Should You Do a Roth Conversion in a Low-Income Year? (w/Examples) + FAQs

This article reflects federal rules as of June 2026 and covers tax years 2025 and 2026. State rules vary and are addressed generally. Tax law changes — confirm current figures with the IRS or a licensed professional before you file.

Quick Answer

Yes — a low-income year is often the single best time to do a Roth conversion. For tax year 2026, you can fill up your unused lower tax brackets (10%, 12%, or 22%) at a discount, lock in tax-free growth, and shrink future required minimum distributions. The catch: watch IRMAA and other phase-outs.

A low-income year — a gap year before retirement income starts, a layoff, a sabbatical, or a business with a down year — opens a short window where your tax rate drops below where it will sit for the rest of your life. Converting pre-tax IRA money to a Roth IRA during that window means you pay tax now at a bargain rate instead of a higher rate later, and the immediate consequence of skipping it is a permanently larger future tax bill on money you were always going to be taxed on.

The window is narrow and it closes fast. Once Social Security, a pension, or required minimum distributions (RMDs) start, your “floor” income rises and the cheap bracket space disappears for good. According to Fidelity research on retirement income, many retirees see their effective tax rate rise in their 70s once RMDs begin — the opposite of what most people expect.

💡 How to “fill up” a low bracket so you convert at 12% instead of 24% later
🧮 Three fully worked dollar-by-dollar examples you can copy for your own math
⚠️ The hidden IRMAA, Social Security, and ACA traps that quietly raise your true cost
📋 The exact form (Form 8606), the deadline, and the records to keep
🛡️ Seven costly mistakes that turn a smart move into an expensive one

What a Roth Conversion Actually Is

A Roth conversion moves money from a pre-tax retirement account — a traditional IRA, SEP-IRA, SIMPLE IRA, or an old 401(k) — into a Roth IRA. You voluntarily pay ordinary income tax on the amount you move this year. In exchange, that money and all of its future growth become tax-free, and Roth IRAs have no lifetime required minimum distributions for the original owner.

The reason timing matters is simple: the tax you pay depends entirely on your tax bracket in the year you convert. Convert in a year when your income is low, and you pay a low rate. Convert (or get forced into RMDs) in a high-income year, and you pay a high rate on the same dollars. As Schwab explains in its conversion guide, the goal is to “max out” the cheap brackets while they are available.

The consequence of ignoring this is concrete. A $100,000 conversion taxed at the 12% bracket costs $12,000. The same $100,000 taxed at 24% costs $24,000. Doing nothing in a low year doesn’t make the tax disappear — it just defers the bill to a year when the rate is twice as high. The misconception to drop here is that “tax-deferred” means “tax-free.” It does not. It means the IRS is a silent partner in your IRA, and a low-income year is your chance to buy that partner out cheaply.

What you should do: before year-end, project your taxable income, find how much room is left in your current bracket, and convert up to (not past) the top of the bracket you are comfortable paying.

The 2026 Brackets That Make This Work

The whole strategy rests on the gap between your tax rate today and your tax rate later. For tax year 2026, the IRS inflation-adjusted brackets for a single filer are 10% up to $12,400, 12% from $12,400 to $50,400, and 22% from $50,400 to $105,700. For married filing jointly, the 12% bracket runs to roughly $100,800 and the 22% bracket to about $211,400.

These brackets matter more than ever because the One Big Beautiful Bill Act (OBBBA) made the lower post-2017 rates permanent starting in 2025. That removes the old “convert before rates jump back up in 2026” urgency, but it does not remove the core logic: your personal rate still swings year to year, and a low-income year is still a discount.

Here is why the brackets are the engine. Suppose your only income this year is $20,000. You have roughly $30,400 of unused 12% space and another $55,300 of 22% space before you reach the 24% bracket. Filling that space with a conversion means you move six figures of IRA money at an average rate far below what RMDs will later cost you. The consequence of leaving it empty is that the space vanishes on December 31 and never comes back.

What you should do: pull your last pay stub or business profit-and-loss, estimate your taxable income for the year, and subtract it from the top of your target bracket. That difference is your conversion headroom.

Which Situation Applies to You?

The right answer depends on why your income is low. Find your situation below, then read the matching example.

The Early Retiree in the “Gap Years”

You have stopped working but have not yet started Social Security or RMDs. This is the textbook best case. Your income may be near zero, your brackets are wide open, and you can convert large amounts cheaply for several years in a row. Under current law, RMDs begin at age 73 for those born 1951–1959 and age 75 for those born in 1960 or later, so a 60-year-old retiree may have a 13-to-15-year runway. The consequence of wasting these years is a wall of high-taxed RMDs later, plus IRMAA surcharges that follow. What to do: build a multi-year conversion ladder that fills the same bracket every year until RMDs start.

The Worker Between Jobs

You were laid off, took a sabbatical, or switched careers mid-year, so this year’s wages are unusually low. Your window is likely one year, not many. The risk is converting too much and accidentally landing in a higher bracket if you find a new job that pays a year-end bonus. What to do: convert conservatively, and consider waiting until November or December when your full-year income is nearly certain.

The Business Owner With a Down Year

Your Schedule C or pass-through business had a loss or a thin year. A net operating loss can even push your taxable income to zero or below, letting you convert at a 0% or near-0% effective rate. The misconception here is that a business loss is “wasted” — paired with a conversion, it can shelter the conversion income. What to do: coordinate with your accountant so the loss and the conversion land in the same tax year.

Worked Example 1: Filling the 12% Bracket

Meet Dana, age 62, single, retired early in Toronto, Ohio. For tax year 2026 her only income is $18,000 from a part-time consulting gig. She holds $400,000 in a traditional IRA and wants to convert without leaving the 12% bracket.

The top of the 12% bracket for a single filer in 2026 is $50,400 of taxable income. Dana also gets the 2026 standard deduction of about $16,100 for single filers, which shields income before brackets even apply. Her math works like this:

Gross income: $18,000
Less standard deduction: about $16,100
Taxable income before conversion: about $1,900
Room left in the 12% bracket: $50,400 − $1,900 = $48,500

Dana converts $48,500. Because her taxable income lands right at the top of the 12% bracket, her federal tax on the converted amount is roughly $5,800 (a blend of 10% and 12%) — an effective rate near 12%. Compare that to converting the same money at 24% later, which would cost about $11,640. Dana saves roughly $5,800 on this single year’s conversion, and she can repeat the move next year. What she should do next: pay the tax from a taxable savings account, not from the IRA, so all $48,500 lands in the Roth.

Worked Example 2: A Layoff Year for a Married Couple

Marcus and Lena, both 45, married filing jointly, live in Texas. Marcus was laid off in January 2026 and Lena earns $40,000. Their household has $300,000 across two old 401(k)s rolled into traditional IRAs.

For 2026, the top of the 12% bracket for joint filers is about $100,800, and the standard deduction is roughly $32,200. Their headroom:

Combined wages: $40,000
Less standard deduction: about $32,200
Taxable income before conversion: about $7,800
Room left in the 12% bracket: $100,800 − $7,800 = $93,000

They decide to convert $60,000 rather than the full $93,000, leaving a cushion in case Marcus finds a job with a signing bonus before December. The $60,000 is taxed mostly at 12%, costing about $7,200. Because Texas has no state income tax, there is no state cost on top — a real advantage of converting in a no-income-tax state, confirmed by the Texas Comptroller. The consequence of waiting until Marcus is re-employed: the same conversion could be taxed at 22% or higher. What they should do next: confirm the new job’s start date before finalizing the conversion amount in December.

Worked Example 3: The Business Loss Shelter

Priya, 58, single, runs a design studio in Florida. In 2026 her studio posts a $25,000 net loss, and she has no other income. She holds $250,000 in a SEP-IRA.

A business loss reduces her other income. With a $25,000 loss and the roughly $16,100 standard deduction, Priya has about $41,100 of “negative or shielded” income to absorb a conversion before she owes much tax at all. She converts $41,000. Most of it is offset by the loss and deduction, so her federal tax is close to zero. Florida levies no state income tax, per the Florida Department of Revenue, so her total cost is near nothing. The misconception she avoided: thinking the loss was “wasted.” What she should do next: file Form 8606 to record the conversion, even though little tax is due.

The Hidden Traps That Raise Your True Cost

The bracket math is only half the story. A conversion increases your modified adjusted gross income (MAGI), and several programs key off MAGI. Ignoring them is the most common way a “smart” conversion turns expensive.

IRMAA: The Medicare Premium Surcharge

If you are 63 or older, this is the big one. The Income-Related Monthly Adjustment Amount (IRMAA) is an extra charge added to Medicare Part B and Part D premiums when your MAGI crosses a threshold. Per the 2026 IRMAA brackets, surcharges begin at $109,000 MAGI for single filers and $218,000 for joint filers, and they range from about $1,148 to $6,936 per person per year. IRMAA uses a two-year lookback, so a 2026 conversion can raise your 2028 premiums. The standard 2026 Part B premium is $202.90, but CMS confirms IRMAA can push the total far higher. What to do: if you are near a threshold, stop the conversion just below it — one extra dollar of MAGI can trigger a full tier.

Social Security Taxation

A conversion can make more of your Social Security benefit taxable. Up to 85% of benefits become taxable as your combined income rises, so converting in a year before you claim Social Security usually beats converting after. What to do: front-load conversions into the gap years before benefits start.

The OBBBA Senior Deduction Trade-Off

For tax years 2025 through 2028 only, the OBBBA created a bonus senior deduction of up to $6,000 per person age 65+ ($12,000 for two qualifying spouses). It phases out at 6% of MAGI above $75,000 (single) or $150,000 (joint) and disappears entirely at $175,000 / $250,000, as Thomson Reuters details. A large conversion can shrink or erase this deduction. The trade-off, noted by Walkner Condon advisors, is real: sometimes giving up the senior deduction for one year is worth it to fill a cheap bracket. What to do: model both — the deduction lost versus the bracket space gained.

The ACA Premium Subsidy Cliff

If you buy health insurance on the Marketplace before age 65, your subsidy shrinks as MAGI rises. A conversion can wipe out thousands in premium tax credits. What to do: if you are subsidized, convert only up to the income level that preserves your credit.

Three Common Scenarios

Conversion Move	What It Costs You
Convert $50,000 in a gap year at the 12% bracket	About $6,000 in federal tax, with no IRMAA or Social Security impact yet — the cheapest outcome
Convert $50,000 the same year you start RMDs and Social Security	Taxed at 22%–24% (about $11,000–$12,000), more Social Security becomes taxable, and IRMAA may trigger two years later
Convert $50,000 that pushes MAGI from $108,000 to $158,000 at age 64	Federal tax plus a full IRMAA tier on 2028 premiums, costing an extra $1,000+ per person you did not plan for

How to Do It: Form 8606 and the Process

A Roth conversion is reported on IRS Form 8606, “Nondeductible IRAs,” which you file with your Form 1040 for the conversion year. Part II of the form reports the conversion. The deadline is your regular tax-filing deadline — generally April 15, 2027, for a 2026 conversion. Missing the form can cost a $50 penalty and, worse, lead to double taxation if you ever lose track of after-tax basis.

The conversion itself must happen by December 31 of the tax year — there is no extension for the conversion deadline, unlike IRA contributions. You contact your IRA custodian, request a conversion to a Roth IRA, and choose how much to move. The process usually takes a few days to a couple of weeks. The cost is typically free at most custodians; a professional projection runs roughly $300–$1,000.

If you have any after-tax money in a traditional, SEP, or SIMPLE IRA, the pro-rata rule applies. You cannot cherry-pick only the after-tax dollars. As Rodgers & Associates explains, you divide total after-tax money by the total value of all your IRAs to find the tax-free percentage, then apply it to the amount converted. Form 8606 tracks this basis year to year.

Finally, each conversion starts its own five-year clock. Per Schwab, the clock starts January 1 of the conversion year, and withdrawing converted principal before five years pass — if you are under 59½ — can trigger a 10% penalty. What to do: keep converted money untouched for at least five years.

7 Mistakes to Avoid

Converting past your target bracket. Spilling into the 24% or 32% bracket erases the discount and can cost thousands in extra tax.
Paying the tax from the IRA itself. This shrinks the amount that reaches the Roth and, if you are under 59½, adds a 10% penalty on the withheld portion.
Ignoring IRMAA. One dollar over a threshold triggers a full surcharge tier two years later, costing $1,000+ per person.
Forgetting the pro-rata rule. Converting with hidden after-tax basis without Form 8606 leads to double taxation on the same dollars.
Converting after Social Security starts. This makes up to 85% of your benefits taxable and inflates your effective rate.
Missing the December 31 deadline. Unlike contributions, conversions cannot be made after year-end for the prior year — the window is gone.
Skipping the state-tax check. Converting in a high-tax state when a move to a no-tax state is coming can waste thousands in avoidable state tax, as one Reddit relocation case shows.

Do’s and Don’ts

Do project your full-year income before converting, so you know your exact bracket headroom and avoid overshooting.
Do pay conversion tax from outside cash, because every dollar withheld is a dollar that never grows tax-free.
Do spread large balances over several low-income years, since a ladder keeps each year in a cheap bracket.
Do convert in the fall, when your annual income is nearly certain and surprises are unlikely.
Do keep every Form 8606, because basis tracking protects you from being taxed twice.
Don’t convert blindly to a round number; round numbers ignore bracket and IRMAA edges that cost real money.
Don’t assume your state mirrors federal rules; conformity varies and changes your true cost.
Don’t convert if you will need the money within five years and are under 59½, because the penalty erases the benefit.
Don’t forget Marketplace subsidies before 65; a conversion can vaporize your premium credit.
Don’t convert at the last minute on December 31 without confirming the custodian can process it in time.

Pros and Cons

Pro — Tax-free growth: all future earnings come out tax-free, which compounds powerfully over decades.
Pro — No lifetime RMDs: Roth IRAs free the owner from forced withdrawals, giving control over future taxable income.
Pro — Lower future tax: converting at 12% beats paying 24% later on the same dollars.
Pro — Estate benefit: heirs inherit tax-free Roth dollars, easing their tax burden under the 10-year inheritance rule.
Pro — Hedge against higher rates: locking in today’s rate protects against future increases.
Con — Tax bill now: you owe ordinary income tax in the conversion year, which requires available cash.
Con — IRMAA and subsidy risk: higher MAGI can raise Medicare premiums and cut ACA credits.
Con — Five-year lockup: early access to converted funds can trigger penalties.
Con — Irreversible: recharacterizing a conversion is no longer allowed, so a mistake cannot be undone.
Con — Lost senior deduction: a big conversion can phase out the temporary OBBBA senior deduction through 2028.

What to Do Next

Estimate your taxable income for the year using pay stubs, a profit-and-loss statement, or last year’s return as a starting point.
Identify your bracket headroom by subtracting that estimate from the top of your target bracket (often 12% or 22% for 2026).
Check the trap thresholds — IRMAA at $109,000/$218,000 MAGI for 2026, the senior-deduction phase-out, and any ACA subsidy limit.
Decide your conversion amount and confirm you have outside cash to pay the tax.
Call your IRA custodian before mid-December to execute the conversion so it clears by December 31.
File Form 8606 with your return, and keep a copy permanently to track basis.
Call a CPA or fee-only advisor if you have after-tax IRA basis, are near an IRMAA edge, or are converting a large balance — this is where professional projections pay for themselves.

This article is educational and is not a substitute for personalized advice from a licensed CPA, tax attorney, or financial planner for your specific situation.

FAQs

Is a low-income year really the best time to do a Roth conversion? Yes. A low-income year gives you unused space in cheap brackets (10%–12% for 2026). Converting then locks in a low rate instead of the higher rate you will likely face once RMDs and Social Security begin.

How much can I convert in a low-income year? As much as you want — there is no dollar limit on conversions. The practical limit is the top of the bracket you are willing to pay. For 2026, single filers often stop at $50,400 (top of 12%) or $105,700 (top of 22%) of taxable income.

Does a Roth conversion count as income? Yes. The converted amount is added to your ordinary income and your MAGI for the year, which is exactly why a low-income year is the ideal time to do it.

Will a Roth conversion raise my Medicare premiums? Yes, potentially. A conversion raises MAGI, and IRMAA uses a two-year lookback. A 2026 conversion above $109,000 (single) or $218,000 (joint) can raise your 2028 Part B and Part D premiums.

Is there a deadline for a Roth conversion? December 31 of the tax year. Unlike IRA contributions, conversions have no April extension. A 2026 conversion must be completed by December 31, 2026.

What form do I use to report a Roth conversion? IRS Form 8606, filed with your Form 1040. Part II reports the conversion, and the form also tracks any after-tax basis to prevent double taxation.

Can I undo a Roth conversion if I change my mind? No. Recharacterizing a conversion was eliminated for tax years 2018 and later, so a conversion is permanent. Convert only an amount you are certain about.

Does my state tax a Roth conversion? It depends on your state. Most states that have an income tax follow federal treatment and tax the conversion. No-income-tax states like Texas and Florida impose no state tax on it. Confirm your state’s rule before converting.

What is the five-year rule on conversions? Each conversion has its own five-year clock starting January 1 of the conversion year. Withdrawing converted principal before five years, if you are under 59½, can trigger a 10% penalty.

Should I pay the conversion tax from my IRA? No. Pay from outside savings. Using IRA money shrinks the amount that grows tax-free and, if you are under 59½, the withheld portion faces a 10% penalty.

Does the OBBBA senior deduction change my conversion strategy? Yes, for 2025–2028. A large conversion can phase out the up-to-$6,000 (single) or $12,000 (joint) senior deduction above $75,000/$150,000 MAGI. Weigh the lost deduction against the cheaper bracket space.

Can a business loss help me convert tax-free? Yes. A net operating loss can offset conversion income, letting you convert at a near-zero effective rate. Coordinate the loss and the conversion in the same tax year with your accountant.

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