Roth conversions for physicians: using the gap years after you stop practicing

Usually not large ones. You may earn enough to be in the 32%, 35% or 37% federal bracket until you stop. A conversion is taxed at your top rate. So converting $100,000 then can cost you $32,000 to $37,000 in federal tax.

Once you stop practicing, your income can drop to investment income and plan payouts. If you're married, you can have up to $211,400 of taxable income in 2026 before leaving the 22% bracket. The gap between your working rate and your retired rate is what makes these years valuable.

The exception is a slow year while you're still working. Think of a sabbatical, a part-time year or a year with large business losses. Those can be good years for a smaller conversion.

Your gap years start the year after your last full paycheck. They end the year before RMDs or Social Security push your income back up. RMDs start at 73 if you were born 1951 to 1959, and at 75 if born 1960 or later. Say you retire at 66 and were born in 1960. You have nine tax years, 2026 to 2034, before your first RMD.

With a large balance, your goal is often to convert enough each year so future RMDs won't push you into a higher bracket than now. For many retired physician couples, that means filling the 22% or 24% bracket. More detail on that window is at Lowering tax on your RMDs.

Your Medicare premiums are the main limit. Medicare uses your income from two years earlier, so a 2026 conversion sets your 2028 Part B and Part D premiums. Each tier is a cliff. Going $1 over a line costs you that tier's full surcharge. Many physicians pick amounts that stop just under a tier line. See Roth conversions and IRMAA.

If your employer is a nonprofit, your 457(b) is likely non-governmental. That money belongs to your employer until it is paid to you. It can't be rolled to an IRA or converted to a Roth. Nurses and healthcare workers explains the plan types.

For you, the larger issue is timing. Payouts are taxed as ordinary income when paid, on the schedule you chose. Say you picked five yearly payments starting the year after you leave. Those payments land in your best conversion years and use up bracket room.

Some plans let you make a one-time choice to delay the start of payments. Ask your plan what changes are still allowed. Then plan your conversions around the payouts you can't move.

You may have made backdoor Roth contributions: a nondeductible contribution to a traditional IRA, then a conversion. Those after-tax dollars are called basis. They are tracked on Form 8606. Keep every 8606 you filed.

The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one pot. It is measured on December 31 of the year you convert. Say you roll a $2 million 403(b) into an IRA. Any basis you have becomes a tiny share of that pot, and each conversion is taxed in that proportion. Workplace plans like a 403(b) or 401(k) are not counted.

That leads to two common moves. If you're still working and making backdoor contributions, avoid rolling a 403(b) into an IRA that year. In retirement, if you hold some basis, convert inside the 403(b) or 401(k). That keeps the plan money out of the IRA pot. You can't make new IRA contributions after you stop working, unless your spouse still has earned income.

Usually not much. Your practice sale can add a large gain on top of your last year of pay. That stacks your conversion in the highest brackets. It can also push your income past the top Medicare surcharge line two years later.

Your sale may be paid over several years as an installment sale. Then the gain is spread out too, which changes how much room each later year has. Count those payments when you size your conversions. Business owners covers the sale year in more detail.

Conversion income itself doesn't owe the 3.8% net investment income tax. But it raises your modified adjusted gross income. If that goes over $250,000 for a couple, your interest, dividends and capital gains can start to owe the 3.8% tax.