Kestrel Bay Retirement Advisors on timing Roth conversions around your stock income

Who gets the most from Roth conversion planning, and what does it include?

Roth conversion planning pays off most for people who expect a few low-income years after leaving a tech job and who hold a large pretax 401(k) or rollover IRA. We see two timing errors again and again. One is converting while salary, vests and ESPP sales already fill the brackets. The other is waiting until age 63, when the income starts setting Medicare premiums. The low-income years after the paychecks stop are where conversions usually cost the least.

In practice we work with your pretax 401(k) and rollover IRA balances and settle the dollar amount to convert each year. We also decide where the tax money comes from: cash or taxable stock sales, never the converted dollars. Required minimum distributions begin at 75 for anyone born in 1960 or later, and an RMD itself can never be converted, so we map the years before that too.

Tax comes first in how we do this. Before Kestrel Bay Retirement Advisors suggests a conversion amount, it estimates the federal tax on that amount and adds it on top of the year's ESPP or RSU gains. Conversion income isn't investment income, but it raises MAGI, so more of a stock gain can fall under the 3.8% net investment income tax. A number that looks cheap alone can look different once the stock sale sits beside it.

Anyone can convert at any income, because there's no income limit. So the real question is when, not whether you're allowed.

Rafael's gap years: a hypothetical conversion schedule

Hypothetical: Rafael is 55, divorced, an engineering manager at a hardware company, with a daughter in college. He has bought ESPP shares every purchase period for 15 years. Say he retires at 60 with $800,000 in a traditional 401(k), files single, and has no other income. Each year he plans to convert $100,000 and sell ESPP shares carrying $50,000 of long-term gain, so his MAGI is $100,000 + $50,000 = $150,000.

Look at where the 'No surcharge' rows stop in the table below. The year he turns 62 is the last free one, because Part B at 65 looks back to income at 63.

At 63, the same $150,000 lands in the up-to-$171,000 tier (2026 figures, for illustration). That's $405.80 − $202.90 = $202.90 a month, and $202.90 × 12 = $2,434.80 extra for the year he turns 65. The conversion and the income tax are roughly the same. The extra cost comes from timing alone, and Part D adds its own surcharge.

ESPP sales and conversions compete for the same low-income years. A sale of shares with a $500,000-plus gain needs its own place on the schedule, so we plan both lines together. And yes, that means paying tax on 401(k) money years before an RMD would force it.

How do we check the conversion plan each year after you stop working?

We review the plan every fall and convert in December. In October or November we recount the year's income: final stock sales, dividends and fund capital gain distributions. A conversion can't be recharacterized, so we'd rather do it once the year's income is known.

You get a reminder to pay the fourth-quarter estimated tax by January 15. Form 1099-R arrives in January, and the conversion is reported on Form 8606 with the return.

After a market drop we may look at converting earlier in the year, because the same tax buys more shares. That's a judgment call, and we lean toward it only when the cash to pay the tax is already set aside. Investing involves risk, including loss of principal, and a converted account can fall in value too.

Once the year you turn 62 closes, the Medicare-free window ends. From then on, each year's conversion ceiling sits at a Medicare tier edge, or a higher tier is accepted on purpose after we compare the costs. Our rule: if you plan to stop working before 65, put your largest conversions and stock sales in the calendar years through the one in which you turn 62. From 63 on, add the surcharge two years out to each conversion's tax cost before you decide.

Where conversions meet your stock, your 401(k) and your rollover

Years with RSU vests and ESPP purchases are usually poor conversion years, and our Equity compensation planning page covers the vest calendar. Selling down employer stock and converting draw on the same bracket space, so for Concentrated stock positions one schedule sets both. After you leave the job, 401(k) rollover help often makes partial conversions easier, since an IRA lets you convert any amount you pick, though some plans allow an in-plan Roth conversion instead.

What Kestrel Bay Retirement Advisors clients receive

Here is what lands in your inbox. One limit applies: conversions pay off only when cash or taxable sales cover the bill, not the converted dollars. Between 60 and 64, conversion income can also raise marketplace health premiums, which our ACA subsidies page covers. If your cash is thin or you're still deep in vest years, wait.

• A year-by-year conversion schedule showing the dollar amount and the MAGI ceiling for each year.
• A tax estimate for every conversion before it's made, stacked with that year's planned stock sales, plus a one-page IRMAA lookback calendar showing which income year sets which Medicare premium year.
• A note on which account covers the tax and the estimated payment dates, plus the custodian's conversion request steps.
• A December check-in summary, and a January reminder to hand the 1099-R and Form 8606 details to your tax preparer.

How do you start Roth conversion planning with Kestrel Bay Retirement Advisors?

Send a note through the request form, since the firm has no published phone number. We meet by video or phone, and the client minimum is $400K in investable assets. Bring your latest 401(k) statement, your ESPP lot records or Forms 3922, and your last two tax returns, so we can see which MAGI years matter.

We put the fee schedule on paper during the first conversation. Kestrel Bay Retirement Advisors serves 2,600 clients with $910 million in client assets as of 10/5/2026.