--- title: "Roth Conversions: Paying Taxes Today to Create More Flexibility Tomorrow" description: Learn how Roth conversions may affect Medicare premiums, health insurance credits, Social Security taxes, and future retirement income. image: https://blog.designfinancialgroup.com/hubfs/signal-2026-08-17-10-50-01-494.jpg --- [Skip to content](https://blog.designfinancialgroup.com/blog/roth-conversions-paying-taxes-today-to-create-more-flexibility-tomorrow#main-content) ![](https://blog.designfinancialgroup.com/hs-fs/hubfs/signal-2026-08-17-10-50-01-494.jpg?width=1774&height=887&name=signal-2026-08-17-10-50-01-494.jpg) # Roth Conversions: Paying Taxes Today to Create More Flexibility Tomorrow ![Richard Shupick](https://blog.designfinancialgroup.com/hs-fs/hubfs/Rich_Shupick_0073.jpg?width=48&height=48&name=Rich_Shupick_0073.jpg) Richard Shupick August 17, 2026 Imagine a hypothetical couple named Mark and Susan who retire at age 61. Their mortgage is nearly paid off, their children are independent, and most of their retirement savings are sitting in traditional retirement accounts. At first glance, the years between retirement and age 73 seem wonderfully quiet. From a tax efficiency perspective, however, those years may be among the most valuable of their retirement. Mark and Susan no longer receive full salaries. They have not started Social Security, they are not yet enrolled in Medicare, and required minimum distributions have not begun. This temporary period of lower taxable income may give them an opportunity to convert part of their traditional retirement savings to a Roth IRA. The conversion creates taxable income today. In exchange, it may provide a source of qualified tax free income later that can help them manage Medicare premiums, health insurance costs before age 65, and the taxation of Social Security benefits. The key is coordination. A Roth conversion can solve one income problem while accidentally creating another. What Happens During a Roth Conversion? A Roth conversion moves money from a traditional IRA or eligible retirement account into a Roth IRA. The amount converted is generally included in taxable income for that calendar year, except for any portion representing money that has already been taxed. There is no income limit that prevents someone from completing a Roth conversion. However, conversions completed after 2017 generally cannot be reversed. That makes careful planning before the transaction especially important. The conversion does not have to involve the entire account. Many retirees convert smaller amounts over several years, using the available space within a selected tax bracket. This approach can gradually reduce traditional retirement balances without creating one unusually large tax bill. Roth IRAs also do not require distributions during the original owner’s lifetime. By contrast, traditional retirement accounts generally become subject to required minimum distributions at age 73 under current law. Reducing the traditional account balance before that age may reduce future required distributions and the taxable income they create. Qualified Roth Withdrawals Can Help Manage Medicare Premiums Medicare does not reduce a retiree’s premium simply because money comes from a Roth account. The benefit is more precise: qualified Roth withdrawals generally do not appear in adjusted gross income and therefore do not increase the income Medicare uses to calculate its income related surcharges. In 2026, the standard Medicare Part B premium is $202.90 per month. A surcharge begins when the modified adjusted gross income reported on a 2024 tax return exceeds $109,000 for a single filer or $218,000 for a married couple filing jointly. The first surcharge raises the total Part B premium to $284.10 per person per month. Part D surcharges can also apply. Medicare ordinarily looks back two years when determining these premiums. Therefore, a large conversion at age 63 could affect Medicare premiums at age 65. Future thresholds will differ from the 2026 figures, but the two year lookback remains an important planning consideration. Once money is inside a Roth IRA and distributions are qualified, a retiree may be able to use that money for a vehicle, home repair, vacation, or other large expense without increasing Medicare income. Taking the same amount from a traditional IRA could increase taxable income and potentially cross an income related surcharge threshold. Retiring Before 65 Creates an Important Health Insurance Tradeoff People who retire before Medicare eligibility may purchase coverage through the Health Insurance Marketplace. The premium tax credit, sometimes informally associated with Obamacare subsidies, is based largely on household modified adjusted gross income. For Marketplace purposes, modified adjusted gross income generally begins with adjusted gross income and adds items such as tax exempt interest, untaxed foreign income, and the nontaxable portion of Social Security. Most traditional IRA and 401(k) withdrawals are counted. Qualified Roth distributions generally are not. For 2026, the temporary expansion of the premium tax credit has expired. Eligibility generally requires household income between 100 percent and 400 percent of the federal poverty level, although Medicaid rules and eligibility vary by state. The Marketplace generally uses the previous year’s poverty guidelines for the coverage year. Using the 2025 guidelines for 2026 coverage, 400 percent equals $62,600 for one person and $84,600 for a household of two in the contiguous United States. This creates a planning tension. Qualified Roth withdrawals can help a retiree keep Marketplace income lower, but the Roth conversion itself normally increases income during the year it is completed. A conversion that pushes household income above the applicable limit could reduce or eliminate the credit and may require repayment of advance credits when the tax return is filed. For someone retiring at 60, it may make sense to evaluate conversions during each year before Medicare, but not automatically try to maximize them. The cost of a conversion includes both its income tax and any Marketplace assistance that may be lost. Roth Income Can Affect How Much Social Security Is Taxed Social Security benefits are not always entirely tax free. The taxable portion depends on what is commonly called combined income. The calculation generally includes adjusted gross income, tax exempt interest, and one half of Social Security benefits. For a single filer, taxation can begin when combined income exceeds $25,000. For a married couple filing jointly, it can begin above $32,000. At higher income levels, up to 85 percent of Social Security benefits may be included in taxable income. The higher thresholds commonly associated with the 85 percent calculation are $34,000 for single filers and $44,000 for joint filers. These thresholds have not been indexed for inflation, so more retirees may encounter them over time. A Roth conversion completed while someone is collecting Social Security can increase combined income and cause more of the benefit to become taxable in that particular year. However, conversions completed before benefits begin may create a pool of qualified Roth money that can later be withdrawn without entering the combined income calculation. This is another reason the years after retirement but before Social Security and required minimum distributions may offer valuable planning opportunities. How to Convert Without Unnecessarily Crossing a Tax Bracket Tax brackets apply to taxable income, not directly to the size of the conversion. A thoughtful conversion calculation begins with projected income, deductions, capital gains, Social Security benefits, and other tax items for the entire year. For 2026, the 12 percent federal bracket ends at taxable income of $50,400 for single filers and $100,800 for married couples filing jointly. The 22 percent bracket ends at $105,700 for single filers and $211,400 for married couples filing jointly. The standard deduction is $16,100 for single filers and $32,200 for joint filers. Suppose Mark and Susan project $70,000 of taxable income before a conversion. On the surface, they appear to have $30,800 of space remaining in the 12 percent bracket. Yet that does not automatically mean a $30,800 conversion is appropriate. The conversion could affect the taxable portion of Social Security, Marketplace credits, capital gains, Medicare premiums in a later year, and state income taxes. The practical method is to prepare a tax projection late enough in the year to have reliable income information, while leaving enough time to complete the transaction before December 31. The calculation should test several conversion amounts rather than focusing only on the top of a bracket. Anyone already subject to a required minimum distribution must generally take that distribution before converting additional IRA money. The required distribution itself cannot be converted. People with nondeductible IRA contributions must also consider the proportional taxation rules that apply across their traditional, SEP, and SIMPLE IRA balances. Whenever practical, paying the conversion tax from money outside the retirement account preserves more of the converted amount for the Roth. People younger than age 59½ should be especially cautious about withholding taxes from converted funds because amounts not successfully converted may be subject to tax and an additional penalty. Roth distributions also have five year rules. A qualified distribution generally requires the owner to be at least age 59½ and to have satisfied the Roth IRA five year holding period. Each conversion has a separate five year period for purposes of the additional tax on early distributions of converted amounts. Conclusion: A Roth Conversion Is an Income Planning Decision A Roth conversion is often described as a choice between paying taxes now or paying them later. That description is accurate, but incomplete. The decision can also influence Marketplace premium tax credits, future Medicare surcharges, required minimum distributions, and the amount of Social Security subject to income tax. The objective is not necessarily to convert as much as possible. It is to determine how much income can be intentionally recognized during lower income years without creating larger costs elsewhere. For retirees like Mark and Susan, the quiet years between the final paycheck and the beginning of Medicare, Social Security, and required distributions may be anything but empty. Used carefully, they can become an opportunity to create greater control over where future retirement income comes from. This article is educational and does not provide individualized tax, investment, or legal advice. Roth conversion decisions should be coordinated with qualified financial and tax professionals.   This information is not intended to be used – and cannot be used – to avoid penalties under the Internal Revenue Code. Prior to rolling over any plan assets to an IRA, an individual should carefully consider various factors such as investment options, fees and expenses, services, penalty-free withdrawals, protection from creditors and legal judgments, required minimum distributions, and employer stocks depending on individual needs and circumstances  Sources: Internal Revenue Service, 2026 Tax Inflation Adjustmentshttps://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill Internal Revenue Service, Roth IRA Contributions and Conversionshttps://www.irs.gov/taxtopics/tc309 Internal Revenue Service, Required Minimum Distributionshttps://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds Internal Revenue Service, Publication 590 Bhttps://www.irs.gov/publications/p590b Internal Revenue Service, Social Security Incomehttps://www.irs.gov/faqs/social-security-income Internal Revenue Service, Premium Tax Credit Overviewhttps://www.irs.gov/credits-deductions/premium-tax-credit-ptc-overview HealthCare.gov, Income Counted for Marketplace Coveragehttps://www.healthcare.gov/income-and-household-information/income/ HealthCare.gov, Federal Poverty Levelhttps://www.healthcare.gov/glossary/federal-poverty-level-FPL/ Centers for Medicare and Medicaid Services, 2026 Medicare Premiumshttps://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles ## Share this post [mailto:https%3A%2F%2Fblog.designfinancialgroup.com%2Fblog%2Froth-conversions-paying-taxes-today-to-create-more-flexibility-tomorrow](mailto:https%3A%2F%2Fblog.designfinancialgroup.com%2Fblog%2Froth-conversions-paying-taxes-today-to-create-more-flexibility-tomorrow) ## Keep reading ### [![](https://blog.designfinancialgroup.com/hs-fs/hubfs/signal-2026-08-17-11-58-01-238_002.jpg?width=1774&height=887&name=signal-2026-08-17-11-58-01-238_002.jpg) The 2026 Market So Far: What Changing Leadership Means for Your 401(k)](https://blog.designfinancialgroup.com/blog/the-2026-market-so-far-what-changing-leadership-means-for-your-401k) ### [![](https://blog.designfinancialgroup.com/hs-fs/hubfs/signal-2026-08-17-11-18-36-293_002.jpg?width=1774&height=887&name=signal-2026-08-17-11-18-36-293_002.jpg) You Are the CEO of Your Household: Ten Ways to Put More Dollars to Work for Retirement](https://blog.designfinancialgroup.com/blog/you-are-the-ceo-of-your-household-ten-ways-to-put-more-dollars-to-work-for-retirement) [![Design-FullLogo-HighRes tight 2500 White (2)-1](https://blog.designfinancialgroup.com/hs-fs/hubfs/Design-FullLogo-HighRes%20tight%202500%20White%20(2)-1.png?width=6532&height=1100&name=Design-FullLogo-HighRes%20tight%202500%20White%20(2)-1.png "Design-FullLogo-HighRes tight 2500 White (2)-1")](https://www.designfinancialgroup.com/) - Home - Products - Pricing - Blog - Company --- *Securities offered through OneAmerica Securities, Inc., a Registered Investment Advisor, Member [FINRA](https://www.finra.org/), [SIPC](https://www.sipc.org/). 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