Roth Conversion: Slash Taxes Before Social Security

If you’re between the ages of 59 and 70 and have recently retired — or plan to retire soon — there’s a powerful window of opportunity that many people on the Treasure Coast overlook. A well-executed Roth conversion strategy can help you move money from tax-deferred accounts into a Roth IRA during the years before Social Security and Medicare kick in, potentially saving you tens of thousands of dollars in lifetime taxes. It’s one of those planning moves that sounds simple on the surface but requires careful timing, thoughtful execution, and a clear understanding of how the tax code works. In this guide, we’ll walk through everything you need to know — from the basics to the nuances — so you can decide whether this approach makes sense for your retirement plan.

What Is a Roth Conversion and How Does It Work?

A Roth conversion is the process of moving money from a traditional IRA (or other tax-deferred retirement account) into a Roth IRA. When you make this move, you pay income tax on the amount you convert in the year you convert it. After that, the money grows tax-free, and qualified withdrawals in retirement are also tax-free. It’s essentially a trade: you pay taxes now at a known rate so you can avoid paying taxes later at what might be a much higher rate.

Why would anyone volunteer to pay taxes? Because a Roth conversion strategy isn’t about paying more taxes — it’s about paying taxes more efficiently. If you’re in a low tax bracket today and expect to be in a higher one later (due to Social Security income, required minimum distributions, or future tax law changes), converting now could save you a significant amount over your lifetime. Think of it like filling up your gas tank when fuel prices are low. You’re taking advantage of a temporary discount.

It’s also worth understanding that you don’t have to convert everything at once. In fact, most people benefit from partial conversions spread across multiple years. This lets you control how much taxable income you add in any given year and stay within favorable tax brackets. A Roth conversion strategy is rarely an all-or-nothing proposition — it’s a multi-year game plan that requires patience and precision.

Why the “Gap Years” Between Retirement and Social Security Matter

Here’s where the real magic happens. When you retire — say, at 62 or 63 — but haven’t yet started collecting Social Security or reached the age of 73 when required minimum distributions (RMDs) begin, your taxable income often drops significantly. For many retirees on the Treasure Coast, this creates a multi-year window where their income is unusually low. These are commonly called the “gap years,” and they represent one of the best opportunities in retirement planning.

During the gap years, you might have little to no earned income. If your living expenses are covered by savings, a pension, or non-qualified accounts, your taxable income could be a fraction of what it was during your working years. This low-income period means you have access to the lower federal tax brackets — the 10%, 12%, and possibly even the 22% bracket — which are significantly cheaper than the 24% or 32% brackets many retirees get pushed into once Social Security and RMDs begin. A well-timed Roth conversion strategy takes advantage of this gap by filling up those low brackets with converted dollars.

Consider this example: A married couple in Stuart, Florida, retires at 63. Their only income is about $30,000 from a small pension. After the standard deduction, they have very little taxable income. They could convert an additional $60,000 to $80,000 from their traditional IRA to a Roth IRA each year while still staying in the 12% or 22% bracket. Over five to seven years before Social Security begins, that’s potentially $400,000 or more moved into a tax-free Roth — money that will never be subject to income tax again.

How a Roth Conversion Strategy Uses Tax Brackets to Your Advantage

Understanding the federal tax bracket system is essential to making smart conversion decisions. The U.S. uses a progressive tax system, which means your income is taxed in layers. For 2024, a married couple filing jointly pays 10% on the first $23,200 of taxable income (after deductions), 12% on income up to $94,300, and 22% on income up to $201,050. Each layer represents an opportunity. A thoughtful Roth conversion strategy fills these layers deliberately, converting just enough to stay within a target bracket without spilling into a more expensive one.

The key question to ask yourself — or your financial advisor — is: “What tax bracket am I in today, and what bracket will I likely be in once Social Security, RMDs, and potential future tax increases are factored in?” If you’re currently in the 12% bracket but expect to be in the 24% bracket later, every dollar you convert now is taxed at roughly half the rate it would be taxed later. That’s a powerful incentive. The Roth conversion strategy is essentially a form of tax arbitrage — paying less now to avoid paying more later.

It’s also important to keep an eye on future tax policy. The Tax Cuts and Jobs Act (TCJA) of 2017 lowered individual tax rates, but many of those lower rates are currently scheduled to sunset after 2025. If Congress doesn’t extend them, the 12% bracket could revert to 15%, and the 22% bracket could jump back to 25%. This makes the next couple of years especially attractive for executing a Roth conversion strategy, since you may be locking in historically low tax rates. You can review current tax bracket details on the IRS website.

The Medicare and IRMAA Connection You Can’t Ignore

One of the most overlooked aspects of a Roth conversion strategy is its interaction with Medicare premiums. Medicare Part B and Part D premiums are income-based, and higher-income retirees pay surcharges known as IRMAA (Income-Related Monthly Adjustment Amounts). IRMAA is based on your modified adjusted gross income (MAGI) from two years prior. That means a large Roth conversion in 2024 could increase your Medicare premiums in 2026. This isn’t a reason to avoid conversions — it’s a reason to plan them carefully.

For example, if a Roth conversion pushes your MAGI above $206,000 as a married couple, you’ll start paying higher Medicare premiums. The surcharges can add up to several thousand dollars per year. A skilled planner will model your Roth conversion strategy to stay just below these IRMAA thresholds, or at least weigh the cost of the surcharge against the long-term tax savings of the conversion. In many cases, the lifetime tax savings from the conversion still far outweigh a temporary bump in Medicare premiums, but you need to run the numbers. You can learn more about IRMAA thresholds directly from Medicare.gov.

Planning around IRMAA is particularly important for retirees who are just approaching age 65 and enrolling in Medicare for the first time. If you’re 63 and doing conversions, the income from those conversions will be the income Medicare looks at when you turn 65. Being aware of this two-year lookback period is critical to avoiding unpleasant surprises. This is one more reason why a Roth conversion strategy should be carefully coordinated with your overall retirement income plan.

Common Roth Conversion Mistakes to Avoid

Even a good idea can go sideways without proper execution. One of the most common mistakes people make with a Roth conversion strategy is converting too much in a single year. This can push you into a higher tax bracket, trigger IRMAA surcharges, and even cause a portion of your Social Security benefits to become taxable if you’ve already begun collecting. The goal is to be strategic, not aggressive. Converting “up to the top” of a tax bracket — and not one dollar more — is the discipline that makes this strategy work.

Another frequent error is using the converted funds to pay the tax bill. If you withdraw money from your IRA to cover the taxes on a conversion, you’re reducing the amount that goes into your Roth and potentially incurring a 10% early withdrawal penalty if you’re under 59½. Ideally, you should pay the taxes on a Roth conversion from a separate taxable account — a checking account, savings, or a non-qualified brokerage account. This preserves the full value of the conversion inside the Roth.

A third mistake is ignoring state taxes — though this one is less of a concern for us here in Florida. Since Florida has no state income tax, Treasure Coast retirees already have a built-in advantage when executing a Roth conversion strategy. You only need to worry about the federal tax impact, which simplifies the math considerably. However, if you recently relocated to Stuart or Port St. Lucie from a high-tax state like New York or New Jersey, make sure your prior state won’t try to claim taxes on conversions done after your move. Establishing clear Florida residency before converting is an important step.

Finally, some retirees make the mistake of waiting too long. Once RMDs begin at age 73 (or 75 for those born in 1960 or later), your taxable income floor rises, and the conversion window narrows. The earlier you start planning your Roth conversion strategy, the more years you have to spread out conversions and keep yourself in lower tax brackets.

Why This Matters for Treasure Coast Retirees

Living on the Treasure Coast offers retirees a wonderful combination of natural beauty, warm weather, and a favorable tax environment. Florida’s lack of a state income tax is a significant advantage that many retirees from higher-tax states don’t fully leverage. If you’ve moved to Stuart, Jensen Beach, or Palm City from the Northeast or Midwest, you’re already in a lower-tax environment — and a Roth conversion strategy lets you double down on that advantage by shifting money into permanently tax-free accounts while you’re in the lowest federal brackets of your life.

Many retirees here on the Treasure Coast have accumulated substantial balances in 401(k)s and traditional IRAs from decades of working and saving. While that’s a wonderful accomplishment, it also means a ticking tax time bomb. Every dollar in those accounts will eventually be taxed — either when you withdraw it or when your heirs inherit it. Under current law, non-spouse beneficiaries must empty an inherited IRA within 10 years, which can create enormous tax burdens for your children. A Roth conversion strategy isn’t just about your taxes — it’s about protecting your family’s financial legacy.

At 1715tcf.com, we frequently discuss how retirees can take a proactive approach to tax planning. The Roth conversion conversation is one of the most impactful topics we cover because it touches on so many aspects of retirement — income, taxes, healthcare costs, estate planning, and financial peace of mind. If you haven’t explored this yet, now is the time.

Getting Started: Steps to Build Your Roth Conversion Plan

If you’re ready to explore whether a Roth conversion strategy makes sense for your situation, here are some practical steps to get started. Remember, this is educational guidance — your specific circumstances will determine the right approach, and working with a qualified financial professional is always recommended.

• Calculate your current taxable income. Start by understanding where you stand today. What income do you currently have from pensions, Social Security, part-time work, or investment earnings? This determines which tax bracket you’re starting from and how much “room” you have to convert.
• Identify your target tax bracket. Decide how high you’re comfortable going. Many retirees aim to fill the 12% or 22% bracket. Your advisor can help you model different scenarios to find the sweet spot for your Roth conversion strategy.
• Map out your conversion timeline. How many years do you have before Social Security begins? Before RMDs start? This determines how many conversion years you have and how much you can potentially move into a Roth over time.
• Check IRMAA thresholds. If you’re near age 65 or already on Medicare, make sure your conversions won’t trigger unnecessary premium surcharges. Model the two-year lookback carefully.
• Set aside funds for the tax bill. Make sure you have cash or liquid assets outside of your IRA to cover the taxes on each conversion. Don’t pay taxes from the converted funds themselves.
• Review annually and adjust. Tax laws change, income fluctuates, and market conditions vary. A Roth conversion strategy isn’t a set-it-and-forget-it plan. It requires annual review and recalibration to stay optimized.

The most important thing is to start the conversation. Many retirees we talk to on the Treasure Coast wish they had begun their Roth conversion strategy a few years earlier. The gap years between retirement and Social Security are finite, and once they’re gone, the opportunity shrinks significantly. Even if you start with a modest conversion, getting the process underway gives you more options and more flexibility down the road.

A thoughtful Roth conversion strategy is one of the most powerful tools available to retirees who want to take control of their tax future. It’s not about avoiding taxes altogether — it’s about paying them on your terms, at the lowest rates available, during the years when you have the most control. For Treasure Coast retirees enjoying the Florida sunshine, this strategy can be the difference between a good retirement income plan and a great one.

If you’d like to learn more, we encourage you to listen to our podcast episode, “Roth Conversion: Slash Taxes Before Social Security,” where we walk through real-world scenarios and answer the most common questions we hear from retirees in the Stuart area. And if you’re ready to explore what a Roth conversion strategy might look like for your unique situation, don’t hesitate to reach out to a qualified financial advisor who can help you build a personalized plan.

This content is for educational purposes only and does not constitute investment advice. Past performance is not indicative of future results. Please consult a qualified financial professional before making any financial decisions.