A Retired Couple With $60,000 of Pension Income Can Still Convert $88,000 Before Dec. 31 Without Leaving the 12% Bracket. Most Convert Nothing and Leave Most of the Bracket Empty

Pension income gives a retired couple a tax opportunity that runs out on Dec. 31: the chance to convert part of a traditional IRA to a Roth at the lowest rates they are likely to see again. A conversion counts in the calendar year it is completed, so 2026 bracket space that goes unused by year-end cannot be recovered. A MarketWatch headline this week quoted Franklin Templeton’s U.S. head of retirement calling the current period “one of the best tax-planning windows” for retirement savers. A couple over 65 living on a $60,000 pension shows why.

How a $60,000 Pension Ends Up Mostly Tax-Free

The calculation starts with deductions, and for 2026, the IRS set the standard deduction for joint filers at $32,200. Each spouse age 65 or older adds an extra $1,650. On top of that, the new senior deduction provides $12,000 if married filing jointly for tax years 2025 through 2028.

Together, those deductions come to $47,500. Subtract that from the pension, and taxable income falls to $12,500. All of it sits in the 10% bracket, which covers joint taxable income up to $24,800. The couple owes about $1,250 in federal tax, and none of their income reaches the 12% bracket.

Where the $88,000 of Conversion Room Comes From

For joint filers, the 22% rate starts above $100,800 of taxable income. That leaves $76,000 of 12% space above the lowest bracket. Subtract the couple’s $12,500 from that limit, and they can convert $88,300 before any income hits the 22% rate.

A full conversion would add about $10,350 to their federal bill. The first portion fills the rest of the 10% bracket, and the remaining $76,000 is taxed at 12%. That works out to an average rate below 12% on money that would otherwise be taxed whenever it eventually comes out.

The conversion also stays under an income limit. Pension plus conversion adds up to $148,300, below the $150,000 income level where the senior deduction begins phasing out for joint filers. Going past that point shrinks the deduction, so each extra dollar converted costs more than the bracket rate suggests.

Why Most Retirees Convert Nothing

The biggest concern is that too few households take this step. The IRS published a full count only in 2010: 869,400 taxpayers converted, while Roth accounts held about 10% of all IRA assets in 2023, meaning most retirement savings are still pre-tax. A couple whose pension covers the bills feels no pressure to pay tax early, so the 12% bracket sits empty year after year (the quiet period from the last paycheck until RMDs begin is exactly the window we sized up in a free Roth guide here).

The bill comes later, once required minimum distributions start at 73. On a December 2025 episode of the Clark Howard Podcast, advisor Wes Moss explained what happens: retirees with pensions “get into their 70s, they have big IRAs. And those IRAs produce RMDs. Those required minimum distributions are taxable income.”

As a simple example, say that same $88,300 later comes out through RMDs taxed at 22%. The federal tax would be $19,426, or $9,076 more than converting now. This assumes the balance stays flat. Growth inside a traditional IRA would raise future RMDs, while growth inside a Roth is never taxed.

What Couples Should Check Before Dec. 31

The $88,000 figure applies to a couple whose only income is a pension. Other income changes the result, so a few checks come first:

1. Model Social Security first. As other income rises, more of a couple’s Social Security benefits become taxable. That cuts the conversion room for anyone already collecting benefits.
2. Pay the tax from cash held outside the IRA. Withholding about $10,350 from the conversion itself leaves less money growing tax-free in the Roth.
3. Plan conversions over several years. The senior deduction runs through 2028, so the larger window stays open for three tax years. Moss recommends this approach: “Typically the right way to do Roth conversions is in chunks spread out over time.” State income tax belongs in the calculation too. Clark Howard has acknowledged that he usually talks about only the federal side.

For pension households, the 12% bracket resets each year and cannot be carried forward. A couple that converts nothing in 2026 still pays tax on that money eventually, most likely at a higher rate once RMDs begin. Using the bracket versus leaving it empty comes down to $10,350 now versus a bigger bill in their 70s.

Contact [email protected] for any questions or corrections.