The In Plan Roth 401(k) Conversion That Saves a $400,000 Earner $58,000 in Future RMD Taxes

An in-plan Roth conversion moves money from the traditional 401(k) bucket to the Roth bucket within the same plan, without creating a separate IRA or new account. The plan administrator processes the conversion and reports it as a taxable transfer, so the converted amount is added to current-year ordinary income. After conversion, the Roth balance grows tax-free and can be withdrawn tax-free for life. Converted Roth balances are also exempt from required minimum distributions under SECURE 2.0. Leaving the same funds in the traditional bucket can increase taxable RMD income later, potentially pushing withdrawals into higher brackets and triggering Medicare IRMAA surcharges based on prior-year MAGI.

"An in-plan Roth conversion moves dollars from the traditional bucket of your 401(k) into the Roth bucket inside the same plan. The dollars stay inside the same plan, with no separate IRA, rollover, or new account involved. The plan administrator processes the conversion, issues a 1099-R coded for a taxable transfer, and the converted balance grows tax-free for life."

"Convert $100,000 of the traditional balance to Roth. That $100,000 lands on this year's 1040 as ordinary income. For a household deep into the 24% bracket, with the 32% bracket starting at $403,551 for joint filers in 2026, most of the conversion sits in the 32% slice. The bill, blended with state tax aside, is about $32,000 federal in the conversion year."

"Now follow the same $100,000 to age 73, when required minimum distributions begin. Eighteen years at a 7% return turns $100,000 into roughly $339,000. Inside the Roth 401(k), every dollar of that $339,000 is tax-free on withdrawal and exempt from RMDs starting in 2024 under SECURE 2.0. Left in the traditional bucket, the same $339,000 becomes RMD income taxed at whatever bracket you land in at 73, plus whatever Medicare IRMAA surcharge your two-year-lookback MAGI triggers."

"The first IRMAA tier in 2026 begins at $109,000 MAGI for single filers and $218,000 for joint filers, and the surcharges scale from $81.20 per month for Part B up to $487 per month at the top tier, with Part D adders of $14.50 to $91. A 73-year-old pulling a large RMD on top of Social Security routinely walks into a 24% to 32% bracket plus an IRMAA bump."

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