RMD vs. Roth Conversion Calculator: Break-Even Analysis 2026
Calculate the break-even point for Roth conversions vs. RMDs. Determine if paying taxes now is better than mandatory distributions later with IRMAA warnings and legacy value comparisons.
Understanding Roth Conversions vs. RMDs
The Fundamental Trade-Off
Roth conversions require paying taxes today on Traditional IRA funds to convert them to Roth IRAs, which grow tax-free and have no RMD requirements. The trade-off: pay taxes now at your current rate vs. pay taxes later on RMDs at potentially higher rates. The break-even analysis determines when the tax-free growth advantage overcomes the upfront tax cost.
When Roth Conversions Make Sense
Roth conversions are beneficial when: (1) Your current tax rate is lower than your projected future RMD rate, (2) You can pay conversion taxes from cash savings (not IRA funds), (3) You have 10+ years for tax-free growth to overcome the upfront cost, (4) You want to leave tax-free assets to heirs, (5) You're in a 'gap year' between retirement and Social Security (lower income years), or (6) You want to protect against future tax bracket increases.
When RMDs Are Better
Taking RMDs (not converting) is better when: (1) Your current tax rate is higher than your projected future rate, (2) You need the RMD income for living expenses, (3) You're already in the top bracket (37%) with no room to go higher, (4) You're very close to death (limited time for tax-free growth), or (5) A conversion would trigger IRMAA surcharges that outweigh the tax savings.
The Break-Even Analysis
Calculating Break-Even Age
The break-even age is when cumulative Roth tax-free growth exceeds the opportunity cost of upfront taxes plus Traditional RMD taxes. Formula: Roth Balance_n > (Traditional Balance_n - Deferred Taxes_n) + Lost Growth_n, where n is years from conversion. For example, a $100,000 conversion at age 65 with 22% tax ($22,000), paying from cash, with 6% returns and 22% future tax rate, typically breaks even at age 78-82.
The Opportunity Cost Factor
Opportunity cost is the lost growth on money used to pay conversion taxes. If you pay $22,000 in taxes from cash, that $22,000 could have grown at 6% annually. Over 20 years: $22,000 ร (1.06)^20 = $70,500 in lost growth. The calculator factors this into break-even analysis, showing when Roth tax-free growth overcomes this opportunity cost.
The Tax Payment Source Impact
Paying conversion taxes from cash savings (vs. IRA funds) reduces break-even age by 3-5 years. Paying from cash preserves the full conversion amount for tax-free growth, while paying from IRA reduces the conversion by the tax amount. A $100,000 conversion with $22,000 tax: cash payment converts $100,000, IRA payment only converts $78,000โa 22% reduction in tax-free growth potential.
2026 Tax Considerations
2026 Tax Brackets
2026 tax brackets (joint): 10% ($0-$25,200), 12% ($25,200-$100,800), 22% ($100,800-$211,400), 24% ($211,400-$431,050), 32% ($431,050-$647,850), 35% ($647,850-$1,008,400), 37% ($1,008,400+). Single brackets are approximately half. The calculator uses these brackets to determine your marginal tax rate on conversions and shows how much room you have in your current bracket.
The Senior Deduction Advantage
The 2026 $6,000 senior deduction (age 65+) reduces taxable income, potentially keeping you in lower brackets for conversions. With $80,000 income and $6,000 senior deduction, taxable income is $74,000, keeping you in the 12% bracket (joint) instead of 22%. This $6,000 'bracket protection' can save $600-$1,200 in conversion taxes, making conversions more attractive for seniors.
The SALT Cap Increase
The 2026 SALT (State and Local Tax) cap increases to $40,000 (from $10,000), providing additional tax deductions for high-tax state residents. This reduces taxable income, potentially keeping you in lower brackets for Roth conversions. Factor this into your conversion planning if you live in a high-tax state.
IRMAA and Medicare Premium Impact
IRMAA Thresholds 2026
IRMAA (Income-Related Monthly Adjustment Amount) increases Medicare Part B and D premiums if your Modified Adjusted Gross Income (MAGI) exceeds $218,000 (joint) or $109,000 (single) in 2026. MAGI includes: Adjusted Gross Income (AGI) + tax-exempt interest. Roth conversions increase AGI, potentially triggering IRMAA surcharges.
The IRMAA Penalty Calculation
IRMAA surcharges are tiered based on how much you exceed the threshold. Rough estimates: $500-$1,200/year per $10,000 over threshold. A $50,000 conversion pushing you $30,000 over the threshold adds approximately $850/year in Medicare premiums. Over 20 years, this $17,000 hidden cost can reduce conversion ROI by 15-20%. Always check IRMAA impact before large conversions.
Strategies to Avoid IRMAA
To avoid IRMAA: (1) Convert smaller amounts over multiple years to stay under thresholds, (2) Time conversions in 'gap years' between retirement and Social Security (lower income), (3) Consider converting before age 63 (IRMAA uses 2-year lookback), (4) Factor IRMAA into break-even analysisโif surcharges exceed tax savings, conversion may not make sense.
Legacy Planning: The 10-Year Rule Advantage
Inherited Traditional IRAs: Tax Burden for Heirs
Non-spouse beneficiaries must fully distribute inherited Traditional IRAs within 10 years (SECURE Act 2.0), potentially pushing them into higher tax brackets. A $500,000 inherited Traditional IRA requires $50,000/year distributions, which can push a beneficiary from the 12% bracket into the 22% or 24% bracket. Total taxes over 10 years: $110,000-$120,000 (22-24% average rate).
Inherited Roth IRAs: Tax-Free Legacy
Inherited Roth IRAs are tax-free to beneficiaries, regardless of the 10-year rule. A $500,000 inherited Roth IRA provides $50,000/year tax-free distributions with zero tax burden. This creates a $100,000-$150,000 legacy advantage over inherited Traditional IRAs, making Roth conversions especially valuable for legacy-focused parents.
The Legacy Value Calculation
To calculate legacy value: compare after-tax value of inherited Traditional IRA vs. inherited Roth IRA. Traditional: $500,000 ร (1 - 0.24) = $380,000 after-tax. Roth: $500,000 ร 1.0 = $500,000 tax-free. Legacy advantage: $120,000. This advantage increases with larger balances and higher beneficiary tax brackets.
The Widow's Tax Protection
Understanding the Widow's Tax
The 'Widow's Tax' occurs when a surviving spouse is pushed from a lower Joint bracket (12%) into a higher Single bracket (22%) after their spouse dies. This happens because Single brackets are approximately half of Joint brackets, so the same income is taxed at a higher rate. For example, $50,000 income is taxed at 12% (joint) but 22% (single)โa 83% tax rate increase.
How Roth Conversions Protect Surviving Spouses
Roth conversions protect against the Widow's Tax by providing tax-free income that doesn't increase taxable income. A $200,000 Roth provides $8,000/year tax-free (4% withdrawal), while the same Traditional balance generates $8,000 RMD taxed at 22% = $1,760/year tax. Over 20 years, this saves $35,200 in taxes for the surviving spouse.
The Widow's Tax Calculation
To calculate Widow's Tax impact: compare tax on RMDs for Joint vs. Single brackets. Example: $200,000 Traditional IRA, $8,000/year RMD. Joint (12%): $960/year tax. Single (22%): $1,760/year tax. Annual increase: $800. Over 20 years: $16,000 additional tax burden. Roth conversions eliminate this risk by providing tax-free income.
RMD Sequencing Rules
The RMD First Rule
If you're already at RMD age (73+ in 2026), you must take your RMD before converting any additional amounts to Roth. RMDs cannot be convertedโthey must be withdrawn and taxed as ordinary income. After taking your RMD, you can convert additional Traditional IRA funds to Roth. This sequencing rule means conversions for RMD-age retirees are limited to amounts beyond the required minimum.
Conversion Timing Strategies
For RMD-age retirees: (1) Take RMD early in the year to maximize conversion window, (2) Convert in 'gap years' between RMD and Social Security (lower income), (3) Convert smaller amounts over multiple years to stay in lower brackets, (4) Factor RMD into taxable income when calculating conversion tax brackets. The calculator accounts for RMD sequencing if you're already at RMD age.
Pre-RMD Conversion Advantage
Converting before RMD age (before 73+) provides maximum flexibility: (1) No RMD sequencing restrictions, (2) More years for tax-free growth, (3) Lower break-even age, (4) Ability to convert larger amounts before RMDs begin. If you're 65-72, consider converting before RMDs begin to maximize conversion benefits.
Tax Bracket Arbitrage Strategies
The Bracket Filler Strategy
The 'Bracket Filler' strategy converts amounts that fill your current tax bracket without pushing you into the next bracket. For example, if you're at $80,000 (12% bracket, joint) with $20,800 room until 22% bracket, convert $20,000 to maximize 12% rate. Converting $30,000 would push $9,200 into the 22% bracket, increasing conversion cost. The calculator shows your bracket room and optimal conversion amount.
Gap Year Conversions
'Gap years' are low-income years between retirement and Social Security (typically ages 62-70). These years provide ideal conversion opportunities: (1) Lower taxable income = lower brackets, (2) No RMDs yet (if under 73), (3) More years for tax-free growth, (4) Lower IRMAA risk. Convert during gap years to maximize conversion benefits and minimize tax cost.
Multi-Year Conversion Strategy
Instead of one large conversion, convert smaller amounts over multiple years to: (1) Stay in lower tax brackets, (2) Avoid IRMAA thresholds, (3) Spread tax burden, (4) Maximize bracket room. For example, convert $30,000/year for 5 years instead of $150,000 in one year. This keeps you in lower brackets and avoids IRMAA penalties.
FAQ
? Is it better to do a Roth conversion or take RMDs?
It depends on your current tax bracket vs. expected future tax bracket, age, and whether you can pay conversion taxes from cash savings. A Roth conversion is beneficial if: (1) Your current tax rate is lower than your projected RMD rate, (2) You can pay taxes from cash (not IRA funds), (3) You have 10+ years for tax-free growth to overcome the upfront tax cost, and (4) You want to leave tax-free assets to heirs. Use the calculator to find your break-even age and projected lifetime savings.
? What is the break-even point for a Roth conversion?
The break-even point is the age when the cumulative tax-free growth of a Roth account surpasses the opportunity cost of taxes paid today. For example, a $100,000 conversion at age 65 with a 22% tax rate ($22,000 tax) may break even at age 78-82, depending on returns and future tax rates. The calculator projects both scenarios to find your exact break-even age.
? How does IRMAA affect Roth conversions?
IRMAA (Income-Related Monthly Adjustment Amount) increases Medicare Part B and D premiums if your Modified Adjusted Gross Income (MAGI) exceeds $218,000 (joint) or $109,000 (single) in 2026. A large Roth conversion can push you over these thresholds, adding $500-$1,200/year in Medicare premiums. This hidden cost can reduce conversion ROI by 10-20%, so factor it into your decision.
? Should I pay Roth conversion taxes from my IRA or cash savings?
Always pay from cash savings if possible. Paying from the IRA reduces your conversion amount and eliminates the opportunity cost advantage. For example, a $100,000 conversion with $22,000 tax: paying from cash converts the full $100,000, while paying from IRA only converts $78,000. The cash payment strategy typically reduces break-even age by 3-5 years.
? What is the 'Widow's Tax' and how does Roth conversion help?
The 'Widow's Tax' occurs when a surviving spouse is pushed from a lower Joint bracket (12%) into a higher Single bracket (22%) after their spouse dies. Roth conversions protect against this by providing tax-free income that doesn't increase taxable income. A $200,000 Roth balance provides $8,000/year tax-free (4% withdrawal), while the same Traditional balance would generate $8,000 RMD taxed at 22% = $1,760/year tax.
? How does the 10-year rule affect inherited IRAs vs. inherited Roth IRAs?
Non-spouse beneficiaries must fully distribute inherited IRAs within 10 years (SECURE Act 2.0). A $500,000 inherited Traditional IRA requires $50,000/year distributions, potentially pushing beneficiaries into 22-24% brackets. The same $500,000 inherited Roth IRA is tax-free, providing $50,000/year with zero tax. This creates a $100,000-$150,000 legacy advantage for Roth conversions.
? Can I convert to Roth if I'm already taking RMDs?
Yes, but you must take your RMD first before converting any additional amounts. RMDs cannot be converted to Rothโthey must be withdrawn and taxed. After taking your RMD, you can convert additional Traditional IRA funds to Roth. The calculator accounts for this RMD sequencing rule if you're already at RMD age (73+ in 2026).
? What is the 2026 senior deduction and how does it affect Roth conversions?
The 2026 senior deduction is $6,000 for taxpayers age 65+. This reduces your taxable income, potentially keeping you in a lower tax bracket for Roth conversions. For example, with $80,000 income and $6,000 senior deduction, your taxable income is $74,000, keeping you in the 12% bracket (joint) instead of 22%. This makes conversions more attractive for seniors.
? How do I calculate the opportunity cost of paying conversion taxes?
Opportunity cost is the lost growth on money used to pay taxes. If you pay $22,000 in conversion taxes from cash, that $22,000 could have grown at 6% annually. Over 20 years, that's $22,000 ร (1.06)^20 = $70,500 in lost growth. The calculator factors this into the break-even analysis, showing when Roth tax-free growth overcomes this opportunity cost.
? What tax bracket should I use for future RMD projections?
Use your expected marginal tax rate in retirement, typically 22-24% for most retirees. However, RMDs can push you into higher brackets as distributions increase. Consider: (1) Your current bracket, (2) Social Security taxation (up to 85% becomes taxable), (3) Potential bracket increases due to RMD growth, and (4) Widow's tax risk (Single brackets are higher). The calculator allows you to adjust this assumption to see how it affects break-even.