What Is a Roth Conversion, and When Does It Make Sense?
How a Roth conversion works, the tax bill to expect, and the low-income years and IRMAA cliffs that decide whether it pays off.
A Roth conversion moves money from a traditional IRA to a Roth IRA. You pay ordinary income tax on the converted amount now, and it grows tax-free afterward.
How it works
You direct the custodian to convert some or all of a traditional IRA to a Roth IRA. The converted amount is added to your taxable income for the year at ordinary rates. Once converted, future growth and qualified withdrawals are tax-free.
When it pays off
The conversion is a win when your current marginal tax rate is lower than the rate you expect to pay when the money would otherwise come out. Classic setups include an early-retirement gap year before Social Security and RMDs start, or a year with an unusually large deduction or business loss.
Watch the tax bracket and IRMAA cliffs
A large conversion can push you into a higher bracket or over a Medicare IRMAA threshold two years later. The goal is to fill a bracket, not overflow it. Convert up to the top of a target bracket and stop, then convert more the following year.
The conversion ladder
Rather than converting a large balance in one year, break it into a series of partial conversions across several low-income years. This keeps each year's tax bill in a lower bracket and avoids stacking multiple IRMAA cliffs at once.
Worked example
A retiree in a gap year has 20,000 dollars of ordinary income. They convert enough traditional IRA to fill the 12 percent bracket for their filing status. The conversion is taxed at 12 percent now, versus a projected 22 percent later once Social Security and RMDs start.
Ready to run the numbers?
Use the Roth conversion calculator to get a specific quantity for your project.
Open the Roth conversion calculator →Related guides
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