Roth Conversion Now vs. Wait for RMDs

Two tax strategies. Same $820,000. Very different outcomes at 75.

Phil did everything his HR department told him. Max the 401(k). Get the match. Let it grow.

Nancy did the same.

Now they’re sitting on $820,000 in traditional retirement accounts. And for the first time in 35 years, their income is close to zero.

Phil retired last spring. Nancy stopped working in January. Social Security doesn’t start until 67. Their only income right now comes from what they pull out of savings to cover the bills.

Here’s what most people miss about this moment.

It’s the lowest their tax rate will ever be. Maybe the lowest it’s been since their twenties.

And it won’t last.

At 75, the IRS steps in. Required Minimum Distributions kick in. That’s the government telling Phil how much to pull out of his traditional IRA every year. Whether he needs it or not. And every dollar comes out as taxable income.

The question isn’t whether to pay taxes on that $820,000. They will. Every penny. The question is when. And at what rate.

That’s the matchup.

What the Data Reveals

Here’s a number that surprises most people.

A married couple filing jointly in 2026 can earn up to $57,000 before they pay a single dollar at the 12% rate. The first $24,800 of taxable income — after a $32,200 standard deduction — is taxed at just 10%.

That means Phil and Nancy, with no other income, could convert $57,000 from their traditional IRA to a Roth IRA and keep their entire federal tax bill under $3,000.

Effective rate on that $57,000: about 4.35%.

Now look at what happens if they wait.

Their $820,000, growing at a modest 6% per year, becomes roughly $1.75 million by the time Phil hits 75. Thirteen years of compound growth on money they never touched.

Sounds great. Until the IRS shows up.

The Uniform Lifetime Table says Phil must withdraw at least $71,100 that year, using a divisor of 24.6. Add roughly $52,000 in Social Security income. That’s $123,100 in gross income. After the standard deduction, about $90,900 is taxable.

Still in the 12% bracket. But barely.

By 80, the divisor shrinks to 20.2. The IRA has kept growing. RMDs push past $90,000. Social Security, with COLA adjustments, tops $58,000. Total income is north of $150,000.

Now they’re well into the 22% bracket. And every dollar over $100,800 in taxable income gets taxed at nearly double the rate they could have locked in a decade earlier.

That’s the window. Right now, Phil and Nancy can move money at 4.35%. Wait thirteen years, and the IRS moves it for them at 12% to 22%.

The gap between those rates, over 20 years of RMDs, adds up to somewhere between $50,000 and $80,000 in extra taxes. On the same money.

Option A

Option B

There’s a Medicare angle too. When modified adjusted gross income crosses $218,000 for a married couple, IRMAA surcharges kick in. Medicare Part B premiums jump from the standard $202.90 per month to $284.10 or higher, depending on how far above the line you land. That’s per person. For a couple, the extra cost adds up fast.

And here’s the angle most people never think about. Since 2020, the SECURE Act requires most non-spouse heirs to empty an inherited traditional IRA within 10 years. That means if Phil and Nancy leave a $1.2 million traditional IRA to their kids, those kids could face $120,000 or more per year in additional taxable income — during what are likely their peak earning years.

A Roth inheritance? Same dollars. Zero tax.

Behind the Numbers

Your Move This Week