Roth Conversion at 64 With a $1.4M IRA: How Filling the 22% Bracket Before RMDs Saves $58,000 in Taxes and IRMAA Surcharges
Denise, 64, Has a $1.4M IRA and No Idea She's Sitting in the Best Tax Window of Her Life
Denise retired six months ago. She has $1.4M in a traditional IRA, about $200,000 in a taxable brokerage account, and a small pension plus interest income totaling $25,000 a year. She hasn't touched Social Security yet — she's planning to claim at 70 to maximize the monthly check. Her RMDs don't start until 73, per SECURE 2.0's updated schedule.
For the next several years, Denise's taxable income is lower than it will ever be again in retirement. Most people look at that as a nice, quiet stretch before the "real" retirement income kicks in. An actuary looks at it as a closing window to pay tax at 12% or 22% on money that would otherwise be taxed at 22%, 24%, or worse — plus Medicare surcharges — starting at 73.
This is the calculation nobody runs until it's too late to fix. Let's run it.
The Tax Valley: Why Ages 64 Through 69 Matter More Than Any Other Year of Retirement
Between the year you stop earning a paycheck and the year Social Security and RMDs both show up, most retirees have a multi-year gap where taxable income is unusually low. For Denise, that's ages 64 through 69 — six years before Social Security starts at 70 and nine years before her first RMD at 73.
During this window, her taxable income (after the standard deduction, roughly $18,000 for a single filer 65 and older in 2026) is close to zero. That means the first tens of thousands of dollars she converts from her IRA to a Roth IRA get taxed at 10% and 12%, not the 22%–24% she'll likely pay once RMDs and Social Security stack on top of each other.
This is the same "tax valley" concept covered in Roth Conversion at 63 vs. Waiting for RMDs at 73 — Denise's version just has a slightly longer runway because she's delaying Social Security to 70 instead of 67.
Step 1: What Happens If Denise Does Nothing
If Denise leaves her $1.4M IRA alone and lets it grow at a conservative 6% annually until her first RMD at 73:
$1,400,000 × 1.06⁹ = $2,365,000 (approximate balance at age 73)
SECURE 2.0's Uniform Lifetime Table sets the divisor at age 73 at 26.5. That produces a first-year RMD of:
$2,365,000 ÷ 26.5 = $89,250
Add taxable Social Security (with delayed claiming, roughly $40,000/year, 85% of which is taxable = $34,000) and her other income of $25,000, and her Modified Adjusted Gross Income at 73 lands around $148,250. That's not just into the 22% bracket — it's deep into the third IRMAA surcharge tier for Medicare Part B and Part D.
Step 2: The Roth Conversion Math — Filling the 22% Bracket Now
Instead, Denise converts $45,000/year from her IRA to a Roth IRA for six years (ages 64–69), stacking it on top of her $25,000 other income:
| Item | Amount |
|---|---|
| Other income | $25,000 |
| Standard deduction (65+, single) | -$18,000 |
| Taxable income before conversion | $7,000 |
| Roth conversion | +$45,000 |
| Taxable income after conversion | $52,000 |
Running $52,000 of taxable income through 2026's single-filer brackets (10% up to ~$12,150, 12% up to ~$49,400, 22% above that):
- $12,150 × 10% = $1,215
- $37,250 × 12% = $4,470
- $2,600 × 22% = $572
- Total tax: $6,257
Without the conversion, her tax on $7,000 of taxable income is about $700. So the conversion costs roughly $5,557 in incremental tax per year, or about $33,000 total across six years — an effective rate near 12%.
This is exactly the kind of bracket-filling calculation Lontevis runs automatically once you enter your own income, deductions, and IRA balance — no manual bracket math required.
Step 3: What This Does to Her RMD (and Why It Matters More Than the Conversion Tax)
Removing $270,000 from the IRA over six years (before it compounds) changes the growth trajectory:
$1,130,000 × 1.06⁹ = $1,909,000 balance at 73
$1,909,000 ÷ 26.5 = $72,038 first-year RMD — a reduction of about $17,200/year in forced taxable income, every year, for the rest of her RMD-paying life.
Step 4: The IRMAA Cliff Nobody Warns You About
This is where the math gets underrated. Medicare's Income-Related Monthly Adjustment Amount (IRMAA) uses a two-year lookback on MAGI and applies in cliff-edge tiers — cross a threshold by $1, and you pay the full surcharge for that tier, not a prorated amount.
| Scenario | MAGI at 73 | IRMAA Tier |
|---|---|---|
| No conversion | ~$148,250 | Tier 3 (higher surcharge) |
| With conversion | ~$131,000 | Tier 2 (lower surcharge) |
The difference between Tier 2 and Tier 3 on combined Part B and Part D premiums runs roughly $1,800/year in 2026 dollars. Over a 16-year RMD-paying stretch (using SSA period life table assumptions for someone currently 64), that's about $28,800 in avoidable Medicare surcharges — separate from the income tax savings.
Step 5: Net Lifetime Savings
| No Conversion | Roth Conversion | |
|---|---|---|
| Conversion tax paid (years 64–69) | $0 | ~$33,000 |
| Extra income tax on RMDs, 16 years | ~$63,300 | $0 (avoided) |
| IRMAA surcharge difference, 16 years | ~$28,800 | $0 (avoided) |
| Net lifetime cost/benefit | Baseline | ~$58,000 saved |
That $58,000 isn't a guess — it's the direct result of moving income from Denise's low-bracket years into a Roth IRA before RMDs and Social Security both arrive and push her into a higher, cliff-triggering bracket. This is the same mechanism explored in SECURE 2.0 RMD Age 73 + Rising 2027 COLA, where a larger IRA balance produces an even bigger avoidable tax bill.
Where 401(k) Annuities Fit In — And Where They Don't
A recent CNBC piece noted that annuity options are becoming more common inside 401(k) plans, as plan sponsors respond to worker anxiety about outliving savings. For some retirees, an in-plan annuity or a Qualified Longevity Annuity Contract (QLAC) can shrink the RMD-generating balance the same way a Roth conversion does — up to $210,000 (2026 indexed limit) can be carved out of an IRA and excluded from RMD calculations until payments begin, often around age 85.
But an annuity purchase locks in a decision you can't easily reverse. A Roth conversion is more flexible: you control the amount every single year based on that year's income, and you can stop, slow down, or accelerate depending on market conditions or tax law changes. For Denise, the conversion strategy gives her more control over the outcome than handing a chunk of her IRA to an insurer.
Why the Current Rate Environment Changes the "Pay Tax Now vs. Later" Math
Mortgage rates have been stuck near current levels through the first half of 2026, and short-term Treasury and CD yields are sitting around 4%–4.5%. That matters here because the "pay tax now vs. later" decision is really a discounted cash flow problem — you're comparing a known tax cost today against an uncertain tax cost years from now. With safe yields around 4%, the opportunity cost of paying $33,000 in tax today is measurable: that money, left invested, would need to grow enough to outpace the $92,000+ in future tax and IRMAA savings it prevents. At current rates, it doesn't come close. When rates were near zero, this trade-off looked different.
The Variables That Change YOUR Answer
Denise's numbers only apply to Denise. Your answer depends on:
- IRA/401(k) balance and growth assumptions — a $700,000 balance produces a very different RMD than $1.4M
- Current marginal tax bracket — if you're still working part-time or have rental income, your "valley" may be shallower or nonexistent
- Filing status — married couples get wider brackets but also combine both spouses' future RMDs
- Health and life expectancy — a shorter expected retirement reduces the number of years you'd otherwise pay elevated RMD-driven taxes, which shrinks the benefit of converting
- Social Security claiming age — claiming earlier shortens your low-income window; delaying to 70, like Denise, extends it
- State income tax — some states don't tax retirement income at all, which changes the math significantly
- Whether you're leaving the IRA to heirs — under the SECURE Act's 10-year rule, an inherited traditional IRA can push your heirs into higher brackets than you'd ever pay yourself, which is covered in Inherited IRA 10-Year Rule + SECURE 2.0 RMD at 73
Run Your Own Numbers Before the Window Closes
The tax valley between retirement and RMDs doesn't stay open forever, and it doesn't wait for you to get around to the spreadsheet. Every year you don't convert is a year of low-bracket space that disappears — you can't go back and use 2026's low income in 2029.
Lontevis models this exact scenario against your specific IRA balance, income, filing status, and Social Security claiming plan, so you can see your own bracket-filling target, your own IRMAA tier risk, and your own net lifetime savings number — not Denise's. Run your numbers at lontevis.smarttechinvest.com before this year's tax valley closes.
Sources
- Trump administration's limits on student loan forgiveness program are blocked. What to know — CNBC Personal Finance
- Annuity options are growing in 401(k)s, but adoption remains limited — CNBC Personal Finance
- My Credit Card Bills Were Spiraling Every Month — Until I Tried This — NerdWallet Retirement
- Mortgage Rates Today, Wednesday, July 1: A Little Higher — NerdWallet Retirement
- July Mortgage Outlook: Rates Are Stuck, and We’ll Explain Why — NerdWallet Retirement