A Roth conversion strategy can be one of the most powerful tools in your financial plan — and may be most effective if you time it right. For families with established wealth, the years when income temporarily drops may open a window to move pretax savings into tax-free territory at a fraction of the cost.
The challenge is that this window comes with hidden cliffs and trade-offs that a simple “fill your bracket” approach can miss. Medicare surcharges, health insurance subsidies, and Social Security taxation all respond to the income a conversion generates. Each component has its own threshold, its own timing, and its own cost.
The conversion window: When income drops
An effective Roth conversion strategy seeks to target the gap or trough years — when your income is temporarily lower than usual. The conversion window usually opens at retirement and closes when required minimum distributions (RMDs) begin (at age 73 in 2026).
When wages have stopped but Social Security may not have started, taxable income can fall to its lowest level in decades. Other periods that can create similar opportunities are business sale years, sabbaticals, or years with large deductible expenses.
The core logic is tax rate arbitrage — paying tax when the rate is lower. A Roth conversion can pay off when the rate you pay today is lower than the rate you or your heirs might otherwise pay later.
During gap years, you can fill lower tax brackets with deliberate conversions by shifting money from a future 32%-37% environment into a 22%-24% one.
Filling the bracket: Tax rate arbitrage
For 2026, the 22% bracket for married couples filing jointly runs from $100,801 to $211,400 of taxable income, and the 24% bracket extends to $403,550. The standard deduction for married couples filing jointly is $32,200. Therefore, a couple with no other income could convert up to roughly $243,600 and remain in the 22% bracket.
| Component | Amount |
|---|---|
| Top of 22% bracket (taxable income) | $211,400 |
| Plus: standard deduction (married filing jointly, 2026) | $32,200 |
| Equals: maximum total income to stay in 22% | $243,600 |
| Minus: other income | $0 |
| Equals: maximum conversion amount | $243,600 |
The key insight: The standard deduction effectively gives you $32,200 of income that’s taxed at 0% before the brackets even begin. That’s why the conversion ceiling ($243,600) is higher than the bracket ceiling ($211,400). The deduction absorbs the difference.
One caveat: The tax bracket tells only part of the story. When evaluating a Roth conversion, consider the marginal cost of each dollar of the conversion. Beyond the stated tax rate, a conversion can reduce deductions, increase taxes on Social Security benefits or preferentially taxed income, trigger higher Medicare premiums, or reduce eligibility for certain tax credits.
A well-structured Roth conversion strategy aims to size each year’s conversion to fill a target bracket without crossing into the next one. It’s possible to convert a meaningful amount each year and remain in the 22% or 24% bracket during your gap years — to build tax-free retirement income while today’s rates are known.
Conversions are usually best done gradually — with measured amounts sized against specific bracket lines and executed across a multiyear window — rather than with a large one-time conversion. Spreading conversions over several years may allow you to utilize lower marginal tax brackets across multiple tax years, rather than converting a larger amount in a single year, depending on their individual tax circumstances. A bear market may enhance the potential tax efficiency of this strategy because a lower account value can result in a smaller tax liability on the amount converted. If the converted assets subsequently appreciate, that growth may occur within the Roth account free from future federal income tax, subject to applicable rules and requirements.
The IRMAA cliff: Medicare’s hidden tax
This is where simple bracket-filling advice may break down.
- The Income-Related Monthly Adjustment Amount (IRMAA) adds surcharges to Medicare Part B and Part D premiums when your modified adjusted gross income (MAGI) crosses one of five tiered thresholds.
- The first tier for married couples filing jointly in 2026 begins at $218,000 of MAGI, with total monthly Part B premiums ranging from $202.90 to $689.90 depending on your tier.
The system is a hard cliff, so $1 over the threshold triggers the full surcharge for both spouses for the entire year.
IRMAA also looks back two years. A conversion you do in 2026 affects your Medicare premiums in 2028. Remember that deductions reduce taxable income, which determines your tax bracket, but Medicare bases IRMAA thresholds on adjusted gross income, which is before most deductions. Therefore, you could exceed the IRMAA threshold ($218,000) before breaching the 22% bracket ($211,400).
For couples, the surcharge applies per person. If both spouses are on Medicare, crossing a threshold roughly doubles the annual cost. A thoughtful Roth conversion strategy looks at sizing each conversion to land a few thousand dollars below the next IRMAA tier — rather than filling the bracket to its ceiling.
The Affordable Care Act (ACA) subsidy issue
If you retire before Medicare kicks in at age 65 and buy coverage on the Affordable Care Act (ACA) marketplace, another cliff comes into play.
- For 2026 coverage, the enhanced pandemic-era subsidies have expired, and the previous 400% federal poverty level cliff is back.
- For a two-person household, that threshold sits at roughly $86,560 in MAGI.1 Cross it by one dollar, and your entire premium tax credit vanishes.
Every dollar you convert counts as ordinary income and gets added directly to your MAGI.
The difference between converting $50,000 and $55,000 can mean $15,000 in lost subsidies, which is a steep penalty on that extra $5,000. If you’re in the pre-Medicare window, model the ACA cliff before deciding how much to convert.
Social Security and provisional income
A Roth conversion strategy also interacts with how your Social Security benefits are taxed.
- Your provisional income is the sum of your adjusted gross income, your tax-exempt interest, and half your Social Security benefits. This determines whether up to 50% or up to 85% of your benefits are taxable.
- The income thresholds for married couples filing jointly are $32,000 and $44,000 in 2026 and they’re not indexed for inflation.
A Roth conversion that raises your provisional income can push more of your Social Security into taxable territory, adding another layer to the cost.
Coordinating the full picture
To get the most from Roth conversion strategies, consider coordinating them with a view of your entire financial life.
Here’s how the pieces can integrate:
- Tax planning: Model multiple years together — sizing conversions against bracket tops, IRMAA tiers, and ACA cliffs simultaneously. Avoid optimizing one threshold while potentially tripping another.
- Estate planning: Under the SECURE Act’s 10-year rule, most nonspouse heirs must empty inherited retirement accounts within a decade, which can create large tax bills. Converting to Roth before that point may help reduce the burden on your heirs, especially if they’re in high-tax states or in their peak earning years.
- Investment management: A bear market can add to the conversion benefits, because moving a depressed balance also moves more shares at a lower tax cost. Think about coordinating conversions with your portfolio’s rebalancing schedule.
- Insurance planning: If you’re on an ACA marketplace plan before Medicare, model the effect of the subsidy cliff before converting. If you’re approaching age 65, factor in the two-year IRMAA lookback.
The bottom line
A Roth conversion strategy isn’t a one-time decision. View it as a multiyear exercise that seeks to lower your lifetime tax burden while keeping your income below the thresholds that trigger hidden costs. The window is real, but it’s narrow — and the trade-offs are worth modeling carefully. The right approach depends on your income, your filing status, your health insurance situation, your state of residence, and your goals for your family’s future.
FAQs
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A Roth conversion is a strategy that moves money from a traditional pretax retirement account, such as a 401(k), into a Roth IRA, where it can grow tax-free. You pay income tax on the converted amount in the year you convert, but qualified withdrawals in retirement — and for your heirs — come out tax-free. The strategy can work best when your tax rate today is lower than the rate you’d pay in the future.
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A Roth conversion increases your modified adjusted gross income (MAGI), which Medicare uses to determine whether you owe Income-Related Monthly Adjustment Amount (IRMAA) surcharges. The system looks back two years, so a conversion you do in 2026 affects your Medicare premiums in 2028. Because IRMAA uses a cliff structure, crossing a threshold by even one dollar triggers the full surcharge for both spouses for the entire year.
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A low-income year can be an ideal time for a Roth conversion because your tax rate is temporarily lower, letting you convert at a reduced cost. The years between retirement and required minimum distributions (RMDs) — sometimes called gap or trough years — are a common window. Before converting, model the impact on Income-Related Monthly Adjustment Amount (IRMAA), Affordable Care Act (ACA) subsidies, and Social Security taxation to help avoid triggering hidden costs.
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A Roth conversion can be worth it, but consider modeling the ACA subsidy cliff carefully. For 2026, the enhanced subsidies have expired, and crossing 400% of the federal poverty level by even one dollar eliminates your entire premium tax credit. A conversion that raises your modified adjusted gross income (MAGI) past that threshold can cost you thousands in lost subsidies on top of the income tax you owe.
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Mercer Advisors provides comprehensive planning that can coordinate a Roth conversion strategy with your full financial picture. We offer complimentary consultations so you can assess fit before committing.
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The right conversion amount depends on your total income, filing status, Income-Related Monthly Adjustment Amount (IRMAA) thresholds, Affordable Care Act (ACA) subsidy limits, and estate goals. Start by estimating your modified adjusted gross income before any conversion, then identify the nearest threshold you want to stay below. Test multiple conversion sizes — including zero — to find the amount that fills your target bracket without falling off hidden cliffs.
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A Roth contribution is new money you add to a Roth IRA from your earnings, subject to annual income limits. A Roth conversion moves existing pretax savings from a traditional IRA or 401(k) into a Roth account, with no income limits on who can convert. You pay taxes on the converted amount, but the converted funds can then grow tax-free and be withdrawn without taxes in retirement.
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Leaving money in a traditional IRA means it grows tax-deferred, but withdrawals are taxed as ordinary income and RMDs begin at age 73. A Roth conversion moves that money into a Roth account where it grows tax-free, has no RMDs during your lifetime, and passes to heirs tax-free. The trade-off is paying taxes now rather than later, which makes sense when your current rate is lower than your expected future rate.
1“2026 Poverty Guidelines.” U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation.
All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Some of the research and ratings shown in this presentation come from third parties that are not affiliated with Mercer Advisors. The information is believed to be accurate but is not guaranteed or warranted by Mercer Advisors. Content, research, tools and stock or option symbols are for educational and illustrative purposes only and do not imply a recommendation or solicitation to buy or sell a particular security or to engage in any particular investment strategy. All investing involves risk, including the possible loss of principal. Hypothetical examples are for illustrative purposes only.
For financial planning advice specific to your circumstances, talk to a qualified professional at Mercer Advisors.
