Roth conversion: when it actually pays under 2026 OBBBA brackets

The pre-OBBBA argument and why it no longer applies

From 2018 through 2025, financial planners built a conversion case almost entirely on the bracket-sunset argument. The TCJA of 2017 temporarily lowered marginal rates: the top bracket dropped from 39.6% to 37%; the 28% bracket disappeared; the 25% bracket compressed to 24%. Without legislative action, all of those cuts were scheduled to expire after December 31, 2025, restoring the pre-TCJA rates under IRC §1. The conversion pitch wrote itself: pay tax now at 22% or 24%; avoid paying it later at 25% or 28%.

OBBBA (Pub. L. 119-XX, signed July 4, 2025) made those lower rates permanent. The 2026 bracket-snap-back never arrived. The urgency that drove eight years of conversion advice evaporated.

Per Ed Slott (IRA Help), Slott Report (irahelp.com): “Converted dollars are always available tax-free, regardless of age, because as you said, you already paid the taxes due on those dollars when you did the conversion.” That tax-free access guarantee is still the foundational benefit of a Roth conversion. What changed is the sense of urgency, not the underlying math. The question now is whether the specific dynamics of your retirement income stack justify the upfront tax cost.

Per Mike Piper (Oblivious Investor), The Individual 401(k) (obliviousinvestor.com, 2024): “One of the biggest benefits of being self-employed is that there are more (and better) retirement plan options available to you than are available to most taxpayers.” That same complexity cuts both ways: more tax-deferred accumulation means more potential ordinary-income exposure in retirement. A large pre-tax IRA or 401(k) balance creates real IRMAA and RMD exposure that conversions can address—independent of bracket timing.

IRMAA tier management: the Medicare premium cliff most conversion articles skip

Medicare Part B and Part D premiums are income-related. The Social Security Administration applies the Income-Related Monthly Adjustment Amount (IRMAA) based on your MAGI from two years prior—the two-year lookback rule. In 2026, the IRMAA surcharge tiers are:

Source: SSA IRMAA tables. Thresholds are inflation-adjusted annually. Verify current-year amounts at ssa.gov. This is an estimate; consult a CPA or Medicare specialist for your specific situation.

The two-year lookback means your 2024 MAGI determines your 2026 premiums. A large traditional IRA distribution or Roth conversion in 2024 that pushes you over the $106,000 threshold triggers surcharges for the full calendar year 2026—you cannot undo it mid-year.

Per Michael Kitces, Nerd’s Eye View (kitces.com): “How To Do A Backdoor Roth IRA Contribution (Safely)” illustrates that IRMAA-aware conversion timing means modeling not just the income-tax cost of the conversion year but the Medicare premium consequence in the two years that follow.

Here is why IRMAA-driven conversions can still make sense despite the lookback: if your pre-tax balance is large enough that RMDs starting at age 75 (per SECURE Act 2.0 §107) will force distributions of $80,000–$150,000 per year into your 80s, you will spend a decade paying IRMAA surcharges anyway. A series of targeted conversions in your early 60s—sized to stay below the next IRMAA cliff—can permanently shrink the pre-tax balance enough that RMDs at 75 land below the first IRMAA threshold.

Worked example: IRMAA-driven conversion ladder

Assumptions:
  Age: 62 (pre-Medicare)
  Pre-tax IRA balance: $1.2M
  Projected RMD at age 75 (IRS Uniform Lifetime Table, factor ~22.9): ~$52K/year
  Other retirement income (Social Security + pension): $55K/year
  Combined age-75 MAGI without conversions: ~$107,000
    → Sits in IRMAA Tier 1 ($106K threshold), adding ~$888/yr in premiums

Strategy: Convert $40K/year from age 62–72 (10 years)
  Total converted: $400K
  Pre-tax balance at 75: ~$1.0M (assuming 5% growth net of conversions)
  RMD at 75 on $1.0M: ~$43.7K
  Combined MAGI at 75: ~$98.7K → below $106K threshold
  IRMAA savings: $0/yr instead of $888+/yr through age 85 = ~$8,880+ saved

Conversion cost: 22–24% federal on $40K/yr = $8,800–$9,600/yr × 10 years
  Total upfront tax: ~$88,000–$96,000
  (No state tax if converting while in TX, FL, or other no-income-tax state)

Break-even: ~10–11 years of IRMAA avoidance pays back the conversion cost

This is not a universal case for conversion. It is a specific case for operators with large pre-tax balances who are in a low-income window between retirement and RMD onset. If your non-IRA income in retirement already exceeds the top IRMAA tier regardless, conversions cannot help you on IRMAA and the analysis shifts entirely to RMD and estate planning.

RMD avoidance: what $1M of pre-tax balance actually forces out at age 75

Per IRC §401(a)(9), traditional IRA owners must begin Required Minimum Distributions no later than April 1 of the year following the year they turn 73 (extended to age 75 for those born 1960 or later, per SECURE Act 2.0 §107). Roth IRAs have no RMD requirement during the original owner’s lifetime under IRC §408A(c)(5). That distinction drives real money when the pre-tax balance is large.

Per Jeffrey Levine, Kitces.com (Dec 28, 2022): SECURE 2.0’s RMD age extension from 73 to 75 “gives people born in 1960 or later an extra two years of tax-deferred growth before mandatory distributions begin”— but it also means two additional years of compounding on a large pre-tax balance, which makes the eventual RMDs larger.

Worked example: RMD exposure on $1M pre-tax IRA

IRS Uniform Lifetime Table (Publication 590-B) distribution factors:
  Age 75: factor = 22.9  →  RMD = $1,000,000 ÷ 22.9 = $43,668
  Age 80: factor = 18.7  →  RMD = $1,100,000* ÷ 18.7 = $58,824
  Age 85: factor = 14.8  →  RMD = $1,150,000* ÷ 14.8 = $77,703
  Age 90: factor = 11.4  →  RMD = $1,050,000* ÷ 11.4 = $92,105

*Illustrative balances assuming net growth partially offsets distributions.

Combined MAGI at age 80 (RMD + $55K other income): ~$113,824
  → IRMAA Tier 1 surcharge: ~$888/yr
  → Potentially Tier 2 if RMD growth continues

Tax impact: RMDs are ordinary income per IRC §408(d)(1).
At 22% federal + 5% average state = 27% effective rate on mandatory income

The RMD case for conversion is strongest when three conditions align: (1) you have a pre-tax balance large enough that RMDs will push you into a higher bracket or IRMAA tier; (2) you have a tax-efficient window before RMDs begin where conversions can be done at a lower marginal rate; and (3) you do not need the IRA funds immediately, so the Roth can compound tax-free for additional years.

Per Wade Pfau, Retirement Researcher (retirementresearcher.com): “Safe withdrawal rates are about systematic withdrawals from a volatile portfolio.” For retired operators with significant pre-tax balances, the RMD mechanic imposes systematic withdrawals regardless of market conditions or cash-flow needs. Converting to Roth restores optionality: you can let the Roth balance grow indefinitely without forced distributions.

Heir-inheritance math: the SECURE Act 10-year rule + basis step-up interaction

The SECURE Act of 2019 (§401) eliminated the “stretch IRA” for most non-spouse beneficiaries. Previously, heirs could stretch RMDs from an inherited IRA over their own life expectancy. Under current law, most non-spouse beneficiaries of a traditional or Roth IRA must fully distribute the inherited account within 10 years of the original owner’s death. Eligible Designated Beneficiaries (surviving spouse, minor children, disabled individuals, chronically ill individuals, and beneficiaries within 10 years of age of the decedent) retain the stretch option.

For a traditional IRA inherited by an adult child who is not within 10 years of your age, the 10-year rule creates a forced income event at whatever tax bracket the heir occupies during their peak earning years. Per IRC §408(d)(1), all distributions from a traditional IRA are ordinary income. The heir cannot convert the inherited IRA to Roth; they must take distributions as ordinary income.

For an inherited Roth IRA, the 10-year rule also applies, but distributions are tax-free under IRC §408A(d)(1) provided the five-year holding period for the Roth IRA has been satisfied. The heir must still empty the account within 10 years, but those distributions cost them nothing in income tax.

Per Ed Slott (IRA Help), Slott Report (irahelp.com): “Converted dollars are always available tax-free, regardless of age, because as you said, you already paid the taxes due on those dollars when you did the conversion.” For estate planning purposes, this means the conversion tax is paid by the owner (presumably at a lower bracket or in a lower-tax state) and the estate passes tax-free wealth rather than a tax liability.

One important note on basis step-up: under IRC §1014, assets inherited from a decedent generally receive a stepped-up cost basis to fair market value at death. IRA assets—both traditional and Roth—do not receive a basis step-up because they are income-in-respect-of-a-decedent (IRD) assets under IRC §691. This means the traditional IRA comparison is not “IRA vs. appreciated brokerage account” but “IRA vs. Roth IRA,” where the traditional IRA always loses the inheritance-tax comparison: heirs owe income tax on distributions; Roth heirs owe nothing.

Operator takeaway: if passing wealth to heirs is a goal and your heirs are likely to be in a 22%+ bracket during the 10-year distribution window, the tax arbitrage from converting now at your rate versus heirs paying at their rate is a real number. Consult an estate planning attorney and CPA to model this against your specific beneficiary situation.

State-conformity arbitrage: converting in a no-income-tax state

Nine states impose no individual income tax on ordinary income as of 2026: Alaska, Florida, Nevada, New Hampshire (on wages and interest only; no tax on retirement income), South Dakota, Tennessee, Texas, Washington, and Wyoming. If you are a resident of any of these states when you execute a Roth conversion, you pay federal income tax on the converted amount but owe zero state income tax.

If you later retire to or move to a high-tax state—California (13.3% top rate), New York (10.9%), New Jersey (10.75%), Oregon (9.9%), Minnesota (9.85%)—the traditional IRA distributions you take as a resident of that state will be taxed at full state rates. Converting pre-move permanently avoids that state-tax exposure. The converted balance, once in Roth, distributes tax-free under IRC §408A(d)(1) regardless of where you live when you take the money out.

State-conformity arbitrage example:

Current state: Texas (0% income tax)
Future retirement state: California (13.3% top rate)
Pre-tax IRA balance to convert: $200,000
Federal marginal rate on conversion: 24%

Cost to convert in Texas now:
  Federal: 24% × $200,000 = $48,000
  Texas state: $0
  Total: $48,000

Cost of $200,000 in traditional IRA distributions in California later:
  Federal: 24% × $200,000 = $48,000
  California: 9.3–13.3% × $200,000 = $18,600–$26,600
  Total: $66,600–$74,600

State-arbitrage savings: $18,600–$26,600 on $200,000 converted

The arbitrage math holds any time your current state rate is lower than the state rate where you expect to draw distributions. It is not limited to zero-tax states—converting in a 3% state and withdrawing in a 10% state is still a 7% savings on the converted amount. Consult your CPA or EA to verify your state’s treatment of Roth conversions, as a small number of states tax conversions differently from distributions.

Three operator profiles where a Roth conversion does not pay

1. You need the IRA funds within five years of the conversion. Per IRC §408A(d)(2), converted dollars must satisfy a five-year holding period before they are distributed tax-free if you are under age 59½. (Note: this is a separate five-year clock from the Roth IRA earnings five-year clock. Each conversion has its own clock.) If you convert $50,000 and need that money within four years, you have paid income tax on the conversion and will owe the 10% early distribution penalty on the converted amount if you withdraw it before the clock expires. The conversion math requires a genuine long-term holding horizon.
2. Your effective tax rate will be lower in retirement than it is now. The bracket-permanence of OBBBA cuts both ways. If you expect to be in the 12% bracket in retirement (under ~$47,150 taxable income single / ~$94,300 MFJ in 2026) and you are currently in the 22%+ bracket, deferring is straightforwardly better math. The Roth conversion calculus only favors you if your tax rate at conversion is at or below your expected tax rate at distribution. A large Social Security benefit plus a pension plus existing Roth balances plus a modest pre-tax IRA might mean your effective rate in retirement is already low without any conversion.
3. You will need to liquidate taxable investments to pay the conversion tax. The optimal Roth conversion is funded by cash or other non-IRA assets—you pay the tax from outside the IRA, leaving the full converted balance in the Roth to compound. If you do not have sufficient non-IRA liquid assets to pay the tax bill and you would have to withhold from the IRA itself, the effective converted balance is smaller and the math shifts. Withholding from the conversion to pay the tax is, economically, a partial distribution from the traditional IRA taxed at ordinary rates with no Roth benefit. Consult a CPA or EA before executing a conversion you plan to fund via withholding.

How to model the decision: a four-step action sequence

Per Michael Kitces, Nerd’s Eye View (kitces.com): the backdoor Roth and conversion planning universe rewards operators who model their tax picture across a multi-year horizon rather than optimizing one year at a time. Here is the operator-grade sequence:

1. Map your pre-tax IRA balance and projected RMDs. Pull your current traditional IRA, SEP-IRA, and SIMPLE IRA balances. Use the IRS Uniform Lifetime Table (Publication 590-B) to calculate the RMD at age 75. Add that projected RMD to your projected Social Security income (SSA My Account estimate) and any pension income. If the sum crosses an IRMAA threshold or pushes you into a higher bracket, there is a structural case for conversion.
2. Identify your low-income window.The years between retirement (or early partial retirement) and age 75 are typically the lowest-income window of a retiree’s life: Social Security can be deferred, no RMDs yet, work income reduced or zero. This window is where conversions are cheapest. Model how much you can convert annually to “fill up” your current bracket without crossing into a higher one or triggering IRMAA on the conversion year’s MAGI (remembering the two-year lookback for Medicare purposes).
3. Model the IRMAA impact of the conversion year itself. A $60,000 Roth conversion in 2026 raises your 2026 MAGI by $60,000. That amount gets used to calculate your 2028 Medicare premiums via the two-year lookback. If the conversion pushes your 2026 MAGI above an IRMAA threshold, you will pay the surcharge for all of 2028. Weigh that surcharge against the lifetime IRMAA savings from reducing the pre-tax balance. Per Jeffrey Levine, Kitces.com (Dec 28, 2022): IRMAA-aware conversion planning means treating Medicare premiums as a tax on IRA distributions, not just a health benefit cost.
4. Stress-test the state-tax scenario. If there is any chance you relocate in retirement, model the conversion cost at your current state rate versus the distribution cost at potential destination-state rates. If you currently live in a no-income-tax state and retirement options include high-tax states, conversion math strongly favors acting now. If you are already in California or New York and plan to stay, state arbitrage is unavailable but the federal bracket and IRMAA analysis still applies.

All four steps are estimations requiring assumptions about future tax law, investment returns, Social Security timing, and health expenses. Per Wade Pfau, Retirement Researcher (retirementresearcher.com): “The probability-based school uses ‘safe’ in a historical context.” Roth conversion modeling is similarly probability-based: you are making a decision under uncertainty with imperfect information about future tax rates, health, and longevity. That is why the action sequence above focuses on observable structural factors (IRMAA tiers, RMD mechanics, state residency) rather than speculative rate-change predictions. These are the factors the math can actually model. Consult a CPA, EA, or CFP to build a personalized projection.