For many retirees, the largest future tax bill is not coming from a paycheck. It is sitting quietly inside a traditional IRA.
If you are between 59 and 72 and living in the Tucson area, you may be sitting in one of the most useful tax planning windows of your financial life — and many people let it close without acting. A combination of federal tax rate stability and Arizona’s income tax structure makes this a period worth examining before Required Minimum Distributions force the issue.
What a Roth Conversion Is, and Why It Matters
A Roth conversion moves money from a pre-tax retirement account — a traditional IRA or 401(k) — into a Roth IRA. You pay income tax on the converted amount in the year of the conversion. In return, that money grows tax-free, and qualified withdrawals in retirement are not taxed again. A Roth IRA is also not subject to Required Minimum Distributions during your lifetime.
For the governing rules, see IRS Publication 590-A. Global Investment Strategies treats a Roth conversion as one coordinated move within a larger income plan — never a standalone transaction.
Why 2026 Deserves a Closer Look
Federal Tax Rates Are No Longer Scheduled to Sunset
The One Big Beautiful Bill Act, signed July 4, 2025, permanently extended the TCJA rate structure. The 10% through 37% federal brackets are no longer set to expire. That shifts the planning conversation from whether to convert toward how much to convert in a given year.
The Senior Bonus Deduction — and Why It May Not Apply to You
OBBBA created an additional $6,000 federal deduction for taxpayers age 65 and older, or $12,000 for a married couple where both spouses qualify. It is a federal provision, not an Arizona one, and it is scheduled to expire after the 2028 tax year.
The detail that matters most for Roth conversion planning is the phase-out. The deduction begins to shrink once modified adjusted gross income exceeds $75,000 for single filers or $150,000 for joint filers, reduced by six cents for every dollar above the threshold. It disappears entirely at roughly $175,000 single and $250,000 joint.
This creates a genuine tension. A Roth conversion raises your MAGI — which can reduce or eliminate the senior deduction in the same year. For households already above the upper thresholds, the deduction is not part of the conversion math at all. For households near the phase-out range, the interaction is worth modeling before deciding how much to convert.
The Arizona Picture
A Flat 2.5% State Income Tax
Arizona taxes income at a flat 2.5%, one of the lowest flat rates in the country. There is no bracket creep and no progressive penalty for a larger conversion. The state-level tax cost of a conversion is predictable, which simplifies the planning math considerably.
Arizona Does Not Tax Social Security
Arizona does not tax Social Security income. That means Social Security will not inflate your state tax exposure when a Roth conversion is layered on top of it. Federal treatment is a separate question — see SSA guidance — and conversion income can increase the taxable portion of your benefits at the federal level.
No Arizona Estate or Inheritance Tax
Arizona imposes no state estate or inheritance tax. Roth assets passed to heirs are not subject to income tax on qualified distributions, which makes them among the more efficient legacy assets available. See how this connects to estate planning more broadly.
The RMD Countdown
What Required Minimum Distributions Are
Under current rules, traditional IRA and 401(k) holders must begin RMDs at age 73 — rising to 75 for those born in 1960 or later, beginning in 2033. The annual amount is calculated from your account balance and IRS life expectancy tables, and missing one carries a penalty. See IRS Topic No. 558 and Publication 590-B.
The Trough Years
The years between retirement and age 73 are often the prime conversion window. Salary has stopped. Social Security may not have started. RMDs have not begun. Taxable income is frequently at its lowest point of the retirement years, which means conversions cost less in real tax dollars. Every dollar converted also reduces the traditional IRA balance, which reduces the size of future RMDs and the tax they carry.
The Compounding Cost of Waiting
A retiree with $1.5 million in a traditional IRA at age 73 faces a first-year RMD of roughly $56,600 under the IRS Uniform Lifetime Table. That amount stacks on top of every other income source — potentially pushing into a higher federal bracket, triggering IRMAA surcharges on Medicare premiums, and increasing the federally taxable portion of Social Security. Retirees who plan during the trough years retain more control over the timing of their income.
Key Considerations Before Converting
Bracket Management
A common approach is to convert up to the top of a current federal bracket rather than beyond it, spread across several years. A multi-year conversion ladder is frequently more efficient than a single large conversion, though the right structure depends on your full income picture.
IRMAA and Medicare Premiums
Conversion income increases MAGI, which can trigger IRMAA surcharges on Medicare Part B and Part D premiums under a two-year lookback. A conversion in 2026 affects 2028 premiums. This belongs in the sizing decision, not as an afterthought.
The Five-Year Rule
Each conversion starts its own five-year clock on the earnings. If you are 59½ or older at the time of conversion — as most pre-RMD retirees are — the 10% early withdrawal penalty does not apply to converted principal. Full rules are in IRS Publication 590-B.
Where the Tax Payment Comes From
Paying the conversion tax from savings held outside the IRA generally preserves more of the strategy’s value. Using IRA money to cover the tax reduces the principal that benefits from tax-free compounding.
How This Fits Into a Broader Income Plan
At Global Investment Strategies, a Roth conversion is never a standalone transaction. It is one coordinated element within a broader plan addressing Social Security timing, withdrawal sequencing, pension and annuity coordination, estate objectives, and the full Arizona and federal tax picture.
Doug McClure, Founder and Managing Partner, has spent decades helping Tucson-area families — business owners, high-net-worth households, and professionals approaching retirement — build income plans designed to last. Jay Clifford, Partner and Vice President, brings additional depth to the income planning and coordination process.
Frequently Asked Questions
Is there an income limit on Roth conversions?
No. There is no income restriction on conversions. Anyone with a qualifying pre-tax account can convert.
Can I convert a 401(k) directly into a Roth IRA?
In most cases, yes. A 401(k) from a former employer can generally be rolled directly into a Roth IRA. See IRS rollover guidance.
I have already started RMDs. Can I still convert?
Yes, but you must take your full RMD for the year before converting any additional amount. RMD dollars cannot themselves be converted.
Does Arizona tax Roth IRA withdrawals?
Qualified Roth withdrawals meeting the age 59½ and five-year requirements are not subject to Arizona income tax.
What is the deadline for a conversion in a given year?
December 31 of that year. Unlike IRA contributions, there is no April 15 extension for conversions.
Schedule a Roth Conversion Review
The conditions that make this window favorable — stable federal rates, a low-income trough period, and Arizona’s flat tax structure — will not hold indefinitely. The earlier the planning happens, the more flexibility you retain.
Call (520) 360-8177, email info@glistrategies.com, or request a private income planning conversation.
Important Disclosure
Global Investment Strategies provides educational planning concepts and does not provide legal or tax advice. All strategies discussed should be reviewed with your qualified attorney, CPA, or tax professional before implementation. Tax provisions referenced here, including deduction thresholds and phase-out ranges, are subject to change and may not apply to your situation.
