Married retirees can convert up to $40,000 from traditional IRAs to Roth IRAs at a 12% rate before Dec. 31, but most fail to act.
Married retirees have until December 31 to convert up to $40,000 from traditional IRAs to Roth IRAs while staying within the 12% federal tax bracket. The $133,000 gross income threshold for the 12% bracket, including a $32,200 standard deduction, expires at year-end and cannot be carried over.
A couple with $60,000 in taxable income can convert $40,000 to a Roth IRA without exceeding the 12% bracket, avoiding higher rates later. Ignoring this opportunity risks required minimum distributions pushing future withdrawals into the 22% or 24% brackets. Most retirees, however, leave this bracket space unused annually.
Roth conversions must be completed by December 31, as the IRS does not allow extensions for unused bracket capacity. The strategy is particularly valuable for those with $1 million or larger IRAs facing mandatory withdrawals in their 70s.