One of the most common questions high-net-worth retirees face is how much of their traditional retirement savings to convert into a Roth account. For diligent savers with significant retirement balances—often those with pensions and over a million dollars saved—Roth conversions can be a powerful tool for long-term tax management. But the question remains: how much should you convert, and when does it make sense to pay taxes now instead of later?
This article explores the key considerations for Roth conversions, including tax brackets, income sources, timing, and how to balance current and future tax liabilities.
The “Big Three” Retirement Income Sources
When planning for retirement taxes, it’s essential to understand the interplay between three major income sources:
- Pensions
- Social Security
- Required Minimum Distributions (RMDs) from tax-deferred accounts
These three income streams often converge later in retirement, creating a higher taxable income than many retirees anticipate.
While many people assume they’ll fall into a lower tax bracket after they stop working, this is frequently not the case for wealthier retirees. Pensions, taxable investment withdrawals, and RMDs—along with up to 85% of Social Security benefits—can combine to push retirees into higher brackets.
Tax-deferred accounts like 401(k)s, 403(b)s, and TSPs eventually require withdrawals, and those withdrawals are fully taxable. The government ultimately collects tax on money that has grown tax-free for decades. The result is that many affluent retirees discover they’re paying more in taxes than expected once RMDs begin.
Why the 12% Bracket Isn’t Always Enough
Some retirees hesitate to do Roth conversions because they’re comfortable in the 12% tax bracket. Paying a low tax rate feels safe and reasonable—but for many, it doesn’t move the needle enough to make a long-term difference.
To understand this, let’s review the math. For 2025, the 12% federal tax bracket for married couples filing jointly extends up to roughly $96,000 of taxable income. After factoring in the standard deduction (around $30,000), you’d need about $130,000 of total income before crossing into the next bracket.
If your pension pays $50,000 annually and your combined Social Security benefits are another $50,000, you’re already close to that threshold. Add even modest RMDs from retirement savings, and you’ll likely find yourself in the 22% or 24% bracket before long.
In other words, while converting up to the 12% limit sounds appealing, it may not meaningfully reduce future RMDs or lifetime tax liability—especially for those with larger balances. Modest conversions may help, but they often fail to offset the growth of the remaining tax-deferred balance.
The Conversion Window: Your Strategic Opportunity
There’s a valuable “conversion window” that many retirees overlook. This is the period between retirement and the start of Social Security or pension income—typically from ages 60 to 65. During these years, your taxable income might be very low, creating room to do Roth conversions at favorable rates.
For example, someone retiring at 60 with no pension or Social Security income yet might be able to convert over $100,000 annually and still remain in the 12% bracket. However, once pension and Social Security payments begin, that flexibility disappears.
Even in cases where the pension begins immediately, some room may still exist for limited conversions. But a key question emerges: Is converting only within the 12% bracket truly effective?
If your portfolio continues to grow at 6% annually while you convert only small amounts, your overall tax-deferred balance may never shrink meaningfully. For those with larger portfolios, targeting higher brackets can make more sense.
Why the 22–24% Bracket Often Makes More Sense
For retirees in the so-called “2% club” — those with pensions and $1–5 million or more saved — converting into the 22% or 24% tax bracket can be more impactful.
Here’s why:
- Historically, these rates are relatively low. Before 2017, similar brackets were 25% and 28%, so today’s 22–24% rates are effectively discounted.
- The Tax Cuts and Jobs Act is set to expire soon, potentially restoring higher rates. Converting now at 24% may mean paying less tax than in the future.
- Converting more aggressively reduces future RMDs, which can otherwise push retirees into higher brackets or affect Medicare costs.
In short, paying a moderate tax rate today may prevent paying much higher taxes later.
The Widow’s Penalty and Medicare Premiums
Two often-overlooked factors make Roth conversions even more compelling:
- The Widow’s Penalty: After one spouse passes away, the survivor moves from “married filing jointly” to “single” status, cutting the income thresholds for each bracket roughly in half. This means the same income can trigger a much higher tax rate. Pre-emptive Roth conversions help reduce future taxable income and soften this impact.
- Medicare Premium Tiers: Medicare Parts B and D premiums are income-based. Higher income can lead to significant surcharges. Conversions increase income temporarily, so it’s important to plan conversions before age 63, when income starts affecting Medicare premiums at age 65. Later in retirement, Roth withdrawals are tax-free and do not count toward these income limits.
Tax Diversification: Balancing Flexibility and Control
Roth conversions aren’t just about minimizing taxes—they’re about creating flexibility. Having a mix of tax-deferred, taxable, and tax-free accounts gives retirees control over how much taxable income they generate each year.
Think of it as “tax diversification.” Just as investors diversify across asset classes, retirees should diversify across tax types. Relying entirely on tax-deferred accounts is like having all your investments in a single stock—it’s risky and limits your options.
By shifting part of your savings into Roth accounts, you gain the ability to choose which account to draw from depending on future tax laws, income needs, and market conditions.
Even if tax rates stay the same, having this control helps avoid Medicare surcharges, manage RMDs, and plan for legacy goals more efficiently.
Tailoring Roth Conversion Strategies to Your Situation
No single formula fits everyone. The optimal Roth conversion strategy depends on several factors:
- Current and future income sources (pensions, Social Security, RMDs)
- Your age and timing of retirement
- Investment growth expectations
- Marital status and legacy goals
- Health and life expectancy
- Your children’s tax brackets
- Charitable intentions
For example, if your heirs are in a much lower tax bracket, paying 24% now may not be worthwhile. Conversely, if you plan to leave large balances to beneficiaries who already earn high incomes, converting now could prevent them from inheriting a hefty tax burden.
The same goes for those with significant pensions and multimillion-dollar portfolios. A $3 million balance today could easily double to $6 million by age 75. That means RMDs of around $240,000 per year—before even counting pensions or Social Security. For these retirees, staying within the 12% bracket is unrealistic; converting at 22–24% is often the only way to control future taxes.
The Bottom Line
Roth conversions are one of the most powerful tax planning tools for high-net-worth retirees, but they require careful analysis. While the 12% bracket may sound attractive, it’s rarely enough to make a lasting difference for those with substantial assets.
The 22–24% brackets often strike the right balance—low enough to minimize lifetime taxes but high enough to meaningfully reduce future RMDs, create flexibility, and protect against the unknowns of future tax law changes.
Ultimately, the goal isn’t just to pay the least tax this year—it’s to optimize your taxes over your lifetime (and even across generations). The key is understanding your unique income mix, timing your conversions strategically, and maintaining tax diversification to preserve financial freedom throughout retirement.
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