How to Optimize a Roth Conversion Using Your Tax Bracket and IRMAA Limits
So, Washington finally did something.
The papers are cheering.
The markets are sighing in relief.
The big, scary tax hike we were all watching for 2026 is gone.
Wiped off the books last month by the “One Big Beautiful Bill Act.”
The current low tax brackets are now, supposedly, permanent.
The consensus was clear: “This is great news!”
And that’s exactly why I knew I had to write this piece.
Because it’s not great news, it’s a head-fake.
It’s a magician getting you to look at his right hand while his left hand is preparing to pick your pocket.
Congress didn’t fix the country’s spending problem.
They just gave themselves an open-ended permission slip to pretend it doesn’t exist, all while keeping taxes temporarily low.
The problem is, reality has a nasty habit of showing up unannounced.
The U.S. government is spending money like a college kid with his first credit card.
The national debt is ballooning. And there are only three ways to pay for it all: cut spending (a political impossibility), print money (which causes inflation), or raise taxes.
Guess which one they always come back to?
Today’s low rates aren't the new normal. They are a historical anomaly, just a brief vacation from a century of tax policy.
And when the vacation ends, it’s your retirement account that’s going to get the bill.
This “permanent” extension means the hike can happen anytime, with less warning.
This brings us to the real trade on the table. It's a Roth conversion.
But you need to stop thinking about it as simple “tax planning.” It’s a calculated, defensive move against future fiscal incompetence.
Basically, you’re giving yourself a chance to settle your tab with the IRS at a known, fixed price before they inevitably change the menu and everything gets more expensive.
Even if I’m wrong, even if Congress finds a money tree and tax rates stay this low forever, most of you are still sitting on a time bomb.
It’s called a Required Minimum Distribution, or RMD.
Right now, in your 60s, you might be in a low tax bracket. You control your income. But the minute you hit 75, the government steps in and forces you to start withdrawing money from your traditional IRA.
That forced withdrawal is fully taxable income.
It gets piled right on top of your Social Security, your pension, and everything else.
For many of the people I know, RMDs will single-handedly push them from the 12% or 22% bracket squarely into the 25% or even 28% bracket.
It’s a guaranteed, self-inflicted tax hike waiting to happen.
By converting some of that IRA money to a Roth now, you are defusing that bomb. You take a controlled tax hit today in a low bracket to avoid an uncontrolled tax hit later in a much higher one.
Now, if the only thing you had to worry about was the IRS, this would be easy.
But there's another player at the table, and its rules are, frankly, absurd.
Let’s talk about the Medicare IRMAA surcharge.
IRMAA stands for Income-Related Monthly Adjustment Amount. It’s a fancy way of saying that if you make “too much” money in retirement, you have to pay extra for Medicare Parts B and D. And a Roth conversion counts as income.
And yes, this next part is ridiculous, but it's the law.
For 2025, the income limit for a married couple to pay the standard premium is $212,000. If your income is $211,999, you're fine. But if it ticks over to $212,001 - a single dollar more - you’ve tripped a wire.
Your annual Medicare premiums suddenly jump by about $1,050 per person.
For a couple, that’s an instant $2,100 penalty for earning one extra dollar.
It is, by any rational standard, a ridiculous system.
But it's the system we have to navigate.
A thoughtless Roth conversion can easily push you over that line, and the extra Medicare cost can eat up a huge chunk of your expected tax savings.
It's a completely unforced error.
So, how do we not get played?
First, you run the numbers with a simple, disciplined system.
1. Know Your Numbers. First, figure out your baseline taxable income for the year. Everything - pensions, half your Social Security, whatever.
Get a hard number.
2. Find the Gaps. Look at the tax brackets. How much more income can you add before you get bumped into the next bracket? That’s your bracket room. Then, look up the IRMAA thresholds for this year. How much room do you have before you hit that cliff? That’s your IRMAA room.
3. Take the Smaller Number. Your optimal conversion amount for the year is the lesser of those two numbers. It’s that simple. You fill your current tax bracket right to the edge, but you stop before you walk over the IRMAA cliff.
Say you’re a single filer in 2025. Your income is $60,000.
The 22% tax bracket ends at $103,350. Your bracket room is $43,350.
The first IRMAA cliff is at $106,000. Your IRMAA room is $46,000.
The lesser number is $43,350. That’s your conversion amount.
Now, let's take a married couple in 2025. Their combined income is $120,000.
The 22% tax bracket ends at $206,700. Your bracket room is $86,700.
The first IRMAA cliff is at $212,000. Your IRMAA room is $92,000.
The lesser number is $86,700. That’s your conversion amount.
You convert exactly that much. You pay a 22% federal rate on it (plus state tax, don't forget that). You stay under the IRMAA cliff. It’s a clean trade. No surprises.
Now we get to the part that makes everyone flinch: writing a five-figure check to the government.
Where does that money actually come from?
This is the most critical step, and there’s a cardinal rule: You do not pay the taxes from the IRA money you are converting.
Pulling money from the traditional IRA to pay the bill is a rookie mistake. It effectively reduces the principal you’re moving into the tax-free Roth, defeating the purpose. Worse, if you’re under 59 ½, that withdrawal can get hit with a 10% penalty. It’s a guaranteed way to dilute your returns.
So, the tax money must come from an outside source.
Here’s how to think about it, in order of preference:
1. Best Source: Cash Reserves. This is the cleanest option. You use cash sitting in a savings or money market account to pay the tax. There are no secondary tax effects. It’s a straightforward transaction: you’re deploying dry powder to purchase a future tax-free income stream.
2. Good Source: Your Taxable Brokerage Account. If you don’t have enough cash, the next best place is your regular, non-retirement brokerage account. This requires a bit more finesse. When you sell an asset to raise cash, you will likely realize a capital gain, creating its own tax event.
But this is where you think like a trader.
You are deliberately choosing to incur a smaller, more favorable tax today to avoid a larger, less favorable tax tomorrow.
Long-term capital gains are taxed at 15% or 20% for most.
You might be paying a 15% tax on an asset sale to fund a conversion that saves you from paying a 25% or 28% ordinary income tax rate on RMDs down the road.
That is a winning trade.
To do it smartly, you’d sell assets with the lowest amount of appreciation or even harvest losses to offset gains.
This brings us to the main counter-argument: opportunity cost.
The pushback I often hear is, “Mike, if I pay $40,000 in taxes, that’s $40,000 that isn’t invested and compounding for the next 20 years.”
It’s a valid point, and anyone who dismisses it is being intellectually lazy.
But it misses the forest for the trees.
You aren't losing that $40,000. You are reallocating it. You’re shifting it from an asset that could grow (your taxable account) to an insurance premium that allows a much larger asset (your entire converted Roth) to grow completely tax-free, forever.
You are swapping the potential return on a small sum for the guaranteed elimination of future taxes on a large sum. In a world of deep fiscal uncertainty, tax certainty has a high value.
For anyone with a time horizon of more than a decade, the math of tax-free compounding on the entire converted amount almost always overwhelms the lost growth on the money used to pay the taxes.
Every dollar you move into a Roth is a dollar you’ve firewalled from future political whims.
It’s a pot of money you can access for the rest of your life, for any reason, without creating a taxable event.
Need a new roof? A trip? A medical emergency? - You can pull the money from your Roth, and the tax bill is zero. The impact on your Medicare premiums is zero.
I can’t tell you for certain when Congress will change its mind again.
My gut tells me that the fiscal reality will force their hand sooner than anyone thinks.
What I know for sure from history is that governments with no money always find ways to get it. You can, of course, leave your money in a traditional IRA and hope that politicians suddenly become fiscally responsible for the first time in modern history.
Or you can acknowledge reality.
The bill for decades of overspending is coming due, and our retirement accounts are on the menu.
Thank you for tuning in and supporting this project!
Mike Thornton, Ph.D.
Great article. Do you call this a regular Roth conversion or is the Backdoor Roth conversion?
Mike, it's like you're reading my mind! Great article.