Taxes & Charitable Giving

Should I Consider a Roth Conversion?

A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA or an old 401(k), into a Roth IRA. The amount converted is generally treated as taxable income in the year of the conversion.

In exchange for paying that tax now, qualified withdrawals from the Roth later can come out tax-free, and Roth IRAs are not subject to required minimum distributions during the original owner's lifetime.

The core question is simple to state and harder to answer: are you likely to pay a lower tax rate on this money today than you (or your heirs) would pay later? Conversions can be done partially and spread across multiple years, which is often more practical than converting everything at once.

This may be worth discussing if…

You have retired but have not yet started Social Security or required distributions, leaving a stretch of lower-income years
A large portion of your savings sits in pre-tax retirement accounts
You expect future required distributions to push you into a higher tax bracket
You have cash outside of retirement accounts available to pay the tax
You'd like to leave assets to heirs who are likely to be in high tax brackets
You had an unusually low-income year due to a job change, business loss, or large deduction

Things to consider

Both sides of the decision, laid out plainly.

Potential benefit: tax-free growth

Once converted, qualified withdrawals from a Roth IRA are generally tax-free, and future growth is no longer creating a future tax bill.

Potential benefit: fewer forced withdrawals later

Roth IRAs are not subject to required minimum distributions for the original owner, which can give you more control over taxable income in later years.

Potential benefit: flexibility for heirs

Inherited Roth assets are generally received tax-free by beneficiaries, though distribution timing rules still apply.

Cost: the tax bill is due now

Converted amounts are typically added to your taxable income for the year, which may move you into a higher bracket or reduce deductions and credits.

Cost: paying tax from the account itself

Using converted dollars to pay the tax reduces the amount that gets to grow tax-free, and may trigger penalties if you are under the applicable age. Conversions generally look most favorable when non-retirement cash is available to cover the tax.

Ripple effect: Medicare premiums

Medicare Part B and Part D premiums are based on income from a prior tax year. A large conversion can raise those premiums for a future year — a one-time cost that surprises people who weren't expecting it.

Ripple effect: other income-based items

Higher reported income can also affect the taxation of Social Security benefits, certain credits, and other income-tested items.

Timing and reversibility

A conversion generally cannot be undone once completed, so the analysis is best done before the transaction rather than after.

Questions to ask Rob

Does a conversion fit with my long-term retirement income plan?
Would converting in smaller amounts over several years make more sense than a single large conversion?
Do I have cash outside of retirement accounts to pay the tax without disrupting the plan?
How would a conversion change my projected required distributions later?
Which accounts and investments would we convert, and why?

Questions to discuss with your tax or legal professional

What is my expected marginal tax rate this year, and how much room is there before the next bracket?
How would a conversion of a given size affect my total tax bill this year?
Would the conversion affect my Medicare premiums, and in which year?
Are there state income tax consequences I should understand?
Do I need to adjust withholding or estimated payments if I convert?

Key takeaway

A Roth conversion is a deliberate decision to pay tax now for potential tax-free growth later. It may make the most sense in lower-income years when you can pay the tax from outside funds — and it should be sized with your CPA before it happens.

Still have questions?

Every situation has details a general guide can't cover. A short conversation is usually the fastest way to sort out what applies to you.

Schedule a Conversation With Rob