Planning window open for IRA conversions for retirees
As we head into the fourth quarter of 2026 (hard to believe) there is still time for some tax planning related to provisions of the One Big Beautiful Bill passed in 2025. This new law opened a timely planning window for retirees, but the window right now is only four years long, so it’s good to be aware of the opportunities it affords.
For tax years 2025 through 2028, anyone 65 or older can claim a new $6,000 deduction, or $12,000 for a couple where both spouses qualify. This senior deduction is in addition to the expanded age-based standard deduction, and it applies whether the taxpayer itemizes or not. When all the age-related deductions are stacked together, a 65-plus couple filing jointly can now shelter roughly $47,500 of income before a single dollar gets taxed.
One planning window this hefty deduction opens is the opportunity to consider Roth IRA conversions this year, in 2027 and 2028. As a quick refresher on Roth IRA conversions. This tax maneuver enables taxpayers to move money from a taxable traditional IRA to a tax-free Roth IRA. The conversion itself is taxable in the year it occurs, but if correctly used the funds and future growth will never be taxed again.
To simplify the math related to this planning, suppose a retired couple has modest pension income and a traditional IRA they want to convert. In 2026, the 12% bracket for married filers runs from $24,800 to $100,800 of taxable income. Fill that bracket with a conversion and the federal tax is about $11,600, an effective rate just under 12%. This may be the lowest effective tax rate we may ever experience for retirees over the age of 65.
But the window is limited, and the expanded deduction is subject to a phase-out clause. The senior deduction shrinks by 6 cents for every dollar of modified adjusted gross income above $150,000 for joint filers ($75,000 single) and disappears entirely at $250,000 ($175,000 single). This makes the Roth conversion math somewhat of an artform and those who convert too aggressively risk reducing or losing the very deduction that made the conversion attractive. The art in this process is to size the conversion to land just under the phaseout while taking into account brackets and effective tax rates.
To me, this planning window is most attractive to retirees between the ages of 65 and 73. Those not yet subject to Required Minimum Distributions (RMD), which start at 73 for those born before 1960, and 75 for those born 1960 and after. The RMD definitely limits the amount of tax planning that can be done, as this mandatory income reduces income planning flexibility.
To add a little complication to the equation, however, retirees on Medicare, which should be everyone subject to the expanded senior deduction, also need to be mindful of not triggering a Medicare surcharge with the Roth IRA conversion.
The Medicare's income-related (IRMAA) surcharges kick in above $218,000 of MAGI for joint filers in 2026, and $109,400 for single filers. IRMAA is triggered on a two year look back basis, which means the Roth IRA conversion can be well into the rear-view mirror when this irritating surcharge shows up. No one likes getting a letter in the mail saying their Medicare costs are going up, so be very mindful of these income thresholds when doing Roth conversion math.
If not calculated accurately, the higher Medicare rates in two years means a Roth conversion that looks like 12% on paper can end up costing far more once if it triggers the IRMAA surcharge raising higher Part B and Part D premiums. While most retired couples (joint filers) won’t have a problem with this type of math, single taxpayers over 65 can much more easily trigger the lower IRMAA limit with Social Security, a moderate pension and some investment income, so make sure the planning math leaves a little room for unexpected investment income that can breach the IRMAA limit, such as interest from the bank, dividends, and mutual fund end-of-year distributions.
I wish I could say there were some good online calculators to help with this planning, but candidly the calculations require some income assumptions and some trial and error to dial in the Roth conversion amount for greatest benefit without triggering unintended consequences. If seniors intending to explore this type of planning, I strongly suggest consulting a financial advisor and/or tax advisor to help dial in the math.
This being said, the tax code just handed retirees a four-year window to move money from pre-tax to Roth at historically favorable rates. With some awareness and proactive planning, this temporary window may end generating tax benefits for retirees and perhaps even their heirs down the road.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific tax or legal issues with a qualified tax advisor or attorney.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Stock investing includes risks, including fluctuating prices and loss of principal. No investment strategy can guarantee a profit or preserve against loss. Past performance is not a guarantee of future results. This material may contain forward looking statements; there are no guarantees that these outcomes will come to pass.
Marc Ruiz is a wealth advisor and partner with Oak Partners and registered representative of LPL Financial. Contact Marc at marc.ruiz@oakpartners.com.
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