How Retirement Planning and Tax Strategy Often Go Hand in Hand

Summary: Retirement planning and tax strategy are inseparable. The One Big Beautiful Bill Act (OBBBA) reshaped the landscape, making Roth conversions, strategic withdrawal sequencing, and Required Minimum Distribution (RMD) planning more important than ever. Savvy retirees use low-income years between retirement and RMDs to convert traditional IRA funds to Roth accounts, fill lower tax brackets, and reduce future tax burdens while creating tax-free income for life.

For most Americans, retirement planning and tax strategy have traditionally lived in separate mental compartments. One is about saving enough to stop working. The other is about minimizing what you owe the government each April. But in reality, these two pursuits are deeply intertwined—and the decisions you make in one area profoundly affect the other.

The One Big Beautiful Bill Act (OBBBA), signed into law in July 2025, has permanently extended the 2017 Tax Cuts and Jobs Act tax rate structure . This means the familiar 10/12/22/24/32/35/37% brackets are no longer scheduled to sunset . Yet this permanence hasn’t made tax planning less important—it has shifted the conversation from “rates are going up” to a more strategic focus on personal bracket management, RMD compression, and the new temporary senior deduction .

The Retirement Gap Window: Your Best Opportunity

For most retirees, the single most valuable tax planning opportunity is the period between retirement and the start of Required Minimum Distributions (RMDs). During this window—typically 5 to 12 years—taxable income is at its lowest. Earned income is gone or reduced, Social Security may not have started yet, and RMDs haven’t kicked in .

This is the Roth conversion window. A Roth conversion moves money from a pre-tax retirement account (traditional IRA, 401(k), 403(b)) into a Roth IRA. You pay income tax on the converted amount now; in return, the money grows tax-free and qualified withdrawals are never taxed again . There is no annual limit on conversion amounts, and no income restriction .

The math is simple: pay tax now at a known rate to eliminate tax later at an unknown rate. Consider a married couple, both 65, with $1.5 million in traditional IRAs. They draw $80,000 a year from Social Security and a small pension. After the standard deduction, taxable income sits near $48,000, well inside the 12% bracket .

Option one, the lump sum: Convert the entire $1.5 million in one year. The conversion blows through the 22%, 24%, 32%, and 35% brackets, with the top slice taxed at 37%. The federal tax bill lands around $475,000 to $500,000, plus state tax and guaranteed Medicare premium surcharges .

Option two, the “dribble”: Convert roughly $150,000 a year for ten years. Each year, the conversion fills the rest of the 12% bracket and most of the 22% bracket. The blended federal rate on each year’s conversion lands around 18% to 20%. Over a decade, total federal tax on the same $1.5 million comes in around $290,000 to $310,000 .

That’s roughly $175,000 in federal tax saved—and the Roth balance grows tax-free for life and for heirs’ ten-year inherited window . As Dave Ramsey puts it, “Dribble it out” .

Understanding the 2026 Tax Brackets

To execute a successful Roth conversion strategy, you need to understand the current tax bracket structure . For 2026, the federal tax brackets are:

Married Filing Jointly:

10%: $0 – $24,800
12%: $24,801 – $100,800
22%: $100,801 – $211,400
24%: $211,401 – $403,550
32%: $403,551 – $512,450
35%: $512,451 – $768,700
37%: $768,700+

Single Filers:

10%: $0 – $12,400
12%: $12,401 – $50,400
22%: $50,401 – $105,700
24%: $105,701 – $201,775
32%: $201,776 – $256,225
35%: $256,226 – $640,600
37%: $640,600+

The standard deduction for 2026 is $32,200 for married filing jointly ($35,500 with both spouses 65+, adding $1,650 each), and $16,100 for single filers ($18,150 with the age 65+ addition) .

The Senior Deduction and Roth Conversions

The OBBBA introduced a temporary new deduction for taxpayers age 65 and older. Starting in tax year 2026, seniors may claim an additional bonus deduction of up to $6,000 per person ($12,000 for married couples), on top of the standard deduction and existing age-based additions . The deduction is available for four years and phases out at higher income levels .

However, the benefit is far from universal. The Tax Policy Center estimates that only 46% of households with at least one person age 65 or older who file federal income taxes will receive any benefit from the provision . More than half of senior households will receive nothing, and gains are concentrated in the upper half of the income distribution .

For those who do benefit, the senior deduction creates a unique opportunity in 2026: it expands the “0% bracket” and can make Roth conversions more attractive in certain income ranges . However, the deduction phaseout also creates hidden effective rate increases between certain income levels that advisors must model carefully .

Required Minimum Distributions: The Tax Time Bomb

RMDs are the minimum amount the IRS requires you to withdraw each year from certain tax-deferred retirement accounts once you reach a specified age . The government created this requirement to ensure that money saved on a pre-tax basis eventually gets taxed .

When RMDs begin:

Born between 1951 and 1959: April 1 of the year after you turn 73
Born 1960 or later: April 1 of the year after you turn 75 (beginning in 2033)

Every dollar withdrawn from a traditional IRA or pre-tax 401(k) counts as ordinary income and is taxed that way. RMDs stack on top of any other taxable income you receive, which can trigger :

Medicare IRMAA surcharges: Higher adjusted gross income can activate Income-Related Monthly Adjustment Amounts, increasing Medicare Part B and Part D premiums.
Greater Social Security taxes: Higher income may cause up to 85% of Social Security benefits to be subject to federal income tax.
Higher tax brackets: A concentrated income year can push portions of your earnings into a higher federal bracket.

For a married couple with a $1.5 million traditional balance that has compounded through their 60s, the first-year RMD lands near $60,000 and grows from there . Add Social Security, a pension, and any portfolio income, and a couple in the 12% bracket at 65 can easily find themselves in the 24% or 32% bracket at 75 . This bracket creep is exactly what Roth conversions aim to prevent.

Withdrawal Sequencing: Which Account First?

The order in which you draw from different account types can have a meaningful impact on your long-term wealth, tax exposure, and legacy planning . A commonly suggested approach is :

1. Start with taxable accounts. Withdrawing from taxable accounts (brokerage accounts) can be a wise first move because long-term capital gains and qualified dividends are typically taxed at lower rates than ordinary income . This preserves tax-advantaged accounts for more growth.

2. Tap into tax-deferred accounts next. Once taxable accounts are drawn down, begin withdrawing from traditional IRAs and 401(k)s. Drawing from these accounts earlier, in controlled amounts, can help reduce future RMD burdens .

3. Save Roth accounts for last. Roth IRAs are not subject to RMDs during your lifetime, meaning you can leave funds untouched for as long as you’d like . Because of the tax-free nature of Roth distributions, these accounts are also superior assets to leave to heirs .

However, this conventional wisdom strategy isn’t always optimal. Research shows that moderate-income people with multiple types of accounts may benefit from drawing down Roth assets along with tax-deferred accounts to extend the period when they are in a low tax bracket . The right strategy depends on your specific circumstances, tax bracket, and legacy goals.

Qualified Charitable Distributions: A Tax-Efficient Giving Tool

For investors 70½ or older with charitable giving goals, a Qualified Charitable Distribution (QCD) allows you to transfer funds directly from a traditional IRA to a qualified charity—up to $111,000 a year for 2026 ($222,000 for married couples filing jointly) .

A QCD is one of the more tax-efficient tools available to charitably inclined retirees because :

The amount is excluded from taxable income
It counts toward your annual RMD obligation
It does not inflate your adjusted gross income, helping moderate effects on Medicare IRMAA surcharges and Social Security taxation

For retirees already inclined to give, aligning QCDs with RMD timing is worth exploring well in advance .

The Pro-Rata Rule: A Roth Conversion Pitfall

When considering Roth conversions, advisors and retirees must understand the pro-rata rule. All traditional, SEP, and SIMPLE IRA balances are aggregated by the IRS. The formula uses December 31 balances of the conversion year .

Example: A client has a $300,000 traditional IRA (all pre-tax) and a $50,000 traditional IRA from nondeductible contributions (after-tax basis of $50,000). They want to convert $100,000 .

Total traditional IRA balance: $350,000
After-tax basis: $50,000
Tax-free percentage: $50,000 / $350,000 = 14.3%
Of the $100,000 conversion: $14,286 is tax-free, $85,714 is taxable

You can’t just convert the $50,000 after-tax IRA and pay zero tax. The IRS treats it as one pool .

The workaround: If a client has significant after-tax IRA basis and wants to maximize tax-free conversion, explore rolling the pre-tax portion into a current employer’s 401(k) first. This removes pre-tax money from the aggregation, allowing the after-tax IRA to be converted with minimal tax .

Frequently Asked Questions

What is a Roth conversion and why would I do one?
A Roth conversion moves money from a pre-tax retirement account (traditional IRA or 401(k)) into a Roth IRA. You pay income tax on the converted amount now; in return, the money grows tax-free and qualified withdrawals are never taxed again. It’s most valuable for retirees in low tax brackets who expect to be in higher brackets later .

What is the “retirement gap window”?
The gap window is the period between retirement and the start of Required Minimum Distributions (RMDs)—typically 5 to 12 years. During this time, taxable income is at its lowest, making it the optimal time to execute Roth conversions while staying in low tax brackets .

What is the senior deduction for 2026?
The OBBBA created a temporary new deduction for taxpayers age 65 and older. Starting in tax year 2026, seniors may claim an additional bonus deduction of up to $6,000 per person ($12,000 for married couples), available through 2028. The deduction phases out for those with modified adjusted gross income exceeding $75,000 ($150,000 for joint filers) .

What is the pro-rata rule for Roth conversions?
The pro-rata rule requires you to aggregate all traditional, SEP, and SIMPLE IRA balances when calculating the taxable portion of a Roth conversion. You cannot cherry-pick which dollars to convert based on after-tax basis .

What is the qualified charitable distribution (QCD) strategy?
A QCD allows IRA owners aged 70½ or older to transfer funds directly from an IRA to a qualified charity—up to $111,000 for 2026 ($222,000 joint). The amount is excluded from taxable income, counts toward RMDs, and doesn’t inflate AGI for Medicare premium calculations .

What is the best withdrawal sequencing strategy?
A commonly recommended strategy is: 1) Taxable accounts (brokerage) first, 2) Tax-deferred accounts (traditional IRAs, 401(k)s) next, 3) Roth accounts last. However, moderate-income retirees may benefit from drawing Roth assets along with tax-deferred accounts to stay in lower brackets .

How can I avoid Medicare IRMAA surcharges?
IRMAA surcharges are based on your modified adjusted gross income from two years prior. To avoid them, carefully manage taxable income by limiting Roth conversions, using QCDs, and coordinating Social Security claiming timing to stay below IRMAA thresholds ($109,000 for single, $218,000 for joint in 2026) .

Can I make Roth catch-up contributions in 2026?
Yes. Beginning January 1, 2026, employees who earn over $145,000 from the same employer in the previous year must use a Roth (after-tax) account for catch-up contributions. Those aged 60-63 can contribute the greater of $10,000 or 150% of the standard catch-up limit ($11,250 for 2026) .

The Coordination Imperative

Retirement planning and tax strategy cannot be separated. The decisions you make about account contributions, withdrawal sequencing, and Roth conversions directly determine your lifetime tax burden. The best time to start coordinating these strategies is years before retirement—but the second-best time is now.

The key takeaways for retirees and pre-retirees are:

Use the gap window. The years between retirement and RMDs are your best opportunity for tax-efficient Roth conversions .
Dribble, don’t dump. Gradual, bracket-filling conversions beat one large taxable event by hundreds of thousands of dollars .
Understand RMDs. Required distributions start at 73 or 75 and can push you into higher tax brackets. Plan ahead .
Consider QCDs. For charitably inclined retirees, QCDs offer tax-efficient RMD management .
Coordinate with Social Security. Conversions before claiming benefits avoid making more of those benefits taxable .
Watch IRMAA thresholds. Medicare premium surcharges can add thousands per year if a conversion pushes you over key income levels .

Key Reflections

The OBBBA permanently extended TCJA tax rates, shifting the Roth conversion conversation from “rates are going up” to personal bracket management and RMD planning.
The retirement gap window—years between retirement and RMDs—is the single most valuable tax planning opportunity for most retirees.
Gradual conversions that fill lower tax brackets (“dribbling”) can save over $175,000 compared to a one-time large conversion.
RMDs can trigger Medicare surcharges, higher Social Security taxes, and higher tax brackets—strategies like Roth conversions and QCDs can manage this exposure.
The pro-rata rule requires careful IRA aggregation planning to avoid unintended taxable conversions.
Withdrawal sequencing matters—taxable accounts first, tax-deferred accounts second, and Roth accounts last is a common starting point, but individual circumstances may favor different approaches.
The senior deduction creates a temporary opportunity for retirees aged 65+, expanding the “0% bracket” through 2028 while creating hidden rate increases at phaseout thresholds.

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