Annuity StrategyLast updated: 2026-06-27Author: Hans Goldstein, NPN 20602398

Roth Conversion Now vs MYGA Bucket Deferral — $1M IRA Modeled Over 20 Years

TL;DR: Two strategies for a $1M Traditional IRA at age 65: (a) pay tax now via staged Roth conversions during your 60s, or (b) defer everything in a MYGA bucket and pay tax on RMDs later. The right answer depends on three variables: your current vs future tax bracket, your time horizon, and your heir's likely bracket. Below is the full 20-year side-by-side. Spoiler: the conversion usually wins if you're in 22-24% now and your heir will be in 32%+ later.

The setup

Hans's client: 65-year-old retiree, $1M in Traditional IRA, $400K in taxable brokerage, $35K Social Security, $20K pension. Married filing jointly. Current MAGI: roughly $90K. Federal bracket: 12%. State: 9.3% (CA).

RMDs start at age 73. Heir is a 45-year-old daughter, peak-earning physician at $400K/yr, in the 32-35% federal bracket.

The decision: optimize the IRA across the next 8 pre-RMD years.

Two strategies on the table:

Strategy A — Roth Conversion Ladder: Convert $80,000/yr from Traditional to Roth for 8 years. Pay current tax. Leave Roth to heir.
Strategy B — MYGA Bucket Deferral: Move $1M into a MYGA ladder at 5.6%. Let it compound tax-deferred. Take RMDs starting at 73. Leave residual to heir.

We'll model both over 20 years — from age 65 to 85 — assuming consistent rate environment and heir distribution within SECURE 10-year window after the parent's death.

Strategy A: Roth conversion ladder — year-by-year

Plan: convert $80,000 of Traditional IRA to Roth every year from age 65 to 72 (8 years). Pay federal + state tax from taxable brokerage (so the full $80K transfers to Roth, not net-of-tax).

Age	Conversion	MAGI after conversion	Federal tax (22% bracket)	CA tax (9.3%)	Annual tax cost
65	$80,000	$170,000	$17,600	$7,440	$25,040
66	$80,000	$170,000	$17,600	$7,440	$25,040
67	$80,000	$170,000	$17,600	$7,440	$25,040
68	$80,000	$170,000	$17,600	$7,440	$25,040
69	$80,000	$170,000	$17,600	$7,440	$25,040
70	$80,000	$170,000	$17,600	$7,440	$25,040
71	$80,000	$170,000	$17,600	$7,440	$25,040
72	$80,000	$170,000	$17,600	$7,440	$25,040
Total	$640,000	—	$140,800	$59,520	$200,320

After 8 years: Roth balance ~$760K (with growth at 5%), Traditional IRA residual ~$420K (from compounding on the unconverted portion). Total IRA value: ~$1.18M. Total taxes paid: $200,320 (paid from taxable brokerage; doesn't reduce IRA value).

IRMAA impact: $170K MAGI for 8 years crosses the first IRMAA tier ($206K MFJ — just under, no surcharge in our example). Note that for single filers, $170K would cross the second tier and add ~$840 of surcharge per year. For our MFJ case, no IRMAA impact.

Year 73-85 RMDs on residual Traditional IRA ($420K, growing to ~$700K by age 85):

RMD years 73-85: ~$18K-$32K/yr
Federal+state tax on RMDs (22% combined): ~$5K-$8K/yr
13-year RMD tax total: ~$80,000

Total lifetime tax (parent only, Strategy A): $200K conversion + $80K RMD = $280,000.

Heir inheritance (Strategy A): Roth $1.0M + Traditional residual $400K (after Mom uses some for living) = $1.4M, of which $1.0M is tax-free Roth.

Heir's 10-year tax on inherited Traditional ($400K): At 32% federal + ~10% state = roughly $168K. Heir keeps $232K from the Traditional + $1M Roth = $1.232M net to heir.

Strategy B: MYGA bucket deferral — year-by-year

Plan: move full $1M from Traditional IRA into MYGAs (still inside the IRA wrapper) at 5.6% average rate. No conversions. Take only required RMDs starting at age 73.

From age 65-72: full tax-deferred compounding. $1M grows to ~$1.55M by age 72.

From age 73, RMDs begin. The IRS Uniform Lifetime Table factor is ~26.5 at age 73, dropping each year. Approximate RMD schedule:

Age	IRA balance	Divisor	RMD	Federal+state tax (22%)
73	$1,630,000	26.5	$61,500	$13,530
75	$1,690,000	24.6	$68,700	$15,114
77	$1,720,000	22.9	$75,100	$16,522
79	$1,710,000	21.1	$81,000	$17,820
81	$1,680,000	19.4	$86,600	$19,052
83	$1,610,000	17.7	$91,000	$20,020
85	$1,520,000	16.0	$95,000	$20,900

RMDs of this size push MAGI from $55K base + RMD = $116K-$150K range. For an MFJ couple this stays under the first IRMAA tier ($206K). For a single filer (e.g., a widow), $130K+ MAGI clears the second IRMAA tier — adding ~$3,000/yr of IRMAA surcharge starting at age 73.

Total lifetime tax (parent only, Strategy B): ~$220K of RMD-related federal+state tax across age 73-85.

Heir inheritance (Strategy B): Full IRA at parent's death (assume age 85): ~$1.52M, all Traditional. Heir 10-year compressed distribution: at 32% federal + 10% state = $642K tax. Heir nets ~$878K.

Side-by-side total cost

Metric	Strategy A (Roth ladder)	Strategy B (MYGA deferral)	Difference
Parent lifetime tax	$280,000	$220,000	Strategy A pays $60K more upfront
Parent IRA value at death (age 85)	$1.4M ($1M Roth + $400K Trad)	$1.52M (all Trad)	Strategy B is $120K bigger at death
Heir's tax on inheritance	$168K (on $400K Trad only)	$642K (on full $1.52M Trad)	Strategy B costs heir $474K more
Total family lifetime tax	$448K	$862K	Strategy A saves $414K
Heir's net inheritance	$1.232M	$878K	Strategy A delivers $354K more to heir
Parent's living standard during 65-72	Slightly tighter (paying conversion tax)	Same	~$25K/yr extra cash needed in Strategy A

The conversion wins by $414K of family tax savings — but only because the heir is in a high tax bracket. The conversion's advantage exists because Mom pays 22-24% now instead of letting her heir pay 32-37% later (compressed into 10 years).

When MYGA deferral actually wins

Strategy B beats Strategy A in three specific scenarios:

1. Heir's tax bracket is the SAME as or LOWER than parent's

If the heir is a non-working spouse, a college student, or another retiree in the 12% bracket, paying tax now at 22% to dodge a future 12% bill is a net loss. Defer everything; let the heir distribute in their own low brackets.

2. Parent will likely use most of the IRA for living expenses

If life expectancy + spending pattern mean the IRA is mostly depleted by death, there's no inheritance to optimize. Defer, spend it down at the parent's rates.

3. Parent is in a very low bracket and conversions would push them up

If the parent's MAGI is $50K and conversions push them to $130K, they may cross IRMAA, lose ACA subsidies (if pre-65), or push capital gains from the 0% LTCG bracket to 15%. The conversion tax has hidden costs beyond the marginal income rate.

The hybrid recommendation we use most often

For most retirees in their 60s, the optimal strategy is partial conversion + MYGA wrapper for the residual:

Identify your "tax headroom" — how much you can convert each year without crossing into the next federal bracket, the next IRMAA bracket, or the 15% LTCG bracket.
Convert that amount annually for 5-10 years. Don't try to convert everything; that's wasted tax dollars.
Hold the unconverted Traditional IRA portion in a MYGA inside the IRA — ~5.6% guaranteed rate, tax-deferred until RMD.
At age 73, take RMDs from the Traditional IRA MYGA (most carriers allow penalty-free RMD withdrawals); leave the Roth growing untouched as the "legacy bucket."

The hybrid captures most of the conversion's tax benefit at the heir level without forcing the parent to pay tax at the top of their bracket every year.

Critical: tax law risk and where this could break

The Roth conversion strategy assumes Roth distributions remain tax-free. Current federal law treats qualified Roth distributions as tax-free indefinitely. Future Congresses can change this; previous proposals (none enacted) have floated means-testing Roth distributions for high-income retirees.

The MYGA deferral strategy assumes RMD rules and tax brackets remain roughly stable. The SECURE Act already accelerated heir distributions to 10 years (from ~30+). Further compression is possible.

The honest position: both strategies carry tax-law risk. The conversion locks in tax certainty for the heir at the cost of higher parent-level taxes today. The MYGA defers the decision but exposes the family to whatever tax regime exists 10-20 years from now. Most planners (including us) recommend partial conversion as a hedge — you've paid some tax at current rates, so future law changes don't blow up the whole strategy.

Frequently Asked Questions

Is a Roth conversion always better than MYGA deferral?

No. Conversion wins when the parent's current bracket is lower than the heir's future bracket. If the heir is in the same or lower bracket, deferral wins. Run the math with actual brackets.

How much can I convert without triggering IRMAA?

Stay below the first IRMAA tier in your MAGI. For 2026: $103K single / $206K MFJ. If your base MAGI is $90K MFJ, you have ~$116K of conversion headroom before triggering the first IRMAA bracket two years later.

Can I do a Roth conversion inside a MYGA?

Yes. Move your Traditional IRA MYGA's value into a Roth IRA via direct trustee-to-trustee transfer. The carrier will issue a 1099-R coded as a Roth conversion (taxable event). The MYGA continues at the new Roth IRA custodian.

Does the 5-year Roth rule apply to converted Roth funds?

Yes. Each Roth conversion has its own 5-year clock for the converted amount to be withdrawn without 10% penalty. Earnings on conversions follow the standard Roth qualified-distribution rules.

What about Roth conversions during a market crash?

Mathematically excellent timing. Converting $80K of Traditional when the market is down 30% means you convert MORE shares for the same tax cost. When the market recovers inside the Roth, all the recovery is tax-free.

Should I convert before or after age 65?

Before age 65 if you can. Conversions before 63 keep them out of the IRMAA two-year lookback for your initial Medicare premium at 65. Conversions at 63-64 affect 65-66 Medicare premiums.

Can I undo a Roth conversion?

No. The recharacterization (do-over) rule was eliminated by the Tax Cuts and Jobs Act of 2017. Once you convert, it's permanent. Run the math carefully — you cannot unwind a bad conversion.

How does MYGA inside an IRA differ from MYGA outside an IRA?

Tax-wise, no difference during accumulation — both grow tax-deferred. Difference at withdrawal: MYGA-in-IRA is fully ordinary income; non-qualified MYGA uses last-in-first-out (gain comes out first as ordinary income, then basis tax-free). At death, MYGA-in-IRA is subject to SECURE 10-year rule; non-qualified MYGA has a different 5-year rule unless beneficiary chooses to annuitize.

Disclosure

This article is general educational information, not personalized financial, tax, or legal advice. All rates, IRS limits, Social Security PIA factors, IRMAA brackets, FDIC/NCUA coverage, and state guaranty fund coverage figures are current as of the publication date and subject to change. IRMAA brackets and Roth/Traditional IRA limits cited reflect IRS guidance for 2026 and may be updated by the IRS or SSA; confirm current figures at irs.gov and ssa.gov before acting. Hans Goldstein is an independent licensed insurance producer (NPN 20602398) appointed with multiple A-rated annuity carriers; he does not sell bank CDs, money market funds, or Treasury securities and is not affiliated with any bank, brokerage, or government agency discussed. No compensation has been received from any third party in connection with this article. Bank CDs are FDIC-insured deposit products; credit union share certificates are NCUA-insured; money market funds are SEC-regulated investment products with no FDIC coverage; Treasuries are direct obligations of the U.S. government; MYGAs are insurance contracts backed by carrier balance sheets and state guaranty associations. These are different product categories with different protections, tax treatments, and trade-offs. Always confirm current rates and tax law with the issuer or a CPA before acting.