A Roth conversion strategy with Midflorida Credit Union

Midflorida Credit Union's conversion roadmap for a 403(b) saver

Bev had 4 pre-tax accounts from 3 hospitals, so the first job was finding which dollars could move and when. Her roadmap covered her current 403(b), old 401(k)s, and any rollover IRA. It also showed a yearly conversion amount, where the money for each tax bill would come from, and years when doing nothing made more sense.

This work often fits a nurse with about $300K or more held mostly in pre-tax accounts who expects lower-income years after the last shift. Social Security may start at 67, while the IRS requires RMDs at 75 for people born in 1960 or later. That gap can be useful.

Midflorida Credit Union keeps the result simple: 1 Roth IRA, not a separate Roth account at every former hospital. Before we recommend a dollar amount, we place the estimated tax bill beside the cash Bev has available to pay it. You leave with a one-page roadmap you can show your family, and a shorter list of accounts and funds to check between shifts.

How much does converting at 58 cost compared with 63?

Converting at 58 while Bev is earning full shift pay could create an $11,000 federal tax bill on $50K, while the same conversion in a lower-income gap year could cost $6,000 at an assumed 12% rate. If the conversion rate matches the rate expected on RMDs at 75, skip it during full-pay years and look first at the gap before Social Security.

A cut from 3 shifts to 2, unpaid leave, or a gap between hospital jobs can open a cheaper year. The widest window usually comes once the final shift is worked and Social Security has not yet started. Bev wanted to convert at 58 because she had read that tax rates might rise, but her pay was still about $130K annually.

Bev, 58, still worked 3 twelve-hour shifts and earned about $130K annually (hypothetical, round numbers). She converted $50K from an old 401(k) and used emergency savings for the tax bill. At an assumed 22% rate on top of her pay, the arithmetic was $50K x 0.22 = $11,000. Her hospital benefits clerk said an in-plan conversion was not taxable because the money stayed in the plan. That was wrong. A conversion is ordinary income, and missing withholding could leave her facing an IRS underpayment penalty when she files.

The fix was plain. Bev kept putting $32,500 annually pre-tax into her 403(b), the IRS 2026 limit for someone 50 or older, and scheduled $50K conversions after her last shift. At an assumed 12%, $50K x 0.12 = $6,000. Four $50K conversions equal $200K; $200K x 0.12 = $24,000, compared with $44,000 at 22%. That is $20,000 less. Account values can drop below the amount invested, whether the account is Roth or pre-tax.

The IRS permits a $35,750 deferral at ages 60 through 63 in 2026, using the $11,250 higher catch-up. If Bev's prior-year FICA wages exceeded $150,000, her catch-up must be Roth. She decided against conversions while working full pay and chose $50K annually after her last shift. Converting early only comes out ahead when today's rate is no higher than the future rate and outside cash pays the tax bill; at the same rate, $50K converted now or later leaves the same after-tax amount.

The full-pay trap

Saving the gap-year conversions

What age is too early for a conversion roadmap?

For Bev's younger coworker, age 39 with pay still climbing and under about $100K in pre-tax savings, a conversion roadmap usually adds little right now. She can use Roth 403(b) contributions if her hospital offers them, or contribute to a Roth IRA up to the IRS 2026 limit of $7,500 if income is below the $153,000 single phase-out start. Revisit the question at 50, when catch-up years begin.

The fall review and the extra ones

Each fall, Bev's roadmap is revisited before December 31, using year-to-date pay that includes overtime and shift differentials. Midflorida Credit Union confirms, reduces, or skips that year's conversion. A cut in shifts, pension election, divorce settlement, inheritance, move to a state with different income tax, or turning 63 calls for an extra review. Age 63 matters because it is the first Medicare lookback year for coverage beginning at 65.

How long do Roth rules lock you in?

A Roth conversion is added to ordinary income for the calendar year, must finish by December 31, and cannot be recharacterized or reversed after completion. For Bev at 58, each conversion also has its own 5-year clock for the 10% penalty on money taken out before age 59½, so that rule matters for roughly 18 months.

CMS uses income from 2 years earlier for Medicare premium surcharges. For 2026, a single filer with 2024 MAGI up to $109,000 pays the standard Part B premium of $202.90 monthly. Bev's conversions from 63 onward would be sized with that line in mind. Qualified Roth withdrawals later generally do not count toward IRMAA.

The IRS does not allow an RMD to be converted. RMDs begin at 75 for someone born in 1960 or later, and any additional conversion in that year sits on top of the RMD. Bev's roadmap uses earlier low-pay years first, rather than waiting for required distributions to arrive.

The 5-year rule

Medicare and required distributions

Cash for the tax bill

Bev's first conversion exposed the part people miss: the tax bill needs its own source of cash. Paying $11,000 from emergency savings for a $50K conversion means the full $50K reaches the Roth. Before 59½, the amount withheld can also count as a distribution and trigger the 10% penalty.

Cash outside the retirement account keeps the full $50K moving into the Roth. If Bev still has paychecks, increasing W-4 withholding treats those payments as spread evenly through the year for tax purposes. That can reduce an underpayment problem without draining emergency cash.

An in-plan Roth conversion inside a current hospital 403(b), if the plan permits it, is reported on an IRS Form 1099-R that arrives in January. Ask the plan administrator, not the payroll office, how the conversion will appear. A roadmap has limited value if the only source for the tax bill is converted money or emergency savings. State income tax can change the math too.

Map these dates before you call

Bev could do a useful first pass alone in 20 minutes. She listed all 4 accounts and marked each pre-tax or Roth. Then she copied the taxable-income line from her last return and wrote down her expected last-shift year, the year she turns 63, and the year she turns 75.

Bring the question to Midflorida Credit Union when you expect conversions across 2 or more years, a pension election or age 63 is within 5 years, or the tax bill would touch emergency cash. Midflorida Credit Union gives you the fee for your situation on paper first, so you can weigh it before agreeing to any conversion.

• List each account and mark pre-tax or Roth.
• Write down last-shift, age-63, and age-75 years.
• Copy taxable income from the last return.