The Gap Years: Roth Conversions Before Medicare

Find the Actual Income Window

Start with the year you leave Walmart and extend the projection through Medicare enrollment and the expected start of required retirement distributions. Record when each income source changes rather than assuming they all stop together.

Include remaining salary and bonus payments, scheduled DCMP distributions, taxable equity events, investment income, stock-sale gains, a spouse’s income, Social Security if elected, and work after separation.

Use confirmed employer and account records wherever possible. For uncertain amounts, run a reasonable range. A conversion that fits the optimistic income estimate may be too large once the final bonus, distribution, or capital gain arrives.

The useful window might begin several years after departure. It can also continue after Medicare starts if the overall tax and premium trade-off supports it. Medicare is a planning input, not a universal stop date.

See Your Separation Year Can Be Your Biggest Tax Year for the compensation timeline that comes before this decision.

Understand What the Conversion Changes

A conversion moves assets from a traditional IRA into a Roth IRA. The taxable portion is included in income for the conversion year. Unlike regular Roth contributions, conversions are not subject to the same income eligibility limits. A conversion made after 2017 cannot be undone through recharacterization. 1

That means the decision changes the timing of tax. It does not make pre-tax money tax free without an upfront cost.

Confirm the Taxable Portion

If you have nondeductible IRA basis, do not assume a conversion from one particular IRA is tax free. Form 8606 generally considers traditional, SEP, and SIMPLE IRA balances together when allocating basis, subject to the applicable rules. Keep prior basis records and have the preparer calculate the taxable amount. 2

Keep the Roth Access Rules Separate

Qualified Roth IRA withdrawals generally require the applicable five-year period plus age 59½ or another qualifying condition. Separate five-year rules can affect early withdrawals of taxable conversion amounts. 3

Before using a conversion as part of an early-retirement spending plan, distinguish regular contributions, converted amounts, and earnings. The word “Roth” does not establish that every withdrawal is immediately free of tax and additional tax.

Account for Medicare’s Two-Year Income Lookback

Medicare’s income-related monthly adjustment amount, or IRMAA, can increase Part B and Part D costs. Social Security generally uses tax information from two years before the premium year. Its MAGI definition is AGI plus tax-exempt interest. 4

A taxable conversion raises AGI and can therefore affect a later premium year. “I am not on Medicare yet” is not enough to rule out that effect.

The table illustrates the usual timing, not published future premium amounts. Use the thresholds and premiums for the relevant coverage year when available, and label projections when they are not. For a couple, check each spouse’s enrollment: the same joint return can affect both people’s premiums.

Retirement Does Not Automatically Remove Conversion Income

Social Security permits requests to lower IRMAA after qualifying life-changing events that reduce income, including retirement in appropriate circumstances. 5

A conversion itself is not a reason to assume relief. Include the conversion in any income estimate supplied to Social Security. Ask how the actual facts and supporting records affect the determination rather than building a plan around an assumed appeal approval.

Check Health Coverage Before Medicare, Too

If the household uses Marketplace coverage, additional taxable conversion income can change premium tax credit eligibility and the amount of credit available.

Under current 2026 rules, the temporary expansion above 400% of the federal poverty line has ended. Eligibility generally requires income no higher than that level, with other requirements also applying. There is no repayment cap for excess advance premium tax credits after 2025. 6

For a household near an income limit, a conversion’s cost may include lost credits or repayment of advances as well as income tax. Update the Marketplace income estimate when appropriate and calculate the final-year credit before deciding on the amount.

Marketplace household income and Medicare MAGI are not identical definitions. Use the correct calculation for each program. A spouse can remain on Marketplace coverage while the other spouse has Medicare, making both analyses relevant in the same year.

If you have other coverage, review its actual terms instead of assuming Marketplace rules apply. The purpose is to identify the health costs your household will face, not to force every household into the same model.

Compare Several Conversion Amounts Before Choosing One

Assume a household projects $120,000 of AGI before conversion and $5,000 of tax-exempt interest. Assume any conversion in this example is fully taxable and changes AGI dollar for dollar, with no other interactions.

The table shows why a tax-bracket calculation alone is incomplete. It does not establish which option triggers IRMAA: that depends on the relevant premium year, filing status, enrollment, and applicable determination.

Next, calculate the incremental federal and state tax, any current Marketplace credit change, and any projected later Medicare adjustment for each option. Then compare those costs with the expected benefit of smaller future pre-tax balances and more Roth assets.

There is no deduction amount or tax-rate assumption hidden in this example. AGI is not taxable income after deductions, and these figures do not establish Marketplace eligibility. A final projection must use the full return and the appropriate health-program rules.

Compare Current Costs With the Future Withdrawal Plan

Do Not Treat a Premium Threshold as an Absolute Ban

An IRMAA increase can make a conversion less attractive, but crossing a threshold is not automatically a mistake. The relevant comparison is the extra tax and premiums against the expected future benefit. Sometimes a smaller conversion wins; sometimes accepting an additional cost is reasonable.

Show the total incremental cost in dollars, not just the marginal income-tax bracket. Include both spouses where relevant and distinguish a one-year premium effect from repeated effects caused by multiple conversion years.

Keep Cash Available for the Tax

Decide how the tax will be paid before transferring assets. Paying from outside funds may preserve more in the Roth, but those outside funds have other uses and opportunity costs.

If money is withheld or taken out of the retirement account instead of being converted, that amount is a separate distribution and may have additional-tax consequences for someone under age 59½. 1 Coordinate the transaction with the custodian and the payment plan with the tax preparer.

Avoid Creating a Rollover Problem to Create a Conversion Opportunity

If a Walmart plan holds appreciated employer stock, evaluate NUA before a rollover changes the available treatment. Review NUA on Walmart Stock in Your 401(k) before moving those assets solely to simplify a conversion.

The conversion decision should also fit your investment horizon, expected withdrawals, beneficiaries, and uncertainty about future rates. A lower pre-tax balance is useful only in the context of the household’s broader goals.

Build an Annual Conversion Process

1. Map the years. Identify compensation payments, health coverage, Social Security choices, and expected retirement withdrawals for each year.
2. Verify account records. Confirm eligible assets, IRA basis, existing Roth history, and any employer-stock questions before transfers.
3. Run several amounts. Compare no conversion with smaller and larger conversions using federal, state, coverage, and cash effects.
4. Leave room for uncertainty. Account for unconfirmed bonuses, distributions, capital gains, and other income rather than targeting a threshold with no margin.
5. Confirm execution timing. For a conversion intended for the current tax year, arrange completion by year end and allow for the custodian’s earlier processing cutoff. Do not confuse this with the later deadline for certain regular IRA contributions.
6. Update and document. Reconcile the completed conversion, tax payments, coverage estimates, and return reporting. Repeat the analysis next year rather than automatically repeating the amount.

A series of partial conversions can preserve decision flexibility, but each completed conversion still has its own tax consequences. Use the remaining time in the year to refine the amount before committing it.

For help coordinating those decisions, explore tax planning for Walmart executives. Bring the deferred-compensation schedule, retirement-account statements, and expected health-coverage dates.

Common Questions

Sources and Tax Guidance

1. IRS Publication 590-A, conversions, taxable amounts, and recharacterization limits.
2. IRS Form 8606 Instructions, basis allocation and conversion reporting.
3. IRS Publication 590-B, qualified Roth distributions, ordering, and five-year rules.
4. SSA POMS HI 01101.010, Medicare MAGI and the usual two-year lookback.
5. SSA: Request to Lower IRMAA, qualifying life-changing events and requests for review.
6. IRS Premium Tax Credit Questions and Answers, current eligibility, household income, and post-2025 repayment rules.

Educational information, not individualized tax, legal, investment, or insurance advice. Examples are hypothetical. Tax rules, coverage, and premium determinations depend on individual facts and applicable law. Future premium amounts are not predicted here. Bespoke Private Wealth is not affiliated with or endorsed by Walmart.