The Real Cost of Doing Nothing About Roth Conversions

Why "do nothing" is rarely the cheap option

There is a deep-seated assumption that the safest path with retirement money is to leave it alone. Don't touch it. Let it grow. Pay the taxes whenever you're forced to.

That instinct is correct for many financial decisions. It is exactly wrong for Traditional IRAs and 401(k)s with meaningful balances. The reason: every dollar in a pre-tax retirement account is a tax obligation in disguise. You haven't paid the tax yet. The IRS will collect — the only question is at what rate, in which decade, and from whom.

If you do nothing, that tax bill comes due during three of the most expensive moments of your financial life:

• Your RMD years (age 73 or 75 onward). The IRS forces a percentage of your IRA out every single year. The percentage rises with age. By 85 you're being forced to take 6.25% per year; by 90, 8.2%.
• Your surviving spouse's single-filer years. When one spouse dies, the survivor's brackets shrink to half the size — but the income largely stays the same. This is the "widow's penalty."
• Your heirs' peak earning years. Under the SECURE Act, most non-spouse beneficiaries must drain an inherited IRA within 10 years — typically while they're at the highest tax brackets of their own careers.

A Roth conversion is the only legal tool that lets you pre-empt all three. You move dollars from Traditional to Roth at today's rates — when brackets are low, when you're still MFJ, when your spouse is still alive — instead of letting them grow into a tax bomb that detonates in those three windows.

The three compounding losses from inaction

When we model the cost of doing nothing vs. running a multi-year conversion ladder, the family-level loss decomposes into three pieces that all compound together:

1. Extra lifetime income tax YOU pay

RMDs at 73 stack on top of Social Security, pension income, rental income, and any other ordinary income. For a couple with $1.5M in a Traditional IRA, the first-year RMD at 73 is approximately $56,600 — and it grows from there. That's $56,600 of forced ordinary income on top of everything else, pushing the couple into the 22% or 24% federal bracket (plus state) for the rest of their lives. Pre-converting in your 60s can cap those brackets permanently.

2. Extra income tax YOUR HEIRS pay

Every dollar still sitting in your Traditional IRA at death gets taxed by your heirs over the next 10 years. If your kids are professionals in their 40s and 50s earning $150K+, that inherited IRA hits their 32% or 35% bracket. A $1M inherited Traditional IRA can mean $320K+ in federal tax alone — plus state, plus IRMAA spikes if they're on Medicare.

3. Lost tax-free Roth compounding

This is the biggest of the three and the most counterintuitive. When you convert $200K to Roth at age 65, that $200K then grows tax-free for the rest of your life and your heirs' 10-year window. The same $200K left in Traditional gets RMD'd out (triggering tax every year) and shrinks. Over 25-30 years of compounding, the difference between "Roth growing tax-free" and "Traditional being eroded by RMDs" can easily be a multiple of the original conversion amount.

These three losses don't add up linearly — they multiply. That's why the family-level cost of doing nothing is so much larger than the simple "tax on RMDs" number you'd expect.

A real example — $1.5M Traditional IRA, age 65

Consider a married couple, both 65, with $1.5M in a Traditional 401(k), $50K in a small Roth IRA, $400K in a taxable brokerage account, and $58K of expected combined Social Security at full retirement age (67). They plan to age 92. Assume 6% returns and 2.5% inflation.

Here are four paths modeled side-by-side using publicly available IRS bracket, RMD, and IRMAA rules:

The gap between "Do Nothing" and "Aggressive" is $4.91 million — more than three times the starting Traditional IRA balance. The opportunity cost of getting this wrong dwarfs almost every other financial decision this couple will make in retirement.

Notice also: the Moderate path actually has the lowest lifetime tax bill of any path, including Do Nothing. Counterintuitively, paying tax sooner at lower rates can mean paying less total tax over a lifetime. That's the magic of bracket arbitrage.

The four windows when Roth conversions deliver the most value

Not every year is equal. A conversion done at age 65 in a low-income year is worth dramatically more than the same conversion done at age 73 when RMDs are already running. There are four specific windows where the math is overwhelming:

The retirement gap (ages 60-73)

After you stop W-2 income but before RMDs start, your taxable income often drops to a once-in-a-lifetime low. This is the cheapest decade you'll ever have to convert. Most retirees waste it.

The pre-Social Security window (ages 60-70)

If you delay Social Security to 70 to maximize the delayed retirement credit (an 8% per year guaranteed boost), the years between retirement and 70 are the absolute floor of your ordinary income. Conversions in these years can often be done in the 12% bracket entirely.

The pre-RMD window (ages 60-73)

Once RMDs start, every conversion is "on top of" forced RMD income. Pre-RMD conversions stack on a much lower baseline — meaning more dollars fit inside lower brackets.

Anytime brackets are temporarily low (TCJA sunset, business losses, etc.)

The 2017 Tax Cuts and Jobs Act brackets are scheduled to expire after 2025 unless extended. While the OBBBA package extended the 37% top bracket permanently, the lower brackets and standard deductions remain at risk of compression in future legislation. Years when brackets are known to be low (or about to rise) are conversion opportunities.

The IRMAA cliff — the cost most people miss

Every Roth conversion adds to your MAGI (modified adjusted gross income), and MAGI determines your Medicare Part B and Part D premiums via the IRMAA surcharge. The IRMAA system uses a 2-year lookback: a conversion in 2026 affects your 2028 Medicare premiums.

IRMAA is a cliff, not a slope. One dollar over a threshold can add $1,500 to $5,000 per person per year. For a Medicare-age couple, that's $3,000 to $10,000 of extra annual cost, even with a one-dollar overshoot.

This doesn't mean you should avoid conversions during Medicare years — it means you should target the cliffs deliberately. A well-designed conversion ladder either stays under an IRMAA tier or deliberately accepts a known tier in exchange for substantially more bracket-arbitrage benefit. Random conversions that accidentally cross thresholds are the worst of both worlds.

How to design a Roth conversion ladder

A Roth conversion strategy is not "convert as much as possible." It's a multi-year plan that balances four constraints simultaneously: federal tax brackets, state tax brackets, IRMAA tiers, and the time-value of paying tax sooner vs. later. The right plan typically:

• Converts every year for as many pre-RMD years as possible. Each year is an independent bracket-fill opportunity — skipping a year permanently forgoes that bracket.
• Targets a specific bracket ceiling. The 22% bracket and 24% bracket are usually the right targets for high-balance retirees. The 12% bracket is right if your balance is smaller or if you want to be exceptionally conservative.
• Stays IRMAA-aware after age 63. The Medicare 2-year lookback means conversions starting at age 63 affect premiums at 65. Once on Medicare, the conversion target should explicitly bake in the tier you're willing to occupy.
• Pays the tax from outside the IRA. Always. If you pay the conversion tax with IRA money, that money never enters the Roth and the math collapses. Outside savings (brokerage, money market) should fund the tax.
• Accelerates in the lowest-income years. If you have a year between job and Social Security with $30K of ordinary income, that's the year to convert $150-200K. Don't waste it.

The default option in our calculator — "smart auto, fill 22%, IRMAA-aware" — implements all four of these rules. For most pre-retirees, it produces a near-optimal ladder. The Aggressive (24% fill) option produces better results for larger balances at the cost of higher upfront tax bills.