The idea sounds appealing: move money from a traditional IRA to a Roth IRA, pay taxes now at today’s rates, and enjoy tax-free growth and withdrawals for the rest of your life.
But like most financial strategies, Roth conversions aren’t universally beneficial. They make tremendous sense for some people and little sense for others. The difference comes down to your specific circumstances.
Here are five questions to help you think through the decision.
1. What Tax Bracket Are You In Now vs. Later?
The fundamental logic of a Roth conversion is paying taxes now to avoid taxes later. This works well when your current rate is lower than your future rate.
When might that happen?
- Early retirement years. The period between leaving work and starting Social Security/RMDs often features lower income and lower tax brackets.
- Career gaps. Sabbaticals, job transitions, or reduced work schedules can create low-income years.
- Expectation of tax rate increases. If you believe tax rates will rise significantly, locking in today’s rates could prove valuable.
Conversely, if you’re currently in peak earning years with a high tax bracket, and expect lower income in retirement, converting now could mean paying more taxes than necessary.
2. Where Will the Tax Money Come From?
A Roth conversion creates a tax bill—potentially a substantial one. How you pay that bill matters enormously.
The right way: Pay the taxes from non-retirement funds, like a taxable brokerage account or savings. This keeps the full conversion amount working in the Roth.
The costly way: Using part of the converted funds to pay the taxes. This effectively reduces your conversion and can trigger penalties if you’re under 59½.
If you don’t have funds outside retirement accounts to cover the tax bill, conversion may not be your best move right now.
3. How Long Until You’ll Need the Money?
Roth conversions need time to “pay off.” You’re accelerating taxes now for future benefits. The longer the time horizon, the more the tax-free growth can compound.
Rules of thumb vary, but many analyses suggest needing at least 10-15 years for the math to work in your favor. If you’re likely to need significant withdrawals soon, the benefit shrinks.
For younger investors with decades until retirement, even small conversions can compound meaningfully. For retirees already taking income, the window may be smaller—but still potentially valuable.
4. What About Your Heirs?
Roth IRAs offer significant estate planning benefits:
- No RMDs during your lifetime means you can let the account grow if you don’t need the money.
- Tax-free inheritance for beneficiaries (though they must empty the account within 10 years under current rules).
- Known tax impact rather than uncertainty about future rates for heirs.
If leaving tax-free money to children or grandchildren is important to you, Roth conversions can be part of that strategy. However, if your heirs are likely to be in lower tax brackets than you, the math becomes less compelling.
5. Can You Withstand the Complexity?
Partial Roth conversions executed strategically over multiple years can minimize taxes. But they require:
- Annual analysis of your tax situation
- Careful coordination with other income
- Attention to Medicare premium thresholds (IRMAA)
- Consideration of state tax implications
- Ongoing record-keeping
This isn’t a “set it and forget it” strategy. If you’re not prepared to manage the complexity—or work with an advisor who can—simpler approaches might serve you better.
A Real-World Example
Consider a couple who retires at 62 with $1.5 million in traditional IRAs and $200,000 in taxable accounts. They have no pension, and they plan to delay Social Security until 70.
For eight years, they’ll have minimal taxable income. This creates an opportunity to convert portions of their traditional IRA at historically low tax rates—potentially filling up the 12% or 22% brackets—before Social Security and RMDs push them into higher brackets.
By the time they turn 70, they might have shifted $400,000 or more to Roth, dramatically reducing their future RMD burden and providing tax diversification.
But the strategy required planning, discipline, and careful execution. It wasn’t accidental.
The Bottom Line
Roth conversions are powerful tools, but they require thoughtful analysis. The decision depends on your current and future tax rates, your ability to pay conversion taxes from non-retirement funds, your time horizon, your estate planning goals, and your willingness to manage complexity.
There’s no universal answer—only the right answer for your situation.
This article is for educational purposes only. Tax laws are complex and change frequently. Consult with qualified tax and financial professionals before making Roth conversion decisions.