Once I understood why converting traditional IRA money to a Roth IRA made sense in these lower-income years, the next question was harder: how much should I actually convert, and when? Converting too little wastes the opportunity. Converting too much in a single year can shove me into a higher bracket, trigger Medicare IRMAA surcharges two years down the line, or blow up an ACA subsidy I’m relying on during my pre-Medicare bridge years. The approach I landed on is usually called “filling the bracket,” and here’s how I’m actually running it.
The core idea: each tax bracket has a ceiling. If my other taxable income for the year — Social Security, any part-time earnings, interest and dividends — lands below the top of, say, the 22% bracket, I can convert traditional IRA money up to that ceiling and pay only 22% on the converted amount, rather than waiting until RMDs force larger, less controllable withdrawals later at whatever bracket I happen to land in by then.
Step one: project the year’s other income first. Before deciding a conversion amount, I total up everything else that’s going to show up as taxable income this year — my Social Security benefit (accounting for the fact that only a portion of it may be taxable, depending on my combined income), any interest or dividends from taxable accounts, and anything else on the radar. That total is my starting point, not zero.
Step two: find the bracket ceiling I’m targeting. I’m not trying to fill all the way to the top of the highest bracket I could tolerate — I’m picking a ceiling deliberately below thresholds that matter beyond just the marginal rate: the IRMAA income tiers (which use income from two years prior and apply a cliff, not a gradual phase-in — cross the line by one dollar and the whole surcharge applies), and the ACA subsidy cliff-adjacent thresholds while I’m still on Marketplace coverage. A conversion that technically stays in a favorable tax bracket but trips an IRMAA tier can end up costing more overall than it saved.
Step three: convert the difference between current income and the target ceiling. This is the actual “fill the bracket” math — target ceiling minus already-projected income equals this year’s conversion amount. I’m doing this in the fourth quarter of each year, once I have a much clearer picture of the year’s actual income than I would have had in January, which reduces the risk of an under- or over-estimate throwing off the target.
Step four: pay the tax from money outside the IRA. I mentioned this in the previous post, but it bears repeating here specifically: I’m covering the tax bill on each conversion from my cash savings, not from the IRA itself, so the full converted amount actually lands in the Roth and keeps compounding tax-free from day one.
Step five: repeat annually, adjusting the ceiling each year. As Social Security grows (small COLA adjustments) and as other income shifts, the room available for conversion below any given bracket ceiling changes too — usually shrinking gradually as other income rises, which is exactly why doing this early, while the window is widest, has the most impact.
The honest caveat: this isn’t a “set it and calculate once” plan. It requires revisiting the numbers every year, ideally with a tax projection tool or a CPA’s help, because the ceilings I care about — tax brackets, IRMAA tiers, ACA subsidy thresholds — are all set independently and don’t move in sync. But the payoff, done consistently over several years before RMDs and full Social Security income are both in the picture, is a meaningfully larger pool of tax-free Roth money and a meaningfully smaller forced RMD later.
I’m also keeping a simple running log of every conversion — the date, the amount, and the tax paid — separate from whatever my brokerage statement shows. Each conversion needs to be reported on Form 8606 for the year it happens, and having a clean personal record makes tax season considerably less stressful than trying to reconstruct several years of conversions from statements after the fact. It also matters if I ever need to verify converted amounts against the five-year rule for penalized early withdrawals, since each conversion technically starts its own five-year clock, and a single combined “I’ve been converting for years” recollection isn’t precise enough if that distinction ever actually matters.
I’m not a tax advisor. This reflects my own planning process, not personalized advice — IRMAA and ACA subsidy thresholds change annually, and getting a conversion amount wrong can be costly. Work with a CPA on your actual numbers.
Frequently Asked Questions
What does ‘filling the bracket’ mean in a Roth conversion strategy?
It means converting just enough traditional IRA money each year to use up the remaining room in a target tax bracket, based on your other income for that year, without spilling into a higher bracket.
What income thresholds matter beyond the tax bracket when planning a conversion?
IRMAA tiers (which affect Medicare premiums) and ACA subsidy cliffs both matter — a conversion that stays in a favorable tax bracket can still trigger a costly IRMAA surcharge or subsidy loss if it crosses one of those separate thresholds.
Should I pay the tax on a Roth conversion from the IRA itself?
No — paying the conversion tax from outside funds lets the full converted amount land in the Roth and keep compounding tax-free; paying it from the IRA shrinks the amount converted and can trigger an early withdrawal penalty if you’re under 59½.