A tax-free Roth conversion?
Yep, you read that right. But it’s only possible for those in a certain income range, investment account types, and within a certain age range, OR for those who can put themselves in that situation. Before explaining how this is possible, a reminder that there are many pros and cons to Roth conversions, covered in my books, other blog posts, and many places on the internet. Since Roth accounts are the best type of retirement account for many reasons, if you could convert your tax-deferred retirement accounts to a Roth for free, why wouldn’t you?
For some background, when performing a Roth conversion - taking tax-deferred 401(k), rollover, or traditional IRA funds and transferring them to a Roth account - the amount converted is taxed as income in the year of conversion. For example, if someone has an income of $75,000 and converts $25,000 this year, they will pay tax on $100,000 of income. Obviously, larger conversions can be quite expensive tax-wise, so anyone wanting to convert a large amount should have a strategy for how much to convert each year over several years. The general rule is to use non-retirement funds to pay the additional tax, so you must also have the savings or extra income to cover the larger tax bill in the years of conversion.
Roth conversions can be done at any age, so some start in their late 50s, spreading conversions out until retirement. Others wait until retirement, even during an early retirement, when income drops, until their early 70s, while staying mindful of the Medicare Income-Related Monthly Adjustment Amount (IRMAA) limits to avoid triggering an additional tax (currently above $218,000 for a 2026 joint return). As long as you have other funds to cover the tax hit - federal and state - and keep your total income below the IRMAA limits 2 years before age 65, you’re essentially paying the retirement tax bill now rather than later, because the Required Minimum Distribution (RMD) rules require larger taxable withdrawals from your tax-deferred retirement funds, currently starting at age 73.
At this point, you can see that your tax bill could be quite high with a Roth conversion if you’re in a higher income bracket or if you convert too much at once. Since funds in tax-deferred accounts will be taxed sooner or later, it’s best to consider strategies to reduce the burden.
Our tax system uses multiple thresholds, limits, and rates that lower taxes for lower incomes and increase the share of income taxed as income grows. Currently, there are two significant thresholds for this free conversion strategy to work: a high standard deduction (even higher for couples over 65) and untaxed Social Security income when income is low enough. With the larger standard deduction, a couple could have income up to $32,000 or $35,500, plus up to $64,000 in Social Security benefits that won’t be taxed if both are over 65, and pay zero in federal tax. Any additional “tax-free” income increases their income but not their tax bill. This additional tax-free income could be tax-exempt municipal bonds, qualified dividends, or an existing Roth or savings account (although the municipal bond tax-free interest reduces the Social Security amount subject to tax). One could have 10s of thousands of additional tax-free income to cover all their living expenses and pay no income tax, as long as the taxable portion stays under the standard deduction. Thus, staying under the standard deduction is key.
A tax-free Roth conversion is possible for the amount between taxable income and the standard deduction, plus the One Big Beautiful Bill Act (OBBBA) senior deduction, until 2028. For example, a couple has $48,000 in Social Security income, $6,000 in qualified dividends, and $6,000 in municipal bond interest, for a total annual income of $60,000. If their house is paid off or their housing expenses are low, we’ll assume they can cover all their expenses with $60,000 in income. The “taxable” portion of Social Security in this example is only 4% of $48,000. Thus, their Adjusted Gross Income is $7,250, well below the couple's Standard Deduction of $35,500. By performing a Roth conversion up to $23,000, they use the remaining “unused” standard deduction available to them, and therefore the conversion is FREE. Different combinations of tax-free income sources, Social Security, ages, etc., can create this extra standard deduction space to use for a free Roth conversion. And to be clear, if you have a taxable pension or annuity that increases “taxable” income, then this strategy probably won’t work.
Are there any problems with pursuing this strategy? First, the free amount to convert each year is likely small, less than $47,500 for a couple over 65. The window before RMDs start at age 73 is also limited; if Social Security is claimed at the Full Retirement Age of 67, there are only 5 years until RMDs begin. However, since there is no age limit on Roth conversions, the free conversions could continue indefinitely if the RMDs are small enough. A Roth conversion cannot count as an RMD, so the RMD must be small enough not to push taxable income above the available free deduction. For example, if the RMD is $8,000, that leaves only $7,000 available before reaching the deduction limit. So, take $15,000 in distributions; $8,000 for the RMD and convert another $7,000 to a Roth.
If the couple is in a position to take advantage of the free Roth conversion and even stretch it into their 70s, past the RMD start date, should they? Are there any drawbacks? If their desire is to give away the tax-deferred accounts to charity when they pass, they can do so without a tax penalty, so there’s no need for a Roth conversion. The second drawback is that they have to do the work to perform the conversion, calculating the numbers and executing the transfers, so that’s an annual task, which could be harder for some to do as the years pass.
But free Roth conversions do exist. They’re not available to many because retirement and non-retirement accounts must be positioned to meet your income needs without exceeding the thresholds and limits in the tax code. And you’ll need to live small rather than live large during those early retirement years. But those looking to improve their long-term financial posture should evaluate whether it’s worth the effort to claim the free gift in the tax code.
TM Tools, LLC © 2026