Roth Conversion Plan Wealthy investors over age 60 use to liquidate their 401(k)s.

Let’s say a couple retires at 63 with $2 million in a traditional 401(k) and no RMDs for ten years. Their tax bracket is low, and that window is the most important tax planning opportunity they will ever have, leaving it unused is the most expensive mistake they can make.

A Decade That Defines Your Tax Bill During Recovery

Under SECURE 2.0, anyone born in 1960 or later doesn’t face required minimum withdrawals until age 75. (Those born in 1959 start at 73.) Couples who retire at 63 have about 12 years before the IRS takes money out of that $2 million account. In those years, the report has been steadily increasing in taxes. At a 6% annual return, $2 million becomes $4 million in 75 years. RMDs of that large amount will be substantial, and every dollar will be taxed as ordinary income.

A possible strategy is to use those low-income years to systematically convert 401(k) contributions to a Roth IRA, paying taxes now at manageable rates rather than later at higher rates that may apply when RMDs come due, although this sounds like it depends on whether your tax rate is lower than you expected in the future.

Building the Transition Ladder: Filling the Bracket Without Stepping on IRMAA

For married couples filing jointly in 2026, the 22% bracket covers the amount payable up to $211,400. The average income is $32,200, which means a married couple can have an income of up to $243,600 before entering the 24% bracket. Subtract $50,000 from the discretionary income, and the remaining flexibility is about $129,000 per year.

The biggest hurdle is IRMAA, and the IRMAA premium for married filing jointly starts at $218,001 of adjusted gross income, resulting in annual Medicare premiums of $1,148 per person ($2,297 per couple). Because IRMAA uses a two-year lookback, the change made in 2026 appears in the 2028 Medicare payments. Married couples must treat $218,000 as the hard ceiling on MAGI, not just taxable income.

With a MAGI ceiling of $218,000 and $50,000 in other income, the annual goal adjustment comes to $129,000. Over 10 years, that converts to about $1.29 million of the original $2 million. The remaining balance stays in a traditional 401(k) and will generate RMDs starting at 75, but those RMDs will be controlled rather than draining the account.

Why Taxes Now Over $160,000 RMD at 75

Converting $129,000 a year to a 22% to 24% flat rate costs about $31,000 in federal taxes each year. That’s real money, but think differently.

If the $2 million lump sum grows unchanged to $4 million over 75 years, the first year’s RMD in the IRS Uniform Lifetime Table factors for 75 years is about ~4% of the remaining amount, or $160,000. That $160,000 sits on top of the Social Security amount.

Once the combined income (adjusted gross income plus half of Social Security benefits) exceeds $44,000 for joint filers, up to 85% of Social Security benefits are paid. A couple earning $60,000 in Social Security could see $51,000 of what was suddenly considered regular income, pushing their effective rate above 30%. The conversion ladder eliminates much of this exposure by reducing the traditional 401(k) before RMDs begin.

The 5 Year Rule Most Early Retirees don’t realize it

Each Roth conversion has its own automatic five-year clock for penalty purposes. If you are under the age of 59½ and withdraw the converted amount within five years of the transition, the withdrawal will be subject to a 10% penalty (although no tax applies as you have already paid tax during the transition period). Withdrawals from a Roth IRA are tax-free and penalty-free only after the account has been open for five years and you have reached age 59½.

Changes made in 2026 are fully available, penalty-free, beginning in 2031. Changes made in 2027 open in 2032. Building the ladder first means that the first changes are available before the couple turns 70, providing a tax-free resource before Social Security and RMDs fully kick in.

Profits from accounts payable accounts are counted towards MAGI. A year with $30,000 in earned income squeezes the available transition area by the same amount, or pushes the couple over the IRMAA limit entirely. Combine the sale and turnover of assets in the same tax year.

Three Steps to Getting Started

1. Move numbers with a dedicated tool. Boldin (formerly NewRetirement) and other full retirement plans like ProjectionLab or RightCapital offer multi-year Roth conversion programs against IRMAA limits and Social Security taxes. (The i-ORP is a legacy tool that some still use, although it is no longer actively developed.) A session with any of these tools will help clarify how much to change from year to year to reduce lifetime taxes.
2. Install the MAGI ceiling before making any changes. Pull the previous year’s tax return, identify each source of income that counts toward MAGI (including capital gains distributions from principal investments), and calculate the remaining wiggle room. The initial IRMAA limit, which is currently about $218,000 for joint filers, although it changes annually for inflation, is an important factor to consider.
3. If your combined income already exceeds the first IRMAA limit, the complexity alone may justify meeting with a tax-only adviser who specializes in pension tax planning. The calculations for this level of balance are so complex that professional guidance is often considered.