Is a Roth Conversion Worth It? Why Timing Is Everything
Should I convert? And if so, how much? And when? And how do I actually do it? This is usually the sequence of questions I receive around Roth conversions. And the answer to all of them, I know you’ll be surprised to hear, is it depends.
Each person has a unique financial, tax and life situation. What makes perfect sense in one situation might not be as elegant in another.
Roth conversion basics
A Roth conversion is when you move money from a pretax retirement account, such as a traditional IRA or, in some cases, a 401(k), into a Roth IRA.
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You pay the tax when you convert. Generally, the amount you convert that hasn’t previously been taxed is added to your ordinary taxable income for that year.
Suppose you have $100,000 in a traditional IRA and convert $20,000 to a Roth IRA. Assuming all of the money in the IRA is pretax, that $20,000 generally gets added to your taxable income for the year.
If those dollars fall within the 22% federal tax bracket, the conversion could create roughly $4,400 of additional federal income tax.
Of course, the actual amount depends on your entire tax situation, including your income, deductions, state taxes and whether you have any after-tax money in your IRAs.
Why would you voluntarily pay the tax before you have to? Because you are essentially making a decision about when you want to pay it.
With a traditional IRA, you get tax-deferred growth, but taxable distributions are generally taxed as ordinary income when the money eventually comes out.
With a Roth IRA, you pay the applicable tax on the conversion today, the assets can continue to grow inside the Roth, and qualified distributions can ultimately come out free from federal income tax. Roth IRAs also don’t have required minimum distributions during the original owner’s lifetime.
This is where it gets really interesting. Reducing the amount of money sitting in pretax accounts can potentially reduce your taxable income later in retirement. That can help with things like Medicare premiums and IRMAA, the taxation of Social Security, your capital gains tax rate and the taxes you pay on your other sources of income.
But, and this is a big but, a Roth conversion increases your taxable income in the year you actually do it. So doing too much at once could push you into a higher tax bracket, increase future Medicare premiums through IRMAA or cause more of your Social Security to become taxable.
This is why the question isn’t really, “Should I do a Roth conversion?” It is, “How much should I convert, when should I convert it, and how much tax am I willing to pay to do it?”
Three factors to consider: Income tax rates, longevity and Social Security
Broad strokes, we are in a relatively low federal income tax environment compared with several periods in modern U.S. history. The highest federal individual income tax rate for 2026 is 37%.
For some perspective, the top marginal rate was 91% through much of the 1950s and early 1960s, 70% through much of the 1970s, 50% from 1982 through 1986, 28% from 1988 through 1990, 39.6% from 1993 through 2000, 35% from 2003 through 2012, 39.6% from 2013 through 2017 and 37% beginning in 2018.
Does that mean taxes are definitely going up? No. Does it mean you should run out and convert your entire IRA tomorrow? Also no. But it’s important context when we’re deciding whether we want to pay a known tax rate today versus an unknown tax rate 10, 20 or 30 years from now.
No one knows what Congress will do with tax rates in the future. What we do know is what the tax rules look like today, how much you currently have sitting in pretax accounts and, with reasonable assumptions, what those accounts could look like in the future if we do absolutely nothing.
Another consideration is that the number of Americans age 65 and older is growing rapidly. The Census Bureau has projected that by 2034 there will be approximately 77 million Americans age 65 and older.
At the same time, Social Security is facing a significant long-term funding challenge. According to the 2026 Social Security Trustees Report, the combined Social Security trust funds are projected to have sufficient reserves to pay scheduled benefits until 2034.
If no changes were made, continuing program income would be sufficient to pay about 83% of scheduled benefits when those reserves are depleted.
That doesn’t mean Social Security disappears in 2034, but it does mean that something eventually has to change.
It’s like a household budget: When we’re consistently spending more than we’re bringing in, there are only so many levers to pull. More money needs to come in, less money needs to go out or some combination of the two needs to happen.
What exactly that means for future tax rates, Social Security or Medicare is impossible to know today, and I certainly don’t have a crystal ball. But “let’s wait and see what happens” isn’t much of a retirement tax strategy either.
Your future tax liability
Here’s the other thing people miss. If you have $2 million in a traditional IRA, you see $2 million on your statement. But you don’t necessarily have $2 million available to spend.
If those dollars have never been taxed, the government still has a claim on some portion of that money when taxable distributions occur. We don’t know exactly how large that claim will ultimately be because we don’t know what your income or tax rates will be at the time.
That is your future tax liability. And if you have accumulated $2 million, $3 million, $5 million or more almost entirely in pretax retirement accounts, that is something I want to understand before the IRS starts telling us how much you have to take out every year.
There are also certain windows where Roth conversions can become particularly interesting.
- Maybe you retire at 62 and have several years before required minimum distributions begin
- Maybe your income temporarily drops
- Maybe you delay Social Security
- Maybe you have unusually large deductions in a particular year
- Maybe we deliberately convert just enough each year to use a particular tax bracket without unnecessarily spilling into the next one
This is where tax planning becomes financial planning, rather than simply tax preparation.
Regardless of whether right now is the right time for you to execute a Roth conversion, it is the right time to be evaluating your future tax liability and planning for how you’re going to deal with it.
I have so many clients who come to us when they’re nearing or recently retired. When we review their circumstances, there are things they could have done five or 10 years earlier that are no longer possible, or simply aren’t nearly as attractive, because they missed the window.
Saving $100,000 in taxes may not seem like too much in the grand scheme of things when you have a net worth of several million dollars, but money has an opportunity cost.
If that $100,000 remained invested over a 25-year retirement and hypothetically earned a 6% annual rate of return, it would grow to approximately $429,000. That is $429,000 that could have gone to your children or grandchildren, your favorite charity or that amazing trip around the world you always wanted to go on.
Of course, a 6% return is hypothetical and isn’t guaranteed. Actual investment returns fluctuate, and this example doesn’t account for taxes, fees, inflation or differences in investment strategy.
The point is simply that every unnecessary dollar that goes out the door is a dollar that no longer gets to compound for you.
How to get ahead
So, if you’re a high-income earner or have accumulated a lot of assets that are currently sitting in qualified accounts such as IRAs, 401(k)s and 403(b)s, you need to get ahead of this. Ask the following:
- What will your required minimum distributions eventually look like?
- What will your taxable income look like in retirement?
- What happens to your Medicare premiums?
- What happens when one spouse dies and the surviving spouse is suddenly filing as a single taxpayer?
- What happens when your children inherit these accounts?
- And, most importantly, if you don’t like the answers, what can you do about it while you still have options?
The goal isn’t simply to pay the least amount of tax this year. The goal is to understand what you and your family could pay in taxes over your lifetime and make intelligent decisions today while you still have the ability to influence that number.
