount is free to withdraw immediately; only earnings on it are subject to their own five-year clock.
When NOT to convert
(1) You'll be in a lower tax bracket at withdrawal than you are now. High earner today, planning to retire in Florida on $60K? Don't convert at your 32% rate to save 22% later.
(2) You can't pay the tax from non-retirement money. Paying conversion tax from the IRA itself forfeits the benefit and creates an early-withdrawal penalty if you're under 59½.
(3) You'll need the money within five years and you're under 59½.
(4) You're chasing ACA premium subsidies. Conversions spike MAGI; ACA subsidies phase out sharply at 400% of federal poverty. A $20K conversion can cost $10K+ in lost subsidies.