Roth Conversions: What NJ Retirees Should Weigh Before Converting in 2026

A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA, and you pay income tax on the amount you convert that same year. Done at the right time, it can mean tax-free growth and fewer required withdrawals down the road. Done without thinking through the timing, it can push you into a higher tax bracket or trigger a Medicare premium surcharge two years later. Here's how to think through it.

Key Takeaways

There's no income limit on who can do a Roth conversion, and no dollar limit on how much you can convert in a year.
You owe ordinary income tax on the converted amount in the year you convert, not capital gains tax.
A large conversion can raise your Medicare Part B and Part D premiums two years later, because Medicare bases those premiums on your income from two years prior.
Each conversion has its own five-year clock before the converted amount can come out penalty-free if you're under 59½.
Converting can reduce your future Required Minimum Distributions, since Roth IRAs don't carry RMDs for the original owner.

Unlike Roth IRA contributions, which phase out at higher income levels, a conversion has no income ceiling. Anyone with a traditional IRA, SEP IRA, SIMPLE IRA, or eligible 401(k) balance can convert some or all of it to a Roth, regardless of how much they earn. The amount you convert gets added to your taxable income for that year and reported on IRS Form 8606, and you pay tax on it at your ordinary income rate rather than a lower capital gains rate.

Because there's no cap on the amount, a conversion can be sized to fit almost any goal, from converting a small slice each year to doing one larger conversion in a low-income year. That flexibility is also what makes the timing decision worth planning carefully rather than doing on autopilot.

The trade-off with any conversion is straightforward: you're paying tax now so you and your heirs don't have to pay it later. For 2026, the standard deduction is $16,100 for single filers and $32,200 for married couples filing jointly, and the federal brackets run from 10% up through 37%, with the top rate applying above $640,600 for single filers and $768,700 for joint filers.

Where you land in that bracket structure before you convert anything determines how expensive the conversion is. Converting enough to fill up your current bracket without spilling into the next one is one way advisors think about sizing a conversion, though the right amount depends on your full income picture, your other assets, and your goals, which is exactly the kind of number worth running with a professional rather than estimating on your own.

This is the part that catches people off guard. Medicare bases your Part B and Part D premiums on your Modified Adjusted Gross Income from two years earlier, so a large conversion in 2026 can raise what you pay for Medicare in 2028. For 2026, the standard Part B premium is $202.90 a month, but it steps up in tiers once your income crosses set thresholds. An individual with MAGI above $109,000 (or a couple above $218,000) already pays more, and the surcharge climbs from there in tiers up to an additional $487.00 a month at the top bracket

These thresholds work like a cliff, not a slope. Crossing a bracket by even a small amount can trigger the full surcharge for that tier, on both Part B and Part D, for the whole year. A conversion large enough to bump you over a threshold can be more expensive than it first looks once you add in two extra years of higher Medicare premiums, which is why the size of a conversion and your Medicare timeline need to be looked at together, not separately.

Despite the upfront tax bill, a lot of retirees still find conversions worth doing, for a few reasons. Money in a Roth IRA grows tax-free from that point forward, and qualified withdrawals in retirement owe no tax at all. Roth IRAs also don't carry Required Minimum Distributions for the original owner, so converting can shrink the account balance that would otherwise force taxable withdrawals starting at 73. For anyone planning to leave assets to heirs, a Roth balance can also be a cleaner inheritance, since beneficiaries generally don't owe income tax on qualified withdrawals the way they would on an inherited traditional IRA.

None of that means converting is automatically the right move. It depends on your current tax bracket versus your expected future bracket, how many years you have before you'd need the money, and whether you're comfortable paying tax today for a benefit that shows up later.

Each conversion starts its own five-year clock, counted from January 1 of the year you convert. If you're under 59½ and withdraw converted funds before that clock runs out, you can owe a 10% early-withdrawal penalty on the taxable portion, even though you already paid income tax on it when you converted. Do multiple conversions in different years, and each one has its own separate five-year period running in parallel.

This rule matters most for anyone converting well before typical retirement age. If you're already past 59½, the early-withdrawal penalty doesn't apply, though the five-year rule still governs whether earnings come out tax-free.