Key Takeaways
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Converting traditional IRA funds during gap years at the 12% bracket rate can prevent those same dollars from being taxed at 22% or higher under RMDs.
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Roth conversions raise modified adjusted gross income, potentially triggering IRMAA Medicare surcharges above $109,000 for individuals, with a two-year lookback affecting future premiums.
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Converting only beats doing nothing if future tax rates are actually higher. Retirees planning qualified charitable distributions or near IRMAA thresholds may rationally skip conversions.
Most retirees never explicitly choose whether to convert traditional IRA or 401(k) funds into a Roth account during the gap years between retirement and required minimum distributions (RMDs). This window—often called the “gap years”—represents a unique opportunity where tax bracket capacity exists but is temporary and non-refundable. Skipping this opportunity means those same dollars will be taxed at potentially higher rates when RMDs begin.
The average 401(k) balance reached $167,970 at year-end 2025 according to Vanguard’s How America Saves 2026 report. While the median is $44,115, the average represents the realistic target for long-tenured savers entering their gap years and serves as the baseline for these calculations.
Gap Years and Bracket Capacity
A gap year is any tax year after wages cease but before RMDs begin. Under SECURE 2.0, the required beginning age depends on birth year—73 for one cohort and 75 for those born in 1960 or later. Retirees in the later cohort have a longer conversion window, strengthening the case for utilizing it.
Understanding Bracket Capacity
Bracket capacity refers to the room available within a given marginal tax rate before income spills into the next bracket. For a single filer in tax year 2026, the standard deduction is $16,100, the 12% bracket applies above $12,400 of taxable income, and the 22% bracket begins above $50,400. Married filing jointly thresholds are approximately double, with the 22% bracket starting above $100,800 of taxable income.
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The Cost of Skipping Conversions
Consider a single retiree with the benchmark $167,970 traditional IRA balance who retires at 65 with modest non-retirement income. Converting $35,000 during a gap year to reach the top of the 12% bracket triggers a federal tax bill of $4,200. If this conversion is skipped, that same $35,000 continues growing tax-deferred until age 73, when RMDs and Social Security push the retiree into the 22% bracket, resulting in a $7,700 tax bill—$3,500 more than the conversion cost.
Second-Order Effects to Consider
Conversions increase modified adjusted gross income (MAGI), which can affect Social Security taxation and Medicare premiums. The 2026 standard Part B premium is $202.90, with IRMAA surcharges beginning above $109,000 for individuals. The two-year lookback means a 2026 conversion affects 2028 Medicare premiums.
The 2027 Social Security cost-of-living adjustment projected at 3.1% raises provisional income, narrowing available conversion room in later gap years.
When Conversions May Not Make Sense
Retirees expecting permanently lower future tax brackets, those planning qualified charitable distributions (QCDs) to satisfy RMD requirements, or individuals near IRMAA thresholds may rationally elect to skip conversions. Paying a known rate today only beats an unknown rate later if the future rate will actually be higher. With the 10-year Treasury yield at 4.67% as of August 27, 2026, the opportunity cost of conversion taxes must also be factored in.
Data-Driven Considerations
The gap-year window is finite, 2026 tax brackets are known, and RMD age is fixed by birth year. Retirees born in 1960 or later have more runway; those born earlier have less. The cost of leaving bracket capacity unused is real but depends on future rates, account balances, and interactions with Social Security and Medicare that resist simplification into a single figure.
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