A Retirement Income Gap Could Make Roth Conversions More Affordable

A temporary drop in household income can create room to move retirement savings into a Roth account at a lower tax cost. For this couple, the timing matters: a 2026 conversion could help reduce future required withdrawals, but converting too much may also push their investment gains into a taxable range.

The couple has finished filing its 2025 taxes after waiting for several K-1 forms and filing an extension. Now the next project is planning a Roth conversion for 2026, Mrs. RB40’s first full year of retirement. The household expects less income than in prior years, opening a potential opportunity to shift money from a Traditional IRA into a Roth IRA.

Why move money into a Roth?

Roth accounts offer a different tax pattern from Traditional IRAs. Money moved into the Roth is taxed as income in the year of conversion. In return, investment earnings can grow tax-free, and qualified withdrawals can be tax-free later. Original Roth IRA owners also don’t have lifetime required minimum distributions, allowing the balance to remain invested for longer.

There’s an estate planning consideration, too: the author expects their son to inherit the Roth IRA without owing tax on the account. The couple’s Traditional IRA is much larger, a common outcome for people who spent decades contributing more to workplace retirement accounts than to Roth accounts. The concern is that continued growth could leave them with sizable required withdrawals later, potentially adding to their taxable income.

The author is 53 in 2026 and sees the lower-income period as a chance to reduce the Traditional IRA balance. A Roth conversion itself doesn’t incur the 10% early withdrawal penalty described in the source. The tax due on the converted amount still needs to be weighed against the possible future benefit.

Why the 2026 conversion has a ceiling

The couple’s 2026 income estimate includes $42,000 from Mrs. RB40’s pension and back pay, $1,000 from blogging and side work, $40,000 in capital gains, and $20,000 in dividends. Rental activity is expected to be negative overall after repairs to the unit. The investment sales were intended to build a larger cash buffer for retirement.

After struggling to model the options in tax software, the author used Gemini to estimate a conversion amount. Its suggested figure was $28,100. At that level, the couple estimates $4,172 in federal taxes: $1,080 on ordinary income and $3,092 on the conversion.

The estimate also puts their total taxable income at the upper edge of the 0% capital gains tax bracket for married couples filing jointly: $98,900. On the author’s calculation, that would leave $60,000 in capital gains and dividends tax-free. Converting more could push those gains and dividends into the 15% rate. The author estimates that each additional dollar converted would then face an effective marginal tax rate of 27%, combining the 12% ordinary income rate with the 15% rate on gains.

That makes the conversion amount a balancing act. A larger conversion would reduce the Traditional IRA more quickly, but the extra tax could apply beyond the converted dollars if it changes how the investment income is taxed. The $28,100 figure is the couple’s estimate for its own circumstances, based on projected income and filing status.

A larger opportunity may come in 2027

The household expects a much lower income year in 2027. Mrs. RB40’s pension is projected to settle around $25,000, the author expects no earned income, and the couple doesn’t plan to sell stocks, so they anticipate no capital gains.

Without the 2026 back pay and capital gains adding to income, the author estimates they could convert about $90,000 in 2027 at an effective tax rate of 10.3%. That projection makes 2027 the couple’s most promising year for a larger conversion. The trade-off is that estimates can change as income, spending, and investment decisions change.

Planning beyond the first conversion

The couple’s plan stretches beyond the initial low-income years. The author expects to turn 59½ in 2033 and says their estimates still show a risk of large required withdrawals if they convert only enough to stay within the 12% tax bracket.

From ages 60 to 75, they are considering larger withdrawals that reach into the 22% bracket, with an estimated income level of about $218,000 a year. They could spend more, or put extra money into a taxable brokerage account. The author sees that account as potentially more favorable for inheritance because its cost basis would reset to fair market value on the original owner’s date of death, removing accrued capital gains for their son.

State taxes and the planned move

The author also compared estimated state income taxes for 2026. At the household’s projected income, the estimate is about $9,433 in Oregon and $4,037 in California. The article attributes the difference to Oregon’s brackets reaching 8.75% at roughly $27,000 of joint income, while California’s lower brackets are more gradual.

The couple plans to move to California in 2029, after their son finishes high school, in part to be closer to Mrs. RB40’s parents, who need more help. The state comparison adds another moving part to their retirement projections, alongside conversion timing, capital gains, and future withdrawals.

The practical takeaway is to look at several years together. A conversion that fits one year’s income may affect the tax treatment of other income, while a later year could offer more room. The couple’s figures are estimates, so their plan will depend on how income and expenses unfold.