The Roth Conversion Window Most People Miss

Here's a situation I see more often than you'd think.

Someone retires at 62. They've saved well. They maxed their 401(k) for decades and built a real nest egg. Now they're looking at $1.2 million in a traditional IRA, and they're realizing, maybe for the first time, that every dollar coming out gets taxed as ordinary income. And at some point the IRS starts forcing distributions whether they need the money or not.

When that happens depends on your birth year. Under current law, required minimum distributions (RMDs) start at 73 if you were born from 1951 through 1959, and at 75 if you were born in 1960 or later. Someone retiring at 62 in 2026 was born around 1964, so their first RMD is at 75. That's a longer planning window than many people assume.

The years between retirement and the start of RMDs are often the best tax-planning opportunity of someone's financial life. Most people let them go by without doing anything.

What a Roth conversion is

A Roth conversion means moving money from a traditional IRA into a Roth IRA. You pay ordinary income tax on the amount you convert in the year you do it. After that, the money grows tax-free, comes out tax-free (if the withdrawal is qualified), and there are no RMDs for the original owner, ever.

The tradeoff is real: you owe taxes now. But the question isn't whether you'll pay taxes on this money. It's when, and at what rate.

The early retirement window

When you first retire, your income often drops, especially before Social Security starts and before RMDs begin. That gap is the window.

What matters is taxable income after deductions. For 2026, a married couple filing jointly has a standard deduction of $32,200. The federal brackets on taxable income are:

• 12% up to $100,800
• 22% from $100,801 to $211,400
• 24% from $211,401 to $403,550

Say you retire at 62 with a $20,000 pension and little other income. The standard deduction covers the pension with about $12,200 to spare, so your taxable income starts at zero. You could convert about $113,000 and still sit at the top of the 12% bracket (that's $100,800 of taxable income, plus the $32,200 deduction, minus the $20,000 pension). The 22% bracket gives you another $110,000 or so before you reach 24%. Converting into that space means paying 12% or 22% now, instead of watching RMDs, Social Security, and pensions stack up in higher brackets later.

Do that in a controlled way for a decade, and you can move a big share of a seven-figure IRA into Roth and shrink the balance that will later be subject to RMDs.

The right amount is different for everyone. It depends on other income, deductions, capital gains, and where you sit relative to the next federal and Oregon bracket. If you're buying your own health insurance before Medicare, the ACA subsidy cliff is often the limit that hits first. More on that below.

How much to convert each year

Start with one question: what will your income look like later, compared to now?

If future income from RMDs, Social Security, and pensions will push you into a higher bracket than you're in today, converting at today's rate often makes sense. If you're in a high bracket now and expect to be lower later, it might not.

Each year, look at your taxable income, figure out how much room you have before the next meaningful threshold, and convert up to that amount, or a bit beyond it. Repeat until the window closes.

A few things can shrink your room.

Medicare premiums. IRMAA surcharges are based on your income from two years earlier. If you retire at 62, you aren't on Medicare yet, so this starts to matter for conversions at 63 and later, because that income sets your premiums at 65. For 2026, the first IRMAA threshold for a married couple is above $218,000 of MAGI.

ACA subsidies. If you buy health insurance on the marketplace before Medicare, a Roth conversion counts dollar for dollar toward the income used to figure your premium tax credit, in the year you convert. The enhanced subsidies expired at the end of 2025, so for 2026 the credit drops to zero once a couple's income goes above about $84,600 (400% of the federal poverty level in the lower 48). One dollar over and the whole credit is gone. For our example couple, that line leaves room to convert about $64,600, not $113,000. A conversion that looks cheap at 12% can wipe out the subsidy, and the lost credit can cost more than the federal tax on the conversion. That's why many early retirees treat the cliff as their real limit.

Other income. Capital gains from other sources use up bracket space. An inheritance can change the whole picture.

That's why this takes real planning.

Oregon's tax treatment

Oregon taxes Roth conversions as ordinary income, same as the federal government. For 2026, married joint filers face:

• 4.75% and 6.75% on the first roughly $23,000 of Oregon taxable income
• 8.75% from there up to $250,000
• 9.9% on income over $250,000

Many Oregon couples doing conversions will spend their planning time in the 8.75% band. Push past $250,000 and you add 9.9 cents of Oregon tax on every additional dollar converted.

That's why Oregon residents need to be more careful with conversion sizing than people in states with no income tax. The federal savings down the road have to be weighed against what you pay Oregon today.

The 5-year rule (there are actually two)

The first applies to earnings. To withdraw Roth earnings tax-free, the account generally has to meet a five-year clock and a qualifying event (age 59½, death, disability, or the first-home exception). The clock starts January 1 of the year you first contributed to or converted into any Roth IRA.

The second applies to conversions. Each converted amount has its own five-year clock for the 10% early-withdrawal penalty. Pull converted principal out within five years and before 59½, and you generally owe that penalty on the converted amount (you already paid income tax at conversion). The clock starts January 1 of the conversion year, not the date of the transfer.

After 59½, the 10% penalty no longer applies to conversions. For most people converting in their 60s, this isn't a practical concern. If you're converting in your mid-50s and might need the cash before 60, it matters.

Conversion ladders

A conversion ladder is for people who retire early, sometimes well before 59½, and want access to retirement money without penalties.

Start converting IRA money to Roth at retirement. Each converted batch becomes accessible penalty-free after five years (or at 59½, whichever comes first). Convert at 52, and that batch is generally available at 57. The next batch a year later, and so on. If you size each conversion to cover what you'll need to live on a few years down the road, you've built a tax-efficient income stream that avoids early-withdrawal penalties.

You need to live on something while the ladder fills in, so this takes coordination with taxable accounts or other assets. For the right person, it works well.

Don't wait

A Roth conversion isn't right for everyone. But if you're sitting on a significant traditional IRA balance and you're in a lower-income stretch right now (early retirement, before Social Security, before RMDs), it's worth running the numbers.

The mistake I see most often is waiting. People figure they'll deal with it later. Then RMDs start, Social Security starts, and suddenly every bracket is full.

The window is real. For someone born in 1960 or later, it stays open longer than the old age 73 rule of thumb. It doesn't stay open forever.

This post is for general education and is not tax, legal, or investment advice. Everyone's situation is different, so talk with your advisor and tax professional before making any conversion decisions. Figures are for tax year 2026 and may change.

Securities offered through LPL Financial, member FINRA/SIPC. Tallus Capital Management is another business name for Independent Advisor Alliance, LLC. Investment advice offered through Independent Advisor Alliance, LLC, a registered investment advisor and separate entity from LPL Financial.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.