The $1M+ Roth Conversion Question: When the Math Actually Works

Almost every retiring household we meet asks some version of the same question: "Should I be doing Roth conversions?"

The honest answer is: probably some, possibly a lot, occasionally none. The math depends on variables most calculators ignore.

The window that matters

For most households, the planning window for Roth conversions opens when wages stop and closes when required minimum distributions begin. Today that window is between retirement and age 73 (rising to 75 for those born in 1960 or later). For an early retiree at 60, that is a 13-year runway. For someone retiring at 70, it is three years.

Inside that window, taxable income often drops dramatically. Social Security may not have started. Pensions may be modest. Portfolio income can be controlled. This is the bracket arbitrage opportunity — and it is the entire reason Roth conversions exist as a strategy.

The simple version of the math

A Roth conversion makes mathematical sense when the marginal rate you pay today is lower than the marginal rate you (or your heirs) would pay later.

That comparison includes:

• Federal ordinary income brackets
• State and local income tax
• The 3.8% Net Investment Income Tax (indirectly, by reducing future RMDs)
• Medicare IRMAA surcharges in both years
• The expected tax bracket of your beneficiaries inheriting an IRA

For a Maryland household, "today's rate" needs to include the combined federal + state + local marginal rate, which can exceed 35% at moderate income levels.

Where it usually works

Conversions consistently make sense for:

• Early retirees ages 60-72 with $1M+ in pre-tax accounts and modest current income
• Surviving spouses who will jump to single filer brackets
• Households with substantial pre-tax balances and adult children in high brackets
• Anyone facing an RMD that will push them into a higher bracket than today

Where it often doesn't

Conversions are usually a bad idea for:

• Households planning large charitable bequests from IRAs (charities pay no tax)
• Anyone within two years of a major IRMAA cliff with no offsetting benefit
• Households in their highest-earning year (wait for lower brackets)
• Cases where the conversion tax must be paid from the IRA itself

That last point is critical. A conversion only works if the tax is paid from outside funds. Paying conversion tax from the IRA itself erodes the principal that was supposed to grow tax-free.

Staging matters more than size

The biggest mistake we see is treating Roth conversions as a one-time decision. The right approach is annual, staged, and recalibrated each November against actual income.

A common pattern for a $2M pre-tax account:

• Year 1 (age 63): convert $150,000, filling the 22% bracket
• Year 2 (age 64): convert $180,000, watching for IRMAA in year 66
• Year 3 (age 65): convert $200,000, coordinating with first Medicare year
• Years 4-9: continue annual conversions, adjusting for market conditions

Over a decade, that household might move 60-70% of pre-tax assets to Roth at an average rate well below their projected RMD-era rate.

The IRMAA trap

Medicare Part B and D premiums are surcharged based on income from two years prior. A large conversion in the year you turn 63 affects premiums at 65. A conversion at 70 affects premiums at 72. The surcharges range from a few hundred to several thousand dollars per person per year. They are not catastrophic, but they need to be in the model.

The legacy angle

The SECURE Act forced most non-spouse beneficiaries to drain inherited IRAs within 10 years. That means a $1.5M traditional IRA left to a high-earning adult child can land entirely in their top federal and state brackets during their peak earning years. Converting to Roth during retirement — at your lower rate — and leaving Roth dollars to those same children can be one of the most powerful legacy moves available.

What we actually do

For each client in the conversion window, we build a 10-year projection that includes:

• Year-by-year Social Security claiming
• RMDs starting at the applicable age
• Pension and annuity income
• Capital gains and dividend income
• State of residence (which may change)
• Heir tax brackets

Then we model three conversion paths — aggressive, moderate, and minimal — and compare the after-tax wealth at age 90 and at the death of the second spouse. The right answer is rarely the most aggressive path. It is almost always more conversion than the client expected.

If you have $1M+ in pre-tax retirement accounts and you are within 10 years of RMDs, this is the analysis to do this year, not next.