Every Year a Retiree Skips a Roth Conversion Before 73 Costs About $3,500 in Extra Tax Later. Here’s the Math on the Average $167,970 Balance.

Every Year a Retiree Skips a Roth Conversion Before 73 Costs About $3,500 in Extra Tax Later. Here’s the Math on the Average $167,970 Balance.

David Beren

Sun, August 30, 2026 at 9:29 PM GMT+3 5 min read

Quick Read

• Converting traditional IRA funds during gap years at the 12% bracket rate can prevent those same dollars from being taxed at 22% or higher under RMDs.

• Roth conversions raise modified adjusted gross income, potentially triggering IRMAA Medicare surcharges above $109,000 for individuals, with a two-year lookback affecting future premiums.

• Converting only beats doing nothing if future tax rates are actually higher. Retirees planning qualified charitable distributions or near IRMAA thresholds may rationally skip conversions.

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The headline places a specific number on a decision most retirees never explicitly make: whether to convert some of a traditional IRA or 401(k) into a Roth account during the low-income years between retirement and the required beginning date for withdrawals. That window is often called the gap years, and the capacity inside each tax bracket during those years is real, temporary, and non-refundable. Skip it, and the same dollars come out later under required minimum distributions (RMDs), taxed at whatever rate applies then.

That headline balance comes straight from the official benchmark: Vanguard's How America Saves 2026 report found that the average 401(k) balance reached a record $167,970 at year-end 2025. While the median sits much lower at $44,115, this $167,970 average represents the realistic target for long-tenured savers heading into their gap years and provides the baseline for the calculations below.

Gap Years and Bracket Capacity

A gap year is any tax year after wages stop but before RMDs begin. An RMD is the annual withdrawal the IRS requires from most pre-tax retirement accounts once the account holder reaches the required beginning age. Under SECURE 2.0, the required beginning age depends on birth year. It is 73 for one birth cohort and 75 for those born in 1960 or later. A retiree in the later cohort has a longer conversion window, which strengthens rather than weakens the case for using it.

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Bracket capacity is the room left inside a given marginal rate before income spills into the next one. The marginal rate is the tax on the next dollar of income, not the average rate on all income. For a single filer in tax year 2026, the standard deduction is $16,100, the 12% bracket applies above $12,400 of taxable income, and the 22% bracket begins above $50,400 of taxable income, per IRS Revenue Procedure 2025-32. Married filing jointly figures are roughly double, with the standard deduction at $32,200 and the 22% bracket beginning above $100,800.

What Skipping the Window Actually Costs

Consider a single retiree holding that benchmark $167,970 traditional balance who stops working at 65 with modest outside income. Converting $35,000 in a gap year to fill the rest of the 12% bracket triggers a known federal tax bill of $4,200.

If she skips that conversion, that same $35,000 remains pretax and compounds until age 73, when mandatory RMDs and Social Security push her marginal rate to 22%. At 22%, the tax bill on that same block of income jumps to $7,700, meaning skipping a single year's conversion costs roughly $3,500 in avoidable lifetime taxes (we sized up that quiet stretch between the last paycheck and the first RMD in a free Roth window guide).

Second-Order Effects

A conversion carries ripple effects. It raises modified adjusted gross income in the year of the conversion, which can push more of a Social Security benefit into the taxable share and, two years later, trigger a higher Medicare premium through the income-related monthly adjustment amount (IRMAA). The 2026 standard Part B premium is $202.90, and IRMAA surcharges begin above $109,000 of modified adjusted gross income for individual filers and $218,000 for joint filers. The two-year lookback means a 2026 conversion affects 2028 premiums.

The 2027 Social Security COLA is tracking toward 3.1%, which nudges provisional income higher and narrows the room available for conversions in later gap years.

Why the Answer Is Not Always Correct

A retiree who expects a permanently lower bracket, who plans to direct RMDs to charity through qualified charitable distributions (QCDs, direct transfers from an IRA to charity that count toward the RMD and are excluded from income), or who is close to an IRMAA threshold may rationally convert nothing. Paying a known rate today only beats an unknown rate later if the later rate is actually higher. The 10-year Treasury yield sat at 4.67% on August 27, 2026, which raises the opportunity cost of paying conversion tax on cash that could otherwise earn a competitive risk-free return.

What the Data Supports

The gap-year window is finite, the 2026 brackets are known, and the RMD age is fixed by birth year. Retirees born in 1960 or later have more runway; those in the earlier cohort have less. The cost of leaving bracket capacity unused is real but depends on future rates, future balances, and interactions with Social Security and Medicare that don't lend themselves to a single headline number.

A $1,000,000 Income Portfolio

If you've saved over $1,000,000, this guide is for you. The last thing you want in retirement is to run out of money, you want your money to generate lasting income while you enjoy your life.

Now you can learn the strategies wealthy retirees use to fund their retirement with The Definitive Guide to Retirement Income from Fisher Investments. Download the guide today! (sponsor)

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