Roth Conversion to Avoid RMDs: The Tax Bracket Playbook

What Required Minimum Distributions Actually Cost

A required minimum distribution is generally the annual withdrawal that current law requires from pre-tax retirement accounts, calculated by dividing the prior year-end balance by a life expectancy factor from IRS Uniform Lifetime Table III. The amount is generally taxed as ordinary income. RMDs stack on pension income, Social Security, investment income, and part-time wages, and may push a retiree from the 22% bracket into the 24% or 32% bracket.

The Compounding RMD Problem: Why a Larger IRA Later Means More Tax Now

A $500,000 traditional IRA at age 65 growing at a blended 7% annual return reaches approximately $860,000 by age 73. The first-year RMD on $800,000 (Uniform Lifetime Table III divisor 26.5) is approximately $30,200. Because the IRA continues to grow, RMDs grow with it: by age 80, the annual required distribution on a $1 million balance (divisor 20.2) is approximately $49,500.

How RMDs Interact With Social Security, IRMAA, and Capital Gains Rates

RMDs increase provisional income for Social Security taxation, which can cause up to 85% of benefits to become taxable under IRC Section 86. They can push MAGI above IRMAA thresholds for Medicare Part B and Part D surcharges, costing thousands in additional premiums two years later. Higher AGI can also lift long-term capital gains and qualified dividends into a higher rate tier.

How Roth Conversions Reduce or Eliminate Future RMDs

A Roth conversion moves balances from the traditional account to the Roth side. RMDs for future years are calculated against the prior year-end traditional balance, so a smaller traditional balance produces a smaller RMD. Convert the entire traditional balance before age 73 and the RMD problem on that balance is generally eliminated under current law.

Why Roth IRAs Have No RMD Requirement Under Current Law

Roth IRAs are not subject to RMDs during the original owner's lifetime. SECURE 2.0 also eliminated RMDs on Roth 401(k) balances starting in 2024. Once a balance is on the Roth side, the owner controls the timing of distributions for life.

The Math Behind Phased Pre-RMD Conversions

An investor with $600,000 in a traditional IRA who converts $80,000 each year for five years has moved $400,000 to the Roth side. The remaining $200,000 generates a much smaller first-year RMD than the original $600,000 would have. The strategy depends on outside capital for the conversion tax. Pulling the tax payment from the IRA itself triggers a taxable distribution on top of the conversion and may trigger the 10% early-withdrawal penalty if the owner is under 59.5.

The Tax Bracket Playbook: A Multi-Year Conversion Strategy

The standard term-of-art for the multi-year approach is a creeping conversion: a staged sequence of annual conversions sized to fill the investor's current bracket without spilling into the next.

Finding the Annual Conversion Ceiling (the Bracket-Fill Number)

The bracket-fill number is the gap between projected taxable income and the top of the current marginal bracket. Start with estimated taxable income (pension, Social Security if started, taxable dividends and interest, part-time income), subtract the standard or itemized deduction, and the remaining gap is the conversion ceiling. A single filer with $40,000 of pension and Social Security income minus a $15,000 standard deduction has roughly $25,000 of taxable income. The 22% bracket ceiling for a single filer in 2026 is approximately $103,350, leaving roughly $78,000 of bracket-fill room.

The SECURE 2.0 Change: RMD Age Is Now 73, Giving Investors More Runway

Pre-SECURE Act, the RMD age was 70.5. The SECURE Act of 2019 raised it to 72. SECURE 2.0 (Consolidated Appropriations Act of 2023) raised it to 73 for those born between 1951 and 1959, and to 75 for those born in 1960 or later. The required beginning date is April 1 of the year following the year the owner reaches RMD age. The additional runway can mean staying in a lower bracket on every annual slice.

Converting IRA to Roth After Age 72: What the Calculator Crowd Is Getting Wrong

Conversions are still permitted at any age, but the mechanics change once RMDs begin. The full annual RMD is generally required to be taken before any additional amount may be converted, and the RMD itself is generally not eligible for conversion. The late-start conversion tax is paid on top of the RMD already taxed, which can lift the converter into a higher bracket than the calculator alone suggests.

The NAV Discount Multiplier: Lowering the Tax Cost of Each Conversion

A Roth conversion is taxed on the fair market value of the asset moved from traditional to Roth, not its nominal or book value. When the asset is an illiquid private real estate interest, FMV is established by a third-party appraisal firm engaged by the sponsor. The complete guide to discounted Roth conversions covers the legal basis and valuation mechanics.

How a Private Real Estate Position May Reduce the Taxable Conversion Amount

When the converting asset is a privately held LP interest in a real estate syndication or fund, the sponsor's appraisal firm generally values the partnership interest using lack-of-marketability and minority-interest discounts under Revenue Ruling 59-60 factors and reports the discounted value to the IRA custodian. Investors do not commission their own appraisal. If the appraisal establishes a 20% discount on a $60,000 nominal LP interest, the value reported to the custodian would be $48,000. At a 22% marginal rate, the federal tax on the conversion would be approximately $10,560, compared to roughly $13,200 on the full nominal amount. Not all offerings include NAV-discounted valuations. Anchor1031 makes no representations regarding the availability of any specific discounted offering.

Why Ground-Up Multifamily Development Fits the Retiree Conversion Profile

Ground-up multifamily development LP interests typically carry higher lack-of-control and lack-of-marketability discounts than stabilized assets because there is no operating income during construction and lease-up and the LP interest is illiquid through stabilization. Typical NAV discount ranges sit between 25 and 40%. The asset class is well-understood, and a typical 7-year hold horizon aligns with the pre-RMD conversion window for a 65-to-70-year-old.

Worked Example: Richard Converts $480K Over 5 Years Before RMDs Hit

Consider the following hypothetical scenario for illustrative purposes only. Richard is 67, married filing jointly, recently retired, with $480,000 in a traditional rollover IRA, $120,000 in an existing Roth IRA, and a $42,000 annual pension. He plans to defer Social Security until 70. After the MFJ standard deduction (~$30,000 in 2026), Richard has roughly $12,000 of taxable income before any conversion. The 22% bracket ceiling for MFJ in 2026 is approximately $96,950. Richard targets $60,000 per year over five years.

The Baseline: RMDs Starting at 73 Without Any Conversions

Without conversions, Richard's IRA could grow to roughly $720,000-$800,000 by age 73. The first-year RMD (divisor 26.5) is approximately $27,000-$30,000. By age 80, the annual RMD could exceed $45,000. Combined with Social Security (~$36,000 if claimed at 70) and the $42,000 pension, AGI regularly exceeds $130,000 in his late 70s, triggering IRMAA exposure and Social Security taxation.

The Playbook Approach: Annual Bracket-Filling Conversions at Ages 67-71

Richard converts $60,000 each year for five tax years, paying the tax from taxable savings rather than the IRA. At a 22% federal marginal rate, annual federal tax would be approximately $13,200. Five-year total would be approximately $66,000 paid from outside capital. Total moved to the Roth side: $300,000. The remaining traditional balance would be approximately $180,000, and the first-year RMD at 73 on that balance would be approximately $6,800, materially smaller than the baseline.

With NAV Discount: How a 30% Discount Changes the Math

Richard executes each annual conversion into a ground-up multifamily development LP interest building a 250-unit Class A apartment community with a 7-year hold horizon. Multifamily development carries higher lack-of-control and lack-of-marketability discounts than stabilized assets because there is no operating income during construction and lease-up and the LP interest is illiquid through stabilization. The sponsor's appraisal firm establishes a 30% NAV discount, within a typical 25 to 40% range for ground-up multifamily development, on each $60,000 nominal LP interest and reports $42,000 to the IRA custodian. Federal tax at 22% would be approximately $9,240 per year. Five-year total would be approximately $46,200. The same $300,000 of economic value moves to the Roth side. Hypothetical federal tax savings versus the no-discount path would be approximately $19,800.

In this illustration, if the deal exits at year 7 with capital returned plus any potential capital appreciation flowing back to the investor, the proceeds would sit in Richard's Roth IRA and subsequent qualified distributions would generally be income-tax-free.

Actual tax outcomes depend on individual circumstances. Consult a qualified tax professional before executing any conversion. All investments carry risk, including the loss of principal. Investors should read the risk factors in the private placement memorandum for each offering before investing.

6 Considerations for Running the Bracket Playbook

Consideration 1: Knowing the Bracket-Fill Number Before Converting

The bracket-fill number is generally the gap between projected taxable income and the top of the current marginal bracket. Converting blindly is one way investors may spill into a higher bracket. IRS brackets generally adjust annually for inflation, so investors may want to confirm the year's thresholds before locking in the conversion amount.

Consideration 2: Converting Before Social Security Begins When Possible

Conversions executed before Social Security claiming generally keep provisional income lower in the conversion years, which may reduce how much of any future benefit gets pulled into taxation. Deferring Social Security to age 70 also generally increases the eventual monthly benefit.

Consideration 3: Watching IRMAA Thresholds, Where a Dollar Over a Tier May Cost Thousands

IRMAA is a Medicare Part B and Part D premium surcharge generally triggered when MAGI exceeds certain thresholds. The first 2026 tier generally begins at approximately $103,000 (single) and $206,000 (MFJ). Tiers operate as cliffs, not gradients, and generally apply per person two years after the income year.

Consideration 4: Roth Conversions Are Generally Not Counted as Social Security Provisional Income

Roth conversions are generally not counted as earned income or as provisional income for Social Security taxation. The taxable income recognized at conversion does generally increase AGI, which may affect how much of Social Security is taxed in collection years.

Consideration 5: Qualified Charitable Distributions (QCDs) and Roth Conversions Generally Do Not Mix

QCDs are generally tax-free distributions of up to $108,000 in 2026 from a traditional IRA directly to a qualified charity, available to owners at least age 70.5. A QCD generally counts toward the year's RMD and is generally excluded from taxable income. QCDs generally come from the traditional IRA only, so retirees who plan to use them may want to leave enough on the traditional side.

Consideration 6: State Income Tax Matters Too

State income tax may apply to the conversion in the year it is taxed. An investor planning to relocate to a no-income-tax state in retirement may want to time larger conversions for the post-move years. The reverse is also true.

Common Mistakes With the Bracket-Filling Strategy

The bracket-fill playbook is one of the more widely modeled Roth conversion strategies, but most of the costly errors show up in execution rather than in the underlying math. The patterns below tend to recur for investors who run the strategy without coordinating across federal brackets, IRMAA tiers, state tax, and the first-money-out RMD rule.

Converting the RMD Itself (First-Money-Out Rule)

In any year the owner is subject to RMDs, the full annual distribution is generally required to be taken before any additional amount may be converted, and the RMD amount itself is generally not eligible for conversion. Attempting to convert dollars that should have satisfied the RMD may potentially create excise tax exposure two ways: under IRC Section 4974 for the RMD that was not taken (generally 25%, or 10% if corrected promptly), and under IRC Section 4973 as a 6% annual excise tax on the converted RMD dollars, which are treated as an excess Roth contribution until removed. A corrective distribution may be required to unwind it. Consult a qualified tax professional. Investors running the playbook in the year RMDs begin generally take the RMD first, then layer the bracket-fill conversion on top.

Crossing an IRMAA Bracket Mid-Year

IRMAA tiers generally operate as cliffs, not gradients. A conversion sized to fill the 22% or 24% federal bracket can quietly push MAGI a few hundred dollars over an IRMAA threshold and trigger a Medicare Part B and Part D premium surcharge that applies two years later, generally per person. The surcharge may persist for a full calendar year. Modeling MAGI against the IRMAA tier table before locking in the conversion amount is one pattern investors discuss with their advisor.

Ignoring State Tax Brackets

State income tax may apply to the conversion in the year it is taxed, and several states stack a graduated bracket on top of the federal liability. An investor optimizing only the federal bracket may end up paying a higher combined marginal rate than the model suggests. Investors planning a relocation to a no-income-tax state generally weigh whether deferring larger conversions until after the move produces a better combined result.

Front-Loading Conversions Before Lower-Bracket Gap Years Arrive

The cleanest bracket-fill windows are generally the post-retirement, pre-Social Security, pre-RMD years, when other taxable income is lowest. Converting aggressively while still working, or before pension and Social Security decisions are made, can mean burning conversion capacity at a higher marginal rate than the same dollars would have faced one or two years later. Mapping the full income timeline before the first conversion year generally produces a better sequence.

Over-Converting and Triggering NIIT

Under current law, the 3.8% Net Investment Income Tax under IRC Section 1411 generally applies to the lesser of net investment income or the amount by which MAGI exceeds $200,000 (single) or $250,000 (MFJ). A conversion does not itself create net investment income, but it lifts MAGI and can pull existing investment income into the NIIT base. Investors with meaningful taxable dividends, interest, or capital gains generally model the combined federal, IRMAA, and NIIT impact before sizing the annual conversion slice.

For the full Roth conversion mistakes list across all strategies, see Roth Conversion Mistakes.

Converting IRA to Roth After 72: The Late-Start Strategy

For readers who have already passed RMD age, the bracket-fill logic still applies. The mechanics change because the annual RMD has to be addressed first.

Yes, Conversions Are Still Allowed After 72 or 73

There is no IRS-imposed maximum age for Roth conversions under current law. An owner at 75, 80, or older may still convert balances, subject to the RMD-first rule.

The RMD-First Requirement

In any year the owner is subject to RMDs, the full annual distribution is generally required to be taken before any additional amount may be converted. The RMD itself is generally not eligible for conversion. Attempting to convert the RMD can create excise tax exposure two ways: the RMD that was not taken may be subject to the excise tax under IRC Section 4974 (generally 25%, or 10% if corrected promptly), and the converted RMD dollars are treated as an excess contribution to the Roth, subject to a 6% annual excise tax under IRC Section 4973 until removed. Consult a qualified tax professional.

When a Late Conversion Still Makes Sense

Late conversions still reduce future RMDs on the remaining traditional balance and eliminate the inherited-IRA 10-year-rule tax-compression problem for non-spouse heirs. The NAV discount mechanism applies at any age. See the inherited IRA Roth conversion under the SECURE Act guide for the heir-side mechanics.

FAQ: Roth Conversions and RMDs

Sources

This article references the following IRS publications and Internal Revenue Code sections.

• 26 U.S.C. Section 408, Individual Retirement Accounts (Cornell Law)
• 26 U.S.C. Section 408A, Roth IRAs (Cornell Law)
• 26 U.S.C. Section 401(a)(9), Required Minimum Distribution rules
• 26 U.S.C. Section 86, Social Security Benefits Taxation
• 26 U.S.C. Section 4974, Excise Tax on Failures to Distribute
• 26 U.S.C. Section 4973, Excise tax on excess contributions to tax-favored accounts
• IRS Publication 590-A, Contributions to Individual Retirement Arrangements
• IRS Publication 590-B, Distributions from Individual Retirement Arrangements
• IRS Form 8606, Nondeductible IRAs
• IRS Uniform Lifetime Table III, Life expectancy factors for RMD calculation
• SECURE 2.0 Act of 2022, Consolidated Appropriations Act of 2023, RMD age changes
• Revenue Ruling 59-60, Valuation of Closely Held Stock
• Medicare.gov IRMAA information, Part B and Part D premium thresholds