Roth Conversions in Retirement: The Tax Strategy for Michigan Retirees

Most of what gets written about Roth conversions is aimed at people who are still working, still drawing a paycheck, and trying to plan a few years ahead of the day they retire. If you have already retired, a lot of that advice does not quite fit anymore. You are not projecting a future low-income window, you are standing in one. You are not asking whether you will have earned income to work with, because you already know you do not. The decision in front of you is different, and it deserves its own answer.

This is that answer, written for the retiree, not the pre-retiree. If you separated from GM, Stellantis, DTE Energy, or another Metro Detroit employer and are now living off savings, a pension, or Social Security, here is how a Roth conversion works once you are on the other side of retirement, and where it differs from the conversion planning most pre-retirees do before they leave work. If you are still working toward retirement and want that version, our guide to Roth conversion strategy for pre-retirees covers that stage in detail.

You don’t need a paycheck to convert

The single biggest misconception retirees carry into this decision is that a Roth conversion works like a Roth contribution. It does not. A contribution is new money added to a Roth from earned income, and it is capped every year by IRS dollar limits and income phase-outs. If you no longer have a paycheck, you generally cannot contribute.

A conversion is a completely different transaction. You are not adding new money; you are moving money you already have, sitting inside a traditional IRA or 401(k), into a Roth account and paying ordinary income tax on it in the year you move it. There is no earned-income requirement and no income ceiling. A retiree living entirely off Social Security, a pension, and required withdrawals can convert just as freely as someone still collecting a salary. The only real gatekeeper is the tax bill, and that is precisely the variable a retiree is often in a better position to control than a pre-retiree is.

The lower-bracket window you may already be sitting in

Here is the opportunity that is easy to miss once you have actually stopped working. The salary is gone. If required minimum distributions have not started yet, or Social Security has not started yet, or both, your taxable income for the year can be lower than at almost any other point since you started your career. That is not a projection. If you are retired and not yet drawing on every income source available to you, it is your current reality.

Every dollar you convert is taxed at your marginal rate for that year, and a retiree sitting in the 12% or 22% bracket today is often looking at a materially higher blended rate down the road, once required minimum distributions and Social Security are both landing in the same tax year. Converting now, while the bracket is low, lets you lock in that rate on money that would otherwise be taxed later, at a rate the IRS decides, not you.

The catch is that this window is not permanent. It narrows every year that RMDs and Social Security phase in, and it can close once both are running at full strength. Retirees who wait to "see how things settle" often find that things settled into a higher bracket than the one they were avoiding.

The bridge years: retirement to age 70

If you retired before claiming Social Security, you are living in what we call the bridge years, the stretch between your last paycheck and the year you start collecting benefits. For many households this runs from the early sixties to as late as age 70, and it is frequently the single best conversion window of a lifetime, because it can combine no earned income, no Social Security income yet, and no RMDs yet, all at once.

The bridge years are also when the claiming decision itself gets made, and the two decisions are linked. Delaying Social Security to age 70 stretches the bridge window and gives you more low-income years to convert in; claiming earlier shortens it. Neither choice is automatically right, but they should be weighed together rather than decided separately. Our Social Security claiming strategy guide walks through the filing decisions that interact with this window.

If you are living on savings and a pension during the bridge years, you have real control over your taxable income for the first time in decades. That control is the whole point. It is why the bridge years, for a retiree, are usually worth more than any single conversion decision made while still working.

Converting ahead of your RMDs

Required minimum distributions begin at 73 under current law, and they are not optional. Once they start, the IRS forces a taxable withdrawal out of your traditional accounts every year, sized off the account balance, whether you want the income or not. The larger the traditional balance has grown by then, the larger the forced withdrawal, and the more it tends to stack on top of Social Security in the same bracket.

A retiree who is already past their last paycheck and still years from 73 has a genuine opportunity here: convert a measured slice of the traditional balance each year, and the RMD that eventually gets calculated off that smaller balance shrinks along with it. You are not avoiding the tax; you are choosing which years pay it. Our guide to RMDs covers how the calculation works and what the forced-withdrawal schedule looks like once it starts, which makes it easier to see how much a given year of conversions is reducing.

This is where retirees actually have an edge over pre-retirees: you can see your real income picture year by year, rather than projecting it. That makes it easier to size each year’s conversion precisely, instead of estimating from a few years out.

The Medicare IRMAA tripwire

If you are 65 or older, Medicare is already part of your monthly budget, and that changes the math on conversions in a way it does not for someone still years from Medicare eligibility. Medicare sets your Part B and Part D premiums using your income from two years earlier. A conversion you make this year does not show up on your premium until two years from now, which is exactly why it catches people off guard.

IRMAA is a cliff, not a slope. Cross a threshold by one dollar and your premium jumps a full tier for the entire year, for both spouses on a joint return. For a retiree already on Medicare, the size of a conversion has to be checked against the next IRMAA bracket, not just the next tax bracket, because the cheaper one of the two is the real ceiling. Our Medicare IRMAA guide lays out the current brackets and the two-year lookback in detail, and it is worth reviewing before you decide how much to convert in any single year.

A tax-free buffer against a down market

There is a risk retirees carry that pre-retirees mostly do not: sequence-of-returns risk, the danger of having to sell investments for income during a market downturn early in retirement, which can permanently damage how long a portfolio lasts. A Roth account that has already been converted and seasoned gives you a withdrawal source that does not depend on selling depressed assets and does not add to your taxable income the way a traditional withdrawal would.

In a year the market is down, drawing from the Roth instead of the traditional account lets your other investments sit and recover rather than being sold at a loss to fund your spending. Building that buffer is itself a reason to convert while markets are calm, so the money is seasoned and available if a downturn arrives during your retirement. This is one piece of a larger income-flooring approach; where guaranteed income sources like fixed index annuities are also part of that floor, any annuity guarantees depend on the claims-paying ability of the issuing insurance carrier.

What a Roth means for your heirs

Estate planning is a bigger part of the conversation for a retiree than it typically is for someone still a decade from retiring, simply because the time horizon to actually leave money to heirs is shorter and more concrete. Under the SECURE Act, most non-spouse beneficiaries, including adult children, must empty an inherited IRA within 10 years of the original owner’s death. That rule applies to both traditional and Roth inherited IRAs, but the tax treatment inside that 10-year window is not the same.

Withdrawals from an inherited traditional IRA are taxable income to your heir, often arriving during their own peak earning years, at their marginal rate, not yours. Withdrawals from an inherited Roth IRA are income-tax-free, no matter when your heir takes them within that 10-year window. Converting during your own lifetime moves the tax bill from your children’s highest-earning years onto your own return, at a rate you can see and plan for today. For households with grown children who are themselves in their peak earning years, that shift can be worth more than it first appears.

How this differs from converting before you retire

The mechanics of a conversion do not change once you retire, but the planning inputs do. A pre-retiree is estimating a future low-income window that has not arrived yet, working around a paycheck that is still coming in, and often converting to get ahead of retirement rather than into it. A retiree is standing inside the window already, with a known Social Security decision, a known pension election, and often a known Medicare status, all of which can be measured rather than projected.

That is not a small difference. It generally means a retiree can size conversions more precisely, year by year, against real numbers instead of estimates. If you are further out from retirement and want the version of this planning built around a paycheck that is still coming in, that is exactly what our guide to Roth conversion strategy for pre-retirees is built for. If you are already retired, the framework above is the one that fits your actual numbers.

A hypothetical illustration

Consider a hypothetical retired couple, both 64, who left their careers at a Metro Detroit employer two years ago. Their income today comes only from a small pension and interest on savings; neither has filed for Social Security yet, and RMDs are nine years away. Their taxable income lands comfortably inside the 12% bracket, well below where it sat during their working years and well below where it is projected to land once RMDs and two Social Security checks are both running.

Each year, they convert enough from their traditional 401(k) rollover IRA to fill the remaining room in the 12% bracket, stopping short of the 22% line, and they pay the tax from a savings account rather than from the IRA itself, so the full converted amount lands in the Roth. They check the current-year IRMAA thresholds before finalizing the number, since they plan to enroll in Medicare within a few years and do not want a conversion made today to raise a premium later. Repeated across the bridge years, this steady, measured approach shrinks the balance that will eventually generate their RMDs, without ever exposing a single year's income to a higher bracket. This is a hypothetical example for illustration only; actual results depend on each household's specific accounts, income, and tax situation, and are not guaranteed.

When converting in retirement is not the right move

A conversion is a useful tool, not an obligation, and it is worth being just as clear about when to leave it alone. If your household is already in a high bracket in retirement and expects to stay there, for example because of substantial rental, pension, or investment income, the core premise weakens: you would be prepaying tax now to avoid a tax that is not meaningfully higher later.

If you do not have savings outside the IRA to cover the resulting tax bill, converting forces you to withhold the tax from the IRA itself, which shrinks what actually lands in the Roth and can trigger an early-withdrawal penalty if you are under 59½. And if charitable giving is already part of your plan, a Qualified Charitable Distribution, available once you reach 70½, lets you send traditional IRA money directly to a charity tax-free, which can accomplish more than converting and donating separately. None of this means conversions are wrong for your household; it means the right answer depends on your numbers, and sometimes the right move in a given year is to convert nothing at all.

Putting it together

A Roth conversion in retirement is not a single decision made once. It is a yearly question, re-run against your bracket, your IRMAA tier, your Social Security status, and how many years remain before RMDs begin, coordinated with the rest of your retirement income plan rather than decided in isolation. Get the sequencing wrong and you can trip a Medicare surcharge or a tax-torpedo effect on Social Security you did not see coming. Get it right and you can materially shrink your future forced withdrawals while building a tax-free bucket your heirs will thank you for.

If you are retired and wondering whether, and how much, to convert this year, our free Retirement Check-Up is a no-pressure conversation, zero cost and zero obligation. We help retirees across Bloomfield Hills, Troy, Auburn Hills, and Metro Detroit run these numbers against their actual accounts, not a generic estimate.

This article is educational information, not individualized financial, tax, or investment advice. Investing involves risk, including possible loss of principal. Guarantees on insurance and annuity products depend on the claims-paying ability of the issuing insurer. Talk with a qualified tax professional about your own situation before converting.