Key Takeaways
- Next year, a married couple filing jointly can have $137,250 of income without paying more than 12% on any of it. That’s because of the $33,200 standard deduction and a 12% bracket that runs to $104,050 of taxable income.
- Say a couple retiring next year has $1.45 million in a traditional IRA and no other taxable income. They could convert $137,250 a year to a Roth for $11,974 in federal income tax.
- At that pace, the IRA would take about 10.6 years to convert if it didn’t grow. Each year’s income would stay well under the $218,000 joint line where Medicare’s 2026 surcharge starts.
- CD interest, Social Security and any spending taken from the IRA all use up that same room, and once a conversion is made it can’t be undone.
If you’re retiring next year with most of your savings in a traditional IRA, I have some good news. The IRS set next year’s tax brackets on Nov. 5. Under them, a married couple can move a lot of money into a Roth without paying more than 12% on any of it.
That matters most in the first years after the paychecks stop, when there’s little other income to crowd the brackets. And one retiree-to-be’s plan shows how much that room can be worth.
A $1.45 million IRA and a CD ladder
A poster in Reddit’s r/Bogleheads forum wrote this week that they plan to retire in the next year with about $2 million saved. They want about $60,000 a year, adjusted for inflation, and $1.45 million of their savings is in a traditional IRA. They’re also holding a $200,000 CD ladder, both as a cushion for the early years of retirement and to pay for Roth conversions.
So let’s say they’re married, both under 65 and filing jointly, with no other taxable income. The $60,000 comes out of the CDs and cash, and the IRA money only moves when it’s converted. That’s close to ideal for converting, since none of the brackets are taken up by other income.
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An $11,974 tax bill on $137,250
For 2027, the standard deduction for a married couple filing jointly is $33,200, up $1,000 from 2026. The 10% bracket covers the first $25,600 of taxable income, the 12% bracket runs from there to $104,050, and 22% starts above that. Since the standard deduction comes off before any bracket applies, a couple can have $137,250 of income ($33,200 plus $104,050) and pay no more than 12% on any dollar of it.
For this couple, that means a $137,250 Roth conversion each year. Here’s the tax on it:
| Slice of the conversion | Rate | Tax |
|---|---|---|
| First $33,200 (standard deduction) | 0% | $0 |
| Next $25,600 | 10% | $2,560 |
| Last $78,450 | 12% | $9,414 |
| Total: $137,250 | $11,974 |
That’s $11,974 of federal income tax, or 8.7% of the money moved.
At that pace, $1.45 million would take about 10.6 years to convert if the IRA didn’t grow. It will, of course, so it would really take longer, though the brackets also go up with inflation each year.
Plenty of room under Medicare’s surcharge
For 2026, Medicare’s income surcharge on Part B starts above $218,000 of joint income, based on the tax return from two years before. A $137,250 conversion leaves $80,750 of room under that line. That matters once either spouse turns 63, since the income from a conversion that year sets the Medicare premium at 65.
So converting at 12% or less keeps this couple well clear of the surcharge, with room to spare for some CD interest.
Everything else comes out of the same $137,250
CD interest is taxable income, and so is part of any Social Security a couple collects, and both shrink the room left for converting. Spending is the bigger squeeze. $60,000 of spending plus $11,974 of conversion tax comes to $71,974 a year, so the $200,000 CD ladder covers under three years of it on its own. After that, the money comes from the roughly $350,000 outside the IRA and the CDs, or from the IRA itself. And if the $60,000 comes out of the IRA, the room for converting at 12% drops to $77,250 a year.
Before 65, there’s health insurance too. A Roth conversion counts as income for the Marketplace’s premium tax credits, so a conversion this size can shrink those credits or wipe them out.
And since a conversion can’t be switched back to a traditional IRA once it’s made (that’s been the rule since 2018), a year that overshoots pays 22% on every dollar of taxable income past $104,050. Waiting until late in the year, once the CD interest and the rest of the year’s income are known, lets a couple size the conversion to the room that’s actually left.
A deal I’d take
With this much in a traditional IRA, I’d take this trade every year the room is there. The catch is cash. My read: unless it grows, the roughly $550,000 outside the IRA, CDs included, will run out before the conversions are done, so some later years will mean converting less.
We’ll see 2028’s brackets next fall. And once either spouse starts Social Security, the room left for converting shrinks every year after.
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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!
