Should You Do Roth Conversions Before You Retire? A Multi-Year Tax Planning Approach
- MORRIS & ASSOCIATES, LLP -CPAs
- Jun 4
- 5 min read
The years between retirement and your first Required Minimum Distribution (aka RMD) can be one of the most valuable tax planning windows of your life. For high earners with significant traditional IRA or 401(k) balances, this window is often the difference between paying tax at 24% now or 32% later, while also paying potentially tens of thousands more in Medicare IRMAA surcharges in your seventies and eighties.
The strategy is called Roth conversion. Many people know about it, but the execution is the part most people get wrong.
What is a Roth Conversion?
A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. The amount converted is added to your taxable income for that year and you pay tax on it in the same year. In exchange, that money grows tax-free for the rest of your life and is not subject to Required Minimum Distributions at age 75.
For someone in their peak earning years, conversions usually do not make sense. You are already in a high bracket, and adding more income makes the tax bill worse. The opportunity opens up in early retirement, when your wage income has stopped but your Social Security and RMDs have not yet started. For many high earners, this creates a five to ten year window where their marginal tax rate drops meaningfully below where it will be once RMDs begin.
Why Multi-Year Planning Matters
A single-year Roth conversion analysis does not paint the full picture. The real question is not "should I convert this year" but "how should I sequence conversions across the next five to fifteen years to minimize lifetime tax."
That question requires modeling several variables together:
Your projected income from rentals, pensions, deferred compensation, and Social Security across every year of the projection
Any income from brokerage sales or dividend income
Your future RMDs based on traditional IRA growth between now and age 75
Federal tax bracket interactions year by year
State tax (which often does not behave the same as federal)
Medicare IRMAA surcharges, which use a two-year income lookback and come in tiers, not a smooth phase-in
Any large one-time income events like the sale of a rental property or a business
We help you map out several scenarios over 30 years with different conversion sizes to find the right answer for the specific client, instead of applying a generic rule of thumb.
Cash Flow Considerations
One important thing to flag! Roth conversions are not free. The amount you convert is added to your taxable income that year, which means a real tax bill has to be paid in cash. For a considerable conversion in the 24% federal bracket, that bill can run into the tens of thousands of dollars per year. The cash to pay it has to come from outside the IRA, otherwise it defeats the purpose, since those dollars also become taxable income. The best sources are typically liquid, already-taxed accounts: cash savings, money market balances, or a brokerage account held at high cost basis where sales generate minimal additional capital gains.
This is why we have to look at cash flow as part of the conversion analysis. A conversion strategy that is mathematically optimal but cannot actually be funded from your liquid resources is not a strategy you can execute.The right conversion size for any client sits at the intersection of three constraints: the tax math, the funding capacity, and the client's own comfort with the size of the annual tax bill they are willing to absorb.
A Recent Engagement: What the Numbers Showed
In one recent engagement for a high-earning couple preparing to retire in 2028, we modeled six different Roth conversion strategies across a 30-year projection horizon. The strategies ranged from no conversion at all, a conservative phased approach, and up to a maximum strategy that filled the 24% bracket every year for six years.
Here are some of the takeaways:
More aggressive was not always better, but the optimal was more aggressive than initial intuition. Our first instinct was a moderate strategy. After running the sensitivity analysis, the data showed that a larger annual conversion captured tens of thousands of additional lifetime tax savings, with the optimal sitting near the top of the 24% bracket. Going higher than that pushed into 32% territory where the math reversed.
IRMAA was a larger factor than expected. Without any conversion, this couple would have triggered the worst Medicare IRMAA tier in their seventies, costing them roughly $114,000 in cumulative Medicare surcharges. Strategic conversions in their pre-Medicare years brought that down to a fraction of the original number, saving between $68,000 and $99,000 in IRMAA alone, depending on the strategy selected.
The principal residence exclusion mattered enormously. This couple was also planning to sell a property they had previously rented. By documenting their position carefully under Section 121, we sheltered the appreciation portion of the gain from federal capital gains tax entirely, while modeling the Section 1250 depreciation recapture (which Section 121 does not cover) as a one-time event we paused conversions around.
The total projected lifetime tax savings across the three viable strategies ranged from roughly $350,000 to $430,000.
What This Kind of Planning Cannot Be Reduced To
Online Roth conversion calculators are useful for a rough order of magnitude. They are not useful for actually deciding what to do. The reason is the right answer is sensitive to dozens of inputs that are specific to your situation, and the inputs interact with each other in ways that are not intuitive.
A few examples of factors a calculator might miss:
The Medicare two-year income lookback, which means a conversion you do in 2028 affects your 2030 IRMAA
The interaction between rental property depreciation recapture and your bracket room
State tax treatment, which often differs from federal in ways that change the optimal conversion size
The fact that each year's conversion is its own decision, so flexibility to adjust based on what actually happens has real value
Charitable giving plans, which can be a tax-efficient alternative or complement to conversions
At the end of the day, life happens and we are not fortune tellers. The further out the projections goes, the less accurate the forecast is likely to be. This is why we do conversion planning as a multi-year advisory engagement rather than as a one-time calculation. The plan is reviewed and refreshed each November before the year of conversion, incorporating current account balances, realized income for the year, and any tax law changes.
Tax brackets, IRMAA thresholds, account balances, and your own life circumstances all shift year to year, partnering with a CPA who knows your full financial picture is what will keep small things from becoming costly mistakes.
Who Benefits Most From This Kind of Planning
Roth conversion planning tends to pay off most for clients who share some of the following characteristics:
High traditional IRA or 401(k) balances (typically $1 million or more)
A retirement date that opens up a low-income window before Social Security and RMDs begin
Sufficient liquid resources outside the retirement accounts to fund the conversion tax bill
A long time horizon for the Roth balance to compound tax-free
Desire to leave wealth to heirs in a tax-efficient form
If some of these apply to you or someone you know, the planning conversation is worth having well before the actual retirement year.
Working With Us
At Morris and Associates, we are actively growing our tax planning and advisory practice for small business owners and other professionals navigating major financial transitions, including retirement, business sales, and equity events.
If multi-year Roth conversion planning is something you have been thinking about but have not been sure how to approach, we would welcome a conversation. We work with a small number of clients each year so we can give each engagement the depth this kind of analysis requires.
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