How Roth Conversions Work
Roth Conversions are a powerful tool for investors looking to manage their taxable income in retirement. If done properly, Roth Conversions allow investors to move money from a tax-deferred account (usually a Traditional IRA) to an account that grows tax-free—such as a Roth IRA. Ideally, investors will execute Roth Conversions in years that they have lower taxable income, therefore paying less in taxes to move the funds than they would potentially be required to pay at a higher tax rate.
Taxes Can Increase Significantly for Surviving Spouses
One of the least discussed financial pitfalls is the significant tax increase a surviving spouse may face when their spouse passes away. Here is a list of how the survivor may be impacted from a tax perspective, if they move from married filing jointly to single filing status:
- Smaller (1/2) Standard Deduction
- Tax brackets are smaller by 50%
- IRMAA thresholds are cut by 50%
- Charitable Donations are 50% smaller
- Loss of Senior deduction (for Widows over 65)
- Phaseout for Senior deduction threshold is cut by 50%
- 0% LTCG threshold cut by 50%
- Reduced threshold for taxable percentage of Social Security benefits
Expenses Aren’t Reduced Significantly for Surviving Spouses
When a spouse passes away, many surviving partners are surprised to find that their expenses do not drop nearly as much as their income does. Mortgage payments, property taxes, car payments and home insurance largely remain unchanged. Utilities, groceries, internet, cable, streaming subscriptions may decline only modestly. At the same time, the overall household income often takes a meaningful hit, because one Social Security benefit is typically lost.
One of the key issues for surviving spouses is the Required Minimum Distributions, because typically it remains just as high. This is because the surviving spouse inherits the deceased spouse’s IRA. The result: they will have to give a significantly higher portion of the Required Minimum Distribution to the IRS.
Comparing IRA Withdrawals for MFJ and Single Filer
Below is an example of $150,000 IRA distribution, comparing what a Married Filing Jointly (MFJ) couple pays in taxes to a person filing as a single filer. Despite the distribution amount being identical, the single filer faces a tax bill that’s more than 60% higher!
Step 1: To illustrate the real-world tax impact of filing status, consider a straightforward example using 2026 federal tax rules, a $150,000 IRA distribution, the standard deduction only, and no early withdrawal penalties. A single filer deducts $16,100, leaving roughly $133,900 in taxable income. A married couple filing jointly deducts $32,200, reducing taxable income to about $117,800.
Step 2: After applying the 2026 federal tax brackets, the single filer would owe approximately $24,700 in federal tax, while the married couple filing jointly would owe roughly $15,300. That difference of approximately $9,400 comes down to two structural advantages: the standard deduction is twice as large for joint filers, and the tax brackets are wider, so more of the same income is taxed at lower rates.
How to reduce the tax burden
1. Consider Roth Conversions
Especially if you and your spouse have a year (or hopefully several years) where you will have lower taxable income than usual. The sweet spot for many investors is within their first few years of retirement, especially if your taxable income is temporarily lower before Social Security and required minimum distributions begin. Even if rates aren’t as low as you would like, converting some IRA assets now into a Roth may help reduce the tax burden for a surviving spouse in the future.
2. Asset location is key
While working, investors can focus on spreading their investments into different tax buckets. These “buckets” include tax deferred assets like 401(k)s, and other retirement accounts as well as Roth IRAs and brokerage accounts. 401(k)s are advantageous because they reduce taxes while working. However, if all your investments are tax-deferred, there will be limited options to reduce your taxes in retirement.
a. Every dollar distributed from an IRA is taxable. So, in essence, pulling funds from an IRA in retirement is similar to a salary.
b. Only the gain portion of a withdraw from a brokerage account is taxable. So, it is much more tax efficient in retirement than IRA withdrawals.
c. Roth IRA distributions are not taxable. Although they are the most tax-efficient vehicle many investors would rather see these accounts continue to grow tax-free and eventually be used as a legacy vehicle than pull funds from them regularly.
3. Charitable Giving
If charitable giving is a priority, Qualified Charitable Distributions (QCDs) can be a powerful and underutilized tool. QCDs allow eligible investors age 70½ or older to donate funds directly from an IRA to a qualified charity. But one of the great benefits for investors is when RMDs start, because a QCD is calculated toward their RMD. This effectively lowers the amount of taxable income they would have expected in a calendar year. For example, if an investor has an RMD of $100,000 in 2026 and they elect to donate $10,000 to their favorite charity via a QCD, their RMD is reduced to $90,000.
4. Charitable Giving for Surviving Spouses
Because the tax brackets are narrower for single filers, QCD usage presents more tax savings than for married filers. For that reason, investors with charitable interests may consider gifting the majority of their donation targets from the surviving spouse.
Final Thoughts
Although the issues described above can seem daunting, with proactive planning, there are meaningful strategies you can use to lessen your tax burden. And for married couples, a Roth Conversion may be a valuable strategy to consider. Ultimately, the main objective for retirement preparation should be creating enough wealth to live comfortably and enjoy retirement. And just a friendly reminder: in the grand scheme of problems to have, large RMDs are a good problem.
