Retirees Use Roth Conversions to Avoid Future Tax Surcharges

Affluent retirees are increasingly utilizing the window between retirement and the start of Required Minimum Distributions (RMDs) to convert traditional 401(k) balances into Roth accounts. This strategy targets the low-taxable income years—often between ages 62 and 70—to lock in lower tax rates and reduce the future RMD base, which otherwise pushes retirees into higher brackets and triggers Medicare Income-Related Monthly Adjustment Amount (IRMAA) surcharges.

The Internal Revenue Service mandates RMDs starting at age 73 or 75 depending on the individual. Financial planners advise capping annual taxable income at $211,400 to stay within the 22% bracket and avoid IRMAA premiums. However, conversions performed in the year a spouse turns 62 are exempt from the IRMAA two-year lookback, allowing for more aggressive conversions up to the 24% bracket ceiling of $403,550. This approach is supported by the One Big Beautiful Bill Act of July 2025, which made the Tax Cuts and Jobs Act bracket structure permanent.

To maximize this effect, analysis suggests spending down 401(k) assets before claiming Social Security benefits at age 70. This creates bridge years where taxable income remains low. To mitigate market risk during this period, retirees are encouraged to fund 12 to 24 months of expenses using short-term U.S. Treasuries, which yielded between 4.17% and 4.39% as of September 15, 2026.