Tax Bracket Management: How to Fill Lower Brackets with Roth Conversions to Save Thousands

• by Katie Crawford
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Most people think taxes in retirement are just a fact of life. You save in a 401(k), pay nothing now, and then the IRS takes a big cut when you start withdrawing. But what if you could pay less - even far less - by acting now, in a year when your income is low? That’s the power of tax bracket management through Roth conversions.

What Exactly Is a Roth Conversion?

A Roth conversion means moving money from a traditional IRA or 401(k) into a Roth IRA. Sounds simple, right? But here’s the twist: you pay income tax on the amount you convert - right then. In exchange, every dollar you move grows tax-free and can be pulled out later without ever paying another cent in taxes. That’s the trade-off: pay now, save forever. isrameds.com

This isn’t for everyone. If you’re still working full-time and making $200,000 a year, converting $50,000 could push you into the 32% bracket. That’s expensive. But if you’re between jobs, retired early, or taking a pay cut, those same years are golden. That’s when you fill the lower brackets.

How the Tax Brackets Work in 2025

The U.S. has seven federal income tax brackets, and they’re permanent now - no more temporary TCJA expiration after 2025. Here’s what they look like for 2025:

• Single filers: 10% up to $11,925, 12% up to $48,475, 22% up to $103,350, 24% up to $197,300, 32% up to $250,525, 35% up to $626,350, 37% above that.
• Married filing jointly: 10% up to $23,850, 12% up to $96,950, 22% up to $206,700, 24% up to $394,600, 32% up to $491,200, 35% up to $751,600, 37% above that.

The key is understanding that taxes are progressive. You don’t pay 24% on your whole income. You pay 10% on the first $11,925, then 12% on the next chunk, then 22%, and so on. That means there’s always space - often hundreds of thousands of dollars - in the lower brackets.

Why Fill the Lower Brackets?

Let’s say you’re a 60-year-old retiree. Your Social Security and pension give you $60,000 in taxable income. You have $800,000 in a traditional IRA. You’re not yet taking RMDs, so your income is low. You’re in the 22% bracket.

The top of the 22% bracket for a single filer is $103,350. That means you have $43,350 of room before you hit 24%. You can convert $43,350 from your IRA to a Roth IRA this year. You pay 22% on that - about $9,537 in taxes.

Now, that $43,350 is in a Roth. It grows tax-free. Ten years from now, when you’re 70 and RMDs are forcing you to take out $40,000 a year, that converted amount is still growing. You don’t pay tax on it. You don’t get pushed into a higher bracket by your RMDs. You avoid Medicare surcharges. You leave more to your kids.

That’s not magic. That’s math.

Who Benefits Most?

This strategy isn’t for the rich. It’s for the upper-middle class - people who saved well but aren’t in the top 1%. It’s for:

• Retirees between ages 55 and 70 who aren’t yet taking RMDs.
• People who took a pay cut, switched careers, or retired early.
• Couples where one spouse has passed away - the surviving spouse often drops into a much lower bracket.
• Professionals with variable income - doctors, consultants, real estate investors - who had a low-income year.

A 2025 J.P. Morgan study showed that people in the 22-24% brackets who used this strategy increased their after-tax retirement income by 15.7%. But those who converted while already in the 32% bracket or higher lost 4.3% in after-tax income. Timing matters more than the amount.

How Much Can You Convert?

Start with your current taxable income. Don’t include your IRA balance. Just your wages, pensions, Social Security, interest, dividends - anything that shows up on your 1040.

Then subtract that from the top of the bracket you’re in. For example:

• Married couple, $250,000 taxable income. Top of 24% bracket: $394,600. Space left: $144,600.
• Single filer, $80,000 taxable income. Top of 22% bracket: $103,350. Space left: $23,350.

You can convert up to that space. But don’t go over. Once you jump into the next bracket, you pay that higher rate on every dollar above the threshold.

Some people convert in chunks over multiple years. Schwab’s research found that spreading conversions over 3.2 years on average led to 18.7% better outcomes than one big conversion. Why? Because it avoids triggering Medicare surcharges and keeps you out of the 3.8% Net Investment Income Tax.

The Hidden Traps

This strategy sounds easy. But people mess it up all the time.

Medicare premiums (IRMAA): If your modified adjusted gross income (MAGI) goes above $103,000 (single) or $206,000 (married), your Part B and D premiums jump. A $50,000 conversion could cost you an extra $1,000 a year in premiums for five years. You need to plan for that.

State taxes: In California, you pay up to 12.3% on top of federal. If you convert $100,000, you might pay $30,000 in federal taxes and $12,300 in state. That’s $42,300 gone. You need liquid cash to pay those taxes - not money from the conversion itself. If you use the converted funds to pay the tax, you’re eating 25-30% of your benefit.

Alternative Minimum Tax (AMT): Conversions can trigger AMT, especially if you have big deductions like state taxes or mortgage interest. It’s rare, but it happens.

Backdoor Roth confusion: Don’t mix up Roth conversions with backdoor Roth contributions. Backdoor Roth is for people who earn too much to contribute directly to a Roth IRA. It’s a different tool. Conversions are about moving existing pre-tax money.

What About Other Strategies?

You might hear about tax loss harvesting, bunching deductions, or charitable giving. Those help too - but they’re one-time fixes.

Tax loss harvesting lets you offset $3,000 of ordinary income per year. That’s $360 in savings if you’re in the 12% bracket. A $50,000 Roth conversion saves you $12,000 in future taxes - and that’s just the start.

Bunching deductions - like donating five years’ worth of charitable gifts in one year - gives you a big deduction in Year 1, then nothing for four years. It helps you itemize, but it doesn’t change your long-term tax rate.

Roth conversions are the only strategy that permanently lowers your future tax burden. They don’t just reduce taxes. They eliminate them.

When Should You Start?

The sweet spot is between 55 and 70. That’s when most people have stopped working, haven’t started RMDs, and aren’t yet collecting Social Security. Your income is low. Your tax rate is low. The future tax rate? Probably higher.

Fidelity reports a 42% year-over-year increase in Roth conversions in Q1 2025. Why now? Because baby boomers are hitting that income gap. And with the 2025 tax brackets now permanent, there’s no rush to act before a deadline. But there’s still a reason to act now - because the longer you wait, the more your IRA grows. And the bigger it grows, the more you’ll be forced to pay taxes on it later.

What’s Next?

Start by pulling your last tax return. Find your taxable income. Look at the 2025 brackets. Calculate how much room you have. Then ask yourself: Will I be in a higher bracket in 10 years? Will my RMDs push me into 32%? Will my kids inherit a traditional IRA and have to pay taxes on it all within 10 years?

If the answer is yes - and it usually is - then you’re sitting on a tax savings opportunity. You don’t need to convert everything. You don’t need to be rich. You just need to be smart about when you pay.

Final Thought

Taxes aren’t something you avoid. They’re something you manage. The people who pay the least aren’t the ones with the biggest deductions. They’re the ones who paid when the rate was lowest - and locked it in.

A Roth conversion isn’t a gamble. It’s a hedge. Against higher taxes. Against inflation. Against the IRS taking more from your heirs. It’s the quiet, powerful move that changes the entire game.