Roth Conversion Strategy 2026: When to Convert and How Much
OBBBA made TCJA rates permanent in July 2025. The "convert before the sunset" urgency is gone, but smart conversion strategy is still worth hundreds of thousands of dollars.
What Changed in 2025
Before OBBBA passed in July 2025, the TCJA tax cuts were set to expire after 2025. That created urgency to convert Traditional IRA money to Roth while rates were lower. Now that OBBBA made those rates permanent, the urgency has shifted.
The strategy is still valuable, but for different reasons: bracket-filling during low-income years, RMD avoidance before age 73, and estate planning. The permanent 10-37% bracket structure gives you a stable environment to plan multi-year conversions.
Bracket-Filling Strategy
The idea is simple: convert just enough Traditional IRA money to fill up your current tax bracket without spilling into the next one. Here are the 2026 brackets with conversion room at common income levels:
| Tax Rate | Single Bracket Range | Married Bracket Range |
|---|---|---|
| 10% | $0 - $11,925 | $0 - $23,850 |
| 12% | $11,926 - $48,475 | $23,851 - $96,950 |
| 22% | $48,476 - $105,775 | $96,951 - $211,550 |
| 24% | $105,776 - $199,225 | $211,551 - $398,450 |
| 32% | $199,226 - $255,225 | $398,451 - $510,450 |
| 35% | $255,226 - $591,975 | $510,451 - $721,950 |
| 37% | Over $591,975 | Over $721,950 |
Example: Bracket-Filling Conversion
You are single with $50,000 taxable income. The 22% bracket ends at $105,775. That means you have $55,775 of room in the 22% bracket. Convert that amount from Traditional to Roth, pay 22% tax on it now, and save yourself from paying 24% or higher on future RMDs.
IRMAA Cliff Warning
Converting too much in a single year can push your MAGI above Medicare IRMAA thresholds, triggering significant surcharges on Part B and Part D premiums. These are based on income from two years prior.
| MAGI (Single) | MAGI (Married) | Monthly Part B Surcharge | Annual Extra Cost |
|---|---|---|---|
| Up to $103K | Up to $206K | $0 | $0 |
| $103K-$129K | $206K-$258K | +$74.00 | +$888/person |
| $129K-$161K | $258K-$322K | +$185.00 | +$2,220/person |
| $161K-$193K | $322K-$386K | +$295.90 | +$3,551/person |
| $193K-$500K | $386K-$750K | +$406.90 | +$4,883/person |
| Over $500K | Over $750K | +$444.00 | +$5,328/person |
Part D (drug coverage) surcharges are additional. For a married couple both on Medicare, IRMAA can cost $10,000+ per year.
Best Times to Convert
Career break or sabbatical
Your taxable income drops significantly. Convert enough to fill the lower brackets. A $50K conversion at 12% costs $6,000 in tax. The same conversion during peak earning years at 32% costs $16,000.
Early retirement (before Social Security)
The years between retirement and Social Security at 62-70 are a conversion goldmine. Your taxable income may be near zero, giving you room to convert at 10-12% instead of the 22-24% you paid while working.
Year of large deductions
A year with significant itemized deductions (large medical expenses, charitable donations, casualty losses) reduces your taxable income and creates conversion room.
Market downturn
If your Traditional IRA drops 30%, the same number of shares converts at a lower dollar value, meaning less tax. When the market recovers, the growth happens inside the Roth, tax-free.
Multi-Year Conversion Strategy
If you have a large Traditional IRA balance ($300K to $1M+), converting all at once pushes you into the 35% or 37% bracket. Instead, spread the conversion over 7 to 10 years:
Example: $500K Traditional IRA
Lump Conversion
Convert $500K in one year
~$155,000 in tax
Pushes into 35-37% bracket, triggers IRMAA
Spread Over 8 Years
Convert ~$62,500/yr
~$100,000 in tax
Stays in 22-24% bracket, avoids IRMAA
Savings from spreading: approximately $55,000 in avoided taxes and surcharges.
The Pro-Rata Rule
If you have pre-tax money in any Traditional, SEP, or SIMPLE IRA, you cannot convert just the non-deductible (after-tax) portion. The IRS treats all your Traditional IRA balances as one pool and applies the pro-rata rule:
Example
- Pre-tax Traditional IRA balance: $92,500
- Non-deductible contribution: $7,500
- Total: $100,000
- Pre-tax percentage: 92.5%
If you convert $7,500, the taxable portion is $7,500 x 92.5% = $6,937.50. Only $562.50 is tax-free.
Solution
Roll your pre-tax Traditional IRA balance into your employer's 401(k) plan first (most plans accept incoming rollovers). This removes the pre-tax money from the IRA pool. Then your backdoor or conversion only includes after-tax money.
Tax Filing for Conversions
Report every Roth conversion on IRS Form 8606 with your tax return. This form tracks your cost basis (non-deductible contributions) and ensures you are not double-taxed.
Large conversions may require estimated tax payments during the year to avoid an underpayment penalty. The safe harbour is paying 100% of last year's tax liability (or 110% if AGI exceeds $150K) through withholding and estimated payments.