Tax Planning Insight on Roth IRA Conversions

Today, let’s talk about Roth conversions. You may already know you can contribute directly to a Roth IRA, but not everyone qualifies due to income limits. That’s where a Roth conversion can come in as a helpful strategy.

What is a Roth Conversion?

A Roth conversion is the process of moving funds from a traditional IRA into a Roth IRA, paying taxes now so future growth can be tax-free.

Why Consider a Roth Conversion?

So, why would you want to do this?

Let’s start with a common situation. If you have a traditional IRA and expect to be in a higher tax bracket during retirement, converting now could be a smart move. You would pay taxes at today’s lower rate and potentially avoid higher taxes later.

Another reason is legacy planning. If you don’t anticipate needing this money for yourself and plan to leave it to your children or heirs, paying the tax now allows the assets to grow tax-free for years to come.

Then there are low-income years. Maybe you’ve had a temporay dip in income due to career change or time off. That can create an opportunity to convert at a lower tax bracket. You can be strategic here and choose not to convert every year.

Market conditions also matter. If your traditional IRA has declined in value due to a market dip, converting at that lower value means you pay less tax. When the market rebounds, the growth happens inside the Roth, tax-free.

When Does a Roth Conversion Not Make Sense?

Now, let’s look at the other side of the equation.

If you’re approaching retirement, timing is critical. You may not have enough time to recover the cost of paying taxes on the conversion before you need to use the funds.

You’ll also want to be cautious if you are receiving Medicare and/or Social Security. A Roth conversion increases your taxable income for that year, which could impact your benefits or raise your Medicare premiums.

Another key consideration is liquidity. If you don’t have the funds in a taxable account to pay the tax bill, using IRA funds to cover taxes can reduce the effectiveness of the strategy.

Lastly, if you use your IRA for charitable gifts through qualified charitable deductions (QCDs), converting may reduce the tax efficiency of that approach.

Important Notes to Keep in Mind

There are a few things to remember as you consider this strategy:

• You don’t have to convert everything at once. Many people spread conversions over five to ten years to manage their tax exposure.
• Once you convert, it’s permanent. You cannot re-characterize it back into a traditional IRA.
• Always plan ahead for the tax bill. Having a clear strategy for covering that cost is essential.

Since we’re talking about tax-related strategies, it’s always wise to consult a professional. Speak with your CPA or tax preparer before making a decision. If you’re working with a CERTIFIED FINANCIAL PLANNING^® professional, bring this into your discussion. And if you don’t currently have guidance, we would welcome the opportunity to connect and help you evaluate your options.

This content has been updated as of March 14, 2026. It is for educational purposes only and should not be considered tax, investment or legal advice. Consult a qualified CPA or tax attorney for advice specific to your situation.