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Roth conversions sound compelling: Tax-free growth, tax-free withdrawals and no required minimum distributions (RMDs). What’s not to love?
Well, as with most things that appear to be financial no-brainers, the answer is: Plenty, if you’re not careful.
A Roth conversion can be one of the most powerful tax-planning moves you ever make. It can also become an unnecessarily expensive detour that leaves you wondering why you volunteered to write such a large check to the IRS.
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The difference between the two comes down to timing, tax strategy and understanding the long-term implications.
In this guide, we’ll break down when a conversion makes sense, when it does not and how to evaluate whether it fits into your overall retirement plan.
What is a Roth conversion?
A Roth conversion simply means taking pre-tax money — generally from a traditional IRA or an employer plan — and converting it into a Roth IRA. You pay taxes on the amount converted today and, in exchange, you benefit from tax-free withdrawals later.
Think of it like prepaying your retirement taxes. You pay now, skip the tax bill later and enjoy future withdrawals without worrying about what tax brackets might look like down the road.
But that upfront tax bill is where the decision becomes real.
When a Roth conversion makes strategic sense
1. You’re in a lower-than-normal tax year.
Life is full of surprises, and sometimes those surprises produce unusually low taxable-income years. Maybe you retired midyear, took time off work, started a business with low initial income or had a year with substantial deductions.
These years can be an ideal time to convert at a lower tax cost.
Why it matters: Roth conversions are taxed as ordinary income. If you can convert dollars at 12% or 22% instead of 32%, the long-term math becomes compelling. Paying taxes at a lower rate today to avoid higher rates tomorrow is the entire point.
As I often remind clients, a Roth conversion is most powerful when the IRS barely notices it happened.
2. You expect tax rates to rise.
Whether due to changing tax policy or your own future income expectations, converting when rates are low can set you up for tax-free distributions in a potentially higher-tax future.
While the One Big Beautiful Bill (OBBB) made current tax rates “permanent,” that doesn’t mean they won’t rise under future administrations.
3. You have a long time horizon before needing the funds.
The longer Roth dollars have to grow, the more valuable the tax-free compounding becomes. Younger investors, early retirees and anyone with a multidecade horizon may benefit substantially.
Think of it like planting a tax-free tree that keeps growing and never requires mandatory pruning (unlike traditional IRA RMDs).
4. You want to reduce future RMDs.
Traditional IRAs and 401(k)s come with RMDs — forced withdrawals the IRS requires because they’re tired of waiting for their cut.
For high-net-worth investors, large RMDs can create significant taxable income in retirement, affecting Medicare premiums, Social Security taxation and cash flow.
A well-timed conversion can shrink future RMDs, smoothing taxes across retirement and giving you greater control over your income.
When a Roth conversion does not make sense (at least not yet)
1. You’re in a high tax bracket today.
Converting when you’re in your peak earning years, or any year in the upper tax brackets, can be counterproductive.
If you’re facing a 32%, 35% or 37% marginal rate, a conversion may mean writing the IRS a check that’s far larger than necessary.
Unless you have strong reason to believe future rates will be even higher, waiting for a lower-income phase (retirement, sabbatical, business transition) is usually smarter.
2. You don’t have cash on hand to pay the tax.
This is one of the most overlooked rules: You should almost never pay the conversion tax from the IRA itself.
Doing so:
- Reduces the amount making it into the Roth
- Can trigger penalties if you’re under 59½
- Undermines the long-term compounding that makes Roth money so powerful
If paying the tax requires tapping investments you’d prefer not to sell, the timing is likely wrong.
3. You need the money soon.
If you’re likely to need the converted funds within five years, the Roth five-year rule and shortened growth timeline can significantly reduce the benefits.
A Roth conversion is a long-term strategy.
4. A conversion would push you into tax landmines.
Sometimes, converting creates collateral tax consequences unrelated to the conversion itself, including:
Conversions should be done carefully and intentionally — often in precise amounts that avoid crossing key income thresholds.
The impact of changing tax laws
Tax law changes are frequent, and retirement planning is likely to be affected in coming years. A thoughtful Roth conversion strategy must account for potential shifts.
Two major considerations:
1. Higher tax rates in the future.
Many investors are accelerating conversions in anticipation of higher future tax rates. That creates both a window of opportunity and a need for careful analysis.
2. Potential future limits on Roth advantages.
Roth accounts increasingly appear in policy discussions. While current proposals focus on extremely large IRAs — not typical investors — the attention is a reminder that laws can change.
A strong strategy includes reviewing conversions annually, not treating them as one-and-done decisions.
How to evaluate whether a conversion is right for you
A Roth conversion should be approached like any major financial decision: Based on data, not emotion.
To make a smart decision, consider:
- Your current vs expected future tax brackets
- Years until you’ll need the money
- Whether conversions can be spread over multiple years
- How much room remains before you enter the next tax bracket
- Cash available to pay the tax bill
- Impact on Medicare, Social Security and overall retirement income planning
Proper modeling is essential. A multiyear tax projection can reveal the optimal amount to convert — which is often far different from what intuition suggests.
Final thoughts
Roth conversions can be fantastic. They can also be costly. The difference lies in timing, strategy and understanding your long-term tax landscape.
For many investors, partial conversions over several years provide the best blend of benefits and control. For others, the right answer may be to wait — or to skip conversions entirely.
If there’s one universal truth, it’s that Roth conversions should never be done impulsively. They belong in a thoughtful, tax-aware retirement plan that considers both today’s situation and tomorrow’s possibilities.
And remember: The IRS will always take your money. The question is how much and when. With the right strategy, you get to decide both.
A type of Roth IRA conversion, sometimes called a backdoor Roth strategy, is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting. To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions. This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.
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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.
