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Let’s say a couple retires at 63 with $2 million in a traditional 401(k) and has no RMDs for a decade. Their taxable income is low, and that window is the most valuable tax-planning opportunity they will ever have, leaving it unused is the most expensive tax mistake they can make.
The Decade That Determines Your Tax Bill in Retirement
Under SECURE 2.0, anyone born in 1960 or later does not face required minimum distributions until age 75. (Those born in 1959 begin at 73.) A couple retiring at 63 has roughly 12 years before the IRS forces withdrawals from that $2 million account. During those years, the account keeps growing tax-deferred. At a 6% annual return, $2 million becomes well over $4 million by age 75. The RMDs on that larger balance will be enormous, and every dollar will be taxed as ordinary income.
A potential strategy is to use those low-income years to systematically convert chunks of the 401(k) into a Roth IRA, paying tax now at controlled rates rather than later at the potentially higher rates that can apply when RMDs arrive, though whether this makes sense depends on whether your current tax rate is lower than your expected future rate.
Building the Conversion Ladder: Filling the Bracket Without Tripping IRMAA
For a married couple filing jointly in 2026, the 22% bracket covers taxable income up to $211,400. The standard deduction is $32,200, meaning the couple can have a gross income of up to $243,600 before entering the 24% bracket. Subtract $50,000 in hypothetical other income, and the remaining conversion space is approximately $129,000 per year.
The critical constraint is IRMAA, and the first IRMAA tier for married filing jointly begins at $218,001 of modified adjusted gross income, triggering annual Medicare surcharges of $1,148 per person ($2,297 per couple). Because IRMAA uses a two-year lookback, a conversion done in 2026 shows up on 2028 Medicare premiums. The couple must treat $218,000 as a hard ceiling on MAGI, not just on taxable income.
With a $218,000 MAGI ceiling and $50,000 in other income, the annual conversion target lands around $129,000. Over 10 years, that converts roughly $1.29 million of the original $2 million balance. The remaining balance stays in the traditional 401(k) and will generate RMDs starting at 75, but those RMDs will be manageable rather than account-draining.
Why Paying Tax Now Beats a $160,000 RMD at 75
Converting $129,000 per year at the 22% to 24% marginal rate costs roughly $31,000 in federal taxes annually. That is real money, but consider the alternative.
If the full $2 million grows unconverted to $4 million by age 75, the first-year RMD at the IRS Uniform Lifetime Table factor for age 75 is roughly ~4% of the balance, or $160,000. That $160,000 lands on top of Social Security income.
Once combined income (adjusted gross income plus half of Social Security benefits) exceeds $44,000 for joint filers, up to 85% of Social Security benefits become taxable. A couple receiving $60,000 in Social Security could see $51,000 of that suddenly counted as ordinary income, pushing their effective marginal rate well above 30%. The conversion ladder eliminates most of this exposure by shrinking the traditional 401(k) before RMDs begin.
The 5-Year Rule Most Early Retirees Overlook
Each Roth conversion carries its own independent five-year clock for penalty purposes. If you are under 59½ and withdraw the converted amount within five years of the conversion, the withdrawal is subject to a 10% penalty (though no tax applies since you already paid tax at conversion). Withdrawals of earnings from a Roth IRA are tax-free and penalty-free only after the account has been open for five years, and you have reached age 59½.
Conversions made in 2026 are fully accessible, penalty-free, starting in 2031. Conversions done in 2027 unlock in 2032. Building the ladder early means the earliest conversions are available before the couple turns 70, providing a tax-free income source before Social Security and RMDs fully kick in.
Capital gains from a taxable brokerage account count toward MAGI. A year with $30,000 in realized gains compresses the available conversion space by the same amount, or nudges the couple past the IRMAA threshold entirely. Coordinate asset sales and conversions in the same tax year.
Three Steps to Start
Run the numbers through a dedicated tool. Boldin (formerly NewRetirement) and other comprehensive retirement planners like ProjectionLab or RightCapital model multi-year Roth conversion schedules against IRMAA thresholds and Social Security taxation. (i-ORP is a legacy tool that some still use, though it is no longer actively updated.) A session with any of these tools will help clarify how much to convert each year to minimize lifetime taxes.
Set a MAGI ceiling before executing any conversion. Pull the prior year’s tax return, identify every income source that counts toward MAGI (including capital gain distributions from mutual funds), and calculate the remaining conversion room. The first IRMAA threshold, currently around $218,000 for joint filers, though it adjusts annually for inflation, is a key line to be aware of.
If your combined income already exceeds the first IRMAA threshold, the complexity alone may justify a session with a fee-only advisor who specializes in retirement tax planning. The math at this balance level is complex enough that professional guidance is often worth considering.