If you have money sitting in a traditional 401(k) or IRA, the fourth quarter is an important time to think about Roth conversions.

Why?

Because December 31 is the deadline for a Roth conversion to count toward the current tax year.

For retirees and pre-retirees, a Roth conversion can be a powerful way to move money from a tax-deferred account into a tax-free Roth account. But the strategy is not simply, “Convert as much as possible.”

The amount you convert, when you convert it, and how the conversion affects the rest of your tax picture all matter.

Here are five mistakes we see people make when considering a year-end Roth conversion.

1. Converting Too Much in a Single Year

One Roth conversion mistake is treating it like an all-or-nothing decision.

You don’t have to choose between converting nothing and converting a large amount all at once. For some retirees, spreading a conversion over several years can help manage their tax bill and other costs.

For example, imagine a married couple expects to have $150,000 of taxable income in 2026 before any Roth conversion.

They decide to convert $300,000 from their traditional IRAs to Roth.

That would bring their taxable income to roughly $450,000. Because the 24% bracket for married couples ends at $403,550 in 2026, part of that conversion would spill into the 32% tax bracket.

But what if they spread that $300,000 conversion over three years instead?

They could convert $100,000 per year, keeping their taxable income around $250,000 each year, assuming their other income stays similar.

Now, instead of pushing part of the conversion into the 32% bracket, they are keeping the entire conversion within the 24% bracket.

That’s a big difference.

You don’t have to convert everything this year just because you want to convert some of it.

For many retirees, the better question is:

“How much should we convert this year?”

rather than:

“Should we convert or not?”

The answer depends on your current tax bracket, future tax rates, Medicare premiums, Social Security, and how much you have saved in traditional retirement accounts.

The goal isn’t necessarily to avoid a particular tax bracket. The goal is to convert strategically, so you aren’t paying a higher tax rate today than you need to.

2. Looking at Income Taxes but Ignoring Medicare

A Roth conversion can affect more than your federal income tax bill.

For Medicare beneficiaries, your income can also affect your future Medicare premiums through the Income-Related Monthly Adjustment Amount, or IRMAA.

Medicare generally uses your tax return from two years earlier when determining IRMAA. That means your 2026 income can potentially affect your Medicare premiums in 2028.

This is easy to overlook because the Medicare cost doesn’t show up on your tax return as an additional tax.

But it is still a real cost.

That’s why the right Roth conversion calculation isn’t simply:

“What’s my tax rate on this conversion?”

It should also consider:

“What other costs could this conversion create?”

The exact IRMAA thresholds that will apply for 2028 will depend on future adjustments, so don’t rely on today’s thresholds when making a long-term projection.

3. Forgetting About Social Security Taxes

Here’s another piece of the puzzle that can get overlooked.

Roth conversions increase your income, and that can affect how much of your Social Security benefits are taxable.

For married couples filing jointly, up to 85% of Social Security benefits can become taxable once the applicable combined-income thresholds are exceeded. The IRS uses a specific formula to determine the taxable portion, so crossing a threshold does not mean that 85% of the conversion itself suddenly becomes taxable.

Still, it is another reason a Roth conversion should be evaluated as part of your entire tax picture, rather than in isolation.

A conversion that looks attractive when you only look at your marginal tax bracket may look different once Social Security taxation and Medicare are included.

4. Waiting Until December to Make the Decision

Technically, you have until December 31 to complete a Roth conversion for the year.

But that doesn’t mean December 31 is the ideal time to start thinking about it.

Waiting until the last minute can create several problems.

You may need to:

• Determine how much room you have in your current tax bracket
• Estimate your total 2026 income
• Account for Social Security and other sources of income
• Consider the potential impact on Medicare premiums
• Decide how the resulting tax liability will be paid
• Adjust withholding or estimated tax payments if necessary
• Give your custodian enough time to process the conversion

The earlier you make the decision, the more flexibility you have.

October and November can be much better months for planning than waiting until December 30 to decide.

And remember: the conversion itself generally needs to be completed by December 31 to count for that tax year.

5. Skipping the Conversion Because the Tax Bill Feels Too High

This might be the most emotional mistake of all.

You look at the amount of taxes created by a Roth conversion and think:

“Why would I voluntarily pay this much in taxes?”

It’s a reasonable question.

But the better question is:

“Is paying this tax today potentially better than paying taxes on this money later?”

That answer depends on your situation.

If you have a large traditional IRA or 401(k), future required minimum distributions could push you into higher tax brackets later in retirement.

A Roth conversion allows you to voluntarily move some of that money into a Roth account today, when you may have more control over your taxable income.

And importantly, the decision doesn’t necessarily depend on whether the stock market is up or down.

Your investment balance matters because it affects the amount you may eventually need to withdraw. But the fundamental tax-planning question remains:

What tax rate are you paying today compared with the tax rate you may face on this money in the future?

That’s why Roth conversion planning is often about looking several years ahead rather than simply reacting to this year’s market or tax bill.

So, What Should You Do Before December 31?

If you have a substantial balance in a traditional 401(k) or IRA and you’re in the years before required minimum distributions, Q4 is a good time to review your Roth conversion strategy.

Start with these questions:

1. How much taxable income do I already expect in 2026?
2. How much room do I have left in my current tax bracket?
3. How would a conversion affect my Medicare premiums in future years?
4. How could it affect the taxation of my Social Security benefits?
5. Would spreading conversions over multiple years make more sense than doing one large conversion?

For 2026, the standard deduction for married couples filing jointly is $32,200, and the 22% federal bracket extends to $211,400 of taxable income.

Those numbers can provide a starting point, but they are only part of the calculation.

Don’t Let December 31 Make the Decision for You

We’d love to hear your thoughts! Just reply to this email with any questions or feedback.
​
​Our team personally reviews and responds to every message.
​
Thanks for tuning in!
​
​Keeping wealth in focus,

The MY Wealth Management Team