Roth Conversion at 65 With a 3.6% Social Security COLA: How Filling the 22% Bracket on $1.3M Saves $86,000 Before RMDs Hit at 73

The math problem hiding inside three headlines

Three things happened in the same week this September. First, new government inflation data pointed to a 2027 Social Security COLA of 3.5% to 3.6% — the highest cost-of-living adjustment in three years, according to new estimates covered by CNBC. Second, persistent inflation (driven largely by energy prices tied to the Iran war) strengthened expectations of another Fed rate move, which pushes bond yields higher. Third, mortgage rates crept back toward 7%.

None of these headlines mention Roth conversions. But if you're 63-67 with a large traditional IRA, they all land on the same spreadsheet: a bigger Social Security check raises your taxable income floor, higher bond yields raise your taxable interest income, and a still-expensive mortgage raises how much cash you need to pull from somewhere. All three shrink the "room" you have to convert IRA dollars to Roth at today's known tax rate before Required Minimum Distributions force the issue at 73.

Here's a worked example with a specific household. Your numbers — portfolio size, Social Security benefit, mortgage balance, health — will move every figure below. That's the point.

The scenario: $1.3M IRA, two spouses, both 65

• Traditional IRA: $1,300,000
• Taxable brokerage account: $150,000, mostly bonds and dividend stocks
• Combined Social Security benefit (2026): $52,000/year
• No pension, no mortgage debt (we'll revisit that assumption later)

Step 1: Apply the 2027 COLA. Using the high end of the CNBC-reported estimate (3.6%), this household's Social Security rises to roughly $53,900/year starting in 2027. With provisional income this high, 85% of that benefit is taxable — about $45,800.

Step 2: Add investment income at higher rates. A year ago, that $150,000 taxable account earned closer to 3.5% in interest and dividends. With yields elevated ahead of an anticipated Fed rate move, NerdWallet's coverage points to savers earning meaningfully more on cash and short bonds — call it 5% now, or $7,500/year, up from roughly $5,250.

Step 3: Find the bracket ceiling. After the standard deduction (roughly $34,700 for a married couple both 65+, using 2026 IRS figures), this household's baseline taxable income is about $46,000 — comfortably inside the 12% bracket. The top of the 22% bracket for married filers sits around $206,700 in 2026. That leaves roughly $160,700 of room to convert traditional IRA dollars to Roth this year without spilling into the 24% bracket.

The rate hike didn't destroy that room — it trimmed it by about $2,250 (the extra taxable interest). That's a real but modest effect, which is the calm, accurate way to think about it: rising rates nudge the math, they don't blow it up.

Why the room matters: what happens if you do nothing

If this couple takes no action and lets the $1.3M IRA compound at 6% annually for the eight years until RMDs begin at 73, the account grows to roughly $2.07M. Using the IRS Uniform Lifetime Table divisor of 26.5 at age 73, the first-year RMD alone is about $78,200 — forced ordinary income, stacked on top of a Social Security benefit that's also grown with COLA increases over those eight years.

That combination pushes taxable income into the 22-24% range in the very first RMD year, and it keeps climbing as the account continues growing faster than the shrinking divisor draws it down. This is the mechanism behind the RMD-driven tax spike covered in more detail in SECURE 2.0 RMD age 73 and the rising 2027 COLA — a bigger COLA doesn't just raise your benefit, it raises the income floor that RMDs land on top of.

There's a second cost that's easy to miss: IRMAA. Medicare Part B and Part D premium surcharges are based on modified adjusted gross income from two years prior. A household whose RMD-driven income crosses the first IRMAA tier pays an extra few thousand dollars per person, per year, in surcharges — for as long as their income stays elevated. Since RMDs generally rise for years after age 73, that's not a one-time hit; it's a recurring one.

Three conversion strategies, compared

Below is a simplified comparison of three approaches to that same $1.3M IRA, using the assumptions above (6% growth, 2026 brackets held roughly flat, an 8-year window before RMDs begin, and a household that stays in the same COLA-adjusted Social Security bracket throughout).

Strategy	Annual conversion	Total converted (8 yrs)	Tax paid now	RMD at 73	IRMAA risk	Est. lifetime tax + IRMAA
No conversion	$0	$0	$0	~$78,200	High — likely 2 tiers above baseline for most of retirement	~$362,000
Moderate ladder	$75,000	$600,000	~$132,000	~$40,000	Moderate — intermittent single-tier crossings	~$312,000
Aggressive bracket-fill	$150,000	$1,200,000	~$276,000	~$5,000	Low — RMD small enough to stay in existing low bracket	~$276,000

The aggressive bracket-fill strategy pays more tax today ($276,000 versus $0) but ends up with a lower lifetime total once you account for avoided bracket creep and avoided IRMAA surcharges over a multi-decade retirement: $362,000 minus $276,000 is an $86,000 lifetime difference in this example. That's the headline number, and it's entirely a function of paying tax now at a known 22% rate instead of later at an uncertain, likely higher blended rate plus surcharges.

This is the kind of analysis Lontevis runs for you — so you don't have to build the spreadsheet yourself, adjust it every time a COLA estimate changes, or guess at your own bracket ceiling.

Where the mortgage rate headline actually matters

We assumed no mortgage above. If this household is instead carrying a $250,000 balance at a rate refinanced years ago at 3.5%, the 7% mortgage rates NerdWallet reported this month are irrelevant to their monthly payment — but they're very relevant to anyone considering paying off that mortgage using IRA withdrawals, or anyone still house-shopping in retirement. Pulling an extra $50,000 from the IRA to reduce or eliminate a mortgage is itself a withdrawal that consumes bracket room and could push a Roth conversion year into the 24% bracket instead of stopping at 22%. If a mortgage is still in the picture, the withdrawal-order decision changes — see the tradeoffs in Social Security at 63 vs 67 vs 70 with a mortgage still on the books for how debt service interacts with claiming and withdrawal timing.

The COLA feedback loop most people miss

Here's the part that's easy to overlook: a higher COLA is good news for your monthly check, but it's a headwind for Roth conversion planning specifically. Every dollar the COLA adds to your Social Security benefit is a dollar that (at an 85% inclusion rate) raises your taxable income floor — which means less room under the 22% or 24% bracket ceiling before a conversion starts spilling into the next bracket. A 3.6% COLA on a $53,900 benefit adds roughly $1,940 to next year's benefit, and roughly $1,650 of that becomes taxable. That's not enough to change your strategy on its own, but stacked across eight years of conversions, it compounds — which is exactly why a static, one-time projection undersells the problem. The break-even math between claiming ages also shifts as COLA estimates change; that dynamic is covered in Social Security at 62 vs 67 vs 70 with rising inflation tipping the scale toward delay.

What actually determines your number

Every dollar figure above is specific to this household's IRA balance, Social Security benefit, growth assumption, and bracket. Change any one input and the optimal ladder size changes too:

• A larger IRA ($2M+) often can't be fully converted inside the 22% bracket in eight years — you're choosing which brackets to fill and for how long, a tradeoff worked through in Roth conversion at 64 filling the 22% bracket on a $1.4M IRA.
• A lower Social Security benefit leaves more room to convert without COLA increases squeezing the ceiling as fast.
• Health and life expectancy matter more than most people assume: a shorter time horizon reduces the value of paying tax now for tax-free growth later, while a family history of longevity strengthens the case for converting aggressively.
• A taxable brokerage account weighted toward capital gains instead of interest behaves differently under a rate hike — gains realized at 0% or 15% don't compete with ordinary-income bracket room the way interest income does.

The mechanics compound further if a spouse's contribution decision or an inherited account enters the picture — see how an $8,000 contribution choice ripples into IRMAA in Traditional IRA vs Roth by April 15.

Run your own numbers before you convert

A 3.6% COLA estimate, a possible Fed rate move, and mortgage rates near 7% aren't reasons to panic — they're inputs. The strategic response is the same one a retirement actuary would give you: model the bracket math with your actual IRA balance, your actual Social Security benefit, and your actual growth assumptions, then decide how much to convert and when. You can model this for your specific situation at Lontevis, where the same bracket-fill, RMD-projection, and IRMAA-threshold math from this example runs against your own numbers instead of a hypothetical couple's.

The $86,000 in this scenario is illustrative, not a promise — your household's version of this calculation could be smaller, larger, or point toward a completely different ladder size. The only way to know is to run it.

Sources

• Social Security COLA for 2027 may be 3.5% to 3.6%, new estimates show — the highest in 3 years — CNBC Personal Finance
• What a Fed Rate Hike Would Mean for Investors and Savers — NerdWallet Retirement
• Mortgage Rates Today, Friday, September 11: Just Below 7% — NerdWallet Retirement
• Here’s the inflation breakdown for August 2026 — in one chart — CNBC Personal Finance
• 7 Reasons NerdWallet Calls Chase Sapphire a “Must-Have for Travelers” — NerdWallet Retirement