Key Takeaways
- A 45-year-old laid off this month with $869,000 in two 401(k)s asked whether to convert to a Roth now or wait until January.
- With no paycheck next year, a single filer could convert $68,625 and stay in the 12% bracket, but anything over $63,840 crosses the 400% line that ends the ACA premium tax credit for 2027 Marketplace coverage.
- Converting $63,840 next year costs $5,413 in federal tax and keeps the credit, as long as dividends, gains and other income don’t use up that room.
- The line only matters for someone buying Marketplace coverage, and a conversion that goes over it can’t be undone.
If you’ve just lost your job with a big 401(k), there’s one silver lining: a year with no paycheck can be the cheapest year you’ll ever get to move that money into a Roth. But if you’re also buying your own health insurance, there’s a second line to watch, and going even a dollar past it costs you the whole ACA premium credit.
A 45-year-old posting in Reddit’s r/Fire forum is in exactly that spot. Laid off a week before posting, they have $671,000 in a 401(k) from a previous job, $198,000 in one from their most recent job, a $13,000 traditional IRA and $459,000 in a brokerage account. The poster plans to leave the 401(k)s alone until 59½, likes the look of Roth conversions, and asked: “Should I wait until the new calendar year for any reason?”
Yes, wait for January
A conversion counts as income for the year it’s made, so one this year lands on top of most of a year’s pay, while one in January starts from zero. So let’s say you’re in the poster’s shoes next year: single, living alone and without a paycheck. The IRS’s 2027 figures give you a $16,600 standard deduction, and the 12% bracket covers taxable income up to $52,025. Add the two, and you could convert $68,625 of 401(k) money in 2027 without paying more than 12% on any of it.
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The poster also said they’re fine being locked out for 10 years, and they plan to wait for 59½ anyway. That covers the Roth’s rules: earnings come out tax-free from 59½, once five years have passed since the first Roth contribution ever, and that clock doesn’t restart with each conversion. (Each conversion does carry its own five years for the 10% early-withdrawal tax, which applies only to money taken out before 59½.)
Two lines, $4,785 apart
The catch is the premium tax credit. A Marketplace buyer gets it only if household income is no more than 400% of the federal poverty line, and a Roth conversion counts toward that income. Congress lifted the 400% cap for 2021 through 2025 only, and it hasn’t brought it back for 2027 so far. Credits for 2027 coverage use the poverty guidelines HHS published this January, $15,960 for one person, so the line is $63,840 (four times $15,960).
Go a dollar over, and the whole credit is gone. Plus, since 2026 there’s no cap on paying back advance credits that turn out too high, so a year of advance payments made on a lower income estimate would all come back on your tax return.
The last $4,785 isn’t worth it
Converting $63,840 instead keeps the credit and costs $5,413 in federal tax. Take off the $16,600 deduction, and $47,240 is taxable: the first $12,800 at 10% ($1,280), and the other $34,440 at 12% ($4,133).
| Metric | Convert $63,840 | Convert $68,625 |
|---|---|---|
| Taxable income | $47,240 | $52,025 |
| Federal income tax | $5,413 | $5,987 |
| Premium tax credit | Keeps it | Loses all of it |
Source: IRS tax year 2027 brackets and standard deduction; HHS 2026 poverty guidelines. Assumes a single filer with no other income.
So filling the bracket adds $4,785 of conversion and $574 of tax. The only reason to convert that $4,785 now is to avoid a higher rate on it later, and even at the 22% bracket’s rate, the 10-point gap is worth under $500. For a 45-year-old buying their own coverage, I’d expect a year’s premium credit to be worth a lot more than that.
Dividends count too
The $63,840 assumes nothing else counts toward the line, and with a brokerage account that size, that’s unlikely. The $459,000 in VTI pays dividends, and those count. So would any gains from selling shares, and any of the $13,000 IRA converted alongside the 401(k)s. Every dollar of that is a dollar less room for the conversion.
Since the test is on the year’s income, there’s no need to convert monthly, which the poster asked about. Convert late in the year, once most of the year’s dividends are in, and there’s less to guess. And there’s no fixing an overshoot afterward, since the 2017 tax law ended the option to undo a Roth conversion starting in 2018.
All of this only matters with Marketplace coverage, though. With COBRA from the old job or a spouse’s plan, there’s no premium credit to lose, and the 12% bracket is the only line to watch.
Wait for January, then stop at $63,840
If Marketplace coverage is the plan, I’d wait for January and convert up to $63,840, minus whatever the brokerage account pays out. Giving up a year’s health credit to move another $4,785 at 12% is a lousy trade. And with more than 14 years to go before 59½, there’s plenty of time to keep converting, with the line reset each year by January’s new poverty guidelines.
Open enrollment for 2027 coverage on HealthCare.gov runs through Jan. 15, and Dec. 15 is the deadline for a plan that starts Jan. 1. Congress could still bring the enhanced credits back for 2027, which would move the line or remove it, so it’s worth checking right before converting a dollar.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any of the stocks mentioned. Thank you for reading, and happy investing!
