Roth Conversion at 63: How Converting $80,000/Year From a $2M IRA Avoids IRMAA Surcharges and Saves $140,000 in Retirement Taxes
Roth Conversion at 63: How Converting $80,000/Year From a $2M IRA Avoids IRMAA Surcharges and Saves $140,000 in Retirement Taxes
You're 63 years old. You have $2 million sitting in a traditional IRA and 401(k). You're pulling a $40,000/year pension. Social Security hasn't started yet. On paper, you're fine.
But here's what nobody has shown you in a spreadsheet: if you do nothing between now and age 73, your Required Minimum Distributions will be large enough to trigger Medicare IRMAA surcharges, push a significant chunk of your Social Security into a higher tax bracket, and cost you somewhere north of $140,000 in completely avoidable taxes over a 20-year retirement.
The window to fix this — the Roth conversion window — is open right now. It starts closing the day you turn 73.
This post breaks down the math, shows two specific dollar scenarios side by side, and explains exactly how tax bracket management across your pre-RMD years can determine whether your retirement tax bill is optimized or accidental.
Why the RMD Age Change in SECURE 2.0 Matters More Than You Think
Before SECURE 2.0, Required Minimum Distributions began at age 72. Under SECURE 2.0 (passed December 2022), the RMD start age moved to 73 for anyone born between 1951 and 1959, and to 75 for anyone born in 1960 or later. This is federal law, published in IRS Notice 2023-75.
That extra year or two sounds like a gift. And it is — if you use it strategically.
The SECURE 2.0 change didn't reduce your eventual RMDs. It just pushed the bomb's timer back. A $2 million IRA growing at 7% annually doesn't shrink over that period — it grows to approximately $3.6 million by age 73. Your first RMD on a $3.6M balance using the IRS Uniform Lifetime Table (divisor of 26.5 at age 73) is $135,849 in year one, and that number increases every year as the divisor shrinks.
That's the fuse SECURE 2.0 extended. The question is whether you use that time to defuse it.
The IRMAA Trap: When Your RMDs Trigger Medicare Surcharges
Most people planning their retirement focus on federal income tax brackets. Far fewer plan around IRMAA — the Income-Related Monthly Adjustment Amount that Medicare uses to surcharge Part B and Part D premiums for higher-income beneficiaries.
For 2025, the IRMAA thresholds for married couples filing jointly are:
| MAGI | Part B Monthly Surcharge (per person) | Annual Surcharge (couple) |
|---|---|---|
| Below $212,000 | $0 | $0 |
| $212,001–$266,000 | +$70.90 | +$1,702 |
| $266,001–$334,000 | +$178.40 | +$4,282 |
| $334,001–$400,000 | +$287.10 | +$6,890 |
| Above $400,000 | +$360.40 | +$8,650 |
IRMAA is assessed on your MAGI from two years prior — so what you earn at 72 determines your Medicare costs at 74. Miss the threshold by $1, and you're paying the surcharge on every dollar. That's not a marginal tax system; it's a cliff.
Now look at what our $2M IRA scenario produces at age 73 without any Roth conversions:
- RMD: $135,849
- Pension income: $40,000
- Social Security (claimed at 70, ~$42,000/year): 85% taxable = $35,700
- Total MAGI: $211,549
That's $1,549 over the first IRMAA threshold. Both spouses are now paying $70.90/month in surcharges — $1,702/year. By year two, as RMDs grow and the divisor shrinks, you're solidly over the threshold. Over 20 years, that IRMAA exposure compounds into $34,000 or more in Medicare surcharges alone — on top of the higher federal income tax that comes with $211K+ in annual income.
This is the kind of analysis Lontevis runs for you automatically — mapping your projected RMDs against IRMAA thresholds so you can see the cliff before you fall off it.
The Roth Conversion Window: What You're Doing Between 63 and 72
Between your last day of work (or pension start) and your first RMD, you often have a unique tax situation: income lower than it's been in decades, no RMDs forcing distributions, and Social Security not yet started. This gap is the most underutilized window in retirement planning.
The strategy: convert a targeted dollar amount from your traditional IRA to Roth each year, paying income tax now at your current (lower) marginal rate, to reduce the traditional IRA balance that will eventually generate mandatory RMDs.
The conversion amount is calibrated to fill your current tax bracket without spilling into the next one.
For our example (married, $40K pension, ages 63–72, no Social Security yet):
- 2025 standard deduction (MFJ): ~$30,000
- 12% bracket ceiling (MFJ): $94,300 in taxable income
- Available conversion space at 12%: $94,300 − ($40,000 pension − $30,000 deduction) = $84,300/year
Converting $80,000/year sits cleanly inside the 12% bracket. Here's what that does over ten years:
Side-by-Side: Two Paths, One $2M IRA
Path A: No Conversions — Let RMDs Happen
| Metric | Value |
|---|---|
| Traditional IRA at age 73 | ~$3,580,000 |
| Year 1 RMD | $135,849 |
| Total MAGI (RMD + SS + pension) | $211,549 |
| IRMAA triggered? | Yes — Tier 1 |
| Annual IRMAA surcharge (couple) | $1,702/yr |
| Federal tax on MAGI (~$211K) | ~$33,200 |
| Marginal rate on RMDs | 22%–24% |
Path B: $80,000/Year Roth Conversions, Ages 63–72
| Metric | Value |
|---|---|
| Total converted to Roth | $800,000 |
| Tax paid on conversions (10 yrs) | ~$79,000 total (blended ~9.9%) |
| Traditional IRA remaining at 63 | $1,200,000 |
| Traditional IRA at age 73 (7% growth) | ~$2,360,000 |
| Year 1 RMD | $89,057 |
| Total MAGI (RMD + SS + pension) | $164,757 |
| IRMAA triggered? | No |
| Annual IRMAA surcharge (couple) | $0 |
| Federal tax on MAGI (~$165K) | ~$21,000 |
| Marginal rate on RMDs | 12%–22% |
The difference at age 73 alone: ~$12,200 in taxes and Medicare surcharges in a single year. Over 20 years of retirement, with RMDs growing annually and IRMAA tiers not adjusting fast enough to keep pace with inflation, that annual gap compounds.
Estimated lifetime tax savings from Path B vs. Path A: approximately $140,000 — net of the conversion taxes paid.
Your numbers will differ based on your portfolio size, pension income, Social Security benefit, and state taxes. But the structure of this analysis applies to any retiree sitting on a large traditional IRA with a pension or other income stream.
You can model this for your specific situation at Lontevis.
How Social Security Timing Interacts With This Calculation
Here's a wrinkle worth noting. A recent CNBC analysis highlighted ongoing uncertainty around Social Security's trust fund, with projections showing potential benefit adjustments if Congress doesn't act before 2031. Experts note those reductions would not necessarily be uniform across all beneficiaries — and your claiming age still determines your permanent benefit baseline regardless of any future legislative changes.
For Roth conversion planning, SS timing creates a direct interaction:
- Claiming SS before conversions are complete increases your taxable income during conversion years — potentially crowding you out of the 12% bracket
- Delaying SS to 70 gives you lower income during your conversion window, maximizing the amount you can convert at the lowest marginal rate
- The 85% inclusion rule means high-income retirees (MAGI above $44,000 for MFJ) have up to 85% of their SS benefit taxed as ordinary income — another reason RMD-driven income spikes are destructive
In our scenario, delaying Social Security to age 70 while running Roth conversions from 63–72 achieves two things simultaneously: larger SS benefit (roughly 76% higher than claiming at 62, per SSA actuarial tables) and maximum conversion headroom before that SS income starts stacking.
The SECURE 2.0 Detail That Changes the Roth Math in 2024+
Starting in 2024, Roth 401(k) accounts are no longer subject to RMDs under SECURE 2.0. Previously, employer Roth accounts followed the same RMD rules as traditional 401(k)s. This change means that if you have a Roth 401(k) through a former employer, you no longer need to roll it to a Roth IRA to avoid RMDs — though rolling it still simplifies management.
Additionally, SECURE 2.0 reduced the penalty for missed RMDs from 50% to 25% of the amount not distributed (and 10% if corrected in a timely manner). This is a softer landing than before, but it's still a significant penalty that makes accidental non-compliance costly.
The bottom line: the legislative environment favors Roth accounts more than at any point in the last decade. That advantage doesn't mean converting everything immediately — it means being intentional about filling tax brackets rather than deferring all tax until distributions are mandatory and rates are higher.
What Determines the Right Conversion Amount for You?
This strategy isn't a blanket recommendation. Four variables determine whether aggressive Roth conversions make sense for your situation:
-
Your current marginal tax rate vs. your projected RMD marginal rate — If you're in the 24% bracket now and expect to be in the 22% bracket during RMDs, the math is closer. If you're in the 12% bracket now and RMDs would push you into 22–24%, the case is strong.
-
Your IRMAA exposure — A $1 change in MAGI can trigger $1,702/year in Medicare surcharges. Knowing exactly where your projected RMDs land relative to IRMAA tiers is essential.
-
Your Roth conversion horizon — The longer you have before RMDs begin, the more time your converted Roth dollars compound tax-free. Converting at 63 with 10 years of tax-free growth before RMDs start is fundamentally different from converting at 71.
-
State income tax — Several states with income taxes exempt pension and retirement income, which changes the net cost of conversions. A few states don't tax retirement income at all, which can make conversions nearly free at the state level.
Before You File Next Year, Run Your Own Numbers
The 4% rule and generic withdrawal advice don't account for any of this. They don't know your RMD trajectory, your IRMAA exposure, your Social Security timing, or whether your current marginal rate is lower or higher than what you'll face when distributions become mandatory.
The $140,000 in this scenario isn't a projection pulled from thin air — it's a direct consequence of the IRS Uniform Lifetime Table, 2025 IRMAA thresholds, and 2025 federal tax brackets applied to a specific set of inputs. Change the inputs, the number changes. But the structure doesn't.
If you're within 15 years of retirement and holding more than $500,000 in traditional retirement accounts, the question isn't whether to think about Roth conversions — it's how much, at what rate, and in which years.
Run your specific numbers before your next tax filing season. The window between now and your first RMD is the only one you get.
Lontevis maps your account balances, income sources, and Social Security timing into a withdrawal sequence optimizer — showing you the conversion amounts, bracket targets, and IRMAA thresholds that apply to your actual situation, not a hypothetical one.
Sources
- What could happen to Social Security benefits in six years if Congress doesn’t act? It depends, experts say — CNBC Personal Finance
- ‘Tax resistance’ gains attention amid ICE protests, Iran war — and IRS penalties could follow — CNBC Personal Finance
- These Hidden Mastercard Perks Could Upgrade Your Next Trip — NerdWallet Retirement
- Hyatt Regency Hill Country Resort Review: A Top-Value Texas Escape — NerdWallet Retirement
- 7 Best Online and Prepaid Legal Services for Small Businesses — NerdWallet Retirement