# The conversion costs $16,522. It saves her $733 a year. By James Ustby, CFP®, APMA®. Published 2026-09-18. Canonical URL: https://jamesustby.com/articles/nest-egg-the-conversion-costs-16-522-it-saves-her-733-a-year > We spent the week pricing the widow’s penalty. Today we test whether the standard fix pays for it. The payback is 22.5 years. *This article first appeared in The Nest Egg, my daily email, on 2026-09-18. [Read the original issue](https://retirement-wealth.beehiiv.com/p/the-conversion-costs-16-522-it-saves-her-733-a-year). It is educational, not a recommendation for you. The household in it is a hypothetical example, and market figures are as of the date shown and will have changed.* *Every figure below names its document. Every calculation is shown. Nothing here is a forecast.* Good morning. Eight of nine tiles finished green yesterday and volatility fell almost 13% in a single session. Then the letter this week has been building toward, and the one where the standard answer does not survive its own arithmetic. ## In today's issue **The tape.** The S&P gained 1.14% and the Nasdaq 100 gained 1.73% while the VIX fell 12.82%. Two minutes. **The fix everyone names.** Fill the joint brackets while both are alive. We priced it on the same household from the last three days, at the only two sizes that are actually available to them. Four minutes. **22.5 years to break even.** The larger conversion takes 24.8. Both are measured against the survivor's tax bill alone, and both are longer than the plan. Three minutes. **One more thing.** The three things that would flip this answer, and the one thing that would not. One minute. ## The tape Closing levels and session changes, CNBC US markets, September 17, 2026. Gold and WTI crude are front-month futures settlements. ## The story The advice is almost a reflex. Fill up the lower brackets while you are both alive, because the survivor will pay more. The second half of that sentence is the thing we spent three days proving. This morning we test the first half. It is usually stated as a bracket. Convert to the top of the 12%. Convert to the top of the 22%. For this household the 12% version does not exist, because their taxable income is already $6,600 past the top of it. There is no headroom there to fill. So the two real targets are the thresholds that cost actual money. The first Medicare surcharge line at $218,000 of joint income, and the 3.8% surtax line at $250,000. Their adjusted gross income is $142,900, which leaves **$75,100** of room before the first and **$107,100** before the second. Two conversions to price, then. Both of them are the textbook move. ## The position The same household, now with its ages named. $1,600,000 in a Treasury and corporate bond ladder yielding 5.0%, which throws off $80,000 a year in interest. $1,200,000 in a traditional IRA. Social Security of $44,000 on his record and $30,000 on hers. Both are 73, so required distributions begin at 75. Joint adjusted gross income $142,900, taxable income $107,400, federal tax $13,052. From Thursday: if he dies, her adjusted gross income is $117,400 and her bill is $17,695.40. Add her required distributions at 75 and the picture sharpens. $1,200,000 divided by the Uniform Lifetime Table divisor of 24.6 is **$48,780.49** a year she must take whether she wants it or not. That puts her adjusted gross income at $166,180.49, her taxable income at $148,030.49, and her federal income tax at **$28,125.32**. She is in the 24% bracket. That 24% is the rate every dollar of conversion is trying to beat. ## The arithmetic **Conversion one. $75,100, to the Medicare line.** Taxable income goes from $107,400 to $182,500. Every converted dollar lands in the 22% bracket, which runs from $100,800 to $211,400 on a joint return, so nothing spills into 24%. Tax on $182,500 is $29,574. Less the $13,052 they owed anyway, the conversion costs **$16,522**. That is an effective rate of exactly 22.00%. Adjusted gross income lands at $218,000, which is on the first Medicare line and not past it. No surcharge. Now the saving. The IRA falls to $1,124,900, so her required distribution at 75 falls to $45,727.64. Her income is **$3,052.85** lower every year. At 24% that is **$732.68** a year. The $3,052.85 is far too small to move her across a Medicare line, so her surcharge is identical either way. $16,522.00 divided by $732.68 is **22.55 years**. **Conversion two. $107,100, to the surtax line.** Taxable income goes to $214,500, and $3,100 of it crosses into the 24% bracket. Tax is $36,676, so the income tax cost is $23,624. But adjusted gross income now lands at $250,000, which is $32,000 past the joint Medicare line. Both of them pay the first-tier surcharge two years later, $95.70 a month each, or **$2,296.80** for the year. That is a cost they created by converting. Total: **$25,920.80**, an effective rate of **24.20%**. They paid more than the 24% they were trying to avoid. The saving: $107,100 divided by 24.6 is $4,353.66 of required distribution removed, worth **$1,044.88** a year at her 24%. $25,920.80 divided by $1,044.88 is **24.81 years**. **Why both numbers are so large.** There is a formula underneath this, and it is short enough to carry. Payback years = the rate you pay to convert, divided by (her marginal rate divided by the RMD divisor). 0.2200 divided by (0.24 divided by 24.6) = **22.55** 0.2420 divided by (0.24 divided by 24.6) = **24.81** The divisor is doing all the work. You pay tax on 100% of the dollars on the day you move them. You reduce her income by one twenty-fourth of them, 4.07%, per year. A two point rate spread cannot outrun that. She is 73. Break-even arrives at **98** on the smaller conversion and at **100** on the larger one. 2026 rates per Revenue Procedure 2025-32 and the 2026 CMS income-related monthly adjustment amounts. Required distributions use the Uniform Lifetime Table divisor of 24.6 at age 75. Balances are held flat, which excludes tax-free growth entirely. Hypothetical illustration of published rates, built to show arithmetic. Not a projection of any reader's result. ## What the four of them would say **The portfolio manager.** The number making this hard is not the IRA. It is the $80,000 of fully taxable interest. Converting moves $75,100 one time. Changing what the ladder pays out moves $80,000 a year, every year, for both of them and then for her. The lever with more travel in it is the one nobody is pulling. **The CPA.** Everything above holds balances flat, which strips out the single strongest argument for converting, that the Roth grows and is never taxed again. Held flat the answer is 22.5 years. Compounded over the same horizon it is a different answer. Say which assumption you are running before you argue about the conclusion, because most people arguing about Roth conversions are running two different ones. **The financial planner.** This is why the decision is about the window and not the bracket. The joint years are the cheap years, the payback is measured in decades, and nobody knows how long the window is. The households where this clearly works are converting at 62, not at 73. Age is the variable, not the balance. **The estate attorney.** Nothing above prices the heirs. A traditional IRA left to a child is ten years of distributions taxed at that child's rate, which is usually their peak earning rate. A Roth left to the same child is ten years of nothing. If this money is not going to be spent, the survivor's payback period is not the one that matters. ## One more thing Three things would flip this, and naming them precisely is more useful than arguing about the conclusion. **Growth.** We held balances flat. That removes tax-free compounding from the calculation completely. It is the largest omission in this letter and it runs squarely against the result. **The heirs.** We measured payback against one person's tax bill. If the account is going to a beneficiary in a higher bracket, the rate that matters is theirs. **The timing of the first death.** Every year both are alive is a year of joint brackets. Every year after is a year of single ones. The shorter that window, the better conversion looks, and the length of it is the one input nobody has. And one thing that would not flip it. **Converting more.** The payback got worse going from $75,100 to $107,100, not better, because the marginal cost rose and the marginal saving did not. ## Monday Four days on one household, and the $1,600,000 ladder has been fixed the whole time. Monday we change it. Same money, municipal bonds instead, and every number in this week's letters gets run again. ## Sources 2026 brackets, standard deduction and the additional deduction at 65 or older: [Revenue Procedure 2025-32](https://www.irs.gov/pub/irs-drop/rp-25-32.pdf). Uniform Lifetime Table divisors: [IRS Publication 590-B, Appendix B](https://www.irs.gov/pub/irs-pdf/p590b.pdf). 2026 Part B and Part D income-related monthly adjustment amounts: [Centers for Medicare & Medicaid Services](https://www.cms.gov/newsroom/fact-sheets/2026-medicare-parts-b-premiums-deductibles). The 3.8% surtax and its fixed thresholds: [26 U.S.C. 1411](https://www.law.cornell.edu/uscode/text/26/1411). Roth conversions: [26 U.S.C. 408A](https://www.law.cornell.edu/uscode/text/26/408A). Market levels, close of September 17, 2026: [CNBC US markets](https://www.cnbc.com/markets/). The conversation a portfolio manager, a CPA, a financial planner and an estate attorney would have about your money if the four of them were ever in the same room. None of them ever talk to each other. This is that room, every weekday at 6:45am, sized to a portfolio between $500,000 and $5,000,000. The Nest Egg is educational material published by a registered representative. It is not tax, legal or investment advice, and it is not an offer or solicitation. Every case shown is a hypothetical illustration of published rates, built to demonstrate arithmetic, and is not a projection of any reader's result. State taxes, itemized deductions and the character of investment income are not modeled here and change the result. Consult your own tax and legal advisors before acting. ## Sources - [The Nest Egg, original issue](https://retirement-wealth.beehiiv.com/p/the-conversion-costs-16-522-it-saves-her-733-a-year) --- Author: James Ustby, CFP®, APMA®, Wealth Advisor, LPL Financial, Durham and Chapel Hill, North Carolina. This material is for general information only and is not intended to provide specific advice or recommendations for any individual. Examples are hypothetical and for illustration only. Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA / SIPC. Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP® and CERTIFIED FINANCIAL PLANNER® in the United States to Certified Financial Planner Board of Standards, Inc., which authorizes individuals who successfully complete the organization’s initial and ongoing certification requirements to use the certification marks.