Tax and estate planning isn’t for the faint of heart. The rules are complex and each decision seems to have a multitude of moving parts.
Take James and Andrea, a couple in their early 80s who’ve been married for 55 years. They’ve been prudent in preparing for their retirement and the possibility of needing long-term care.
They each have wills, durable powers of attorney for both finances and health care, as well as living trusts and wills. They’ve talked to their doctors, lawyers and two daughters about their health care and funeral wishes. And their papers are organized and stored in a safe deposit box with copies at home in a fireproof safe their children can access.
The couple have put their home (which is fully paid off and worth $2 million), along with some art worth $100,000, a brokerage account with $500,000 and an emergency savings account with $100,000 — in a living trust to avoid probate. They also have 529 plans set up for their four grandchildren’s college education costs.
But there’s still one outstanding issue they’d like to take care of: They have $2.8 million in several traditional individual retirement accounts (IRAs) that they’re hoping to consolidate and convert to Roth IRAs.
Withdrawals from a Roth IRA are tax-free, which means the couple, the surviving spouse or their heirs could, subject to certain conditions, withdraw the money without paying taxes on it.
Roth IRAs don’t have required minimum distributions (RMDs) during the account holder’s lifetime, so this gives them more flexibility around withdrawing the money — although once inherited, the couple’s children must withdraw all the money within 10 years.
With no requirement for RMDs, the couple or surviving spouse could also choose to withdraw little or no funds so the account can continue to grow tax-free.
Any funds the couple transfers from an IRA to a Roth IRA are taxable. Currently, the couple draws an annual income of about $235,000 from RMDs (from their traditional IRAs), a small pension and Social Security benefits.
In 2026, the marginal tax rate for a married couple filing jointly moves from 24% to 32% at an income of $403,550, giving them some room for conversions. (1)
However, if one of them dies, taxes may become more of an issue for the surviving spouse undertaking the conversion, as the marginal tax rate for a single filer increases to 32% from 24% at an income of $201,775 and to 35% at $256,225.
The conversion amount can also boost the income that counts toward the income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums. “That’s a big piece,” Ashton Lawrence, CFP and director at Mariner Wealth Advisors in Greenville, SC, told CNBC. “No one likes paying excess premiums.” (2)
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Typically, the best time to do a Roth IRA conversion to avoid or minimize these effects is between the time you retire and before age 73, when RMDs kick in, and as long as you’re at least 59½. If you haven’t retired, you may still be earning a relatively high income and, prior to age 59½, there’s a 10% penalty on withdrawals from a traditional IRA.
After you retire, and before you’re required to take RMDs at age 73, you may have a slightly lower income, allowing you to make the conversion and mitigate the effects on your taxes and Medicare premiums. (3)
So, should James and Andrea do a conversion? Given their age, the potential costs and limited benefits, it may not make sense. If they want to minimize their taxes and protect their Medicare premiums, they’d need to convert relatively small amounts over many years.
They won’t receive as much benefit as they would have if they had converted earlier, in large part because of the five-year rule, which stipulates that they must wait five years to withdraw an amount that’s been converted. This means only small amounts will likely be available each year and only as they reach advanced ages.
However, it could reduce the tax burden on their children after they pass away, which is important to them, and potentially for a surviving spouse.
With so many factors to consider, it’s advisable to consult qualified advisors, including a tax planner, when making major decisions regarding your estate, retirement withdrawals and tax planning.
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IRS (1); CNBC (2); EP Wealth Investors (3).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
