Couple with $345K pension faces narrow Roth conversion window

A couple with $345,000 in combined annual pension income and nearly $1 million in tax-deferred 403(b) accounts faces a narrowing window for Roth conversions, with wealth advisors cautioning that aggressive strategies carry significant opportunity costs and Medicare premium exposure.

"An aggressive conversion strategy probably isn't justified given your wealth and income, but a multi-year Roth-conversion strategy deserves at least some consideration," Wes Karger, co-founder and managing partner at TwinFocus, said.

The husband, 66 and retired, receives a $165,000 annual pension with a 2 percent COLA and holds about $450,000 in a 403(b) plus $35,000 in a Roth IRA. His wife, 61, plans to retire in January 2027 with a projected $180,000 pension, also with a 2 percent COLA, alongside $470,000 in a 403(b) and $6,000 in a Roth IRA. Their combined tax-deferred accounts total nearly $1 million, compared with roughly $41,000 in Roth assets, and they anticipate a $600,000 inheritance.

The couple's dilemma centers on whether to convert traditional retirement assets to Roth accounts while they are still relatively young, or to accept future required minimum distributions and associated taxes. The SECURE Act forces most non-spouse heirs to empty inherited traditional IRAs within 10 years, meaning their children could face a significant tax burden from the tax-deferred accounts if left untouched.

IRMAA thresholds raise the stakes

For 2026, married couples filing jointly begin paying IRMAA surcharges above $218,000 of modified adjusted gross income, with higher tiers at $274,000, $342,000, $410,000 and $750,000, according to the Social Security Administration. Above $410,000, the Part B premium rises to $649.20 a month per person versus $202.90 at the standard level. Since the couple's pension income alone places them well above the first IRMAA threshold, any additional taxable income from conversions would push them into progressively higher premium tiers. These thresholds are adjusted annually, so readers should verify current figures against the latest official announcements from the Social Security Administration.

Karger cautioned that there is an opportunity cost to paying conversion taxes today rather than allowing assets to remain invested on a tax-deferred basis. He also noted that the couple could pay a relatively high marginal rate to convert assets into a Roth, only to experience a significant market decline from an unforeseen economic or geopolitical event.

"We would generally lean toward smaller, deliberate conversions over a number of years rather than an aggressive conversion program," Karger said. This approach provides flexibility to evaluate circumstances annually and avoids making a large, irreversible tax decision based on a single year's circumstances.

Estate planning and timing considerations

The couple's $345,000 in guaranteed pension income means they do not need Roth assets to fund retirement. Their decision is less about cash flow and more about optimizing long-term tax outcomes for themselves and their heirs. Using part of the $600,000 inheritance to pay conversion taxes could be more attractive than funding the tax from the 403(b) accounts themselves, which would reduce the amount available for conversion.

The best time to execute conversions, if pursued, is later in the tax year when income is fully known, or during a market downturn when asset values are lower. A Roth conversion would also be more attractive if the couple lives in a low or zero income-tax state and expects to move to a higher-tax state in the future. The husband is 66, so traditional-account RMDs won't begin for several more years under current rules, leaving a window for strategic conversions before mandatory distributions commence. Social Security claiming decisions, while not the deciding factor given the couple's other assets and income, should still be included in any comprehensive retirement stress test.

This content is for informational reference only and does not constitute professional advice.