The 12% Roth Conversion: Why It Still Matters in 2026

Posted On February 23, 2020 By Scott Stratton, CFP(R), CFA In Retirement Planning /

For baby boomers and pre-retirees with $500,000–$5 million in investable assets who want a fiduciary advisor and are comfortable working remotely.

A “12% Roth conversion” is a strategic approach to using the 12% federal income tax bracket to convert pre-tax retirement dollars into Roth IRA dollars without jumping into a higher marginal tax rate — potentially saving taxes over the long term. This concept is still relevant in 2026 for many retirement income strategies.

What Is a Roth Conversion?

A Roth conversion moves money from a Traditional IRA or other pre-tax plan into a Roth IRA, where future growth and qualified withdrawals are tax-free.
When you convert, the converted amount is added to your taxable income for the year and taxed at ordinary income tax rates. This requires careful planning so that the conversion stays within a tax bracket that minimizes the tax cost.

Roth conversions also reduce future required minimum distributions (RMDs), because Roth IRAs are not subject to RMDs during the owner’s lifetime.

Why the “12% Roth Conversion” Strategy Is Still Useful in 2026

The idea behind a 12% Roth conversion is to use the width of the 12% federal income tax bracket to convert pre-tax retirement assets without triggering a jump into the 22% bracket.
In 2026, the federal income tax system still has a 10%, 12%, 22%, 24%, 32%, 35% and 37% structure.

Planning your conversions to fill up the 12% bracket means you’re paying tax at a relatively low marginal rate while preserving room in higher brackets for other income like Social Security, pensions, or RMDs.

2026 Tax Brackets Matter

Because IRS inflation adjustments happen annually, the exact income range for the 12% bracket changes each year. In 2026, the 12% bracket remains a meaningful range that many pre-retirees can use efficiently before conversions push them into 22%.

The standard deduction for 2026 has also increased. For a married couple filing jointly in 2026, the 12% bracket goes all the way up to $100,800 in taxable income. With a standard deduction of $32,200, a couple can have gross income up to $133,000 and remain inside of the 12% tax bracket. So if your joint income is under $133,000, this is for you.

In this context, a Roth conversion strategy that fills up the 12% bracket can be especially useful when done in lower income years before RMDs begin. It may also be beneficial to defer starting Social Security for several years, if you are able to wait.

How a 12% Roth Conversion Actually Works in Practice

Step-by-Step Thinking

1) Estimate Your Taxable Income Without a Conversion
Consider all retirement income (Social Security, pensions, distributions, etc.) before conversions. Your goal is to identify how much room exists in the 12% bracket after accounting for the standard deduction.
AI tools and tax software can help model this.

2) Determine Conversion Amounts That Stay Within the 12% Bracket
Once you know your base income, you can calculate how much traditional IRA/401(k) assets to convert so that you end the year at the top of the 12% bracket, not above it. This means you’re paying tax at relatively low rates and not unnecessarily increasing future Medicare premiums or other surtaxes.

3) Evaluate Interaction With Other Credits and Surcharges
Conversion decisions can impact other parts of your tax situation — like Medicare IRMAA, Social Security taxation, and capital gains. An advisor can help you model these impacts comprehensively.

Because Roth conversions add to your income, you must be careful not to push yourself into a much higher marginal bracket, where the tax cost may outweigh the benefit of tax-free growth later.

Why 2026 Is Still a Strong Year to Consider This Strategy

1. Higher Standard Deduction and Bracket Thresholds Help You Stay in Lower Rates
The 2026 standard deduction and inflation-adjusted brackets give many retirees more room to convert without hitting higher marginal rates, making conversions that stay within the 12% bracket more accessible. It remains possible that a future administration will seek to raise income tax rates, given the massive deficits we are running now.

2. Roth In-Plan Conversions Are Now Available for TSP Accounts
Starting in 2026, federal employees and retirees can convert pre-tax TSP funds directly to the Roth TSP balance within the plan, offering another tool for strategic Roth planning.

3. Roth Conversions Still Bolster Long-Term Tax Planning
Converted assets grow tax-free forever, can reduce taxable required minimum distributions later, and provide more flexible withdrawal sequencing in retirement. Your beneficiaries, such as a spouse or children, also can receive your Roth IRA tax-free.

Who Benefits Most From a 12% Roth Conversion

This strategy is most useful for:

Retirees and pre-retirees who have room in the 12% or 22% tax brackets
Years where taxable income (without conversion) is relatively low
Individuals not subject to very high Medicare IRMAA surcharges
Anyone aiming to reduce future RMDs and lifetime tax drag

For baby boomers and pre-retirees with $500,000–$5M in investable assets, this can be a powerful planning tool — especially when conversions are integrated with Social Security timing, RMD planning, and total tax modeling.

When a 12% Roth Conversion May Not Make Sense

It may not be advantageous if:

Conversion would push you into the 22% bracket or higher
You lack cash outside retirement accounts to pay the tax
You are near Medicare IRMAA thresholds that would increase premiums
You are under 65 and receive a Premium Tax Credit through Obamacare
Your projected future tax rates are lower than current rates
You need the money within 5 years. Each Conversion is subject to a 5-year waiting rule.

Conversions also cannot be undone; once you pay the tax, the decision is permanent under current law.

Additional Roth Conversion Considerations

Conversion Rules Still Apply in 2026

You must report the conversion on IRS Form 8606.
Converted amounts are taxed as ordinary income in the year of conversion.

Pro-Rata Rule for Partial Conversions: If you have multiple IRA accounts, the IRS uses the pro-rata rule to determine taxable portions of conversions.

Roth Inside Employer Plans: Some employer plans (like 401(k)s or 403(b)s) allow in-plan or in-service Roth conversions, but rules vary by plan.

How We Approach 12% Roth Conversions

At Good Life Wealth Management, we evaluate Roth conversion strategies — including 12% conversions — as part of a holistic retirement plan.
That means we:

Coordinate with Social Security timing
Model Medicare IRMAA and surtax effects
Analyze RMD interactions
Consider your overall tax picture and goals

If you’re thinking about Roth conversions and want help optimizing them within your retirement income strategy, we work with clients nationwide through remote planning and are happy to help you evaluate your situation.

👉 You might also find our Questions to Ask a Financial Advisor helpful if you are comparing advisors or considering professional guidance.

This topic is often part of a broader retirement or tax planning conversation. If you’d like help applying these ideas to your own situation, you can request an introductory conversation here.

Frequently Asked Questions

What is a 12% Roth conversion?
A 12% Roth conversion means converting just enough pre-tax retirement dollars into a Roth IRA so that the conversion income fits within the 12% tax bracket, avoiding higher marginal tax rates.

Can I do a Roth conversion inside my 401(k) or TSP?
Some plans allow in-plan Roth conversions, including new options for Roth TSP conversions starting in 2026, but plan rules vary — check with your administrator.

Is the 12% Roth Conversion Right for Everyone?
No, there are many individual circumstances to consider.. For example, if you plan to leave your IRA to charity, conversions are an unnecessary tax.

Can I also make Roth 401(k) Contributions?

Yes, if you are a participant in a 401(k) or 403(b) plan, you may have the option to make Roth contributions (after-tax). And if you still have room in your tax bracket, you can make a Roth conversion on a Traditional IRAs or 401(k) balances, too.

Related Retirement Income Topics
– Retirement Income Planning
– Guardrails Withdrawal Strategy
– Social Security: It Pays to Wait
– Required Minimum Distributions
– What Is a MYGA?

Understanding Taxes in Early Retirement (Updated for 2026)

Posted On May 23, 2016 By Scott Stratton, CFP(R), CFA In Tax Strategies / 1 Comment

Many people expect their taxes to drop significantly once they retire. After all, earned income often disappears. In practice, however, retirement does not automatically lead to a lower tax bill.

For many retirees, taxes remain higher than expected — and in some cases increase — because income continues to come from multiple taxable sources, including retirement accounts, Social Security, pensions, and investments. This guide explains why that happens, outlines key tax rules relevant to early retirement, and highlights common areas that often surprise retirees.

For additional context, see Tax Planning for Retirees and Retirement Income Planning.

Retirement Does Not Eliminate Taxable Income

While retirement may end wages or salary, it does not eliminate taxable income. Common sources of income in retirement include:

Withdrawals from traditional IRAs and 401(k)s
Pension income
A taxable portion of Social Security benefits
Interest, dividends, and capital gains from investments
Rental or other passive income, if applicable

Each of these sources may be taxed differently, but together they often keep retirees in similar tax brackets to their working years — particularly once required minimum distributions begin.

How Social Security Is Taxed

Social Security benefits may be partially taxable depending on your combined income, which is calculated as:

Adjusted gross income + nontaxable interest + 50% of Social Security benefits

Once combined income exceeds certain thresholds, up to 50% or 85% of Social Security benefits may be included in taxable income. These thresholds are not indexed for inflation, which means more retirees are subject to Social Security taxation over time. The income thresholds are: Single $25,000=50% of benefits are taxable and $34,000=85%. For Married Couples, it is $32,000=50% and $44,000=$85%. All of my clients are seeing 85% of their SS benefits as taxable.

2026 Federal Income Tax Brackets

For the 2026 tax year (returns filed in 2027), ordinary income is taxed using the following federal brackets:

Tax Rate	Single Filers	Married Filing Jointly
10%	Up to $12,400	Up to $24,800
12%	$12,401 – $50,400	$24,801 – $100,800
22%	$50,401 – $105,700	$100,801 – $211,400
24%	$105,701 – $201,775	$211,401 – $403,550
32%	$201,776 – $256,225	$403,551 – $512,450
35%	$256,226 – $640,600	$512,451 – $768,750
37%	Over $640,600	Over $768,750

These brackets apply to ordinary income, including most retirement account withdrawals and pension income.

Standard Deduction and Age-Based Increases

For 2026, the standard deduction is:

$16,100 for single filers
$32,200 for married filing jointly

Taxpayers age 65 or older receive an additional standard deduction:

Single filers: +$2,050
Married filing jointly: +$1,650 per spouse

In addition, a temporary senior bonus deduction of up to $6,000 applies for taxpayers age 65 and older, subject to income phaseouts.

These deductions can reduce taxable income, but for many retirees they do not fully offset income from retirement account withdrawals, Social Security taxation, or required minimum distributions.

Net Investment Income Tax (NIIT)

Retirees with higher income may also be subject to the Net Investment Income Tax, an additional 3.8% surtax on certain investment income once modified adjusted gross income exceeds:

$200,000 for single filers
$250,000 for married filing jointly

Investment income subject to NIIT may include interest, dividends, capital gains, rental income, and other passive income. NIIT does not apply to IRA distributions. Because these thresholds are not indexed for inflation, more retirees encounter NIIT over time, even without a significant increase in lifestyle spending.

Required Minimum Distributions and Reduced Flexibility

Under current law, required minimum distributions (RMDs) generally begin at age 73, with the starting age rising to 75 for future retirees who were born in 1960 and later.

Once RMDs begin:

Annual withdrawals are mandatory
The distribution amount is added to taxable income
Retirees have limited ability to reduce or defer the income

As a result, many retirees find that once RMDs start, they have far less control over their tax bill from year to year — particularly when RMDs interact with Social Security taxation, NIIT, and Medicare surcharges.

Can You Reduce Required Minimum Distributions?

IRMAA and Medicare Premium Surcharges

Another common surprise in retirement is IRMAA — the Income-Related Monthly Adjustment Amount.

IRMAA is a surcharge added to Medicare Part B and Part D premiums when income exceeds certain thresholds. Importantly, IRMAA is based on income from two years prior, not current-year income.

This means that a year with higher income — such as large IRA withdrawals or Roth conversions — can result in higher Medicare premiums later, even if income declines afterward. Many retirees first encounter IRMAA only after it has already been triggered. See 2026 IRMAA Information here.

Why Taxes Often Stay Higher Than Expected

Although employment income may stop, many retirees continue to pay taxes on:

Retirement account withdrawals
Pension income
Taxable Social Security benefits
Investment income
Net Investment Income Tax
Medicare premium surcharges

Once required distributions and Medicare thresholds are involved, tax outcomes are often driven more by rules than by discretionary spending choices.

Putting the Pieces Together

Retirement tax planning often involves coordinating multiple moving parts, including income timing, withdrawal sources, and age-based rules. While deductions and credits may help, they do not eliminate the underlying complexity.

For a broader view of how taxes fit into retirement decisions, see Tax Planning for Retirees and Retirement Income Planning.

If you would like to discuss how these considerations apply to your situation, you may request an introductory conversation here:
Request an Introductory Conversation

5 Tax Savings Strategies for RMDs

Posted On November 3, 2014 By Admin In Retirement Planning /

In November each year, we remind investors over age 70 1/2 to make sure they have taken their Required Minimum Distribution (RMD) from their retirement accounts before the end of the year. If an investor does not need money from their IRAs, the distribution is often an unwanted taxable event. Although we can’t do much about the RMD itself, we can find ways to reduce their taxes overall.

Clients who have after-tax contributions to retirement accounts often ask about which account they should take their RMDs, but it doesn’t matter. The IRS considers IRA distributions to be pro-rata from all sources, regardless of the actual account you use to make the distribution. Whichever account you use to take the RMD, the tax due is going to be the same.

If all your contributions were pre-tax, your basis in all accounts is zero and you can ignore the comments above. Note that you do not have to take a distribution from each individual account, even though each custodian is likely to send you calculations and reminders about your RMD for that account. All that matters is that your total distribution meets or exceeds the RMD for all accounts each year.

For investors taking RMDs, here are 5 steps you can take to reduce your income taxes:

1) Asset Location. Avoid generating taxable income in your taxable accounts by moving taxable bonds, REITs, and other income generating investments to your retirement account. This will keep the income from the investments out of a taxable account, leaving your RMD as your primary or only taxable event. Placing stable, income investments in your IRA will also be a benefit because it will keep your IRA from having high growth. Otherwise, if your IRA grows by 20%, your RMDs will grow by 20%. (Actually more than 20%, since the percentage requirement increases each year with age).

Keeping stocks and ETFs in a taxable account allows you to choose when you want to harvest those gains and also allows you to receive favorable long-term capital gains treatment (15% or 20%), a tax benefit which is lost if those positions are held in an IRA. Lastly, if you hold the stocks for life, your heirs may receive a step-up in basis, which is yet another reason to hold stocks in a taxable account and not your retirement account.

2) Charitable Donations. If you itemize your tax return and are looking for more deductions, consider increasing your charitable donations. And instead of giving a cash donation, donate shares of a highly appreciated stock or mutual fund and you will get both the charitable donation and you’ll avoid paying capital gains on the position later.

3) Stuff your deductions into one year. Many investors in their 70’s have paid off their mortgage and it is often a “wash” between taking the standard deduction versus itemizing. If this is the case, consider alternating years between taking the standard deduction and itemized deductions. In the year you itemize, make two years of charitable donations and property taxes. How do you do this? Pay your property tax in January and the next one in December and you have put both payments into one tax year. Do the same for your charitable contributions. The following year, you will have few deductions to itemize and will take the standard deduction instead.

4) Harvest losses. Investors are often reluctant to sell their losers, but selectively harvesting losses can save money at tax time. Besides offsetting any capital gains, losses can be applied against ordinary income of up to $3,000 a year, and any leftover losses carry forward indefinitely.

5) Roth IRA. If you don’t need your RMD because you are still working, consider funding a Roth IRA. There is no age limit on a Roth IRA, so as long as you have earned income, you are eligible to contribute $6,500 per year. If you qualify for a Roth, then your spouse would also be eligible to fund a Roth, even if he or she is not working. Although the Roth is not tax deductible, the contribution does enable you to put money into a tax-free account, which will benefit you, your spouse, or your heirs in the future.

There is a “five year rule” which requires you to have a Roth open for five years before you can take tax-free withdrawals. This rule applies even after age 59 1/2, so bear that in mind if you are establishing a Roth for the first time.

One additional suggestion: although you have until April 1 of the year after you turn 70 1/2 to take your first RMD, waiting until then will require you to have to take two RMDs in that year. It may be preferable to take your first RMD in the year you turn 70 1/2, by December 31.