Roth Conversions: Pay Taxes Now or Later?

What Is a Roth Conversion?

A Roth conversion involves moving money from a traditional IRA (pre-tax) to a Roth IRA (after-tax). You pay income tax on the converted amount in the year of conversion, but from that point on, the money grows tax-free and qualified withdrawals are tax-free.

When Roth Conversions Make Sense

The sweet spot is usually the years between retirement and age 73 (when RMDs start). During these years, your taxable income is often lower, meaning you can convert at a low tax rate. If you're in the 12% or 22% bracket now but expect to be in a higher bracket later (due to RMDs, Social Security, or tax rate increases), converting now can save significant money.

How Much Should You Convert?

The key is to convert enough to fill your current tax bracket without pushing into a higher one. For example, if you're married filing jointly and your taxable income is $60,000, you could convert up to about $34,000 and stay in the 22% bracket (2026 thresholds).

We call this 'bracket filling' and it's one of the most effective tax strategies available to retirees. Over 5-10 years, you can shift hundreds of thousands of dollars into tax-free territory.

The Five-Year Rule

Converted amounts must sit in the Roth for at least 5 years before being withdrawn penalty-free (if you're under 59½). If you're over 59½, there's no penalty regardless. This rule applies separately to each conversion.