Roth Conversions: When Do They Actually Make Sense for Arizona Retirees?
The years between retirement and your first RMD are a rare low-tax window. Learn how bracket-filling Roth conversions can cut a lifetime of taxes — and when they don't pay off.
I recently sat down with a Scottsdale couple, both 64 and freshly retired, who told me they felt like they were in a financial “quiet period.” They had stopped working, hadn’t turned on Social Security yet, and weren’t taking required distributions. Their taxable income had dropped to almost nothing. “We’re finally in a low bracket,” the husband said, almost relieved. And that’s exactly when I told them: this might be the most expensive low-tax year of your life if you do nothing with it.
That “quiet period” between retirement and the age you’re forced to take money out of your IRAs is one of the most valuable planning windows you’ll ever get. For a lot of Arizona retirees with $1 million to $3 million saved, this is where a well-timed Roth conversion can quietly save tens of thousands of dollars in lifetime taxes. But Roth conversions are also widely oversold and frequently misunderstood. So let’s talk about when they actually make sense and when they don’t.
What a Roth Conversion Really Is
A Roth conversion simply means moving money from a pre-tax account (like a traditional IRA or 401(k)) into a Roth IRA. You pay ordinary income tax on the amount you convert this year, and in exchange, that money grows tax-free and comes out tax-free later. There are no required distributions on Roth IRAs during your lifetime, and your heirs generally inherit them tax-free as well.
The whole game is about tax-rate arbitrage: paying tax now, at a rate you control, to avoid paying tax later at a rate you may not control. If you can convert dollars at, say, a 12% or 22% rate today that would otherwise be taxed at 24% or higher down the road, you come out ahead. If the math runs the other way, you don’t.
The Conversion Window: Retirement to RMD Age
Here’s why that “quiet period” matters so much. Between the year you stop working and the year your required minimum distributions (RMDs) begin, your income often falls to its lowest point in decades. You may be living off a taxable brokerage account or cash, delaying Social Security to age 70 to grow that benefit, and not yet forced to pull from your IRAs.
That creates room. Room to deliberately fill up the lower tax brackets with converted dollars while you’re sitting in them anyway. Once RMDs kick in at age 73 (or 75 for those born in 1960 or later), and especially once Social Security turns on, your income can jump and stay high for the rest of your life. The window narrows or closes entirely.
I often tell clients to think of this window as a sale on tax rates. It doesn’t last forever, and once it’s gone, you can’t get it back. You can run the rough numbers yourself with our Roth conversion calculator to see how filling those brackets now compares to leaving the money to grow pre-tax.
Bracket-Filling: Convert to the Top of a Bracket, Not Beyond It
The most disciplined way to do conversions is what I call bracket-filling. Instead of converting some random round number, you convert just enough to “fill up” your current tax bracket without spilling into the next one.
For example, suppose a married couple’s taxable income lands them with a fair amount of room left before the next bracket begins. You might convert exactly enough to reach the top of that bracket, capturing those dollars at the lower rate, and stop. Convert a dollar more and that dollar gets taxed at the higher rate, which usually defeats the purpose.
A few things that make this trickier than it sounds, and worth coordinating carefully:
- Conversions add to your income, which can push more of your Social Security into taxable territory.
- If you’re on a Marketplace (ACA) health plan before Medicare, a large conversion can shrink or wipe out your premium subsidy.
- Two years later, that higher income can trigger IRMAA surcharges on your Medicare premiums.
None of these are reasons to avoid converting. They’re reasons to size the conversion thoughtfully rather than converting blindly.
The Widow’s Penalty: The Conversation Nobody Wants to Have
Here’s the part that often changes the whole discussion. Many couples plan as though they’ll always file jointly. But statistically, one spouse usually outlives the other, sometimes by many years. When that happens, the survivor typically files as a single taxpayer the following year, with brackets that are roughly half as wide and a smaller standard deduction, often on a similar amount of income.
This is the so-called widow’s penalty. The surviving spouse can end up in a meaningfully higher tax bracket while living on less. Then add RMDs from a large pre-tax IRA on top, and the survivor can be squeezed hard, every single year.
Roth conversions done during the married-filing-jointly years are one of the most effective ways to soften this. By moving money into a Roth now, while you have wider brackets and two standard deductions, you shrink the future pre-tax balance that would otherwise hit a single filer at higher rates. It’s less about this year’s tax bill and more about protecting whichever one of you is left.
When Conversions Don’t Make Sense
I’m a fan of conversions, but they aren’t universal. They tend to be a poor fit when:
- You expect to be in a lower bracket in the future than you are today.
- You’d have to pay the conversion tax out of the IRA itself rather than from outside cash, which guts much of the benefit.
- You plan to leave a large portion of your IRA to charity, which can receive pre-tax dollars tax-free anyway.
- You’re still on an ACA plan and a conversion would cost you more in lost subsidies than it saves in taxes.
This is exactly the kind of trade-off analysis where a fee-only fiduciary advisor earns their keep, because there’s no product to sell here, just a careful, multi-year tax projection built around your actual numbers.
A Multi-Year Strategy, Not a One-Time Move
The biggest mistake I see is treating a conversion as a single big event. In reality, the best results usually come from converting smaller amounts over several years, smoothing the tax hit and staying within target brackets each year. A retiree in Gilbert or Prescott might convert modest amounts annually from age 63 to 72, draining the pre-tax balance down before RMDs and IRMAA ever become a problem. Because there are so many moving parts, this works best when conversions are coordinated with your Social Security timing and overall withdrawal plan rather than handled in isolation.
The Bottom Line
Roth conversions aren’t magic, and they’re not for everyone. But for many Arizona retirees, the years between leaving work and starting RMDs are a rare, time-limited chance to convert savings at low rates, reduce future RMDs and IRMAA, and protect a surviving spouse from the widow’s penalty. If you want to know whether your own window is open and how much to convert, it’s worth modeling the numbers carefully. Connect with a fee-only fiduciary advisor in Arizona who can run the projections and build a year-by-year plan around your situation.
Important Disclosures
This material is intended for informational and educational purposes only and should not be construed as individualized investment, tax, or legal advice. Consult your own qualified advisor before acting on anything discussed here.
Investing involves risk, including possible loss of principal. Tax rules change and outcomes vary by individual circumstances. Arizona Fee Only is a directory and does not provide investment, tax, or legal advice.