Roth Conversion Strategy: When It Makes Sense to Convert Your Traditional IRA

A Roth conversion transfers money from a

A Roth conversion transfers money from a pre-tax retirement account (traditional IRA, traditional 401(k), or similar) into a Roth IRA. The converted amount is added to your taxable income for the year, and you pay ordinary income tax on it.

After conversion, the money grows tax-free in the Roth IRA, and qualified withdrawals in retirement are completely tax-free — no federal income tax on contributions, growth, or withdrawals.

There is no income limit for Roth conversions (unlike Roth IRA contributions, which phase out at higher incomes). Anyone can convert any amount at any time. There is also no age limit and no early withdrawal penalty on conversions — though there is a 5-year rule for each conversion before earnings can be withdrawn tax-free.

You are in a temporarily low tax bracket.

You are in a temporarily low tax bracket. Between jobs, taking a sabbatical, early retirement before Social Security starts, or a year with unusually low income are all ideal conversion windows. Converting while in the 12% or 22% bracket is often better than paying taxes at 24%+ in retirement.

You expect higher tax rates in the future. If you believe tax rates will increase (due to legislation, higher personal income, or expiration of current tax cuts), paying taxes now at known lower rates can be advantageous.

You want to eliminate RMDs. Traditional IRAs require you to start taking minimum distributions at age 73 (rising to 75 in 2033). These forced withdrawals increase your taxable income and can push you into higher brackets, increase Medicare premiums (IRMAA), and make more of your Social Security taxable. Roth IRAs have no RMDs during the owner's lifetime.

You have a long time horizon. The younger you are, the more years of tax-free growth you gain. Converting at 35 gives the money 30 years to grow tax-free versus converting at 60 with only 5 years before potential withdrawals.

You can pay the tax from outside funds. If you have cash in a taxable account to cover the conversion tax, the full converted amount stays in the Roth growing tax-free. Using IRA funds to pay the tax defeats much of the benefit.

You are in your peak earning years.

You are in your peak earning years. If you are in the 32%, 35%, or 37% bracket and expect to be in a lower bracket in retirement, paying conversion taxes now costs more than the future tax savings.

You must use IRA money to pay the tax. If converting $100,000 means withdrawing an additional $25,000 from your IRA to cover taxes, you have reduced your total retirement assets. The math often does not work in this scenario.

You need the money within 5 years. Each Roth conversion has its own 5-year clock before earnings on that conversion can be withdrawn tax and penalty-free (if under 59½). The converted principal can always be withdrawn without penalty, but earnings cannot.

The conversion pushes you into a much higher bracket. Converting $200,000 in one year might push you from the 22% bracket into the 32% or 35% bracket on the top portion. Spreading conversions across multiple years at lower brackets is usually smarter.

How it works

You do not have to convert your entire traditional IRA at once. Partial conversions — also called Roth conversion ladders — spread the tax impact across multiple years to keep you in lower brackets.

How it works: Each year, convert just enough to fill up your current tax bracket without spilling into the next one. For example, if you are married filing jointly and your taxable income is $70,000, you could convert approximately $24,000 to fill the 22% bracket (which ends at $94,300 for 2025) without triggering the 24% rate.

Multi-year planning: If you have $300,000 in a traditional IRA, converting $30,000-$50,000 per year over 6-10 years may result in a lower total tax bill than converting all at once or not converting at all.

Early retirement sweet spot: The years between retiring and starting Social Security (often ages 60-67) are often ideal for a conversion ladder. Your income is low, your bracket is low, and you have several years to convert before RMDs begin.

Pro-rata rule

Pro-rata rule: If you have both pre-tax and after-tax (non-deductible) contributions in your traditional IRA, you cannot selectively convert only the after-tax portion. The IRS treats all your traditional IRAs as one pool and applies a proportional tax calculation. This can make conversions more expensive than expected if you have made non-deductible contributions.

State taxes: Most states tax Roth conversions as ordinary income, the same as federal. However, a few states (like Pennsylvania and Mississippi) may not tax retirement income or conversions. If you plan to move to a no-income-tax state, converting after the move can save significant state taxes.

Medicare IRMAA: Large conversions can temporarily increase your modified adjusted gross income and trigger higher Medicare Part B and Part D premiums two years later (IRMAA uses a 2-year lookback). Plan conversions with this surcharge in mind.

Reporting: Your IRA custodian reports the conversion on Form 1099-R. You report it on Form 8606 and your tax return. Consider working with a tax professional, especially for large conversions.

Roth contributions

These are different strategies that can work together:

Roth contributions are new money you put into a Roth IRA or Roth 401(k) each year, up to annual limits ($7,000 for IRAs, $23,500 for 401(k)s in 2025). Roth IRA contributions have income limits — you cannot contribute directly if your income exceeds $161,000 single or $240,000 married.

Roth conversions move existing pre-tax retirement money into a Roth IRA. There are no income limits and no annual limits on conversion amounts. The trade-off is paying income tax on the converted amount.

For high earners who cannot contribute directly to a Roth IRA, the backdoor Roth strategy (contribute to a non-deductible traditional IRA, then convert to Roth) achieves a similar result. However, the pro-rata rule applies if you have other traditional IRA balances.