The Best Roth Conversion Strategy in 2026 | The Limitless Retirement Podcast

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Danny Gudorf discusses the intricacies of Roth conversions, emphasizing the importance of understanding when and how to convert pre-tax retirement accounts into Roth accounts. He outlines the potential tax implications, the significance of timing, and the impact of income thresholds on Medicare premiums. Gudorf also highlights the necessity of integrating Roth conversions into a broader retirement strategy, ensuring that retirees use their savings effectively while managing tax liabilities.

The Roth Conversion Decision That Could Shape Your Retirement Tax Bill

If you have $1 million or more in pre-tax retirement accounts, one of the biggest tax decisions you may be making right now is doing nothing.

Leaving your IRA or 401(k) untouched can feel like the conservative choice. The money stays invested, taxes remain deferred, and you avoid writing a large check to the IRS today.

But there’s a catch.

Eventually, required minimum distributions (RMDs) can reduce your ability to control when that money becomes taxable. And by the time those distributions begin, some of your most attractive years for Roth conversions may already be behind you.

That doesn’t mean everyone with a large IRA should rush into a Roth conversion.

It means you need to answer a more important question:

Would you rather voluntarily pay tax at a potentially favorable rate today—or risk being forced to recognize that income at a potentially higher rate later?

That distinction can make a significant difference in your retirement tax strategy.

A Roth Conversion Isn’t Automatically a Tax-Saving Strategy

The mechanics of a Roth conversion are relatively straightforward.

You move money from a pre-tax retirement account, such as a traditional IRA, into a Roth IRA. The amount converted is generally included in your taxable income for that year.

In exchange, qualified Roth IRA withdrawals can be tax-free in the future.

But simply moving money into a Roth doesn’t automatically make the conversion worthwhile.

The real question is the tax rate you’re paying today compared with the tax rate you may face later.

If you can voluntarily recognize income today at a lower rate than you reasonably expect those dollars to face later, the argument for converting becomes stronger.

If you expect to pay a lower rate later, converting today may be harder to justify.

That’s why account size alone doesn’t determine whether you should convert.

Your Social Security benefits, pension income, investment income, deductions, marital status, future RMDs, Medicare costs, and other circumstances can all influence the decision.

The $2.2 Million IRA Problem

Consider a couple with approximately $2.2 million combined in pre-tax retirement accounts.

By the time their RMDs begin, projections suggest they could be required to withdraw around $85,000 per year from those accounts.

And that’s before adding Social Security and a small pension.

While both spouses are alive and filing a joint tax return, the income may be manageable.

But what happens after one spouse dies?

The surviving spouse could still have:

  • Most of the IRA assets
  • The larger Social Security benefit
  • Pension income
  • Investment income

Yet the survivor may eventually file taxes using the narrower single-filer tax brackets.

This is sometimes referred to as the widow’s tax penalty.

The assets may not suddenly disappear when one spouse dies, but the tax environment surrounding those assets can change significantly.

That is one reason Roth conversion planning often begins well before RMDs.

Your RMDs Can Affect More Than Your Tax Bracket

Future RMDs aren’t simply another source of taxable income.

They can interact with several other parts of your retirement.

Higher taxable income may potentially:

  • Cause more of your Social Security benefits to become taxable
  • Increase Medicare premiums
  • Push additional income into higher federal tax brackets
  • Reduce certain income-based deductions or tax benefits

This is why Roth conversion planning should rarely be viewed as a one-year decision.

You’re trying to determine whether voluntarily paying tax today could reduce taxes—or other income-related costs—you might otherwise face later.

And one period deserves particular attention.

Your “Gap Years” Could Be a Valuable Tax-Planning Window

For many retirees, there is a window between their final paycheck and the beginning of RMDs.

These are sometimes called the gap years.

Your salary has stopped.

You may not have started Social Security.

RMDs may not have begun.

As a result, your taxable income could temporarily be lower than it was during your working years—and lower than it may become later in retirement.

That can create an opportunity to intentionally recognize income through Roth conversions.

Instead of asking:

“How much can I convert?”

A more useful question may be:

“Which tax brackets make sense for me to intentionally fill this year?”

That subtle shift changes the entire conversation.

Think About Roth Conversions Like a Traffic Light

One way to think about Roth conversion decisions is with a simple traffic-light framework.

Green Light: Lower Tax Brackets

This is the range where you may be able to convert money while remaining in a relatively low federal tax bracket.

For some retirees, intentionally filling available room in a lower bracket may be attractive if projections indicate those same dollars could otherwise face higher rates later.

But remember: taxable income and gross income are not the same thing.

Deductions can affect how much total income you can recognize before reaching the next tax bracket.

Yellow Light: Proceed Intentionally

Moving into higher brackets isn’t automatically a mistake.

In certain situations, deliberately paying a higher rate today may make sense if doing so is projected to reduce exposure to an even higher rate later.

For example, paying 22% today might potentially be reasonable if projections suggest those dollars could otherwise face a materially higher rate in the future.

The important word is intentionally.

You don’t want a conversion accidentally pushing income higher without understanding the long-term tradeoff.

Red Light: Run the Numbers Carefully

As conversions become larger, the decision becomes more complicated.

You’re no longer evaluating income taxes alone.

Additional income can affect Medicare premiums and certain deductions while potentially creating other unintended consequences.

There may still be situations where a larger conversion makes sense—such as reducing substantial future RMDs, planning for a surviving spouse, or managing the tax characteristics of an inheritance.

But the justification should become stronger as the immediate tax cost increases.

Watch the Medicare IRMAA Thresholds

One of the most commonly overlooked Roth conversion considerations involves Medicare.

The Income-Related Monthly Adjustment Amount, or IRMAA, can increase Medicare Part B and Part D premiums when income exceeds applicable thresholds.

And there’s another wrinkle:

Medicare generally uses income from two years earlier when determining these adjustments.

That means a Roth conversion completed today could potentially affect Medicare premiums two years later.

IRMAA also doesn’t behave exactly like a traditional marginal tax bracket.

Crossing an applicable threshold can move your Medicare premiums into a higher tier.

Does that mean you should never cross an IRMAA threshold?

No.

Paying higher Medicare premiums temporarily could potentially make sense if the projected long-term tax benefit from a conversion is greater.

But again, the goal is to cross a threshold intentionally rather than accidentally.

Another Threshold Retirees Shouldn't Ignore

Current tax law also provides an additional deduction for certain qualifying taxpayers, subject to income limitations and phaseouts.

That matters because a Roth conversion increases income.

A sufficiently large conversion could therefore create taxable income while simultaneously reducing an income-based deduction.

This illustrates why a Roth conversion strategy shouldn’t simply be created once and repeated indefinitely.

Your income can change.

Your deductions can change.

Medicare thresholds can change.

Tax laws can change.

A conversion amount that looked reasonable at the beginning of the year may no longer be appropriate several months later.

Where Should the Money to Pay the Tax Come From?

Suppose you decide to convert $100,000 from a traditional IRA to a Roth IRA.

You still have to pay the associated income tax.

Where that tax money comes from matters.

If you have sufficient cash, savings, or taxable assets available, paying the tax from outside the IRA may allow the entire converted amount to remain in the Roth.

If part of the IRA distribution is withheld for taxes, less money ultimately makes it into the Roth.

Using outside assets isn’t free—the cash you use to pay taxes is no longer available for another purpose.

But it can allow more of the converted retirement money to remain inside the Roth, where qualified distributions may eventually be tax-free.

For people under age 59½, using retirement funds to cover the tax may also introduce potential early-distribution penalty considerations unless an exception applies.

Why January May Be Too Early to Make the Entire Decision

Imagine deciding on January 2 that you’re going to convert $100,000.

You complete the entire conversion.

Then the rest of the year happens.

Perhaps you receive consulting income.

Maybe an investment generates an unexpected capital gain.

Perhaps you sell property.

Suddenly, the tax projection you created in January no longer resembles your actual tax return.

One approach is to consider conversions in stages.

You might convert part of the intended amount earlier in the year, then update your tax projection later—once your actual income picture becomes clearer.

That can give you an opportunity to determine whether an additional conversion makes sense before the year-end deadline.

Roth Conversions Aren’t the Only Way to Reduce a Large IRA

Here’s where retirement planning can become overly focused on taxes.

A Roth conversion isn’t the only way to reduce the balance of a traditional IRA.

You can also spend the money.

Or potentially use distributions as part of a gifting strategy.

Those choices have very different financial consequences, but each can reduce the amount remaining in a traditional IRA.

And sometimes retirees become so focused on finding the mathematically perfect conversion strategy that they forget why they accumulated the money in the first place.

Your IRA isn’t just a number on a statement.

It represents choices.

Maybe it allows you to retire earlier.

Maybe it funds experiences with your family.

Maybe you want to help your children while you’re still here to see the impact.

Maybe leaving the largest possible account balance was never actually your goal.

Don’t Let Tax Optimization Become the Goal

One retired engineer came into a planning meeting with spreadsheet after spreadsheet outlining Roth conversions for the next 12 years.

Every year was mapped.

Every bracket had been calculated.

Then he was asked a different question:

What does wealth actually mean to you?

His answer wasn’t about tax brackets.

He talked about helping his children get a head start.

He talked about trips he and his wife had wanted to take but continued postponing.

He realized he had begun treating his IRA as a number that always needed to grow rather than money designed to support the life he wanted.

His plan changed.

He still completed some Roth conversions, but he scaled them back and began using more of his money for the things that mattered to him.

That may be the most important Roth conversion lesson of all.

The goal of retirement planning isn’t necessarily to die with the lowest possible tax bill or the highest possible account balance.

The goal is to use your resources intentionally while managing taxes and risks along the way.

A Better Roth Conversion Framework

Rather than asking whether Roth conversions are “good” or “bad,” consider five questions:

  • What tax rate would you voluntarily pay today compared with the rate you may reasonably face later?
  • Do you have lower-income gap years before RMDs begin?
  • Could additional income affect Medicare premiums, deductions, or other tax considerations?
  • Do you have outside funds available to cover the conversion tax?
  • Most importantly, does converting support what you actually want your retirement assets to accomplish?

There is no universal Roth conversion number.

The appropriate strategy depends on your specific financial and tax circumstances and should be reviewed as those circumstances change.

Want to See What Your Retirement Tax Picture Could Look Like?

If you have substantial retirement savings and are preparing for retirement, understanding your future RMDs and tax exposure can help you make more informed decisions today.

Watch the full video to see the Roth conversion framework in greater detail and learn which retirement tax mistakes could be hiding in your current plan.

Conclusion

A large pre-tax retirement account can be a tremendous asset, but tax deferral doesn’t mean tax elimination.

Eventually, decisions have to be made about when and how those dollars become taxable.

The opportunity with Roth conversions is the ability to potentially exercise more control over that timing.

But the biggest mistake may be treating the strategy as a simple formula.

Tax brackets matter. RMDs matter. Medicare matters. Your spouse and beneficiaries matter.

And your actual retirement goals matter most.

A successful retirement strategy shouldn’t focus exclusively on minimizing taxes.

It should help you use your money intentionally—for the life, family, and priorities you built that money to support.

Transcript: Prefer to Read — Click to Open

Danny (00:00.064)

If you have $1 million or more in free tax retirement accounts, one of the biggest tax decisions you may be making right now is doing nothing. Leaving that money alone can feel safe. But once required minimum distributions begin, you lose some control over when that money gets taxed. And by then, some of your best years for Roth conversion are already behind you. In this video, I’m going to show you how to decide whether Roth conversion makes sense, how much to consider converting.

And this year, and the two income thresholds that you need to watch out for and where the money to pay the tax should come from. Hey there, my name is Danny Gudorf, owner of Gudorf Financial Group, a total wealth management firm where we have tax preparers, estate planning attorneys, and financial planners all working together under one roof, serving retirees just like you every day. So let’s start with the question that matters most. Should you be doing a Roth conversion at all? At a basic level,

A Roth conversion is simple. You move money from a pre-tax IRA into a 401k that is either a account and you pay the ordinary income tax on the amount that’s converted. And from that point forward, that money grows tax free. But the real question whether paying tax today is better than paying it later. If you expect those dollars to be taxed at a higher rate later, then the case for converting gets stronger.

If you expect lower rates later than you are at today, converting becomes harder to justify. Account size alone does not answer that question. But once you’re approaching $1 million or more and pre-tax retirement accounts like IRAs or 401ks, especially if you have a pension or substantial Social Security income or a spouse who has another large IRA, your future required minimum distributions.

become much more important to model. Let’s make this more clear with an example. A couple I worked with recently had $2.2 million combined in their pre-tax accounts. By the time required minimum distributions began, we projected that they could be forced to take out around $85,000 a year on top of Social Security and a small pension. And depending on when you were born, your RDs currently begin either at age 73

Danny (02:22.902)

Or at age 75. While both spouses were alive and filing jointly, that made the income somewhat manageable. But then we looked at what happens when one spouse dies. The survivor may still have most of the IRA money, the largest Social Security benefit, and pension income on top of it. But now they have to file in those much smaller single tax brackets. That is what

We sometimes call the widow’s tax penalty. And it’s one of the biggest reasons why we look at Roth conversions years before RMDs begin. Required minimum distributions can create other problems as well. They can make more of your Social Security taxable, increase your Medicare premiums, and push you into those higher tax brackets later on in retirement. So here is the benchmark that I want you to remember: a Roth conversion makes sense.

When you can voluntarily pay tax today at an acceptable rate and reduce income that may otherwise be taxed at a higher rate later on in retirement. You are choosing when to pay the tax. If paying it today does not improve your long-term tax picture, then there’s no reason to convert just because Roth conversions are so popular today. Now, let’s get to the next question. How much should you convert? There’s no fixed number out there.

The right amount changes every year based upon your income, your deductions, Social Security, pensions, your investment income, and your Medicare status, as well as the tax laws. But there is one period where conversions often become especially attractive. We call this your gap years, usually the years when you retire to when you have to start taking your required mineral contributions. Your salary is gone, you may not have started Social Security yet.

And that can create a very small window where you can intentionally fill in those lower tax brackets with Roth conversions. For 2026, I like to think about it with this simple little traffic light system. Green light means you can convert while staying in a relatively low tax bracket. For married couples filing jointly in 2026, that’s somewhere around the 12% federal tax bracket. That income ends around $100,000 of taxable income.

Danny (04:43.926)

Now remember that taxable income is not gross income. After the standard deduction and other deductions, many retirees can have total income well above the $100,000 mark and still remain in the 12% tax bracket. If those same dollars are now likely to be taxed at 22 or 24%, also be an attractive zone depending upon your current financial situation. That is what we call your yellow light.

That means the conversion is starting to push you into those 22% tax brackets. Now that’s not automatically bad, and sometimes we do intentionally convert at the 22 or 24% tax bracket. But the question is, what rate are you avoiding later on in retirement? If you’re paying 22% today, and that helps you potentially avoid a 24% or 32 or even 35% tax rate later on in retirement.

Then it may make sense to convert up through that 22% tax bracket. The red light means slow down and run the numbers and make sure that you’re extra careful. Once you start converting in the 24% tax bracket, you’re starting to create other costs like higher Medicare premiums, loss deductions, and you need a much stronger reason to keep converting. Sometimes that reason exists, and you may be trying to reduce a very large future.

RMD, or maybe protecting a surviving spouse who’s in a single tax bracket, or maybe you want to reduce the large IRA that your children may inherit during their peak earning years. Point is not that 24% is automatically bad. The point is you should not cross into higher rates by accident. You should be thinking about it intentionally. Before I get into the two biggest thresholds to watch, a quick note.

If you’re 55 or older and have at least $750,000 saved and you’re getting ready to retire, we offer something called our free retirement assessment. We take a look at your tax return, your investment accounts, your social security, and we project out your RMD and your taxes across the entirety of your retirement. It’s a three meeting process. There’s no charge and no pressure.

Danny (07:02.048)

If this is something you’re interested in, click the link below. Now let’s talk about the two income thresholds that can change the math on Roth conversions. First is ERMA, that stands for Income Related Monthly Adjustment Amount. It’s an extra charge added to your Medicare Part B and Part D premiums when your income exceeds a certain threshold. Medicare generally looks back two years when determining your IRMA. So a Roth conversion you would complete in 2026.

Would generally affect your Medicare premiums in 2028. We do not know what that 2028 threshold will be yet because they adjusted over time. So when we run a conversion projection, we estimate what those future thresholds will be and where they may land, and then ask ourselves whether the tax savings are worth the possible Medicare Irma premium increases. IRMA does not work like a normal tax bracket.

If you cross into the next tier, your Medicare premiums move up to the next level, even if it’s over by one dollar. That does not mean though that you should never cross an IRMA threshold. Sometimes paying a higher Medicare premium for a year or two or three can still be worth it if the Roth conversion saves you much more in taxes and premiums over the course of your life. The point is that you want to cross it intentionally, not accidentally.

The second threshold is the senior bonus deduction. If you’re 65 or older, current law provides an additional deduction, up to six thousand dollars per person. If both spouses qualify and file jointly, that can mean up to twelve thousand dollars in additional deductions. But for married couples filing jointly, that deduction begins phasing out once modified adjusted gross income exceeds.

$150,000. So a larger Roth conversion can start reducing the deduction at the same time where you’re creating more taxable income. That’s why we review Roth conversion plans every year. Your income changes, your deductions change, the Medicare threshold changes, and the tax laws change often as well. What looked right in January may not be the same by the time October arrives. That brings us to another big part of the strategy.

Danny (09:23.532)

Where should the money that you pay the tax come from? Let’s say you wanted to move $100,000 from your traditional IRA into a Roth IRA. If you pay the tax from cash, savings, or a taxable brokerage account, the full $100,000 can remain inside the Roth. But if you take a $100,000 IRA distribution and you have to withhold the taxes of $22,000 and actually moves into the Roth.

That is why when possible, I generally prefer clients to pay the tax from money outside the IRA. It allows more of the retirement money to stay in that Roth where qualified growth can be tax free for the rest of your life and 10 more years of your beneficiary’s life. That does not mean though that outside money has no cost to it.

If you use the $22,000 from savings to pay the tax, that money is no longer invested in there. The advantage is that you preserve the full Roth conversion amount inside the Roth. And if you’re under age 59 and a half, using IRA money to pay the tax can also create a 10% penalty, unless an exception applies. Now, let’s talk a little bit about the timing and what that looks like. A lot of people decide in January.

That they want to convert $100,000 and immediately do the whole thing. The problem is that your tax picture may not be clear in January. You could have other income from a consulting project, a large capital gain from an actively traded mutual fund, a property sale, or other unexpected income can change the right conversion amount.

So instead of blindly doing the full conversion at the start of the year, one approach we often use is converting in stages. You can convert part of it early in the year and then run out our detailed tax projection in October and November once you know about what your actual income will be. At that point, you can decide whether to convert more before December 31st. This gives you some time in the Roth earlier.

Danny (11:32.94)

without having to make the entire tax decision before you know what the year will look like. There’s one more concept that I want you to think about when it comes to Roth conversions because it changes how many retirees look at their IRA. Roth conversions are not the only way to reduce a future IRA balance. You can also spend your money from the IRA to reduce it as well. But those are not the same financial decision. A conversion

Moves money from one tenance bucket to another. Spending removes the money from your portfolio. You could also give it to your kids and transfer some of that wealth now. But all three can reduce the amount that’s sitting in your traditional IRA that may eventually be subject to RMDs and potentially higher taxes. Sometimes retirees get so focused on finding the perfect Roth conversion strategy they forget.

Why they saved the money in the first place. Maybe you wanted to help your children that could use the money today, or maybe you wanted to retire a year earlier. If you’re already going to spend the money during retirement, it can sometimes make sense to intentionally take distributions from pre-tax accounts first during those lower income years instead of letting those counts continue to grow until RMDs force that money out later. The same concept can apply to gifts.

If you want to help your children by taking IRA distributions while you’re in a relatively low tax bracket and giving them the after tax money today, that may sometimes be better than leaving them a large inherited IRA later on in life when they’re 60 or 70 years old. Under current law, many non spouse beneficiaries have to empty an inherited IRA within 10 years, and those withdrawals

Could hate your children during some of the highest income earning years. That does not automatically make gifting better than conversions. It simply means the Roth conversion decision should fit into a bigger retirement plan, not just the decision about Ross. I’ve worked with a retired engineer who came into a meeting with spreadsheet after spreadsheet showing me his plan Roth conversions over the next 12 years. Every year was mapped out.

Danny (13:53.662)

Every bracket was calculated. About halfway through the meeting, I asked him, What does wealthy actually mean to you? He talked about his kids and how the GI Bill helped him get through college and how he wanted to give them the same kind of head start. He talked about the trips he and his wife wanted to take and the ones they’d been putting off for years. He never really thought of the IRA as money that he could use and spend. He saw the account balance as a number.

That always needed to keep growing. So he changed the plan. He still did some Roth conversions, but he scaled them back and started using part of the money for the things that matter to him. That’s an important part of retirement planning. The goal is not to die with the lowest mathematical tax bill or the highest ending balance. The goal is to use your money while

Managing the taxes along the way and making sure you’re using it for what you love most. So that is the Roth conversion framework I would use this year. First, determine whether a conversion makes sense based upon the tax rate you pay today versus the future tax rate later in retirement. Second, look at your gap years before RMDs begin and identify the tax brackets you may want to fill. Third, watch the other costs and tripwires.

That comes with additional income, especially Irma and the phase out of the senior bonus deduction. Fourth, when possible, pay the conversion tax from money outside the IRA so more of the converted amount stays in the Roth. And finally, do not get so focused on the perfect Roth conversion strategy and forget what the money was actually there for. A Roth conversion is only one piece of your retirement plan.

The bigger risks are often mistakes people do not see coming. After reviewing more than 300 retirement plans, I’ve seen the same five mistakes show up again and again. In this next video here, I’ll walk you through the five retirement mistakes I see every day and how to avoid them.

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