For many Texas retirees, 2026 is circling the calendar as a year of significant transition. While the rolling hills of Wimberley and the tasting rooms of Fredericksburg remain as inviting as ever, the underlying financial landscape is shifting. The Tax Cuts and Jobs Act (TCJA), which has provided historically low tax brackets since 2018, is scheduled for a sunset at the end of 2025.
As we move through 2026, the question for affluent families in the Hill Country isn't just how to spend their retirement, but how to protect their wealth from a potentially higher tax future. The Roth conversion: shifting money from a traditional IRA or 401(k) into a Roth IRA: is one of the most powerful tools available. However, in 2026, the "calculator" involves more than just a simple tax rate comparison. It requires an understanding of Medicare surcharges, the unique advantages of Texas residency, and the specific composition of your portfolio.
The 2026 Tax Cliff: Why Timing Is Everything
The primary motivation for a Roth conversion in 2026 is the anticipated "sunset" of current tax rates. Unless Congress acts, we are looking at a return to the pre-2018 tax structure. For most retirees, this means seeing the 12% bracket jump to 15%, the 22% bracket rise to 25%, and the top tier returning to 39.6%.
At Mau Sanchez Capital, we often discuss the "tax sale" window. If you believe your tax rate today is lower than it will be when you are forced to take Required Minimum Distributions (RMDs) in your 70s, paying the tax now at a "discounted" rate can save your heirs and your future self hundreds of thousands of dollars.
As Mau Sanchez, founder of the Texas Retirement Journal and owner of Mau Sanchez Capital, suggests: "A Roth conversion is not just a tax move; it is a wealth preservation strategy. By prepaying the tax today, you are essentially buying an insurance policy against future legislative risk."
The Texas Advantage: Zero State Income Tax
Texas residents enjoy a unique tailwind when it comes to Roth conversions. Because Texas has no state income tax, the "cost" of a conversion is purely federal. For retirees moving from high-tax states like California or New York to the Hill Country, this is often the most opportune time to execute a large-scale conversion.
When you convert $100,000 in a state like Oregon, you might lose 9% or more to the state government immediately. In Texas, that entire conversion "spend" goes toward your federal liability, allowing you to maximize the amount of capital that reaches the tax-free growth environment of the Roth IRA.
However, even in a tax-friendly state, you must be wary of the "bracket creep." A common mistake is converting so much in a single year that you push yourself into the 35% or 37% federal brackets, negating the benefit of the lower rates.
The IRMAA Trap: A 2-Year Lookback
While Texas doesn't tax your income, the federal government has a "hidden" tax for retirees: IRMAA (Income-Related Monthly Adjustment Amount). These are surcharges on your Medicare Part B and Part D premiums if your Modified Adjusted Gross Income (MAGI) exceeds certain thresholds.
The crucial detail for 2026 planning is that Medicare uses a two-year lookback. This means your 2024 income determines your 2026 premiums. If you execute a massive Roth conversion in 2026 to beat future tax hikes, you need to be prepared for your 2028 Medicare premiums to spike significantly.
For many affluent Texans, the IRMAA surcharge is a small price to pay for long-term tax-free growth, but it must be factored into your "Roth Conversion Calculator." At Mau Sanchez Capital, we help clients navigate these cliffs to ensure a conversion doesn't inadvertently trigger a five-figure increase in healthcare costs down the road.
You can learn more about managing these variables in our previous guide on healthcare and private concierge care for 2026.
Portfolio Scenarios: The Conversion Math
The size of your conversion should be dictated by your total "taxable bucket" relative to your lifestyle needs. Here is how we look at different portfolio sizes through a fiduciary lens:
The $1M to $2M Portfolio
For retirees in this range, the goal is often to "fill up" the 22% or 24% brackets. If your social security and pension income total $80,000, you have significant "room" to convert traditional IRA assets before hitting the higher tiers. The objective here is to reduce the size of the IRA so that future RMDs don't push you into a higher bracket later in life.
The $5M+ Portfolio
For high-net-worth families, the strategy often shifts toward legacy. Since Roth IRAs do not have RMDs for the original owner and can be passed to heirs tax-free (under current rules), a large conversion in 2026 can be a way to "clean up" a massive tax liability before the TCJA rates expire.
In these cases, we prioritize liquidity and transparency. You should never use the proceeds of the conversion to pay the tax bill; the taxes should be paid from taxable brokerage accounts. This allows the full converted amount to compound tax-free.
The Mau Sanchez Capital Philosophy: Liquidity and Transparency
When discussing retirement portfolios and Roth conversions, our philosophy at Mau Sanchez Capital favors transparent, liquid, and publicly traded markets. While some advisors might suggest using illiquid alternatives to "hide" the volatility of a portfolio during a conversion year, we believe in maintaining flexibility.
A Roth conversion is a permanent decision. You want your assets held in high-quality stocks and traditional fixed income where you have daily liquidity. This ensures that if tax laws change or if you need to access capital for a home in the Hill Country, you aren't locked into complex, high-fee structures.
Proper asset allocation is the bedrock of risk management. By designing a client-specific portfolio, we ensure that the "tax-free" bucket of the Roth is invested for long-term equity ownership, while the "taxable" buckets provide the necessary liquidity for spending and tax payments.
Planning for the "New Normal"
The "2026 Tax Cliff" is a reminder that the only constant in retirement planning is change. Whether it's the Social Security COLA lagging behind reality or the potential for higher marginal rates, the best defense is a proactive offense.
If you are a Texas resident with a significant portion of your wealth in traditional IRAs, 2026 is your year to run the numbers. Don't wait until the sunset has already happened to decide that you wanted to pay lower taxes.
Schedule a private meeting with a fiduciary financial advisor today by calling (512) 593-8380 or by visiting: https://calendly.com/portafoliocapital/15min
To learn more about our approach to wealth preservation, visit Mau Sanchez Capital or call us at (512) 593-8380.
Portafolio Capital Management dba Mau Sanchez Capital is a Registered Investment Adviser. This content is for informational purposes only and does not constitute investment advice or a solicitation to buy or sell any security. Advisory services are provided only pursuant to a written advisory agreement. Texas Retirement Journal is an educational publication and does not provide fiduciary financial advice; all such services are provided exclusively through Mau Sanchez Capital.
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