Recently we worked with a couple—let’s call them Mark and Susan, both 65, living out in Kirkwood, Missouri. Mark had spent years as an engineer, Susan was a school administrator, and they had done a lot of things right—steady saving, a paid-off house on the horizon, and a clear goal: keep life simple and predictable in retirement.
Their main “good problem” was that they’d built up about $1,000,000 in a traditional IRA (all pre-tax). They also had around $300,000 in a brokerage account, plus about $50,000 in combined Social Security.
Here’s the catch: when most folks hear “low income in retirement,” they assume taxes stay low. But once Required Minimum Distributions (RMDs) kick in later (currently age 73 for many retirees), those forced withdrawals can stack on top of Social Security and push a couple into a higher tax bracket—sometimes 22% or 24%. It’s not wrongdoing; it’s just how the rules work.
The approach: “Bracket-filling” Roth conversions
With Mark and Susan, we explored a strategy often called bracket-filling Roth conversions.
Instead of waiting for RMDs to surprise them, they would convert a measured amount each year—roughly $100,000–$130,000—from the traditional IRA to a Roth IRA, aiming to “fill up” the 12% federal bracket while their taxable income was still relatively low.
Just as important, they used outside savings (their brokerage account) to pay the conversion taxes. That helped keep more money inside the Roth to potentially grow tax-free over time.
Why this mattered for their retirement
Over several years, a steady conversion pace could move a meaningful portion of their IRA into Roth accounts before RMDs begin. The potential benefits:
- Smaller future RMDs (sometimes dramatically smaller)
- More control over taxable income year to year
- Flexibility for big-ticket years (new roof, helping family, giving)
- Potentially more tax-efficient money for heirs under today’s 10-year inheritance rules
In their case, we also discussed the “fine print” that can trip people up—especially Medicare IRMAA surcharges, where higher income today can raise Medicare premiums two years later. A good plan accounts for that upfront.
Is a Roth conversion right for you?
Roth conversions aren’t for everyone, and tax laws change. But for couples like Mark and Susan—nearing retirement with large pre-tax accounts—paying a known, relatively low rate now may help reduce the risk of higher taxes later.
If you’re wondering whether your IRA could turn into a “future tax trap,” it may be worth running the numbers with a planner and your tax professional—before RMDs do it for you.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA. (22-LPL)
This is a hypothetical situation based on real life examples. Names and circumstances have been changed. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investments or strategies may be appropriate for you, consult your advisor prior to investing.
