The window opens the year income drops. Most people don’t notice when it opens. Some don’t notice until after it’s closed.
A Roth conversion moves money from a pre-tax retirement account into a Roth. You pay ordinary income tax on the converted amount now. Everything that grows after the conversion grows tax-free, and a Roth IRA has no required distributions. The conversion makes sense when your current tax rate is lower than the rate you’ll pay on those dollars later. The question is when that condition is satisfied. The answer is more time-bounded than most people expect.
The window
When someone retires before required distributions begin, taxable income often drops significantly. The salary is gone. If Social Security hasn’t started, or if it’s started but isn’t yet fully taxable, the income picture in the early retirement years can look very different from the working years and very different again from the distribution years.
That gap is the window. The years between leaving work and the start of required distributions, when ordinary income is temporarily lower, represent the lowest per-dollar cost available for moving money from pre-tax accounts into tax-free Roth accounts.
Under current law, required distributions begin at age 73 for individuals born between 1951 and 1959. Individuals born in 1960 or later will begin distributions at age 75. For someone who retires at 62, that’s a window of eleven to thirteen years in theory. In practice, it is considerably shorter.
What narrows it
Social Security, when it begins, is partially taxable. Depending on total income, up to 85 percent of benefits are included in adjusted gross income. The year Social Security starts, the effective bracket picture can shift by $20,000 or more without any decision the retiree made.
Medicare premiums are calculated based on income from two years prior. A conversion that pushes income above certain thresholds triggers IRMAA surcharges that can add hundreds or thousands of dollars annually to Part B and Part D premiums. The threshold for the first surcharge is currently around $106,000 for individuals and $212,000 for married couples filing jointly, and it adjusts each year. A conversion intended to be modest can push income across that line without the couple realizing it until their Medicare statement arrives.
The window is not eleven years. It is the set of calendar years in which the income picture, accounting for all sources, has enough bracket room to absorb a meaningful conversion without triggering the next surcharge tier or crossing into a bracket that makes the conversion self-defeating.
In many cases, that is three to five years.
What happens when distributions begin
When required distributions start, the income picture changes in a way that cannot be controlled. The IRS sets the minimum based on account balance and life expectancy tables. A $2 million traditional IRA generates a required distribution of roughly $75,000 in the first year of distributions, regardless of whether the account holder wants or needs that income.
That $75,000 lands on top of Social Security, on top of any other income. For a married couple with $3 million in combined traditional accounts, the first year of required distributions can generate $115,000 or more in forced ordinary income. Converting on top of that costs more per dollar than converting in the years before distributions began.
Every dollar that remains in the pre-tax account on the first day distributions begin is a dollar that will eventually be converted: either voluntarily before distributions begin, or involuntarily as each year’s distribution forces it into income. The question is only whether it happens on the account holder’s schedule, at a rate they chose, or on the IRS’s schedule, at whatever rate the distribution forces.
The coordination requirement
Identifying the window precisely requires knowing the full income picture for a given year: Social Security income, pension income, capital gain realizations in the investment portfolio, any pass-through income from business interests, and two years of income history for Medicare purposes.
That information lives in at least three separate professional relationships. The wealth manager sees the portfolio. The CPA sees the tax return. Neither one automatically has a view of the Medicare picture, and neither one’s engagement model requires them to coordinate on conversion timing before the year closes.
The window is open until the day it isn’t. By the time the tax return confirms that distributions have begun, the conversion decision for that year has already been made.
