004 - Your Tax Bracket Is Not a Roth Conversion Strategy

“We’re in the twenty-two percent bracket, so we should convert as much as possible.” That sentence sounds precise. It contains a number, a rule, and an action. It is also an incomplete retirement strategy. A tax bracket tells you the federal rate that applies to the next dollar of taxable income, subject to the full calculation. It does not tell you how many dollars to convert, whether the tax should be paid now, or what the converted money would otherwise have done for your family. A Roth conversion generally moves money from a traditional retirement account into a Roth account. The taxable portion is included in income for the conversion year. In exchange, future qualified Roth distributions can be tax-free, subject to applicable rules, and Roth IRAs generally do not require lifetime minimum distributions for the original owner. Those are meaningful features. But a feature is not a reason to act without considering the price. A real number is better than a tax-bracket slogan Take a hypothetical married couple filing jointly in 2026. Assume their taxable income before any Roth conversion is $190,000, after applicable deductions. The IRS’s published 2026 federal brackets put the top of the twenty-two percent bracket at $211,400 for married joint filers, with the twenty-four percent bracket above that level. A $60,000 fully taxable conversion would use $21,400 of space in the twenty-two percent bracket and push $38,600 into the twenty-four percent bracket. Ignoring other tax interactions, that is approximately $13,972 of additional federal income tax: $4,708 plus $9,264. State income tax, changes in deductions, Social Security taxation, and other effects may alter the actual result. The couple could choose $20,000, $40,000, $60,000, or zero. The bracket table does not choose for them. They need to ask whether paying that additional tax creates enough future value to justify the immediate reduction in available resources. If the tax comes from money outside the IRA, the comparison differs from a conversion where taxes must be withheld from retirement assets. If the family needs the cash for near-term expenses, the opportunity cost differs again. The year you retire is not necessarily the year you should convert Many people picture a clean sequence: work until sixty-two, retire, convert money for five years, claim Social Security, and then coast. Actual retirement is rarely so tidy. A bonus may arrive after employment ends. Restricted stock may vest. A spouse may continue working. A home sale can create a taxable gain. A large charitable contribution may change the calculation in the other direction. The household’s tax profile may not settle immediately when the paycheck stops. A more useful question is, “What does the entire income calendar look like?” That means mapping expected wages, pensions, dividends, interest, capital gains, Social Security, planned withdrawals, and potential one-time events by year. The Roth conversion amount is then a decision inside that calendar, not a separate project. A year with unusually low taxable income may be attractive. A year with a large capital gain or a delayed bonus may not be. The plan should also recognize that future tax law is uncertain, so projected benefits are scenarios rather than promises. Medicare can turn a tax decision into a healthcare decision Here is where many well-intentioned conversion conversations become too narrow. Higher-income Medicare beneficiaries may pay income-related adjustments on Parts B and D. The premium calculation generally uses modified adjusted gross income from a tax return two years earlier. For someone who converts at sixty-four and enrolls in Medicare around sixty-five, the timing deserves attention. A conversion can create a higher income year that shows up in a later premium determination. The exact thresholds and costs depend on the applicable year and filing status; they should be checked rather than memorized from a video. There is also an important distinction between a temporary retirement-related drop in income and a voluntary Roth conversion. Social Security provides a process for asking to reduce an income-related premium adjustment after qualifying life-changing events such as retirement or the death of a spouse. That process should not be assumed to erase the effect of every conversion. Before moving money, understand both the income calculation and the available relief rules. The survivor is part of the tax calculation Imagine two spouses who expect to enjoy twenty years of joint retirement. Their plan looks reasonable when modeled with joint tax brackets and two Social Security checks. But eventually one spouse may be filing as a single taxpayer, receiving one higher eligible Social Security benefit rather than both combined, and managing essentially the same retirement account balance. Certain expenses fall, but not necessarily in proportion to income. A strategy that appears unnecessary at today’s joint rate might reduce future flexibility risk for the surviving spouse. Conversely, paying a large tax bill today could leave the household with too little liquid cash when that spouse needs it. The point is not that everyone should convert for the survivor. It is that the survivor’s likely tax and income position belongs in the comparison. An account balance is not the same thing as spendable after-tax wealth, and the person who inherits the decisions may have fewer options than the couple has today. The hidden assumption: tomorrow’s tax rate A Roth conversion is partly a bet about the value of paying taxes now rather than later. But “taxes will definitely be higher” is not an analysis. Your future effective rate may differ because of filing status, the size of required withdrawals, other income, deductions, state residence, and legislative changes. The better approach compares several plausible paths. What if future rates are similar? What if the surviving spouse faces a higher marginal rate? What if the portfolio grows less than expected? What if money is needed sooner? A robust decision should make sense under more than one forecast. There is another constraint: conversions from traditional IRAs to Roth IRAs generally cannot be undone by recharacterization under the post-2017 rules. A conversion is therefore not the kind of experiment you casually reverse after seeing the final tax return. It deserves coordination with a qualified tax professional, especially where large balances, complex deductions, and Medicare premiums intersect. A decision framework, not a conversion target Before choosing an amount, write down five answers. First, what future problem are we trying to reduce: required withdrawals, survivor taxes, flexibility, or inheritance? Second, what is the all-in cost of converting this year, including federal and state taxes and relevant income-based effects? Third, where does the money to pay that tax come from? Fourth, what alternative uses of that cash are being given up? Fifth, what changes in the plan if we convert nothing this year? Only then does it make sense to compare a series of conversion amounts across several years. A carefully chosen zero can be a decision. A modest conversion can be a decision. A larger conversion can be a decision. “Fill the bracket because the bracket is there” is not one. The deeper retirement question is not whether Roth is a good account. It is how much control you want over the timing and character of future income—and what price you are willing to pay for that control today. My free guide, 15 Retirement Decisions, helps organize those questions before you move money. Find it at BitesizeRetirement.com. Source notes and assumptions IRS: 2026 federal tax brackets and standard deductions IRS: Roth IRA conversion and recharacterization rules Medicare: 2026 Part B premium income lookback SSA: Request to lower IRMAA after a qualifying life-changing event IRS: Required minimum distribution FAQs Examples are hypothetical and simplified for… This is a public episode. If you would like to discuss this with other subscribers or get access to bonus episodes, visit bitesizeretirement.substack.com