The Golden Window: Should You Consider Roth Conversions Before RMDs?
You've spent decades thinking about how much money to save for retirement. But have you given the same attention to when you'll pay taxes on those savings?
Imagine retiring at 62. Your regular paycheck has stopped, Social Security hasn't started, and the retirement accounts you've built over the years are still invested. For the first time in decades, your taxable income may be considerably lower than it was while you were working. What you may not realize is that the years between your last paycheck and your first required minimum distribution could offer an opportunity to make important decisions about future retirement taxes.
Some financial professionals refer to this as a retirement tax planning window. You might also think of it as the Golden Window. It isn't a special tax break, and it doesn't exist for everyone. But for some retirees, understanding this period can be an important part of evaluating Roth conversions and other retirement income decisions.
What Makes the Golden Window Different?
Retirement income often changes through three stages. During your working years, wages may represent a significant portion of your taxable income. Contributions to traditional retirement accounts may provide current tax benefits while generally allowing investment earnings to grow tax deferred.
During early retirement, employment income may decrease or stop. Depending on your pensions, investments, and other income sources, you could find yourself in a different tax bracket. This may create an opportunity to evaluate voluntary retirement withdrawals or Roth conversions.
Later in retirement, Social Security, pensions, and required minimum distributions (RMDs) can affect your taxable income. Under current law, RMDs generally begin at 73 for individuals in the applicable birth-year ranges. Certain workplace retirement plans have exceptions.
This is why the Golden Window doesn't necessarily begin at a particular age or end when RMDs begin. Its timing depends on your retirement date, birth year, income sources, and individual circumstances. It's worth considering what your taxable income might look like during the first several years after you stop working, particularly if your employment income changes significantly.
If you've recently left an employer, understanding your retirement account choices is also important. Our article, What Happens to Your [Retirement Plan] When You Change Jobs?,
explains several options worth evaluating.
What Is a Roth Conversion, and Why Does Timing Matter?
A traditional IRA generally contains money on which income taxes have been deferred. Withdrawals of previously untaxed amounts are usually subject to ordinary income tax. A Roth IRA works differently. Contributions generally use money that has already been taxed, and qualified withdrawals can be free from federal income tax. Roth IRAs also have no required minimum distributions during the original owner's lifetime.
A Roth conversion moves eligible retirement funds from a traditional account into a Roth IRA. When you convert previously untaxed money, you generally owe income tax on the converted amount in that year. In exchange, you may receive different tax treatment on qualified withdrawals in the future.
Think of it as deciding whether to recognize some taxable retirement income today instead of potentially recognizing it in a later year. The challenge is that future tax rates, investment values, and financial needs cannot be predicted with certainty. A Roth conversion isn't automatically beneficial. The decision depends on the current tax cost, potential future advantages, and how the conversion fits your overall financial picture.
Qualified Roth IRA distributions generally require meeting the applicable holding-period requirement and an additional qualifying condition, commonly reaching the applicable age threshold. Separate rules can apply to amounts converted from traditional accounts. Another important consideration is that Roth conversions completed under current law generally cannot be reversed through recharacterization.
Why Might a Multiyear Roth Conversion Plan Be Worth Exploring?
One of the most useful retirement tax planning concepts is that decisions made in one year can affect several years that follow. Because Roth conversions generally increase taxable income, converting a large amount in one year may move some income into higher tax brackets. Spreading conversions across several years is one alternative to evaluate, although doing so is not automatically preferable.
Consider a hypothetical married Nebraska couple, both age 62, who recently retired. Assume they have $45,000 in annual income from taxable pension payments and interest, with no wages or Social Security benefits yet. They want to compare converting $100,000 from a traditional IRA to a Roth IRA in one year with converting $20,000 annually over five years.
Under a simplified assumption that their other income and tax rules remain unchanged, the first approach places substantially more income on one year's tax return. The second spreads that income across multiple years, potentially allowing more of it to fall within lower marginal tax brackets. However, that doesn't necessarily mean the second approach will result in less total tax.
Investment growth, changes in tax law, future income, the timing of tax payments, and Medicare premiums could all influence the outcome. These figures are hypothetical and are not recommended conversion amounts. A thoughtful multiyear review would also consider Social Security timing, projected RMDs, available cash to pay taxes, and expected retirement spending.
The goal is not simply to convert as much as possible. It's to understand whether a conversion, including its timing and size, makes sense for your individual circumstances.
How Does Social Security Timing Affect Roth Conversions?
Social Security is another important part of the retirement tax planning picture. Eligible individuals can generally begin retirement benefits at the applicable early-claiming age, although claiming before full retirement age results in a reduced monthly benefit. Delaying beyond full retirement age can increase benefits until the applicable maximum delayed-claiming age.
For someone who hasn't started Social Security, the years before claiming benefits may create a different taxable income picture than later years. Once benefits begin, a portion may be included in federal taxable income, depending on the household's combined income and filing status. A Roth conversion can increase that income calculation, potentially causing a larger portion of Social Security benefits to become taxable.
That doesn't mean delaying Social Security is always preferable. Health, household income needs, life expectancy, and spousal considerations all matter. The more useful approach is to evaluate Social Security and retirement account decisions together rather than independently.
We explain this relationship further in Could IRA Withdrawals Make More of Your Social Security Taxable?.
Could a Roth Conversion Increase Your Medicare Premiums?
Medicare premiums are one of the more easily overlooked considerations in Roth conversion planning. Some Medicare beneficiaries pay higher premiums for Parts B and D because of their income. These additional amounts are called Income Related Monthly Adjustment Amounts, commonly known as IRMAA.
Medicare generally uses income information from an earlier tax year when determining whether these charges apply. For 2026, the standard Medicare Part B premium is $202.90 per month. Higher income-related premiums generally begin when the relevant modified adjusted gross income exceeds $109,000 for individual filers or $218,000 for married couples filing jointly.
A conversion completed before Medicare eligibility could therefore affect Medicare premiums once coverage begins. These income thresholds operate in tiers, meaning that exceeding a threshold can increase applicable premiums even when the additional income above the threshold is relatively small.
A Roth conversion that appears reasonable from an income tax perspective may have additional costs when Medicare premiums are considered. That isn't necessarily a reason to avoid the conversion, but it illustrates why the full financial implications deserve consideration before making a decision.
What About Required Minimum Distributions?
Required minimum distributions generally require owners of traditional IRAs and certain retirement accounts to withdraw minimum amounts annually once the applicable starting age is reached. These withdrawals generally create taxable income to the extent they represent previously untaxed funds.
For individuals with substantial traditional retirement accounts, RMDs can become an important part of their future income and tax picture. A Roth conversion completed before RMDs begin may reduce the amount remaining in traditional retirement accounts. However, future investment performance and withdrawal decisions influence the eventual result.
Once RMDs begin, the required distribution for that year must generally be satisfied before additional eligible amounts can be converted. The RMD itself cannot be converted.
For a broader discussion of retirement withdrawals, see Your Retirement Withdrawal Rate Is Not Set for Life.
A Nebraska Tax Consideration
Nebraska residents should evaluate state income taxes alongside federal taxes. Beginning with tax year 2024, Nebraska provides a full subtraction for Social Security benefits included in federal adjusted gross income. Those benefits are therefore excluded from Nebraska taxable income under the applicable rules, although federal Social Security taxation remains a separate consideration.
Traditional IRA withdrawals and taxable Roth conversions generally remain part of Nebraska's income tax calculation unless a specific adjustment applies. Nebraska's income tax rates have also been changing, which may affect the state tax cost of recognizing income in different years.
This doesn't mean a Roth conversion is automatically more or less attractive for Nebraska residents. It means both federal and state tax consequences deserve consideration when evaluating the timing of retirement account withdrawals or conversions.
Could New Tax Deductions Affect the Calculation?
Tax deductions can also influence retirement income decisions. For the applicable tax years, eligible taxpayers who meet the age requirement may qualify for an additional federal deduction of up to $6,000 per person, or $12,000 for a married couple when both qualify.
The deduction begins phasing out when modified adjusted gross income exceeds $75,000 for single filers or $150,000 for married couples filing jointly. Because a Roth conversion can increase modified adjusted gross income, it may affect eligibility for income-sensitive deductions.
This is another reason to review the tax consequences of a conversion rather than focusing only on ordinary income tax brackets. Tax provisions change, and the rules applicable to a particular year should always be confirmed.
When Might a Roth Conversion Not Make Sense?
Roth conversions are not appropriate for every retiree. If your current marginal tax rate is relatively high compared with what you anticipate in future years, recognizing additional income today may be less attractive.
A conversion could also increase Medicare premiums, affect other income-based benefits or deductions, or require using retirement savings to pay the resulting tax. Using IRA funds for conversion taxes reduces the amount transferred to the Roth and may create additional tax consequences.
Other considerations include how soon you expect to need the money, charitable giving plans, estate planning objectives, and the financial needs of a surviving spouse. For married couples, the potential future tax situation of a surviving spouse can deserve particular attention because filing status, income tax brackets, and Medicare thresholds may change after the death of a spouse.
These considerations reinforce an important principle. The objective isn't to pursue a Roth conversion simply because the opportunity exists. It's to evaluate whether the potential advantages justify the current costs and possible future tradeoffs.
Looking Beyond a Single Tax Year
Retirement accounts don't exist in isolation. Your retirement date affects employment income. Social Security timing influences cash flow and potentially federal taxes. Roth conversions affect taxable income and may influence Medicare premiums, while required minimum distributions introduce another consideration later in retirement.
Looking at these decisions separately can miss how they interact. A comprehensive retirement planning process considers income needs, investments, taxes, healthcare costs, charitable intentions, and family priorities together.
At Garnett Investment Strategies, we believe retirement planning should begin with understanding the individual rather than selecting financial products. As a locally owned, independent Registered Investment Advisor based in Beatrice, Nebraska, we emphasize personalized planning, clear communication, and fiduciary responsibility in our investment advisory services.
Are You Approaching Your Retirement Tax Planning Window?
If you're approaching retirement or have recently stopped working, this may be a useful time to review how your retirement income, Social Security benefits, and future required distributions fit together. The years between your final paycheck and the beginning of RMDs may present planning choices worth evaluating, including whether partial Roth conversions deserve consideration.
At Garnett Investment Strategies, we welcome the opportunity to learn about your retirement timeline, discuss the questions worth exploring, and explain how our planning process works alongside your qualified tax professional.
Contact Garnett Investment Strategies to Start a Conversation
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