If you're in your early 60s and recently retired — or about to — the years before Social Security and Medicare may be the single greatest tax planning opportunity of your life. Here's a real case study that shows exactly how we helped a family through this exact scenario.
Tom and Diane (names anonymized) came to us with a question many people in their position ask: When is the right time to start converting retirement savings to a Roth IRA?
What followed was a step-by-step plan that preserved their health insurance subsidies, reduced their future Medicare costs, and reset their investment account's tax basis — all at the same time. Here's how it worked.
Who Are Tom and Diane? Understanding Their Financial Picture
Tom (61) and Diane (60) are a married couple in the early stages of retirement. Tom recently left a corporate engineering role and earned approximately $280,000 in his final working year. His severance pay continues through summer 2026. Diane plans to retire in about 18 months.
Their assets at the time of planning:
- $1.4 million in Tom's 401(k)
- $380,000 in Diane's 403(b)
- $140,000 in a joint brokerage account (with embedded long-term capital gains)
- $90,000 in a Health Savings Account (HSA)
Their key upcoming transitions:
- Health insurance: On COBRA (at $2,300/month) through August 2027, then moving to the ACA marketplace until Medicare begins for Tom in 2030
- Social Security: Neither plans to claim until 2032 at the earliest
- Required Minimum Distributions (RMDs): Not applicable until Tom turns 75
Tom's instinct was to convert $200,000 to a Roth IRA in 2026 — one big move to get ahead of future taxes. That instinct was understandable. But a single large conversion without the right context can create three separate problems at once.
What Is a Roth Conversion — and Why Do the Bridge Years Matter?
A Roth conversion means moving money from a traditional IRA or 401(k) — where contributions were made pre-tax — into a Roth IRA, where future growth and withdrawals are tax-free. You pay income tax on the converted amount in the year of the conversion.
The bridge years are the period between retirement and when Social Security and Medicare begin. For many people, this window — often ages 60 to 70 — offers unusually low taxable income. That makes it an ideal time to convert retirement savings at lower tax rates before RMDs force larger withdrawals later.
The challenge is that the bridge years involve multiple moving parts: severance income, health insurance subsidies, capital gains, and Medicare premium calculations. Getting one piece wrong can create unexpected costs elsewhere.
The Problem With One Big Conversion
Tom's proposed $200,000 conversion in 2026 seemed logical on its own. But mapped against everything else happening in their financial picture, it would have caused three downstream problems:
- Higher tax bracket: The conversion, stacked on top of Tom's severance income, would have pushed them well into the 32% federal income tax bracket — meaning they'd pay more tax on the converted dollars than necessary.
- Lost ACA subsidies: A higher adjusted gross income (AGI) in 2028 would have reduced or eliminated their eligibility for Affordable Care Act (ACA) marketplace subsidies before Tom reaches Medicare age in 2030.
- IRMAA surcharges on Medicare: The Income-Related Monthly Adjustment Amount (IRMAA) is an additional charge added to Medicare Part B premiums for higher earners. A large 2028 conversion would directly increase Tom's Medicare premiums in 2030 — a two-year lookback the IRS uses to calculate surcharges.
One move. Three downstream costs.
The Four-Step Plan: A Smarter Approach to Bridge-Year Planning
Instead of a single large conversion, the right approach was a coordinated, four-step strategy — each step sized carefully to what the tax bracket and each year's circumstances actually allowed.
Step 1: Fill the Tax Bracket in the Severance Year (2026)
The goal: Convert to a Roth IRA in 2026, but only enough to fill the 22% federal tax bracket — not spill over into the 32% bracket.
With severance income, capital gains, and other income already on the table for 2026, the conversion amount is smaller than Tom's initial $200,000 proposal — but it's still meaningful, and it's taxed at the lowest marginal rate available that year.
- Action: Convert in 2026, sized to the bracket ceiling
- Why it works: Known federal tax rates today are likely lower than unknown future rates — especially once RMDs begin
- Trade-off: Upfront tax bill on the converted amount
Step 2: Pause Conversions in 2027 to Protect ACA Subsidies
The goal: Preserve eligibility for ACA health insurance subsidies after COBRA coverage ends in August 2027.
ACA premium subsidies are calculated based on your AGI in the same calendar year. A large Roth conversion in 2027 would raise AGI above the subsidy threshold — meaning they'd lose premium assistance on top of paying conversion taxes. The math simply doesn't favor converting in this year.
- Action: Hold Roth conversions in 2027, or limit them to within the subsidy-safe income range
- Why it works: The real-dollar cost of lost ACA subsidies often outweighs the tax savings from converting
- Trade-off: One year of the bridge window is not used for Roth conversion — but it's used for something equally valuable (see Step 3)
Step 3: Harvest Capital Gains at 0% in 2027
The goal: Reset the tax basis on the $140,000 brokerage account while paying zero federal capital gains tax.
With no W-2 income, no Social Security, and Roth conversions paused in 2027, Tom and Diane's taxable income falls well below the 0% long-term capital gains (LTCG) threshold. This creates an opportunity to sell appreciated positions in their brokerage account, recognize the gains, and immediately repurchase the same investments — permanently resetting their cost basis at no federal tax cost.
Their state still applies a capital gains tax (approximately $4,000), but the federal bill is $0.
- Action: Harvest long-term capital gains up to the top of the 0% federal LTCG band in 2027
- Why it works: A basis reset compounds forward just as powerfully as Roth dollars — and this window may not return
- Trade-off: Gains harvesting and Roth conversions compete for the same income headroom in 2027. In this case, the gains harvest wins
Step 4: Resume Roth Conversions from 2028 Through 2031, Sized to Two Constraints
The goal: Continue filling the tax bracket with Roth conversions — but with IRMAA limits added as a second guardrail.
Once Diane's W-2 income ends and they're both on the ACA marketplace, conversions resume. However, each year's conversion amount is now sized to the lower of two ceilings:
- The top of the current tax bracket
- The AGI level that keeps Tom's Medicare IRMAA surcharge at an acceptable tier
This matters because each year's income directly affects Medicare premiums two years later. A 2028 conversion determines Tom's 2030 Part B premium. A 2029 conversion determines his 2031 premium. Careful annual sizing keeps those costs manageable.
- Action: Annual Roth conversions from 2028–2031, sized to both the bracket and IRMAA thresholds
- Why it works: The bridge years reward cumulative discipline, not a single large conversion
- Trade-off: Slower conversion pace than a one-time approach — but materially better net outcome
Why the Four Steps Work Together
Each step on its own is incomplete:
- Step 1 alone leaves years of low-bracket opportunity unused
- Steps 1 and 4 without Step 2 ignores the ACA subsidy window
- A single large conversion ignores all three downstream costs simultaneously
The four-step stack produces a coordinated outcome: a meaningful Roth balance built over six years, ACA subsidies preserved when they matter most, IRMAA tiers kept in check, and a brokerage account basis reset paid for with tax dollars they would never have owed anyway.
What This Case Study Teaches Us About Retirement Tax Planning
Tom and Diane's situation illustrates principles that apply to a wide range of people approaching or entering retirement. Here are the key lessons:
1. The bridge years are a tax planning window — treat them like one.
The years between retirement and Social Security or Medicare are often the lowest-income period of a retiree's financial life. Without proactive planning, that window closes quietly and the opportunity is lost permanently.
2. Never plan a Roth conversion in isolation.
A conversion that looks smart on a one-page tax estimate can trigger ACA subsidy losses, Medicare surcharges, or bracket creep when viewed across the full financial picture. Multi-year modeling is essential.
3. Health insurance costs are a tax planning variable.
ACA subsidies are income-dependent. A Roth conversion that costs $25,000 in taxes might simultaneously eliminate $18,000 in annual premium subsidies — making the effective cost far higher than it appears.
4. Tax bracket management beats conversion volume.
It's not about converting as much as possible. It's about converting at the lowest possible marginal rate, year after year, across the entire bridge window.
5. The 0% capital gains rate is a gift most people don't use.
For couples with income below approximately $96,700 (2026 threshold), long-term capital gains are taxed at 0% federally. This is a rare and valuable opportunity to reset investment basis — one that disappears once Social Security and RMDs begin.
6. Medicare IRMAA surcharges are predictable — and avoidable.
Because IRMAA is calculated on a two-year lookback, the decisions you make at 68 affect what you pay at 70. Planning ahead protects your Medicare costs before they're locked in.
How Advocate Wealth Solutions Can Help You Navigate the Bridge Years
Tom and Diane's story is not unusual. Many people approaching retirement have the right instincts — they know these years matter — but lack the full picture needed to act confidently.
At Advocate Wealth Solutions, we specialize in helping high-net-worth individuals and families build coordinated, multi-year retirement income strategies that work across all the moving parts: Roth conversions, ACA health insurance planning, Medicare cost management, capital gains optimization, and long-term wealth preservation.
If you are approaching your 60s — or recently retired — and want to understand what your bridge years actually allow, we can help you:
- Map your tax bracket year by year across the full bridge window
- Identify the right conversion amount for each year, without triggering avoidable costs
- Preserve ACA subsidies while still making meaningful progress on tax-deferred balances
- Manage IRMAA exposure before Medicare enrollment locks in your premium tier
- Harvest capital gains while federal rates allow it
The window is finite. The decisions you make in these years will shape your tax burden — and your wealth — for decades to come.
Contact Advocate Wealth Solutions today and let us help you build a plan that captures everything these years have to offer.
Frequently Asked Questions
Q: What are bridge years in retirement planning?
Bridge years refer to the period between when you stop working and when you begin collecting Social Security and Medicare. For most Americans, this falls roughly between ages 60 and 70. Because income is often at its lowest during this window, it creates significant opportunities for Roth conversions, capital gains harvesting, and ACA subsidy optimization.
Q: How do Roth conversions affect ACA health insurance subsidies?
ACA marketplace subsidies are based on your modified adjusted gross income (MAGI) in the coverage year. A Roth conversion increases your MAGI, which can reduce or eliminate your premium subsidies. In some cases, the lost subsidies cost more than the tax benefit of converting — making careful sizing critical for retirees not yet on Medicare.
Q: What is IRMAA, and how does it affect Medicare premiums?
IRMAA (Income-Related Monthly Adjustment Amount) is a surcharge added to Medicare Part B and Part D premiums for higher-income enrollees. It is calculated based on your income from two years prior. This means that income decisions made at age 68 directly impact what you pay for Medicare at age 70. Proactive income planning in the years before Medicare enrollment can significantly reduce these costs.
Q: Is it better to do one large Roth conversion or spread it over several years?
For most retirees in their bridge years, spreading conversions over multiple years produces better outcomes than a single large conversion. Annual bracket-filling keeps marginal tax rates lower, protects ACA subsidies, and allows IRMAA limits to serve as an additional guardrail.