Retirement Tax Planning Guide 2026
RMD Strategy and Roth Conversion Planning for Minnesota Retirees
The window between retirement and age 73 may be the most consequential tax planning opportunity most Minnesota professionals never fully use. Here is how to use it strategically.
No cost. No obligation. Strategy first.
For most pre-retirees with significant traditional 401(k) and IRA balances, executing strategic Roth conversions during the years before required minimum distributions (RMDs) begin can reduce lifetime tax burdens and provide more flexible retirement income options. However, the optimal strategy depends on current tax brackets, projected future income, Minnesota state tax treatment, and Medicare IRMAA thresholds.
Under the SECURE 2.0 Act, RMDs for traditional IRA and 401(k) owners generally begin at age 73 for individuals born between 1951 and 1959. According to the IRS Uniform Lifetime Table, the distribution period at age 73 is 26.5 years, meaning first-year RMDs equal approximately 3.77% of the prior-year account balance. 1
Minnesota taxes traditional IRA and 401(k) distributions as ordinary income at rates up to 9.85%, with a new fifth bracket at 10.85% effective for tax year 2026. The state provides no broad retirement income exclusion, making proactive RMD strategy and Roth conversion planning especially valuable for professionals in the Twin Cities metro. 2
At New Horizons Boutique Financial Services, our team, including Lars Engman, MBA and Alec Engman, B.S. Economics (University of Minnesota), works with executives and professionals nearing retirement throughout Lake Elmo, Arden Hills, and the broader Twin Cities area. We integrate tax planning strategies and financial independence planning into every retirement strategy we build. Every situation is different, and the analysis below is educational, not a personalized recommendation.
RMD and Roth Conversion Quick Facts (2026)
73
RMD Starting Age (SECURE 2.0)
26.5
Life Expectancy Factor at Age 73
0%
Roth IRA RMD Requirement
25%
Excise Tax on Missed RMDs (SECURE 2.0)
Sources: IRS Publication 590-B; SECURE 2.0 Act of 2022.
Understanding RMDs
How Required Minimum Distributions Work in 2026
Required minimum distributions force retirees to withdraw specific amounts from traditional retirement accounts annually, beginning at age 73 under the SECURE 2.0 Act. The IRS calculates these amounts using the Uniform Lifetime Table and account balances as of December 31 of the previous year. 1
RMD amounts increase each year as the life expectancy factor decreases. At age 73, the factor is 26.5, producing a withdrawal of approximately 3.77% of the account balance. By age 80, the factor drops to 20.2 (approximately 4.95%), and by age 85, it reaches 14.8 (approximately 6.76%). These mandatory withdrawals can push retirees into higher tax brackets, increase Medicare premiums through IRMAA surcharges, and affect Social Security taxation thresholds.
The SECURE 2.0 Act reduced the excise tax penalty for missed RMDs from 50% to 25% of the shortfall amount. If corrected in a timely manner, the penalty may be further reduced to 10%. 1
For Minnesota-specific considerations on how RMDs interact with state tax brackets, see our guide on Minnesota state taxes on retirement income.
RMD Calculation Example (Age 73)
Illustrative example only. Actual amounts vary by individual circumstances. Source: IRS Publication 590-B Uniform Lifetime Table.
Strategic Timing
The Roth Conversion Window: Retirement to Age 73
The years between retirement and age 73 represent a critical opportunity for tax-efficient Roth conversions, particularly for professionals with substantial traditional retirement account balances. Earned income has stopped or declined. Social Security may not have begun. RMDs have not started. That combination may create the lowest taxable income window of retirement.
Early Retirement Years (62 to 66)
If retired early with limited income, this period may offer the lowest tax brackets for conversions. However, individuals must have sufficient non-retirement assets to pay conversion taxes without triggering early withdrawal penalties from retirement accounts. For those considering early retirement, our guide to retiring at 62 covers the healthcare and income gaps that affect this window.
Full Retirement Years (67 to 72)
With Social Security potentially beginning and Medicare Part B premiums to consider, this window requires careful income management. Strategic conversions can be coordinated with Social Security claiming strategy and Medicare IRMAA thresholds. See our Medicare planning and retirement coordination guide for how IRMAA brackets interact with conversion income.
Post-RMD Years (73 and Beyond)
After RMDs begin, conversion opportunities become more limited as mandatory distributions increase taxable income. However, strategic partial conversions may still make sense during market downturns or in years with unusually low income. Understanding retirement planning in Minnesota helps frame these decisions within the state's tax environment.
Minnesota Tax Treatment
How Minnesota Taxes RMD Income and Roth Conversions
Minnesota taxes traditional IRA and 401(k) distributions as ordinary income with no special retirement income exclusion. Roth conversions are taxed identically at the state level. Understanding your Minnesota marginal bracket is essential for evaluating whether a conversion adds value. 2
| Minnesota Tax Bracket (2026, MFJ) | Taxable Income Range | Marginal Rate | Impact on RMD and Conversion Income |
|---|---|---|---|
| Bracket 1 | Up to $48,700 | 5.35% | Lowest state rate; conversions in this bracket carry the lowest state tax cost |
| Bracket 2 | $48,700 to $193,480 | 6.80% | Moderate state tax; many retirees land here during conversion years |
| Bracket 3 | $193,480 to $337,930 | 7.85% | Higher rate; conversions should be sized to avoid crossing this threshold when possible |
| Bracket 4 | $337,930 to $1,000,000 | 9.85% | High state tax; large conversions or RMDs with other income may reach this bracket |
| Bracket 5 (New for 2026) | Above $1,000,000 | 10.85% | Applies to very high earners; unlikely during retirement but possible with large one-time conversions |
Source: Minnesota Department of Revenue, 2026 statutory brackets (inflation-adjusted annually). 2 Bracket thresholds shown for married filing jointly; single filer thresholds differ. Consult a tax professional for your specific situation.
Comparing Distribution Strategies
Three primary approaches exist for managing traditional retirement account assets in retirement. Each has distinct tax implications, and the right choice depends on your income, goals, and tax bracket.
| Feature | Traditional IRA Distribution (RMD) | Roth Conversion | Qualified Charitable Distribution (QCD) |
|---|---|---|---|
| Federal Tax | Ordinary income tax on full amount | Ordinary income tax on converted amount | No tax on up to $108,000/year (2026 indexed) |
| Minnesota State Tax | Taxed as ordinary income, no exclusion | Taxed as ordinary income, no exclusion | No state tax on QCD amount |
| Can Satisfy RMD? | Yes (this is the RMD itself) | No; RMD must be taken first, then conversion may occur on remaining balance | Yes; QCD can count toward RMD requirement |
| Future Growth | Remaining balance stays tax-deferred | Converted funds grow tax-free in Roth IRA | Assets leave the account; no future growth |
| Beneficiary Treatment | Heirs pay income tax on inherited distributions | Heirs receive tax-free distributions (subject to 10-year rule) | N/A; assets donated to charity |
| IRMAA Impact | Yes; counts as income | Yes; counts as income | No; excluded from taxable income |
| Age Requirement | Age 73 (SECURE 2.0) | Any age; most effective pre-RMD | Age 70.5 or older |
QCD limit indexed annually; figure shown as approximate 2026 amount. Consult IRS Publication 590-B for current-year limits. 1
IRMAA Guardrails
The Medicare IRMAA Threshold: A Critical Conversion Guardrail
Conversion income affects Medicare Part B and Part D premiums two years later through Income-Related Monthly Adjustment Amount (IRMAA) calculations. A large conversion in 2026 could push 2028 Medicare premiums higher. Understanding these thresholds is essential for sizing annual conversions.
| 2024 MAGI (Single) | 2024 MAGI (MFJ) | 2026 Part B Premium/Month | 2026 Part D Surcharge/Month |
|---|---|---|---|
| $109,000 or less | $218,000 or less | $202.90 (no IRMAA) | $0.00 |
| $109,001 to $137,000 | $218,001 to $274,000 | $284.10 | +$14.50 |
| $137,001 to $171,000 | $274,001 to $342,000 | $405.80 | +$37.50 |
| $171,001 to $205,000 | $342,001 to $410,000 | $527.50 | +$60.40 |
| $205,001 to $499,999 | $410,001 to $749,999 | $649.20 | +$83.30 |
| $500,000 or more | $750,000 or more | $689.90 | +$91.00 |
Source: CMS and SSA, 2026 IRMAA brackets (based on 2024 MAGI). 3 A conversion in 2026 that increases 2026 MAGI affects 2028 Medicare premiums.
For a married couple filing jointly, staying under the $218,000 MAGI threshold avoids IRMAA entirely. A conversion that pushes income from $210,000 to $230,000 would cross that line, adding approximately $81.20 per person per month in Part B premiums alone ($1,948.80/year per couple). This cost should be weighed against the long-term tax benefits of the conversion. Our Medicare planning and retirement coordination guide covers this interaction in depth.
Key Strategy Considerations
Tax Bracket Management
Convert amounts that keep you within your current tax bracket or strategically fill to the top of a bracket. Minnesota's progressive rates mean crossing a bracket threshold increases the state tax cost on every additional dollar converted. Results vary by individual tax situation and may involve trade-offs.
Five-Year Rule
Each Roth conversion starts its own five-year clock for penalty-free withdrawals of converted amounts. Plan conversions to help ensure funds are available when needed without triggering early withdrawal penalties. The five-year rule for qualified Roth distributions is separate from the conversion-specific five-year requirement.
Medicare Premium Impact
Conversion income affects Medicare Part B and Part D premiums two years later through IRMAA calculations. High-income years can trigger premium surcharges that may offset some conversion benefits for certain retirees. See the IRMAA table above for 2026 thresholds.
Market Timing Opportunities
Market downturns may create conversion opportunities by allowing more shares to be converted at temporarily reduced values. However, timing market bottoms is challenging and requires careful consideration of recovery prospects. This strategy involves risk of loss and does not guarantee any specific outcome.
Estate Planning Benefits
Roth IRAs provide potential estate planning advantages with no required distributions during the owner's lifetime and different distribution rules for beneficiaries. This may make conversions valuable for wealth transfer strategies, though beneficiary tax rules under the SECURE Act's 10-year rule should be reviewed.
Cash Flow Management
Ensure sufficient non-retirement assets to pay conversion taxes without creating cash flow strain or forcing early retirement account withdrawals. Spreading large conversions across multiple years may help manage the tax impact. For year-end planning, see our year-end tax planning checklist for high earners.
Common Mistakes to Avoid
Converting Too Much at Once
Large conversions can push retirees into dramatically higher tax brackets, potentially costing more in immediate taxes than the long-term benefits may provide. Gradual conversions over multiple years are typically more tax-efficient. However, converting too slowly risks running out of pre-RMD years to complete the strategy.
Ignoring Minnesota State Tax
Minnesota taxes conversion income at rates up to 9.85% (and 10.85% above $1,000,000 for MFJ in 2026) with no retirement income exclusion. Failing to account for state tax alongside federal tax can significantly understate the true cost of a conversion. See our Minnesota retirement tax guide for bracket details.
Paying Conversion Taxes from Retirement Accounts
Using retirement account funds to pay conversion taxes reduces the conversion's effectiveness and may trigger early withdrawal penalties for those under 59 and a half. Conversion taxes should generally be paid from non-retirement assets whenever possible.
Failing to Consider the Total Tax Picture
Conversions affect not just federal income taxes but also Minnesota state taxes, Medicare IRMAA premiums, Social Security taxation, and potentially the Net Investment Income Tax. A comprehensive analysis considers all of these interconnected impacts. Our tax planning strategies for high-income individuals guide covers this framework.
Our Approach
How New Horizons Boutique Financial Services Approaches This Planning
RMD and Roth conversion planning involves complex interactions between tax laws, investment timing, Medicare regulations, and estate planning considerations. Small mistakes in timing or amounts can cost thousands of dollars annually or create unintended tax consequences that persist for years.
Our team holds FINRA Series 7, Series 63, Series 65, and Series 66 registrations, along with Life and Health Insurance licensing. Lars Engman, MBA and Alec Engman, B.S. Economics (University of Minnesota) work directly with every client, building a comprehensive strategy before any product is recommended.
We intentionally limit our client count so every relationship receives full time and attention. Our approach follows a strategy-first methodology: we build a full financial picture covering investments, taxes, income, cash flow, debt, insurance, and estate planning before making any recommendations. Then we adapt that strategy through quarterly reviews as life and goals evolve.
For executives nearing retirement, our executive financial planning guide covers deferred compensation, stock options, and retirement timing decisions that interact directly with RMD and conversion strategy.
Comprehensive Modeling
Professional guidance includes detailed modeling of conversion scenarios, tax bracket management, and coordination with Social Security timing and Medicare premium thresholds to evaluate overall tax efficiency. These projections are educational estimates; actual results vary based on market conditions, tax law changes, and individual circumstances.
Ongoing Strategy Adjustment
Tax laws change, markets fluctuate, and personal circumstances evolve. Regular strategy reviews through our quarterly meeting cadence help keep conversion plans aligned with current regulations and individual financial situations throughout retirement.
Strategy Before Products
Every recommendation begins with a clear strategy, not a product. This means conversion recommendations are made within the context of your full financial picture, including financial independence planning and long-term income needs.
Frequently Asked Questions
Can I satisfy my RMD by doing a Roth conversion?
No. A Roth conversion cannot satisfy an RMD. The IRS requires that you take your RMD for the year first, and only then may you convert remaining traditional IRA or 401(k) assets to a Roth IRA. If you attempt to convert the RMD amount directly, it counts as a distribution, not a conversion, and is subject to ordinary income tax. For retirees who are charitably inclined, a Qualified Charitable Distribution (QCD) can satisfy the RMD requirement without increasing taxable income.
At what age do Roth conversions no longer make sense?
There is no single age cutoff, but conversions generally become less advantageous after RMDs begin at age 73 because mandatory distributions already increase taxable income, leaving less room in lower brackets for conversion amounts. Additionally, the time horizon for tax-free Roth growth shortens with age, which may reduce the long-term benefit. However, conversions may still make sense in specific situations, such as market downturns or years with unusually low income. The decision depends on individual circumstances, life expectancy, and estate planning goals.
What is a sound Roth IRA conversion strategy?
A sound strategy typically involves converting gradually over multiple years during the pre-RMD window, sizing each year's conversion to fill up to the top of a target tax bracket without crossing into a higher one. In Minnesota, this means accounting for both federal and state tax brackets, plus IRMAA thresholds. The strategy should be coordinated with Social Security timing, Medicare premium considerations, and available non-retirement funds to pay the conversion tax. Every plan should be tailored to individual goals and reviewed annually.
What is the most significant Roth conversion mistake?
One of the most significant mistakes is converting a large amount in a single year without modeling the full tax impact, including federal tax, Minnesota state tax (up to 9.85% or 10.85%), Medicare IRMAA surcharges, and Social Security taxation. A single oversized conversion can push a retiree into a much higher bracket, triggering costs that may take years to recover. Gradual, multi-year conversions sized to bracket boundaries are generally more effective, though the optimal approach varies by individual.
What is the sweet spot for Roth conversions?
For many Minnesota professionals, the sweet spot is the period between retirement and age 73 when taxable income may be at its lowest. During these years, earned income has stopped, Social Security may not have begun, and RMDs have not started. This combination may allow conversions at lower federal and state marginal rates than will be available once RMDs begin. The specific years and amounts depend on individual income, bracket position, and available funds to pay the tax.
Does Minnesota tax Roth IRA conversions?
Yes. Minnesota taxes the converted amount as ordinary income at your applicable marginal rate, with no special exclusion or deduction for conversion income. The state's top rate is 9.85% for 2026, with a new fifth bracket at 10.85% for taxable income above $1,000,000 (MFJ). This state tax cost should be factored alongside federal tax when evaluating whether a conversion adds value. 2
Related Resources
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Minnesota State Taxes on Retirement Income
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Retirement Planning in Minnesota
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Medicare Planning and Retirement Coordination
How IRMAA brackets, Part B premiums, and conversion income interact with Medicare.
Social Security Claiming Strategy
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Year-End Tax Planning Checklist for High Earners
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Executive Financial Planning in the Twin Cities
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How Long Will $750,000 Last in Retirement at 62?
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Talk to a Minnesota Retirement Tax Strategist
RMD strategy and Roth conversion planning is one of the most consequential tax decisions a Minnesota professional will make. Our team provides comprehensive, strategy-first planning with no cost for the first conversation and no obligation.
Serving Lake Elmo, Stillwater, Woodbury, Arden Hills, and the Twin Cities metro
Sources
- 1. IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs); Uniform Lifetime Table (Table III). RMD starting age and penalty reduction under the SECURE 2.0 Act of 2022. Current as of June 2026. irs.gov/publications/p590b
- 2. Minnesota Department of Revenue, 2026 individual income tax brackets and retirement income treatment. Minnesota taxes traditional IRA and 401(k) distributions and Roth conversions as ordinary income with no special exclusion. New fifth bracket at 10.85% effective for tax year 2026. Current as of June 2026. revenue.state.mn.us
- 3. Centers for Medicare and Medicaid Services (CMS) and Social Security Administration (SSA), 2026 Medicare Part B and Part D IRMAA brackets based on 2024 MAGI. Published November 2025. Current as of June 2026. cms.gov
- Research supported by perplexity.ai/finance (accessed June 29, 2026)
This content is educational and does not constitute tax, legal, or investment advice. Tax rules and rates may change. Consult a qualified tax professional for guidance specific to your situation. All investing involves risk of loss.