The Roth Conversion Window for FDNY Disability Retirees
Every year gives you a fixed amount of low-cost conversion room. Miss a year and it is gone forever.
There is a group of FDNY retirees sitting on what may be a great tax opportunity in the Internal Revenue Code, and many of them may have no idea it exists. If you retired with a disability pension, accidental disability or WTC disability, some or all of that pension receives favorable federal tax treatment. If there is no other significant income in your household, something unusual is true about your tax return. For some members, taxable income lands at or below zero. For others, a portion of the pension is taxable, and they end up with a modest amount of income, still sitting in the lowest brackets in the code with room to execute low-cost Roth conversions. Read that again, because everything that follows depends on it. You worked a long career, and you saved consistently. You have a pension, a home, maybe a family, maybe a vacation property or even a boat, and possibly seven figures sitting in a NYC deferred comp account. On paper, as far as Uncle Sam is concerned, you earn almost nothing.
What that actually means
For tax year 2026, a married couple filing jointly gets a standard deduction of $32,200. Income below that line is not taxed at a low rate — it isn't taxed at all.* Above that line, the 10% bracket runs to $24,800 of taxable income, and the 12% bracket runs to $100,800. Now put those numbers together with the fact that your pension might not be consuming any of them. A married FDNY disability retiree under 65 with no other taxable income could convert $133,000 out of deferred comp (the 457, 401k, or another tax-deferred account) and into a Roth IRA this year and pay $11,600 in federal tax on it. That is an effective tax rate of 8.7% on the entire conversion. The first $32,200 costs nothing at all. If part of your pension is taxable, the room is smaller, but there is still room. $10,000 of taxable pension income leaves roughly $123,000 of capacity. $40,000 leaves roughly $93,000. Still the cheapest brackets in the code, and still a different number for every FDNY retiree. That converted money can then grow for the rest of your life and come out tax-free. So does everything it earns. So does whatever your spouse inherits. So does whatever your kids inherit. Many working Americans may never see federal tax rates like this again in their lives. You may be looking at those rates right now, with $1,000,000 sitting in a deferred account, and doing nothing about it.
Here is the part nobody tells you
They do not carry forward. In general, there is no such thing as unused deduction from 2024 being available to you in 2026. December 31st comes, the allowance expires, and it is gone permanently. A brand new one shows up the next calendar year, and if you don't act on it, it will expire too. Consider a member who retired at 52 on an accidental disability pension with $1,000,000 in his deferred comp (457) account, and who has done nothing with it in the five years since. He was handling it himself, the balance was going up, and nothing about the account ever suggested there was a decision in front of him. Not acting was a bad decision. It just never felt like one, because he never made any decision at all. Five separate annual allowances — five years of potentially converting tax deferred money into tax exempt money at an effective rate under 9% — expired quietly while his balance kept growing. He is 57 now. His required minimum distributions (RMD) begin at 75, which leaves him eighteen allowances for the rest of his life. He has already let five go. That is the cost of doing nothing. There is no penalty. No notice. No line on your return that tells you what you missed out on that year. Your statement shows a balance going up, which looks like everything is working. December 31st passes and nothing happens.
And the bill does eventually arrive
Eventually the IRS stops letting you decide. Depending on the year you were born, RMDs begin at 73 or 75. From that point on, every year for the rest of your life, you are forced to pull money out of your deferred accounts and pay ordinary income tax on it, at whatever rates exist then, on a balance that has been compounding untouched for decades. The account that grew while you weren't looking generates a forced withdrawal you didn't ask for and might not need or want. It can drag your Social Security benefits into taxation. It can raise your Medicare premiums. And if the FDNY retiree dies before their spouse (or primary beneficiary), the spouse might inherit the entire balance and file as a single taxpayer, in brackets half as wide, on the largest embedded tax liability the household ever had. Every dollar you convert in your fifties and sixties is a dollar that never becomes part of that problem.
What we are not going to tell you in an article
How much to convert.
There is no 100% correct answer, only informed opinions, and they are only as good as the analysis behind them. How much you should convert depends on facts we don't have. Whether your pension qualifies for favorable federal tax treatment. Whether there is spousal income, now or later. Whether you're collecting Social Security disability, which changes the arithmetic in ways most people don't anticipate. What your tax deferred investment balance is, how your investment accounts are positioned, and how many years you have before RMDs start. None of these can be answered on their own. Each answer changes the others, which is why the right number isn't something you can look up — not in this article, and not anywhere else. Convert too little and you waste the annual allowance. Convert too much and you pay too high a price in taxes. The right number is dynamic and can change from year to year. It should be part of a multi-year plan, not a one-time transaction, and determining that amount is the hard work.
What we can tell you is this — it’s September. If you have an FDNY disability pension, a tax deferred investment balance and no plan for Roth conversion, you have about three months before another year expires. Roth conversion paperwork takes longer than most people expect.
Brave Eagle Wealth Management is an FDNY retirement specialist. Our wealth management service includes investment management and year-round tax planning. If you want to know what this year's allowance is worth, call us before December 1st and have last year's tax return handy.
* - https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2026-including-amendments-from-the-one-big-beautiful-bill
This material is for informational purposes only and does not constitute tax or investment advice. The federal tax treatment of disability retirement income depends on individual facts and circumstances. Tax figures reflect 2026 federal amounts and are subject to change; state tax treatment is not addressed. Consult a qualified professional regarding your own situation.
