Noon: Individual Tax Tips & Refund Strategies, The Year-End Roth Conversion: How New Haven Families and Self-Employed Filers Fill the 12% and 22% Brackets Before December 31

New Haven, Connecticut, Jose’s Tax Service | October 11, 2026

A Roth conversion moves eligible dollars from a traditional individual retirement account (IRA) or workplace retirement plan into a Roth account. The converted amount is generally taxable for the year it is completed. For families and self-employed filers whose income is temporarily lower, converting a measured amount before year-end may allow some retirement savings to be taxed in a lower federal bracket today.

The strategy is not automatically beneficial. Model the federal and Connecticut effects, make sure you can pay the resulting tax, and complete the transaction on time. A conversion made in 2026 must be completed by December 31, 2026 to count for the 2026 tax year.

Why Q4 is the time to calculate, not a special tax window!

A Roth conversion can generally be made during the year. The fourth quarter is useful because you have a clearer picture of wages, business income, investment income, deductions, and other tax items. That visibility can help you estimate how much bracket room remains.

Federal income tax brackets apply to taxable income, not adjusted gross income (AGI). For 2026, the federal 10%, 12%, and 22% thresholds include:

These are taxable-income thresholds. Your deductions and filing status affect where you start. Review the IRS 2026 inflation-adjustment announcement and calculate your own projected taxable income before choosing a conversion amount.

For example, assume a married couple’s estimated 2026 taxable income before conversion is $86,000. The couple has about $14,800 of room before reaching the top of the 12% bracket at $100,800. A $20,000 conversion would place approximately $14,800 in the 12% band and $5,200 in the 22% band, before considering other tax effects.

The conversion does not make all of the couple’s income taxable at 22%. Only the incremental dollars above the applicable threshold enter that bracket. The actual federal tax impact may differ if the added income affects deductions, credits, or other income-based calculations.

Who may want to consider a conversion!

A conversion may merit a closer look when your 2026 income is unusually low relative to what you expect in future years. Examples include:

• Families with a temporary income dip. A job change, leave from work, or reduced hours may create room in a lower tax bracket.
• Self-employed filers with a slower business year. A temporary drop in net business income may open a conversion opportunity. Estimate the full-year business result before acting.
• Small-business owners with modest W-2 wages. Do not treat a low paycheck as proof of low taxable income. For example, S corporation pass-through income may still increase the owner’s taxable income even when W-2 compensation is limited.
• Households expecting higher future income. A conversion may be worth modeling if you expect higher earnings or taxable retirement distributions later.

Compare the estimated tax cost now with your longer-term plan. Consider your future filing status, other retirement income, and whether you can pay the tax without taking money out of the retirement account.

Calculate the tax cost before converting!

Pre-tax traditional IRA money converted to a Roth IRA is generally included in federal gross income for the year of the conversion. After-tax basis is generally not taxed again, but the calculation can be more involved when you have other IRA assets.

Use this sequence:

1. Project 2026 taxable income. Include wages, net self-employment income, business pass-through income, retirement distributions, and other expected income. Account for deductions and adjustments.
2. Choose a target bracket ceiling. Decide whether to remain within the 12% bracket or accept some income at 22%. Do not assume filling a bracket is always the best outcome.
3. Estimate the taxable conversion amount. Start with the proposed conversion, then account for any after-tax basis and the aggregation rules below.
4. Estimate the full tax effect. Review federal and Connecticut income tax, potential effects on income-based benefits, and estimated-tax requirements.
5. Set aside payment funds. Whenever possible, pay the conversion tax from money outside the retirement account. Withholding tax from a distribution may reduce the amount reaching the Roth account and can create additional-tax concerns for people under age 59½.

A tax professional can help estimate the federal impact and determine whether withholding or estimated payments may be needed. An unexpectedly large tax balance may lead to underpayment penalties.

Check the pro-rata rule and your after-tax basis!

The federal pro-rata rule generally requires traditional, SEP, and SIMPLE IRA balances to be considered together when calculating how much of an IRA conversion is taxable. You generally cannot convert only the after-tax dollars in one IRA while leaving all pre-tax dollars in another IRA untouched.

The calculation may take into account your year-end IRA balances and distributions. Before converting, gather statements for all traditional, SEP, and SIMPLE IRAs and locate prior Forms 8606. An eligible workplace 401(k) account is not simply another traditional IRA for this calculation. However, moving plan assets to an IRA can change the facts, so review any rollover first.

Form 8606, Nondeductible IRAs is used to report nondeductible traditional IRA contributions, track basis, and calculate taxable amounts for conversions. Keep copies of filed Forms 8606 and supporting records. The IRS explains IRA conversion rules in Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs), and distribution and withdrawal rules in Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs).

Understand Connecticut tax treatment and Roth withdrawal rules!

A federally taxable conversion generally increases the income Connecticut considers for state tax purposes. Connecticut may allow a subtraction for qualifying IRA distributions, but eligibility and income limits apply. Do not assume a Roth conversion is automatically exempt from Connecticut income tax. Review the applicable Connecticut Department of Revenue Services individual income tax forms and instructions, including any IRA or retirement-income worksheet that applies to your circumstances.

Roth access also has rules. Qualified Roth IRA distributions are generally tax-free when the applicable five-year requirement is met and the distribution qualifies, for example, it is made after age 59½. A separate five-year period generally applies to each taxable conversion for purposes of the 10% additional tax on certain early withdrawals. Regular Roth contributions are generally treated as distributed first, followed by conversions and then earnings. Review Publication 590-B before relying on Roth funds for near-term expenses.

A Roth IRA owner generally has no lifetime required minimum distributions (RMDs). That feature may support long-term planning, but it does not remove the tax due when pre-tax funds are converted.

One more point is critical: a Roth conversion generally cannot be undone. Federal law eliminated recharacterization of conversions made in tax years beginning after December 31, 2017. If the final income estimate is uncertain, consider whether a smaller conversion is more appropriate than a large, all-at-once transaction.

Complete these steps before December 31!

Use this checklist to manage the year-end process:

1. Gather records. Collect current income estimates, retirement account statements, prior Forms 8606, and information about any traditional, SEP, or SIMPLE IRA.
2. Project the tax return. Estimate taxable income and federal and Connecticut tax with and without a conversion.
3. Confirm the account rules. Ask the IRA custodian or plan administrator about conversion options, processing times, and any restrictions. A 401(k) plan may have specific rules for rollovers or in-plan Roth conversions.
4. Select a deliberate amount. Choose the amount based on the tax projection, cash available for taxes, and your retirement timeline.
5. Request the transfer early. Confirm that the transaction is completed by the custodian or plan by December 31, 2026. Do not rely on a last-day request; processing cutoffs may apply.
6. Save the paperwork. Retain the transaction confirmation and expect tax reporting documents such as Form 1099-R and Form 5498. Report the transaction correctly on the 2026 federal return, including Form 8606 when required.

Deadline reminder: The conversion deadline for the 2026 tax year is December 31, 2026. The 2027 tax-return filing deadline does not extend the time to complete a 2026 conversion.

Plan the conversion with care!

A year-end Roth conversion can help some households use lower tax brackets strategically. Its value depends on your full-year income, basis, other IRA balances, state tax treatment, cash flow, and withdrawal timeline. Use an individualized projection before giving transfer instructions.

For a year-end tax planning consultation, schedule with Jose’s Tax Service or contact our team. We serve New Haven clients in person and clients virtually. Consultations are available with $0 upfront payment.

Category: Tax Planning | Tags: tax refund, personal finance, IRS tips, New Haven taxes