By Harry Prabandham · Updated September 27, 2026
Retirement Planning
Roth Conversions: When They Can Make Sense and What They Cost
A Roth conversion moves pre-tax retirement money into a Roth IRA. You pay income tax now in exchange for tax-free qualified withdrawals later.
Roth Conversions: When They Can Make Sense and What They Cost
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What is a Roth conversion?
- A conversion moves money from a traditional IRA or eligible workplace plan into a Roth IRA, and the pre-tax amount is taxed as ordinary income that year.
- Anyone can convert; there is no income limit and no annual cap.
- Qualified Roth withdrawals are tax-free, and Roth IRAs have no required minimum distributions for the original owner.
- Conversions are permanent; undoing one through recharacterization has not been allowed since 2018.
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Full Guide
What is a Roth conversion?
- A conversion moves money from a traditional IRA or eligible workplace plan into a Roth IRA, and the pre-tax amount is taxed as ordinary income that year.
- Anyone can convert; there is no income limit and no annual cap.
- Qualified Roth withdrawals are tax-free, and Roth IRAs have no required minimum distributions for the original owner.
- Conversions are permanent; undoing one through recharacterization has not been allowed since 2018.
Which rules trip people up?
- Pro-rata rule: with pre-tax money in any traditional, SEP, or SIMPLE IRA, each conversion is partly taxable based on year-end balances.
- Each conversion has its own five-year clock for the 10% penalty on converted amounts withdrawn before age 59½.
- A separate five-year rule for tax-free earnings runs from January 1 of the year of your first Roth contribution or conversion.
- Once RMDs begin, that year's RMD must come out first and cannot itself be converted.
- Tax withheld from a conversion never reaches the Roth and can face the 10% penalty if you are under 59½.
When do conversions tend to make sense?
- In lower-income years, such as after leaving a tech job and before Social Security or RMDs begin.
- When higher rates seem likely later, from RMDs, a surviving spouse filing single, or heirs in high brackets.
- When the tax can be paid from taxable savings rather than from the converted money.
- After a market decline, when the same tax converts more shares, though any rebound is not assured.
When can conversions backfire?
- When your future rate, or your heirs' rate, turns out lower than the rate paid on conversion.
- When stacked on a high-income year, such as one with a large RSU vest, IPO lockup release, or tender offer.
- When the money may be needed within five years and you are under 59½.
- Before a planned move to a no-income-tax state, since converting after the move can avoid state tax.
Hidden costs to model
- Medicare IRMAA surcharges use income from two years earlier, so conversions from age 63 onward can raise premiums.
- For 2026, IRMAA begins above $109,000 of 2024 MAGI for single filers and $218,000 for joint filers.
- For 2025 through 2028, conversion income can shrink the $6,000 senior deduction, which phases out above $75,000 of MAGI ($150,000 joint).
- Higher income can also raise tax on Social Security, reduce ACA premium credits, and push capital gains into higher brackets.
Sizing a conversion
- A common approach is converting up to the top of a chosen bracket each year, based on a projection of that year's income.
- Waiting until late in the year gives a clearer view of income, but the conversion must be completed by December 31.
- Multi-year projections comparing today's rate with expected future rates on RMDs and inheritances help frame the decision.
Key takeaways
- Conversions trade a known tax today for tax-free qualified withdrawals later.
- Pro-rata, five-year, and RMD-ordering rules shape how much is taxed and when money can come out.
- IRMAA, the senior deduction, and state residency can change the true cost.
- Model conversions with a CPA; Rubric does not prepare tax returns.
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