Is a Roth Conversion a Good Move? Why the Right Timing Matters

If you earn a high income or have built up substantial pretax retirement savings, it is worth understanding how a Roth conversion may help reduce future taxes.

People usually ask the same set of questions about Roth conversions: Should I do one? How much should I convert? When should I do it? And how do I actually carry it out? The honest answer to all of them is: it depends.

Every taxpayer has a different financial, tax and personal situation. A strategy that works well in one case may be far less effective in another.

Roth conversion basics

A Roth conversion means transferring money from a pretax retirement account, such as a traditional IRA or, in some cases, a 401(k), into a Roth IRA.

Taxes are due when the conversion happens. In most cases, the amount that has not already been taxed is added to your ordinary taxable income for that year.

For example, if you have $100,000 in a traditional IRA and convert $20,000 to a Roth IRA, and all of the money is pretax, that $20,000 is generally included in your taxable income for the year.

If that income falls into the 22% federal tax bracket, the conversion could generate about $4,400 in additional federal income tax.

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The exact bill depends on your broader tax picture, including income, deductions, state taxes and whether any after-tax money sits inside your IRAs.

Why pay tax before you have to? Because the real decision is about when you want to pay it.

With a traditional IRA, growth is tax-deferred, but withdrawals are generally taxed as ordinary income later on.

With a Roth IRA, you pay the tax now, the money can keep growing inside the account, and qualified withdrawals can eventually come out free of federal income tax. Roth IRAs also do not require minimum distributions during the original owner's lifetime.

That is where the strategy becomes especially interesting. Reducing pretax balances may lower taxable income later in retirement, which can affect Medicare premiums, IRMAA, the taxation of Social Security, your capital gains rate and taxes on other income.

But there is a tradeoff: a Roth conversion raises your taxable income in the year you do it. Converting too much at once could push you into a higher bracket, increase Medicare premiums through IRMAA or cause more of your Social Security benefits to be taxed.

That is why the better question is not simply whether to convert. It is how much to convert, when to convert it and how much tax you are willing to pay to make the move.

Three factors to weigh: tax rates, longevity and Social Security

In broad terms, we are currently in a relatively low federal income tax environment compared with several points in modern U.S. history. The highest federal individual income tax rate is 37%.

For context, the top marginal rate was 91% through much of the 1950s and early 1960s, 70% through much of the 1970s, 50% from 1982 through 1986, 28% from 1988 through 1990, 39.6% from 1993 through 2000, 35% from 2003 through 2012, 39.6% from 2013 through 2017 and 37% starting in 2018.

Does that mean taxes are guaranteed to rise? No. Does it mean you should rush to convert your entire IRA immediately? Also no. But the history is useful when deciding whether to pay a known tax rate now versus an uncertain one in the future.

No one knows what Congress will do next with tax rates. What we do know is the current tax rules, how much you already have in pretax accounts and, using reasonable assumptions, what those accounts may look like later if nothing changes.

Another factor is demographic change. The number of Americans age 65 and older is rising quickly, and the Census Bureau has projected that by 2034 there will be about 77 million people in that age group.

At the same time, Social Security faces a major long-term funding issue. According to the 2026 Social Security Trustees Report, the combined trust funds are expected to have enough reserves to pay scheduled benefits until 2034.

If nothing changes, ongoing program income would cover about 83% of scheduled benefits once those reserves are exhausted.

That does not mean Social Security vanishes in 2034, but it does mean some change will eventually be necessary.

It is a lot like a household budget: if spending consistently exceeds income, there are only so many levers to pull. Either more money has to come in, less has to go out, or both.

No one can say with certainty how this will affect future tax rates, Social Security or Medicare. But waiting passively for the answer is not much of a retirement tax strategy either.

Your future tax liability

There is another point many people miss. If you have $2 million in a traditional IRA, that is what the statement shows. But that does not necessarily mean you have $2 million available to spend.

If the money has never been taxed, the government still has a claim on part of it when withdrawals are made. The size of that claim depends on your future income and tax rates, which are unknown today.

That is your future tax liability. And if you have accumulated $2 million, $3 million, $5 million or more mostly in pretax retirement accounts, I want to understand that liability before required withdrawals begin.

There are also windows when Roth conversions can be especially compelling.

• You may retire at 62 and have several years before required minimum distributions begin
• Your income may temporarily drop
• You may delay Social Security
• You may have unusually large deductions in a given year
• You may choose to convert just enough each year to fill a particular tax bracket without spilling into the next one

That is where tax planning becomes part of financial planning, rather than just tax preparation.

Whether now is the right time for a Roth conversion or not, it is the right time to examine your future tax liability and think through how you will handle it.

Many clients come to us near retirement or after they have already retired. When we review their situation, we often find moves they could have made five or 10 years earlier that are no longer available, or are far less attractive, because the window has passed.

Saving $100,000 in taxes may not sound dramatic when your net worth is several million dollars, but money has an opportunity cost.

If that $100,000 stayed invested for 25 years in retirement and earned a hypothetical 6% annual return, it could grow to about $429,000. That is money that could have supported children or grandchildren, gone to a favorite charity or funded a dream trip around the world.

Of course, 6% is only an example and not a guarantee. Real investment returns vary, and this illustration does not include taxes, fees, inflation or differences in investment strategy.

The main point is simple: every unnecessary dollar paid out is a dollar that no longer has the chance to compound for you.

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How to get ahead

So if you are a high-income earner or have a large balance in qualified accounts such as IRAs, 401(k)s and 403(b)s, you need to think ahead. Ask yourself the following:

• What will your required minimum distributions eventually look like?
• What will your taxable income be in retirement?
• What happens to your Medicare premiums?
• What happens when one spouse dies and the survivor files as a single taxpayer?
• What happens when your children inherit these accounts?
• And most importantly, if you do not like the answers, what can you do now while you still have options?

The goal is not simply to minimize taxes this year. The goal is to understand what you and your family may pay over your lifetime and make smart choices now while you still have the ability to influence that number.

This material is provided for educational and informational purposes only and should not be construed as individualized investment, tax or legal advice. Roth conversion strategies involve numerous considerations and should be evaluated based on an individual's specific financial circumstances, tax situation and objectives. Tax laws and regulations are subject to change. Individuals should consult with their financial, tax and legal professionals before implementing a Roth conversion strategy. Securities and advisory services offered through Packerland Brokerage Services Inc., an unaffiliated entity - Member FINRA & SIPC.

This article was written by and reflects the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or FINRA.