A Roth conversion can make sense when you have a lower-income window and expect higher taxes later, but it is not a good fit for everyone. The key is choosing the right amount and timing so you don’t create avoidable tax spikes.
Key Takeaways
- Conversions are taxable in the year you convert
- The goal is long-term flexibility, not a short-term tax win
- Planning should be done year by year, not all at once
What Is a Roth Conversion?
A Roth conversion is the process of moving funds from a pre-tax retirement account, like a traditional IRA or 401(k), into a Roth IRA. You pay taxes on the converted amount in the year of the conversion, but once the funds are in the Roth IRA, they can grow tax-free and be withdrawn tax-free in retirement.
Unlike Roth IRA contributions, there are no income restrictions on conversions. Anyone can perform a Roth IRA conversion regardless of how much they earn. The conversion must be completed by December 31 to count for that tax year.
The core logic: you pay tax now at a known rate to eliminate tax later at an unknown rate. For people who expect their tax situation to get more complicated in retirement, that trade can be worth it.
Common Reasons Conversions Can Help
Lower-Income Years Before RMDs
The window between retirement and when required minimum distributions begin is often the best time to convert. Roth conversions are popular among younger retirees because they can often convert funds in lower income tax brackets than during their working years.
Under SECURE Act 2.0, those born between 1951 and 1959 begin RMDs at age 73, and anyone born in 1960 or later starts at age 75. That gap, before Social Security and RMDs stack up together, is often where the biggest planning opportunity lives.
Managing Future Tax Brackets
Some people with large retirement account balances, pensions, Social Security, and RMDs end up in a higher tax bracket in retirement than they expected. One way to reduce that burden is to convert a portion of pre-tax money now into a post-tax account.
One practical approach is to fill your current tax bracket to its upper limit. If you’re in the 24% bracket and the next bracket doesn’t kick in until income exceeds a certain threshold, you can convert up to that gap and stay within your bracket. Spreading the conversion across multiple years can make the tax hit easier to manage.
Legacy Planning
When a beneficiary inherits a Roth IRA, the 10-year distribution rule still applies. But the inherited Roth funds are not subject to annual minimum distributions. The funds can continue to accumulate tax-deferred over the full 10-year window, and when distributed, the balance is tax-free. That is a meaningful difference compared to inheriting a traditional IRA, where every dollar distributed is taxable to the beneficiary as ordinary income.
Common Reasons Conversions Can Backfire
Triggering Higher Medicare Costs
IRMAA is a “cliff” surcharge, meaning you pay higher premiums if your MAGI exceeds the threshold by even one dollar. Roth conversions and distributions from traditional IRAs are among the events that can trigger it.
The surcharge is based on your MAGI from two years prior. For 2026 Medicare premiums, the surcharge is based on your 2024 income. In 2026, crossing the first IRMAA threshold by one dollar costs you an additional $1,052 annually in Medicare surcharges. A conversion that looks efficient on paper can quietly become expensive if IRMAA is not factored in.
Losing Deductions or Credits
A large conversion adds to your taxable income, and that can ripple. Conversion income can make up to 85% of Social Security benefits taxable, and this interaction often changes the optimal conversion amount by $10,000 to $20,000. For pre-Medicare households on ACA marketplace coverage, more income can reduce or eliminate premium tax credits entirely.
Paying Taxes From the IRA Itself
If a client converts $100,000 and withholds $22,000 for taxes from the IRA, only $78,000 grows tax-free. That $22,000, left invested at 7% for 25 years, would have been worth roughly $119,000 tax-free. Always pay conversion taxes from cash or a taxable account outside the IRA.
A Simple Conversion Amount Framework
Estimate your taxable income
Start with all projected income sources for the year: Social Security, pension, dividends, and any part-time work. This is your baseline before you add any conversion.
Identify a target bracket ceiling
Find the gap between your baseline income and the top of your current tax bracket. If you are on Medicare, the first IRMAA threshold, currently around $218,000 for joint filers, is a key ceiling to watch. Set your MAGI ceiling before executing any conversion.
Leave room for surprises
Early-year conversions can be a mistake before you have a solid estimate of current-year income. Year-end dividends, fund distributions, and capital gains can push income higher than expected. Build in a buffer and finalize the conversion amount once the year is nearly complete.
FAQs
The converted amount is added to your taxable income in the year you convert. Depending on the size of the conversion, this could push you into a higher tax bracket. Beyond that, a large conversion can trigger Medicare premium surcharges two years later, increase the taxable portion of your Social Security benefit, and reduce ACA premium credits if you are purchasing marketplace coverage.
Find the gap between your current taxable income and the top of your bracket, and convert up to that amount. Breaking the conversion across multiple years can make the tax hit easier to manage and may reduce the overall tax you pay. IRMAA thresholds and Social Security taxation should also factor into that ceiling.
Generally, the years after you stop working but before Social Security and RMDs begin offer the best window. Retirees who are earning less now than in their working years can lower their conversion tax bill by taking advantage of that lower income period. That said, some people retire with pension income that fills their bracket quickly, so the window varies by situation.
If you genuinely expect a lower bracket in retirement, a large conversion may not make sense. But many people underestimate what their taxable income will look like in retirement, since Roth IRAs do not have required minimum distributions, while traditional IRAs force withdrawals regardless of need. Run the numbers against your full projected retirement income before assuming your bracket will be lower.
No. A conversion is irreversible. Once you convert, the taxes are owed. The IRS eliminated the ability to reverse a Roth conversion under the Tax Cuts and Jobs Act of 2017. This is why getting the amount right before you execute matters so much.
The converted amount counts as ordinary income. Conversion income can make up to 85% of Social Security benefits taxable, and this interaction often changes the optimal conversion amount by $10,000 to $20,000. Always model your conversion against your actual projected Social Security income, not a rough estimate.
Roth conversions are included in the MAGI calculation that determines IRMAA. The surcharge is based on your income from two years prior, so a large conversion today could raise your Medicare premiums two years from now. Future qualified Roth withdrawals, on the other hand, do not count toward MAGI, which can actually lower Medicare costs in later years if the strategy is built out over time.
Create a Roth Conversion Plan That Fits Your Income
Most Roth conversion mistakes come from doing too much in one year or not planning ahead. A steady, year-by-year approach can help you stay in control of your taxes and avoid unwanted surprises. If you want help figuring out how much to convert and when, schedule a complimentary consultation with one of our CFP® professionals at Bauman Wealth Advisors. We’ll help you build a plan that fits your income and your timeline.
