Retiring at 62 With $1.5 Million? The Three Years Before Medicare Are Your Cheapest Conversion Years

A couple retiring together at 62 with $1.5 million in a traditional 401(k) has an unusual gift: 36 months where their taxable income can be whatever they choose it to be. Social Security is not yet claimed. Medicare has not started, so there is no $202.90 Part B premium and no IRMAA surcharge to worry about. Required minimum distributions are more than a decade away. This is the cheapest tax window most retirees will ever see, and it closes the month they turn 65.

The mechanic that changes the outcome is a Roth conversion ladder sized to the top of the 12% bracket, or the top of the 22% bracket if the balance is heavy enough to justify it. Both figures are anchored to the current federal schedule, and both matter more than the market return you earn on the account.

Why 62 to 65 Is the Sweet Spot

For a married couple filing jointly, the 12% bracket runs to $96,950 in taxable income and the 22% bracket runs to $206,700. With no wages, no Social Security, and living expenses funded from cash or a short Treasury ladder, a couple can convert traditional 401(k) dollars up to those thresholds and pay tax at rates they may never see again once Social Security and RMDs stack on top of each other.

Consider a couple spending $80,000 a year from a taxable brokerage or CDs. If they convert $120,000 from the 401(k) to a Roth in each of three years, that $360,000 total moves out of a tax-deferred bucket that will one day drive RMDs, taxable Social Security, and Medicare surcharges. At today’s 4.81% three-year Treasury or the 1.73% national average one-year CD, the spending pot can be laddered without generating dividend or capital-gain income that crowds out the conversion.

IRMAA Cliff Waiting at 65

Medicare’s income-related monthly adjustment amount uses a two-year lookback. The 2026 numbers illustrate the pattern: joint filers with modified adjusted gross income at or under $218,000 pay the standard Part B premium of $202.90 per month and a $0.00 Part D adjustment. Cross into the next tier, and the Part D surcharge jumps to $14.50 per beneficiary with Part B climbing in step. Kiplinger has already flagged projected 2027 IRMAA brackets that will shift these lines again.

The trap: a $250,000 conversion in the calendar year you turn 63 will show up on your MAGI when Medicare first bills you at 65. That is why the aggressive conversions belong at ages 62 and early 63, before the two-year clock starts ticking on your first Medicare premium year. (We sized up this quiet window between the last paycheck and the first RMD in a free Roth guide here.)

ACA Wrinkle Working the Other Direction

Every dollar converted is also a dollar of MAGI for Affordable Care Act premium tax credits. A couple buying marketplace coverage between 62 and 65 has to weigh subsidy loss against future tax savings. Where a household has employer retiree medical, COBRA, or a working spouse’s plan, that conflict disappears and the conversion window opens fully.

Inflation and the COLA Backdrop

The 2027 Social Security COLA is tracking near 3.3%, and core PCE, the Fed’s preferred inflation gauge, ran +0.2% month over month in July. Rising benefits and sticky prices both argue for reducing the traditional balance now, because the same $1.5 million left untouched will produce a larger RMD against a larger Social Security check at 73.

What to Do

1. Model two conversion sizes side by side. Run one scenario filling the 12% bracket to $96,950 of taxable income and another filling the 22% bracket to $206,700. Compare the lifetime tax paid against projected RMDs starting at 73.
2. Front-load the ladder in ages 62 and 63. Any conversion in the year you turn 63 hits Medicare’s two-year lookback for your first premium year at 65, so the last aggressive move should happen before that calendar year closes.
3. Fund living expenses from a Treasury or CD ladder rather than the 401(k). A 1, 2, and 3-year Treasury rung at roughly 4.43%, 4.71%, and 4.81% keeps spending money outside the conversion calculation and preserves every dollar of bracket space for the Roth transfer.

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