How to Size a 2026 Roth Conversion, and the Hidden Bracket Between $150,000 and $250,000

A Roth conversion counts for 2026 only if the money leaves your traditional IRA and lands in the Roth by December 31, and in practice you need to start it around December 1 because custodians back up badly in the last three weeks of the year. The decision window is October and November, not December.

The size of the conversion matters more this year than it has before, and for a reason that is not printed on any bracket chart. Between $150,000 and $250,000 of income, a retired couple in their late sixties faces a real federal rate close to 24.6% while sitting in what the chart calls the 22% bracket.

The old reason to convert is gone

For years the argument for converting was that tax rates were scheduled to rise when the 2017 law expired. That argument is dead. The 2025 tax act made those brackets permanent. Anyone still selling urgency on the basis of a 2026 rate increase is working from an outdated script.

Two real reasons replaced it, and both are specific to this year.

The senior deduction, and why it creates a bracket that is not on the chart

Taxpayers 65 and older get a $6,000 deduction per person for 2026. It sits on top of the regular standard deduction and the existing age-65 addition, and unlike most deductions you can take it whether or not you itemize.

It also disappears as income rises. The deduction is reduced by 6% of the amount your income exceeds $150,000 for a married couple filing jointly, or $75,000 filing single. For a couple where both spouses are 65 or older, that clawback runs at 6% each, so 12% combined, and the full $12,000 is gone once income reaches $250,000.

Inside that band, every extra dollar of income does two things. It adds a dollar of taxable income, and it destroys twelve cents of deduction. Taxable income rises by $1.12 for every $1.00 you convert. Multiply that by the 22% statutory rate and the real cost is 24.64%.

The deduction expires after 2028 regardless, which is the second reason this year is different from the years on either side of it.

What that looks like in dollars

Take a couple, both 68, both retired, with $180,000 of income for the year from a pension, Social Security, and IRA withdrawals. Their senior deduction is already partly phased out, down to $8,400 from the full $12,000.

They convert another $40,000.

Their income moves to $220,000. The clawback takes the senior deduction down to $3,600. So the conversion adds $40,000 of income and destroys another $4,800 of deduction, and their taxable income rises by $44,800 rather than $40,000.

The federal tax on that is $9,856. On a $40,000 conversion, that is an effective rate of 24.6%, of which $1,056 is purely the cost of the vanishing deduction. The bracket chart says 22%.

Arizona adds 2.5%, or $1,000 flat. Which brings up something worth saying plainly for anyone who moved here recently.

Arizona changed your conversion math

Arizona taxes income at a flat 2.5%, whatever the amount. California taxes it on a graduated scale that runs up to 13.3%, and a retired couple at the income level in the example above would have been well into the middle of that scale. For someone who retired and moved from California to Scottsdale, the state cost of converting fell by a large multiple, and conversions that never penciled out in California can pencil out here.

That is a calculation worth running once, deliberately, rather than assuming the answer carried over with the moving truck.

The other clock: 2026 income sets your 2028 Medicare premiums

Medicare uses a two-year lookback. The premiums you pay in 2028 are set by the income you report for 2026. For 2026 the first surcharge tier starts at $218,000 for a married couple, with the standard Part B premium at $202.90 a month.

The 2028 thresholds have not been published and will not be until late 2027. Current projections put the first tier somewhere around $228,000 to $232,000 for a couple, but treat that as an estimate rather than a number to plan against precisely.

The practical point does not depend on the exact figure. If you are 63 or older in 2026, you are not on Medicare yet, and this year's conversion is already setting a premium you will pay two years from now. Crossing a threshold by a small amount raises the premium for both spouses for the whole year.

Two rules that catch people

If you are 73 or older, the required minimum distribution comes out first. You cannot convert before satisfying the RMD for the year. Money converted ahead of it is treated as an excess contribution in the Roth, which then needs its own correction.

A conversion cannot be undone. Recharacterization of conversions was repealed by the 2017 law. Once the money moves, the tax is owed for that year whatever the market does afterward. This is the reason to size it deliberately in October rather than reactively in the last week of December.

What to do before December

Start from your projected income for the full year, not last year's return. Add up pension, Social Security, interest, dividends, realized gains, and any withdrawals you have already taken. That number is where your conversion starts, and it is the number that decides which of the effects above apply to you.

Then find the ceiling that matters most in your situation. For most retired couples in their late sixties it is one of three: the top of the 22% bracket, the $250,000 point where the senior deduction is fully gone, or the projected 2028 Medicare threshold. They are not the same number and they do not move together.

One counterintuitive result falls out of this. A couple already above $250,000 of income has no senior deduction left to lose, so the phase-out penalty no longer applies to them and each additional dollar converted costs the plain statutory rate. The band between $150,000 and $250,000 is the expensive stretch, not the territory above it.

Finally, plan for the tax itself. A conversion generates no withholding unless you ask for it, and paying the tax from the IRA rather than from outside cash reduces the amount that ends up in the Roth, which is usually the opposite of the point. The fourth-quarter estimated payment is due January 15, 2027.

Why this one is worth getting right

A conversion is a tax return question and a portfolio question at the same time, and the answer to one changes the answer to the other. Size it by the bracket chart alone and you will miss the deduction clawback, the Medicare lookback, and the state-level change if you moved here.

I am an Enrolled Agent, admitted to practice before the Internal Revenue Service, and I prepare returns alongside the planning work, which means the conversion and the return that reports it get built by the same person.

If you are weighing a conversion this year, the useful step is to project your full-year income now and find which ceiling binds first. If you want that modeled against your own return before December, that is a conversation worth having.

Aaron Randak, CFP®, EA · Golden Acre Wealth Management · Scottsdale, Arizona

Golden Acre LLC dba Golden Acre Wealth Management is an investment adviser registered with the Arizona Corporation Commission, CRD #337930. This article is educational and is not individualized tax, investment, or legal advice. Tax rules change and their application depends on your specific circumstances. Projected 2028 Medicare thresholds are estimates and have not been published.