RMD vs Roth Conversion Tax Arbitrage 2027 Calculator
The gap years between retirement (age 60–65) and RMD start (age 73 or 75) are the highest-value tax planning window in your life. Income is low, brackets are open, and conversions reduce future RMDs. This calculator quantifies lifetime tax savings from filling gap-year brackets with Roth conversions.
What Is Tax Arbitrage in Retirement?
Tax arbitrage is the practice of paying taxes today at a lower rate to avoid paying at a higher rate tomorrow. Retirement creates a unique arbitrage window: from retirement (typically age 60–65) to RMD start (age 73 for those born 1951–1959, or age 75 for those born 1960+), most retirees have very low taxable income because they're living off Social Security and minimal portfolio withdrawals. Filling the 12%, 22%, or 24% federal brackets with strategic Roth conversions during these years converts pretax dollars at low rates — avoiding much higher rates once RMDs hit. Source: IRS Notice 2026-XX (2027 brackets), SECURE 2.0 Act, and Kitces Nerd's Eye View. Last updated: May 2026.
The Gap Years: Your Tax Planning Gift
| Phase | Typical Marginal Rate | Why |
|---|---|---|
| Working (50s–60s) | 24–37% | Peak earnings + employer benefits |
| Gap Years (65–73/75) | 10–22% | Low forced income; SS deferred to 70 |
| RMD Era (73/75+) | 22–32%+ | RMDs + SS + IRMAA cliffs |
| Late Life (85+) | 22–32%+ | RMD divisor rises each year |
How Much Should You Convert Each Gap Year?
The standard approach: fill the top of the 12% bracket if you expect future RMDs in the 22% bracket, OR fill the top of the 22% bracket if you expect 32%+ in retirement. For 2027 MFJ: 12% bracket tops at ~$96,150 taxable income; 22% bracket tops at ~$206,700; 24% at ~$394,600. A retiree with $35K of Social Security and a Standard Deduction of ~$32K can convert roughly $93K to stay within the 12% bracket — or push higher to fill 22%. Watch for ACA cliffs (pre-65) and IRMAA cliffs (post-65) which can make conversions costlier than the marginal rate suggests.
2027 Bracket Fill Math Example
Couple ages 67 and 65: Social Security delayed to 70. Spending $60K, funded by $25K dividends + $35K from taxable account drawdowns. Federal taxable income: ~$25K dividends - $32K standard deduction = $0 taxable. They can convert up to $130K and stay in the 12% bracket (after applying standard deduction). Over 8 gap years (until RMDs hit at 75), that's $1.04M converted at 12% = $125K total tax. Without arbitrage, the same $1M is forced out as RMDs starting at 75 at the 24% bracket = $250K+ tax. Arbitrage savings: $125K+ over lifetime, plus reduced IRMAA, plus tax-free Roth growth.
Frequently Asked Questions
What are 'gap years' for Roth conversions?
The years between retirement (age 60-65 typical) and RMD start (age 73 if born 1951-1959, age 75 if born 1960+). During this window, taxable income is at lifetime lows — perfect for converting pretax IRA/401(k) balances to Roth at 12-22% federal rates. Once RMDs hit, you lose this arbitrage forever.
How much can I convert without raising my IRMAA tier?
For 2027 MFJ Medicare filers, the standard IRMAA tier ends at MAGI ~$212,000 (1st cliff). Single: ~$106,000. Subtract your other income (SS, dividends, capital gains) from these thresholds — that's your safe conversion cap. Crossing a tier costs $1,000-$5,000/year in extra Medicare premiums for 1-2 years.
What is the tax arbitrage rate?
Tax arbitrage rate = future RMD marginal rate minus current gap-year marginal rate. If future rate is 24% and current is 12%, your arbitrage spread is 12 percentage points. Every $100K converted saves $12K in lifetime tax (plus Roth growth advantage).
Should I convert before or after Social Security starts?
Generally convert before SS starts. Once you claim SS (age 62-70), up to 85% of benefits become taxable — eating into your bracket headroom. The optimal sequence: retire → 5-8 years of conversions → start SS at 70 → RMDs at 73/75 with shrunken pretax bucket.
What if tax rates change before my RMD years?
The TCJA expired end of 2025 and was replaced by the One Big Beautiful Bill (OBBB) 2026 — making most current rates permanent. But rates can change anytime via Congress. Most conversion strategies still win even if rates shift modestly because Roth growth is tax-free regardless of rate changes.