A Roth conversion moves money from a traditional IRA or 401(k) into a Roth IRA. You pay income tax on the converted amount in the year of the conversion, but the money then grows tax-free and comes out tax-free in retirement — with no required minimum distributions during your lifetime.
It’s one of the most powerful tax-planning tools available, and one of the most commonly misused. Done at the right time, a Roth conversion can save tens of thousands of dollars in lifetime taxes. Done at the wrong time, it can push you into a higher tax bracket, raise your Medicare premiums, and accomplish nothing useful.
How a Roth conversion works
The mechanics are simple. You instruct your brokerage to move some or all of a traditional IRA balance into a Roth IRA. The amount converted is reported as ordinary income for that tax year — you’ll receive a 1099-R the following January. You pay the resulting tax with money from outside the retirement account (ideally), and the converted balance starts its tax-free life in the Roth.
There’s no income limit on Roth conversions, unlike direct Roth contributions. Anyone with a traditional IRA or 401(k) (most plans require you to leave the employer first to convert from a 401(k)) can do one.
Why convert?
The case for converting comes down to one calculation: are you paying tax on this money at a lower rate now than you would later?
- Lower current tax bracket than expected future bracket. If you expect to be in a higher tax bracket in retirement — because of RMDs, Social Security taxation, pensions, or future tax-rate increases — converting now at a lower rate is a win.
- Avoiding RMDs. Roth IRAs have no required minimum distributions during the original owner’s lifetime. Traditional IRAs do, starting at age 73. Converting before RMDs begin reduces or eliminates the forced taxable income.
- Tax diversification. Having a mix of pre-tax and Roth balances gives you flexibility to manage your tax bracket year by year in retirement — pulling from Roth in high-income years and traditional in low-income years.
- Estate planning. Roth IRAs pass to heirs tax-free. Traditional IRAs require heirs to withdraw and pay tax on the balance, typically within 10 years.
- Surviving spouse considerations. When one spouse dies, the surviving spouse files as single — tax brackets compress and Medicare premiums often rise. Pre-converting some balance softens that transition.
When conversions tend to make sense
The sweet spot for most people is the “gap years” — the period between retiring and the start of Social Security or RMDs. During those years, taxable income is often unusually low, and there’s room to convert at low marginal rates.
Common high-value conversion windows
- Early retirement years (60s): Wages have stopped, Social Security hasn’t started, RMDs are years away. Conversions in this window are often taxed at 12% or 22% federal rather than the higher rates that kick in once income sources stack up.
- Years of unusually low income: A gap year between jobs, a sabbatical, a year of low business income. Convert up to the top of your current bracket.
- Down market years: If your traditional IRA balance has dropped, converting moves the same number of shares into the Roth at a lower tax cost. When the market recovers, all the recovery is tax-free in the Roth.
- Before Medicare at 65: Conversions can affect Medicare premiums two years later (IRMAA). Converting before age 63 avoids that lookback for your initial Medicare year.
Why timing matters
A Roth conversion adds to your taxable income for the year. That can have second-order effects beyond the direct income tax:
- Tax brackets: Pushing across a bracket boundary means the income above the threshold is taxed at the higher rate — sometimes by a wide margin (e.g., 12% to 22%).
- Social Security taxation: Once Social Security has started, additional income increases the percentage of benefits subject to tax (up to 85%).
- Medicare IRMAA surcharges: Higher MAGI in a given year (using a two-year lookback) increases Medicare Part B and Part D premiums for that year. The surcharge can add thousands per year for a couple at higher income levels.
- ACA premium tax credits: If you’re using the ACA marketplace before Medicare, a conversion can disqualify you from premium subsidies.
- Capital gains rates: Long-term capital gains are taxed at 0% up to a threshold — a Roth conversion can push other income above the threshold and turn 0% gains into 15%.
None of these are reasons not to convert. They’re reasons to size the conversion carefully, often filling up to a specific bracket or threshold rather than converting everything at once.
How to size a conversion
Most well-planned Roth conversions are sized to fill a specific tax bracket or stop short of a specific threshold:
- Estimate your taxable income for the year (other than the conversion).
- Identify the next bracket boundary (or other threshold — IRMAA, ACA limits, capital gains thresholds).
- Convert an amount that brings your total taxable income to just below that boundary.
- Recalculate near year-end and adjust if needed — you can convert more, but you can’t undo a conversion.
For 2026, common bracket targets for retirees include the top of the 12% bracket (married filing jointly) and the top of the 22%/24% brackets — the choice depends on what bracket you expect to be in when RMDs begin.
Paying the tax
The general rule: pay the conversion tax with money from outside the retirement account. If you withhold tax from the converted amount, you reduce the balance going into the Roth — defeating much of the benefit.
You can pay the tax through estimated quarterly payments, a year-end withholding adjustment, or a one-time estimated payment in the quarter you convert. People who don’t have enough cash outside retirement accounts to cover the tax should generally not be aggressive with conversions — the math gets much weaker.
The five-year rule
Each Roth conversion has its own five-year clock for penalty-free withdrawal of the converted principal (if you’re under 59½). After 59½, the rule mostly doesn’t apply — though earnings from the conversion still need to follow the original Roth IRA five-year rule for tax-free treatment.
For most people doing conversions in their 60s, the five-year rules are not a meaningful constraint. For people converting in their 50s, they’re worth understanding before converting.
When conversions don’t make sense
- Already in a high bracket and expecting a lower one in retirement. If your current marginal rate is higher than your expected retirement rate, converting trades cheap future tax for expensive current tax.
- You’d need to use IRA money to pay the tax. The math typically doesn’t work out.
- Charitable plans. If you intend to use qualified charitable distributions (QCDs) from your traditional IRA in retirement, that money goes to charity tax-free anyway — converting it first wastes the tax benefit.
- Heirs in a low bracket. If your beneficiaries will be in a lower tax bracket than you, leaving the money pre-tax may produce better overall family tax outcomes.
- Limited time horizon. Conversions work best when there’s time for tax-free growth to recover the upfront tax cost.
Common mistakes
- Converting too much in one year and pushing into a much higher bracket
- Forgetting about IRMAA — the lookback can sting two years later
- Withholding the tax from the conversion (shrinking the Roth)
- Converting without considering state income tax — some states tax conversions; some don’t
- Doing conversions in a year you also need to take an RMD (RMDs cannot be converted, and must be taken first)
- Converting in a year of unusually high income, when low-income years are coming
Working with a professional
Roth conversions involve enough moving parts — current and projected tax brackets, IRMAA, Social Security taxation, ACA subsidies, state taxes, estate planning — that most people benefit from running the numbers with a tax professional or fee-only financial advisor before converting. The fee is often small relative to the tax dollars at stake.
A multi-year conversion plan — spreading conversions across the gap years between retirement and RMDs — tends to produce better outcomes than a single large conversion.
Further Reading
- Taxes and Retirement Accounts Explained Simply
- Required Minimum Distributions (RMDs) Explained
- Tax-Efficient Withdrawal Order in Retirement
- How Social Security Income Is Taxed
- Understanding Medicare Part B Premiums and IRMAA
- How Much Do You Need to Retire?
This article is for general educational purposes only and does not constitute tax or financial advice. Roth conversions have significant tax implications — consult a qualified tax professional or financial advisor before converting.
