If you have spent decades diligently funding a traditional IRA retirement account, you have essentially built a partnership with the IRS that you never signed up for. Every dollar in that account is money you have not yet paid tax on, which means a portion of your balance belongs to the government. A Roth IRA conversion is one of the few tools that lets you decide, on your own terms, when to settle that bill. For New Yorkers in their fifties and early sixties with $500,000 or more saved, deciding whether to convert is one of the most consequential tax questions of the pre-retirement years.
We work with clients on this exact decision all the time, and the honest answer is that it depends on your brackets, your timeline, and what you want to leave behind. Here is how we think it through.
What a Roth IRA Conversion Actually Does
A traditional IRA (or a 401(k) rolled into one) is funded with pre-tax dollars. You got a deduction going in, the money grew tax-deferred, and you pay ordinary income tax on every dollar you eventually withdraw. A Roth IRA works in reverse: you fund it with money you have already paid tax on, and qualified withdrawals in retirement come out completely tax-free.
A conversion is the act of moving money from the traditional IRA side to the Roth IRA side. The catch is that the amount you convert is added to your taxable income in the year you convert it. In plain terms, you are choosing to pay tax now, at today’s rates, on the converted amount in exchange for tax-free growth and tax-free withdrawals later. The question of whether that trade is worth it comes down to one comparison: is your tax rate today lower than the rate you (or your heirs) would pay in the future?
The Case for Converting in 2026: Tax Bracket Arbitrage
Tax bracket arbitrage is a fancy phrase for a simple idea. You want to recognize income when your tax rate is low and avoid recognizing income when your tax rate is high. The years between when you stop working and when required IRA withdrawals kick in are often a rare low-rate window, and 2026 makes that window especially interesting.
Here is why. When the One Big Beautiful Bill Act was signed in July 2025, it made the lower income tax rates from the 2017 tax law permanent. The seven federal brackets remain 10%, 12%, 22%, 24%, 32%, 35%, and 37%, and the top rate did not snap back to the old 39.6% (IRS, federal income tax rates and brackets). For years, planners assumed rates would rise automatically after 2025, and many people rushed conversions to beat that deadline. That pressure is gone, which actually improves the case for a measured, multi-year approach rather than a single large conversion.
The opportunity shows up most clearly in what we call the gap years. Picture a couple who retires at 62 with a paid-off house and modest early spending. Their taxable income drops sharply, and it may stay low until Social Security and IRA required minimum distributions (RMDs, the IRA withdrawals the IRS forces you to take from pre-tax IRA accounts) begin. Under current rules, RMDs start at age 73 for most people saving today, and at 75 for those born in 1960 or later. That leaves a stretch of years where a couple might sit in the 12% or 22% tax bracket while a large traditional IRA balance quietly compounds toward much larger, higher-taxed RMDs down the road. Converting during those years, filling up the lower brackets on purpose, is the heart of the strategy. Thoughtful retirement planning is about identifying and using those windows before they close.
Watch the New York Layer
New York adds a wrinkle that out-of-state guides ignore. The state treats Roth IRA conversion income as pension and annuity income, and if you are at least 59½, New York lets you exclude up to $20,000 of it per person each year. For a married couple where both spouses have their own qualifying retirement income, that can mean up to $40,000 of conversion income shielded from New York tax annually. It is not a reason to convert by itself, but for anyone weighing a traditional IRA to Roth IRA move in New York, it is a real and often overlooked piece of the math that rewards spreading conversions across several years.
The Estate Planning Payoff
For clients with $500,000 or more saved, the estate planning benefit is frequently the deciding factor, and it changed dramatically a few years ago. The SECURE Act eliminated the old “stretch IRA” for most adult children who inherit a retirement account. Instead of drawing an inherited IRA account down slowly over their own lifetime, most non-spouse heirs must now empty the account within 10 years.
That 10-year rule is where a traditional IRA can become a tax trap for the next generation. If your children inherit a large pre-tax IRA account, they are often forced to withdraw it during their peak earning years, stacking those distributions on top of their own salaries and pushing them into higher tax brackets. An inherited Roth IRA, by contrast, still must be emptied within 10 years, but the withdrawals are generally tax-free. Converting during your lifetime, at your tax rates, can spare your heirs from absorbing that income at their tax rates.
There is a second, distinctly New York benefit. When you pay the tax on a conversion, you are moving money out of your taxable estate. That matters here because New York has its own estate tax with a notorious “cliff.” The state exemption is around $7.35 million in 2026, but once an estate exceeds that exemption by more than about 5% (roughly $7.72 million), the exemption disappears entirely and the whole estate is taxed, not just the excess. The federal exemption is far more forgiving at $15 million per person for 2026, an amount the 2025 law made permanent (Kiplinger). So for many New York families it is the state cliff, not the federal tax, that drives planning. Paying IRA conversion tax from non-retirement funds shrinks your estate and can help keep you on the right side of that cliff. This is exactly where retirement decisions and estate planning have to be handled together rather than in separate silos.
When a Conversion Might Not Make Sense
Conversions are not universally smart, and part of our job is talking clients out of them when the numbers do not support it. A few situations give us pause.
- You would pay the tax from the IRA itself. The strategy works best when you cover the tax bill with outside cash. If you have to pull extra from the IRA account to pay the tax, you shrink the very IRA balance you are trying to grow tax-free.
- You are near Medicare and watching IRMAA. The income-related monthly adjustment amount (IRMAA) is a surcharge on Medicare Part B and Part D premiums that kicks in above certain income levels, starting at $109,000 for individuals and $218,000 for couples in 2026. It is a hard cliff, and it uses a two-year lookback, so a conversion this year can raise your premiums two years later (Kiplinger). Sizing IRA conversions to stay under the next threshold is often the difference between a good plan and an expensive surprise.
- You expect a genuinely lower bracket later. If your income will fall further in a year or two, waiting can be the better move. Arbitrage only works if today’s rate really is the low point.
How We Approach the Decision
We rarely recommend converting an entire IRA balance at once. In most cases the right answer is a series of partial conversions, sized each year to fill a target bracket without spilling into the next bracket or tripping an IRMAA threshold. That requires looking at your income, your Social Security timing, your Medicare status, and your estate goals as one connected picture rather than as isolated line items. Because Lawrence Israeloff is both a tax attorney and a CPA, he can address the legal and estate side in the same conversation, which is difficult when your accountant and your attorney have never spoken. Coordinating that math each year is a natural extension of ongoing tax planning.
Ready to find out whether a Roth IRA conversion actually fits your situation? We would be glad to map out a multi-year IRA conversion strategy that keeps you in the brackets you choose. As both a tax attorney and a CPA, Lawrence Israeloff can handle the income tax and the estate tax implications together, so you get one coordinated plan instead of conflicting advice. Reach out to Lawrence Israeloff to start the conversation.
