Roth Conversion Strategy for Connecticut Residents: Does It Still Make Sense in 2026?
As of January 1, 2026, Connecticut's IRA distribution tax exemption is now fully in effect — qualifying taxpayers can exclude 100% of traditional IRA distributions from state income tax. For pre-retirees with $1 million or more in retirement savings, the question is no longer whether to convert before the exemption takes hold. The question is whether Roth conversions still serve a meaningful role in your long-term tax and retirement income strategy.
KEY TAKEAWAYS
- ✓ Connecticut's full IRA distribution exemption took effect January 1, 2026, for eligible taxpayers with federal AGI below $75,000 (single) or $100,000 (joint). Above those thresholds, a phase-out applies. Taxpayers with AGI at or above $100,000 (single) or $150,000 (joint) receive no exemption.
- ✓ Despite the CT exemption, federal income tax still applies to every traditional IRA distribution. For pre-retirees in higher federal brackets, Roth conversions may still reduce lifetime tax liability.
- ✓ Federal tax brackets, Medicare IRMAA surcharges, and Social Security provisional income rules all interact with a conversion — making the analysis more complex than it first appears.
- ✓ For many high-net-worth pre-retirees in Connecticut, a partial, multi-year conversion strategy tends to be more tax-efficient than a single large conversion. Individual results vary significantly.
Connecticut's IRA Tax Exemption: What's Now in Effect
Connecticut phased in its IRA distribution exemption over several years. The state now provides a 100% deduction on traditional IRA distributions for the 2026 tax year and beyond, subject to income eligibility thresholds. Pension and annuity income (including 401(k), 403(b), and 457(b) plans) is also fully exempt for qualifying taxpayers.
Qualifying income thresholds: single filers with federal AGI below $75,000 and joint filers below $100,000 receive the full exemption. A gradual phase-out applies for incomes above those levels, with the exemption fully eliminated at $100,000 (single) or $150,000 (joint).
CT Retirement Income Tax Timeline
| Period | Details |
|---|---|
| Through 2024 | Pension and annuity income fully exempt for taxpayers below AGI thresholds; graduated phase-out added in 2024 for higher incomes. IRA distributions partially exempt (50% in 2024). Social Security exempt below certain AGI thresholds. |
| 2025 | Pension and annuity income fully exempt for eligible taxpayers below AGI thresholds. IRA distribution exemption at 75% for eligible taxpayers. |
| 2026 and Beyond | IRA distributions 100% exempt from Connecticut state income tax for eligible taxpayers. Pension, annuity, and Social Security income also fully exempt below AGI thresholds. |
Source: Connecticut General Statutes; CT DRS. Tax law is subject to change. Consult a tax professional for guidance specific to your situation.
Does a Roth Conversion Still Make Sense Now That CT Exempts IRA Distributions?
The 2026 exemption changes the state-level math significantly — but it does not eliminate the case for Roth conversions. Here are the factors that may still favor a conversion for many Connecticut pre-retirees.
1. Federal Taxes Still Apply to Every Traditional IRA Distribution
Connecticut's exemption eliminates state tax on qualifying IRA withdrawals — but federal income tax still applies to every traditional IRA distribution you take in retirement. Converting while in a lower federal bracket today may reduce your lifetime federal tax burden, regardless of the CT exemption.
2. Federal Tax Brackets Are Now Permanent Under the One Big Beautiful Bill
The One Big Beautiful Bill Act, signed into law on July 4, 2025, made permanent the individual income tax rate reductions originally enacted under the Tax Cuts and Jobs Act of 2017. The top marginal federal rate remains at 37%. While the uncertainty around a potential rate increase has been resolved, current rates still represent a known planning environment. Converting at today's known federal rates locks in a defined tax cost.
3. RMDs Force Taxable Income at 73
Required Minimum Distributions begin at age 73 under current federal law (SECURE 2.0). For those born in 1960 or later, RMDs begin at age 75. For those with $1 million or more in a traditional IRA, RMDs can push total income into higher federal brackets, trigger taxation of Social Security benefits, and elevate Medicare premiums. Roth IRAs are not subject to RMDs during the owner's lifetime.
4. The Gap Years Before RMDs Begin
Many pre-retirees in Connecticut retire in their early-to-mid 60s — years before RMDs begin and potentially before Social Security starts. This "gap window" is widely considered one of the most favorable periods for partial Roth conversions, particularly now that the CT state tax cost of a conversion is reduced for eligible taxpayers.
5. Estate and Legacy Planning Benefits
Under current federal law, most non-spouse beneficiaries must distribute an inherited IRA within 10 years. If heirs are in their peak earning years, those distributions could be taxed at high federal rates. Converting now means heirs may receive tax-free distributions from an inherited Roth IRA. Note: Connecticut's estate tax exemption increased to $15 million per person in 2026, matching the federal exemption.
6. The CT State Tax Cost of a Conversion May Be Minimal
For eligible taxpayers below the AGI thresholds, a Roth conversion in 2026 triggers no additional Connecticut state income tax on the converted amount, because the IRA distribution exemption now covers 100% of qualifying distributions. However, a large conversion could push your AGI above the exemption threshold, causing a partial or full loss of the exemption. Careful sizing of conversions is critical.
Medicare IRMAA: The Hidden Cost of a Large Conversion
One of the most frequently overlooked consequences of a Roth conversion is its effect on Medicare premiums — specifically the Income-Related Monthly Adjustment Amount, or IRMAA.
Medicare Part B and Part D premiums are based on your Modified Adjusted Gross Income (MAGI) from two years prior. A large conversion in 2026 could increase your 2028 Medicare premiums — potentially by hundreds of dollars per month, per person.
This is why partial, multi-year conversions — moving just enough each year to stay below a specific IRMAA threshold — are a common strategy for pre-retirees with substantial IRA balances.
2026 Medicare IRMAA Surcharge Tiers (Part B)
| Individual MAGI | Joint MAGI | Monthly Part B Premium |
|---|---|---|
| Up to $109,000 | Up to $218,000 | $202.90 (standard, no surcharge) |
| $109,001 – $137,000 | $218,001 – $274,000 | $284.10 |
| $137,001 – $171,000 | $274,001 – $342,000 | $405.80 |
| $171,001 – $205,000 | $342,001 – $410,000 | $527.50 |
| $205,001 – $500,000 | $410,001 – $750,000 | $649.20 |
| Over $500,000 | Over $750,000 | $689.90 |
Source: CMS 2026 Medicare Parts A & B Premiums and Deductibles. Surcharges are based on MAGI from two years prior (2024 tax return for 2026 premiums). Figures are per person. Subject to annual adjustment.
PLANNING ANALYSIS
When a Roth Conversion May Make Sense — and When It May Not
Conversion May Be Worth Analyzing If…
- ✓ You are in a lower-income year — retired but not yet taking Social Security or RMDs.
- ✓ Your traditional IRA balance is large enough that projected future RMDs would push you into a meaningfully higher federal bracket.
- ✓ You have outside funds available to pay the tax on the conversion.
- ✓ You have a long retirement time horizon where tax-free Roth compounding has time to offset the upfront tax cost.
- ✓ Reducing the taxable income burden on heirs is a meaningful goal.
- ✓ Your AGI is below Connecticut's exemption thresholds, meaning the conversion may carry little or no CT state tax cost.
Conversion Requires Extra Caution If…
- ⚠ The converted amount would push your MAGI above an IRMAA threshold, triggering Medicare premium surcharges.
- ⚠ Converting would cause a meaningfully larger portion of your Social Security benefits to become federally taxable.
- ⚠ A large conversion would push your AGI above Connecticut's IRA exemption threshold, reducing or eliminating the state tax benefit on future distributions.
- ⚠ You plan to draw on the IRA balance primarily in the near term for living expenses.
- ⚠ You would need to use funds from inside the IRA to pay the conversion tax itself.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.