Is a Roth Conversion Right for You?

You may have heard friends, colleagues, or your own advisor talk about moving retirement money into a Roth IRA. A Roth conversion lets you pay income tax on retirement savings now, at a rate you know, in exchange for tax-free withdrawals later. The tax code allows you to convert some or all of a traditional IRA to a Roth IRA regardless of your age or income. The real question is whether the timing and potential benefits work in your favor. 

That depends on your current bracket, the bracket you expect to be in during retirement, how long the converted money can stay invested, and where the cash to pay the tax bill comes from.  

What Is a Roth Conversion and How Does It Work? 

A Roth conversion moves money from a pre-tax retirement account, such as a traditional IRA, SEP, or SIMPLE IRA, or a 401(k), into an after-tax Roth IRA. You pay ordinary income tax on the converted value of deductible contributions and earnings in the year the conversion happens. You will report it to the IRS on Form 8606 with your annual tax filing. 

Many investors consider Roth conversions because Roth and traditional IRAs receive different tax treatment. Roth IRAs are funded with after-tax dollars, allowing investments to grow tax-free and qualified withdrawals to be tax-free under current federal tax law and applicable IRS requirements. Traditional IRA contributions generally are made with pre-tax dollars, which can reduce your taxable income today, but withdrawals are taxed as ordinary income. Traditional IRAs are also subject to required minimum distributions (RMDs) beginning at age 73, or age 75 if you were born in 1960 or later.  

Roth Conversion Rules to Know Before You Start 

A few key rules shape how Roth conversions work and answer many of the questions investors ask first. 

• No income or age limit. Anyone can convert at any age and any income level. You do not need to be retired or to have earned income. 

• No annual cap. Roth IRA contributions are capped at $7,500 for 2026, or $8,600 at age 50 and older. Conversions are not subject to a limit. 

• Required minimum distributions come first. You need to take the current year’s required minimum distribution (RMD) before converting. A conversion does not count toward satisfying an RMD. 

• Each conversion starts its own five-year clock. For individuals under age 59 ½ , a distribution of that conversion’s taxable portion during the applicable period may be subject to the 10% additional tax.  

• The decision is permanent. Recharacterization, the old free do-over, was eliminated by tax reform. 

• Contribution eligibility is separate. Direct Roth contributions phase out between $153,000 and $168,000 of modified adjusted gross income for single filers in 2026, and between $242,000 and $252,000 for joint filers. Conversions ignore those thresholds. 

How Do You Convert a Traditional IRA to a Roth IRA? 

The mechanics are simpler than the decision. If you already hold a Roth IRA, you can convert into it. If not, you’ll need to open one first. Using the same custodian may simplify the process, although it is not required. 

From there, determine how much to convert, either as a dollar amount or as specific holdings, and whether to move cash or transfer eligible assets in-kind. Transferring assets in-kind keeps the money invested rather than requiring you to sell them and move to cash.  

You’ll also need to decide whether to have taxes withheld from the conversion. Many investors choose to pay the tax from a separate account so the full conversion amount remains invested in the Roth IRA, though the right approach depends on your circumstances. 

Your custodian will typically issue Form 1099-R, and you’ll generally report the conversion on Form 8606 when filing your federal tax return.  

When a Roth Conversion Makes Sense 

Converting is not right for everyone all the time, but several situations tend to make the math attractive. Whether a Roth conversion is beneficial depends on an individual’s tax situation, retirement objectives, time horizon, and other financial considerations. 

1. You are over the Roth IRA income limit. Converting pre-tax accounts is one route to Roth treatment, potentially allowing the money to grow tax-free and be withdrawn tax-free later if applicable Roth IRA requirements are satisfied and current tax laws remain in effect. 
2. You want to leave a legacy for your heirs. If you intend to leave retirement assets to someone other than your spouse, converting first may be advantageous in some circumstances, though the rules can be complex and should be evaluated in light of your specific tax and estate planning situation. 
3. You anticipate higher taxes in retirement. Hard to predict, but if you expect to be in a higher federal tax rate, or plan to relocate to a higher-tax state, converting at today’s rate may work in your favor. 
4. You expect your income for the year to be low. A job change, a sabbatical, or a business loss can decrease taxable income and a conversion taxed as ordinary income may cost less in those years. 
5. You will not need the money right away. Under age 59½, an early withdrawal of converted earnings means paying income tax plus a 10% penalty, with limited exceptions. 

Is It Worth Paying Tax on the Converted Funds? 

When you convert, you pay income tax at your current rate and lock in the tax cost on that portion of your retirement savings. That works in your favor if you believe today’s rates will climb, or if your circumstances point to a higher tax liability in retirement than you carry today. 

Once the money is in the Roth and the five-year requirement is satisfied, earnings may generally be withdrawn federal income tax-free under current law, provided applicable distribution requirements are met. If you do not need the Roth for living expenses, those earnings can keep compounding with no future tax bill attached, and that case gets stronger the longer the money has to grow. 

What Are the Downsides of an IRA to Roth Conversion? 

Before converting, consider the trade-offs. Some costs may not surface until years later. 

• A conversion can push you into a higher bracket. That additional income can trigger other costs, including the 3.8% net investment income tax, the phase-out of credits and deductions, and making more of your Social Security benefits taxable. 

• Medicare costs can rise two years out. Medicare premium surcharges are based on modified adjusted gross income from two years prior, and for 2026 they begin at $109,000 for single filers and $218,000 for joint filers. A one-time conversion can trip that threshold. 

• You need cash outside the IRA. Paying tax from non-IRA money preserves the full converted balance. Using IRA dollars shrinks the amount converted, and under 59½ that portion may trigger a 10% early withdrawal penalty. 

• Timing carries market risk. If you convert and the market then falls, you have paid tax on a value your account no longer has, with no way to undo it. 

• Income-tested benefits can shift. A conversion raises adjusted gross income, which may affect eligibility for health insurance subsidies or need-based financial aid that year. 

Why Not Convert the Entire IRA at Once? 

A series of partial conversions may limit the added tax that one large conversion can cause by creeping into a higher bracket. Spreading the conversion across several years lets you fill a target tax bracket deliberately, then stop, rather than paying top-rate tax on the last slice of one big conversion. 

There is also a reason to keep some money in the traditional IRA. If you have charitable interests, retaining IRA assets preserves your ability to use qualified charitable distributions. At 70½ or older you can direct up to $111,000 in 2026 straight to an eligible charity, satisfying a required minimum distribution while staying out of taxable income. That is a benefit you give up on every dollar you convert. 

Timing a Roth Conversion to Lower the Tax Cost 

A conversion in a year with a large bonus, a taxable home sale, or unusually strong portfolio returns is rarely well timed, because the tax lands on top of income you already have. Other situations may create a more favorable opportunity to convert. 

1. Convert when your income is down, such as during a transition between jobs or a year with loss activity. 
2. Complete large charitable gifts in the same year as a conversion, so the charitable deduction can offset the taxable income the conversion creates. 
3. Convert in the years after retirement but before Social Security benefits or required minimum distributions begin, when your bracket is often at its lowest. 
4. Convert after a market decline, when the same shares carry a lower taxable value and the recovery can happen inside the Roth. 
5. If you hold non-deductible IRA contributions, determine whether some portion of the conversion represents a tax-free return of basis. 

Can High Earners Still Use a Roth IRA Conversion? 

Yes, and for many people above the contribution thresholds, a conversion is the only route in. A Backdoor Roth IRA is the common strategy: contribute to a non-deductible traditional IRA, then convert those funds to a Roth IRA. 

The complication is the pro-rata rule. If you already hold pre-tax IRA assets, the IRS treats part of the conversion as taxable based on the mix of deductible and non-deductible dollars across all of your traditional IRAs. You cannot convert only the non-deductible contributions, even if they sit in a separate account, so anyone with existing pre-tax balances should model the result first. 

What a Roth Conversion Means for Your Heirs 

Creating a Roth through conversion may be an attractive way to pass wealth to the next generation in certain circumstances, particularly if your heirs are likely to land in a higher bracket than you are now. Under the SECURE Act, a non-spouse beneficiary who inherits a traditional IRA must empty it within 10 years, stacking taxable income into what may already be that person’s peak earning years. 

Inherited Roth IRAs face the same 10-year window, but the distributions are generally income tax-free. Coordinating a Roth conversion with your broader estate planning and wealth transfer plan may improve tax efficiency and help support your wealth transfer objectives. 

Partnering with Savant Wealth Management on Your Roth Conversion Strategy 

A Roth conversion is more than a one-time tax decision. It touches your tax bracket this year, your required minimum distributions later, your Medicare costs two years out, and what your heirs receive decades from now, which is why the decision belongs inside a broader plan rather than beside it. Savant Wealth Management works with individuals and families on retirement planning, tax advisory and preparation, and financial planning, modeling how a conversion or a series of partial conversions may fit a specific tax picture and time horizon. Schedule an introductory call today to talk through whether converting some or all of a traditional IRA fits your circumstances. 

This is intended for informational purposes only. You should not assume that any discussion or information contained in this document serves as the receipt of, or as a substitute for, personalized investment or tax advice from Savant. Please consult your investment or tax professional regarding your unique situation.