Why a Retired Couple With a $60,000 Pension, $40,000 of Social Security and $1 Million in an IRA Should Be Filling the 12% Bracket Now
A pension and Social Security can quietly set a tax trap that turns a $1 million IRA into a much smaller inheritance, and most retirees never see it coming until the window to act has already closed.
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The standard retirement playbook says to leave the IRA alone until the IRS forces a withdrawal. You defer the tax, let the account compound and take only what you need. For plenty of retirees, that’s sound advice.
For a married couple with a $60,000 pension, $40,000 of Social Security and $1 million in a tax-deferred retirement account, the tax code points the other way. In 2026 this couple can move about $54,300 into a Roth IRA at a flat 12% federal rate. If they wait, those same dollars will likely be taxed at 22% or more, with Medicare surcharges on top.
Their 2026 Return Leaves $54,300 of the 12% Bracket Empty
Consider an example couple, both over 65, filing jointly with no other income and taking the fixed IRS deduction for tax year 2026.
| Line | Amount |
|---|---|
| Pension | $60,000 |
| Taxable Social Security (85% of $40,000) | $34,000 |
| Standard deduction | ($32,200) |
| Age-65 add-on, $1,650 each | ($3,300) |
| Enhanced senior deduction, $6,000 each | ($12,000) |
| Taxable income | $46,500 |
| Top of 12% bracket | $100,800 |
| Unused 12% space | $54,300 |
Think of a tax bracket as a allowance you fill. For joint filers in 2026, the 12% bracket covers taxable income from $24,800 to $100,800. Whatever part of that container remains empty this year is lost for good.
Social Security Torpedo Already Fired, So Conversions Cost Just 12%
Under Section 86, provisional income is the pension plus half of Social Security. That sits well above the $44,000 adjusted base amount for joint returns, so the taxable share of their benefits has already hit the 85% limit.
Since the cap is already reached, a conversion dollar can’t pull any more Social Security into taxable income. Converting the full $54,300 costs $6,516 in federal tax, a clean 12%.
MAGI rises to $148,300, which remains under the $150,000 joint line where the senior deduction starts to phase out. It also remains far below the $218,000 joint IRMAA threshold. IRMAA uses a two-year lookback, so 2026 income sets 2028 premiums. At this level, both spouses keep the standard Part B rate.
RMDs and the Widow’s Penalty Push Those Dollars to 22%
Required minimum distributions begin at age 73, or 75 for anyone born in 1960 or later. At 73, the Uniform Lifetime divisor of 26.5 turns $1 million into a first RMD of about $37,700. Years of growth will likely make that balance bigger.
The bigger risk comes when one spouse dies. The survivor soon files as single, and the single 22% bracket starts at $50,400, half the joint line.
Say the survivor keeps the full pension, the larger $24,000 Social Security check and a $40,000 RMD. Taxable income lands near $99,000, so every RMD dollar is taxed at 22%. Because that income also reduces the senior deduction, the $40,000 RMD costs about $9,328, compared with $4,800 at 12%.
The survivor’s MAGI also crosses the $109,000 single IRMAA line. Part B rises from $202.90 to $284.10 a month, plus a $14.50 Part D surcharge. That adds about $1,148 a year. The window may also be short: the $6,000 senior deduction is scheduled to expire after 2028.
How to Fill the Bracket Without Spilling Over
- Convert in December. By then you know the year’s income. Conversions can’t be reversed, so aim a little below the line.
- Pay the tax with outside cash. If the tax comes out of the IRA, less money reaches the Roth.
- Check your state. Some states fully tax conversions, while others exempt part of retirement income or have no income tax.
- Know the five-year rules. Owners over 59½ owe no penalty on converted money. Earnings come out tax-free once a Roth has been open five years.
- Repeat every year. A $54,300 conversion each year from now until RMDs begin moves a large share of the $1 million into the Roth at 12%.
Who Should Skip This Strategy
Deferring still wins for some families. That includes couples about to move from a high-tax state to one with no income tax, and those who plan to give heavily through qualified charitable distributions. It also includes owners whose heirs will be in low brackets, and anyone without cash outside the IRA to cover what they owe on converting.
Conversion amounts depend on pensions, survivor elections and state rules, so it’s worth running the numbers with a CPA before each December deadline. The low-tax years between the last paycheck and when required minimum distributions start are the whole subject of our free Roth Window guide, which sizes up how much of that gap is worth using.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
