A 70-Year-Old With a $1.5 Million IRA Has Only a Brief Roth Conversion Window Before RMDs Close It, and Advisors Rework the Numbers Each Fall

Quick Read

• A 70-year-old with a $1.5 million IRA has only a few years left to convert at 22% before required minimum distributions at 73 automatically fill the bracket.

• Converting a full bracket amount of $46,145 triggers $10,761 in federal tax, but moving past $109,000 of adjusted gross income can also trip a $1,148 Medicare surcharge cliff.

• IRS rules prohibit converting RMD dollars, so once RMDs begin, conversions start at 24%, while Roth IRAs do not carry lifetime RMDs.

Advisors say a client like this comes up every fall. He is a 70-year-old widower filing as single, with a $1.5 million traditional IRA, a $50,000 pension, and $36,000 a year in Social Security. For now, his tax picture is relatively quiet, and he is sitting comfortably in the 22% bracket.

His First RMD Overruns the 22% Bracket Immediately

Assume his IRA grows at 6% a year and he makes no conversions. By the end of 2028, the account would reach $1,786,524. Using the IRS life-expectancy divisor at 73 of 26.5, his first required minimum distribution would be $67,416.

Now add up his income using 2026 numbers as a proxy. Brackets will rise with inflation, and his account value will likely be higher too. His pension plus the taxable 85% of his Social Security, or $30,600, totals $80,600. After subtracting the 2026 standard deduction of $16,100 and the extra $2,050 deduction for taxpayers age 65 and older, his taxable income comes to $62,450.

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For single filers in 2026, the top of the 22% bracket is $105,700. That leaves him $43,250 of space. The RMD would use all of it and send $24,166 into the 24% bracket. Tax brackets work like fill lines, so only the dollars above the line are taxed at 24%. The issue worsens over time because the divisor gets smaller each year.

Why Advisors Recalculate This Every Fall

A conversion is taxed in the calendar year it is completed, so the cutoff is December 31. Since 2018, it has not been possible to undo one, because 26 U.S.C. § 408A(d)(6)(B)(iii) forbids recharacterizing it. That is why advisors usually wait until November, when most of the year’s income is known, and then convert as much as the numbers allow.

There is also a temporary 2026 wrinkle: a new senior deduction of up to $6,000. It phases out by 6% of MAGI above $75,000. At this income level, he would keep $5,664 of it. Every dollar converted reduces that deduction by 6 cents.

To use up the 22% bracket, he would convert about $46,145 and owe $10,761 in federal tax. That comes out to an effective rate of 23.3%. The deduction ends after 2028, so the available room at 73 is smaller than it is now.

A $109,000 Medicare Threshold Can Turn the Last Dollars Into 30% Money

The full conversion would raise his AGI to roughly $126,745. Medicare uses income from two years earlier to set premiums, so his 2026 income determines his 2028 bill. Using 2026 brackets, single filers above $109,000 owe an extra $81.20 a month for Part B and $14.50 for Part D. That tier acts like a cliff. Going just $1 over adds $1,148.40 over the year.

Advisors therefore compare two approaches. If he converts $28,400, he lands right at the threshold and pays about $6,623 in tax. Converting the next $17,745 would cost about $5,287 once the surcharge is included, an effective rate of 29.8%. The decision is close, because at 73 his AGI of $148,016 would place him in tier 2 anyway. That would mean monthly surcharges of $202.90 for Part B and $37.50 for Part D, or $2,884.80 a year.

Once RMDs Begin, the First Dollars Out Cannot Be Moved Into a Roth

Treasury rules shut the low-cost window. Under 26 CFR 1.408A-4 and A-6, an RMD cannot be converted, and the first dollars withdrawn each year count toward the RMD until it is satisfied. After the RMD has been taken, he can still convert, but every converted dollar then starts at 24%. If he skips the RMD entirely, the excise tax is 25% of the shortfall.

Three full conversions would reduce his first RMD to about $61,872, which still exceeds his room in the bracket. The benefit of those conversions shows up later. Roth IRAs do not have lifetime RMDs under 26 U.S.C. § 408A(c)(4), and heirs receive assets that have already been taxed. As CNBC noted this week, heirs who inherit a traditional IRA may face a tax bill.

Three Moves Advisors Model Before December 31

1. Advisors first project income for the year, including interest and capital gains. The conversion amount is usually set at whatever room remains under the 22% line or the IRMAA threshold.

2. Many advisors recommend paying the conversion tax from a taxable account, since every dollar withheld from the IRA is a dollar that never reaches the Roth.

3. For a client like this, the same analysis is repeated in the next two years, with brackets and IRMAA tiers checked again each fall.

State taxes can change the outcome, since most states that tax income treat a conversion as ordinary income. A three-year projection like this is worth reviewing with a fiduciary financial advisor or CPA before year-end. The gap between retirement and the first RMD is the focus of the free Roth Window guide, which explains how to use it.

Learn 7 Ways To Generate Income With A $1,000,000+ Portfolio

If you’ve saved more than $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money. You want your savings to produce steady income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)