quick read
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Retirees have around 11 years before required minimum distributions (RMDs) kick in at age 75, during which they can convert to a Roth IRA at a 12% federal tax rate.
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Interestingly, the average retiree actually converts nothing during this time. This can often be linked to a low personal savings rate of 3.9%, which makes it tough to cover the tax on any conversions.
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Suze Orman suggests making small annual conversions up to the limit of the 12% and 22% tax brackets, and using funds from a brokerage account to pay the taxes, instead of the IRA itself.
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From the time a worker retires until RMDs start at age 73 under SECURE 2.0, many households experience a significant reduction in their taxable income over about 11 years. With wages stopping and relying mainly on Social Security and modest portfolio withdrawals, many find themselves in the 12% or 22% tax brackets for the first time in years. It’s a historically low tax period, yet on average, retirees convert nothing from their traditional IRAs to Roth accounts during these years.
The window the tax law provides you with
Calculations for this window are pretty straightforward. By 2026, the taxable income for the 12% bracket will cap at $100,800, and for the 22% bracket, it goes up to $211,400 for married couples filing jointly. The standard deduction stands at $32,200 for joint filers and $16,100 for singles. A retired couple relying on Social Security and a small pension may withdraw a considerable portion of their traditional IRA each year while still remaining under the 22% threshold. But once RMDs commence, that IRA will be taxed based on the government’s timeline, not the retiree’s.
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The average size of IRA balances isn’t shocking. According to a recent analysis by Fidelity, baby boomers hold about $257,002 in their IRAs, while Gen Xers have around $103,952. If these balances are left in traditional accounts, they could eventually lead to regular income during the 70s and 80s, potentially resulting in higher taxes than during the earlier window period.
Why the average conversion is zero
There’s a clear opportunity to pay taxes, yet actions reveal a different reality. Personal savings have dipped from 6.2% in early 2024 to 3.9% in 2026. While disposable income per person has risen to $68,391, spending has also increased, with average annual expenditures climbing from $72,973 in 2022 to $78,535 in 2024.
Making a Roth conversion necessitates cash for tax payment—something many households currently lack. Paying those taxes from the IRA itself often undermines the strategy, particularly for individuals under 59½, and can limit growth for older retirees as well. A 2.8% Social Security COLA in 2026 likely won’t provide much breathing room in fixed-income budgets.
Furthermore, there’s a psychological barrier. The LSEG/Ipsos Key Consumer Sentiment Index recorded a low 49.6 in May 2026, signaling ongoing caution among consumers. With a 10-year Treasury yield at 4.49% and the effective federal funds rate at 3.63%, it’s more likely that retirees choose to hold onto cash rather than proactively pay the IRS for a conversion.
cost of doing nothing
The deadline for action often passes quietly. When RMDs start at age 73, income from Social Security, pensions, and other income often pushes retirees back into the 22% or even 24% tax brackets for the duration of their retired years. Surviving spouses encounter even more challenges as their tax filing status shifts from joint to single, effectively halving their bracket threshold. Funds that could have been converted at 12% may then be taxed above 24%, and heirs inherit traditional IRAs which must be spent within ten years at their highest income tax rate.
Moreover, inflation hasn’t been addressed sufficiently. In May 2026, the CPI was at 1.6%, which is under the Fed’s 2% target. As a result, the bracket index grows slowly, meaning the current structure is likely what retirees will face for quite a while.
What the data points to
Retirees who do make investments typically share a few habits. They often convert their funds in portions that fit within specific tax brackets, commonly stopping at the 12% or 22% lines. Suze Orman advises against converting everything all at once, stating that this could lead to higher taxes immediately in the year of conversion. Rather, she suggests gradual conversions. They also prefer to pay taxes from taxable accounts rather than IRAs. When the market dips, it’s often when they take action, as the value of their portfolios decreases at those times. Orman emphasizes that it’s wise to consider conversions during market downtimes.
This situation highlights how tax regulations coincide with typical retirement patterns. Data shows that most households end up where they began after the 11-year period, with traditional IRAs still untouched and taxes pushed to the future when individuals face higher rates, mandatory withdrawals, and fewer options.
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