Roth Conversions · 11 min read
Roth Conversions: When They Pay Off, and How to Size and Time Them
A Roth conversion pays off when the tax rate paid now is lower than the rate you or your heirs would pay later, ideally with the tax paid from outside cash. For many households the best years fall between retirement and RMDs: convert enough to fill a bracket, but stay under Medicare’s IRMAA thresholds, which in 2026 begin above $218,000 for couples.
A Roth conversion is a decision to pay income tax now on money that would otherwise be taxed later. Whether that trade is worthwhile depends almost entirely on two rates: the one paid in the conversion year, and the one that would have applied when the money came out, whether to the owner in retirement or to heirs after death. When today’s rate is lower, a conversion can reduce a household’s lifetime tax bill. When it is not, a conversion simply moves the bill forward.
What follows is educational; conversion decisions should be confirmed with a tax professional.
What the Question Is Really Asking
“Should we convert?” is rarely a yes-or-no question. It is usually three questions at once: whether a conversion makes sense at all, how much to convert in a given year, and which years to use. The answers depend, in turn, on tax rates over time, on where this year’s brackets and thresholds fall, and on when household income will be lowest.
A conversion moves pre-tax dollars from a traditional IRA (or an eligible plan) into a Roth IRA. The converted amount is ordinary income in the year of the conversion. Qualified withdrawals from the Roth afterward, by the owner or by heirs, are tax-free. There is no income limit on converting; the $100,000 income cap that once applied was removed in 2010. And since 2018 a conversion cannot be recharacterized, so each one is final. (IRS Publication 590-A)
The Core Arithmetic: Today’s Rate Against Tomorrow’s
The clearest way to see why the rate comparison dominates is to hold everything else constant. Take a hypothetical $100,000 of pre-tax IRA money that doubles before it is spent, and compare converting now with withdrawing later.
| Scenario | Arithmetic | After-tax result |
|---|---|---|
| Stay pre-tax, withdraw later at 24% | $200,000 × (1 − 0.24) | $152,000 |
| Convert now at 24%, tax paid from the IRA | $76,000 grows to $152,000 | $152,000 |
| Convert now at 22%, tax paid from the IRA | $78,000 grows to $156,000 | $156,000 |
| Stay pre-tax, withdraw later at 32% | $200,000 × (1 − 0.32) | $136,000 |
At equal rates the two paths finish in the same place. The gain comes from the gap: converting at 22 percent rather than withdrawing at 32 percent is worth 10 percentage points on every dollar, or $20,000 here. Growth alone does not create an advantage; it magnifies whatever rate difference exists.
Paying the tax from cash held outside the IRA tilts the result further toward converting. The full $100,000 then lands in the Roth, and the outside cash, which would have produced taxable interest, dividends or gains, is spent instead. Paying the tax out of the converted dollars shrinks the tax-free balance and gives much of that advantage back.
Conditions That Favor Converting, and Those That Do Not
| Tends to favor a conversion | Tends to work against one |
|---|---|
| Current marginal rate meaningfully below the expected future rate | Current rate at or above the expected future rate |
| Cash outside the IRA available to pay the tax | Tax would have to come from the converted dollars |
| Heirs likely to be in high brackets when they inherit | Heirs, or charities, likely to face low or no tax |
| A long horizon for tax-free growth | A short horizon or a short life expectancy |
| Room under the next IRMAA or benefit threshold | A conversion that would cross an income threshold |
The heir column matters more than it once did. Under the SECURE Act, most non-spouse beneficiaries of accounts inherited after December 31, 2019 must empty them by the end of the tenth year after the owner’s death. (IRS Publication 590-B) An adult child in their 40s or 50s, often at peak earnings, may be taking those distributions at 32 to 37 percent.
The Pre-RMD Window and the 2026 Brackets
Required minimum distributions now begin at 73 for those born from 1951 through 1959 and at 75 for those born in 1960 or later. (IRS Publication 590-B) Before then, many retirees have unusually low taxable income: wages have stopped, Social Security may be deferred, and withdrawals are optional. Depending on retirement age, that window can last from 5 to 15 years, and it is often the least expensive time a household will ever have to move money into a Roth.
| 2026 rate | Single (taxable income) | Married filing jointly (taxable income) |
|---|---|---|
| 10% | Up to $12,400 | Up to $24,800 |
| 12% | $12,401–$50,400 | $24,801–$100,800 |
| 22% | $50,401–$105,700 | $100,801–$211,400 |
| 24% | $105,701–$201,775 | $211,401–$403,550 |
(IRS Rev. Proc. 2025-32. Standard deduction for 2026: $16,100 single, $32,200 married filing jointly.)
The usual technique is called bracket-filling: convert enough each year to bring taxable income to the top of a chosen bracket, and no further. A married couple with $40,000 of pension income and the $32,200 standard deduction has $7,800 of taxable income. They could convert about $93,000 before reaching the 22 percent bracket, and more than $200,000 before reaching 24 percent. No single year needs to be large; the benefit accumulates across the window.
IRMAA and the Other Income Thresholds
A conversion raises more than taxable income. It raises modified adjusted gross income, and several costs key off that figure.
- Medicare IRMAA. Part B and Part D premiums rise in tiers once MAGI passes set thresholds, and premiums are generally based on the tax return from two years earlier, so 2024 income sets 2026 premiums. (20 CFR §418.1135) The look-back is why the issue starts at 63, not 65.
- Taxation of Social Security. Conversion income counts toward the income that determines how much of a Social Security benefit is taxable. (IRS Tax Topic 423)
- The deduction for seniors. For 2025 through 2028, each person 65 or older may deduct an extra $6,000, reduced by 6 percent of MAGI above $75,000 (single) or $150,000 (joint). A conversion that raises MAGI can shrink it. (26 U.S.C. §151(d)(5))
IRMAA is the sharpest of these because it works as a cliff. The 2026 figures: (CMS)
| 2026 item | Figure |
|---|---|
| Standard Part B premium | $202.90 a month |
| First IRMAA tier begins above | $109,000 MAGI single; $218,000 joint |
| First-tier Part B premium | $284.10 a month, $81.20 more per person |
| Highest tier | $500,000 single; $750,000 joint; Part B of $689.90 a month |
One dollar over a threshold triggers the full surcharge for that tier. For a married couple, crossing $218,000 adds about $1,150 a year per enrolled spouse in Part B and Part D surcharges, or roughly $2,300 for the two of them. For that reason, when we size conversions we often stop $3,000 to $5,000 below an IRMAA threshold rather than at the top of an income-tax bracket.
The Two Five-Year Rules, Briefly
Two separate clocks apply. The earnings clock runs once per person from January 1 of the tax year of the first Roth IRA contribution or conversion, never resets, and together with age 59½ makes earnings tax-free. The conversion clock starts anew with each conversion; converted dollars withdrawn within five years by someone under 59½ carry the 10 percent additional tax, though the income tax was settled at conversion. Because contributions and older conversions come out first, neither clock binds most people who convert in their 60s. A first-ever Roth in the late 50s deserves a closer look; see the two Roth five-year clocks. Early retirees who need to spend before 59½ often draw first on money that is already penalty-free, such as a plan covered by the rule of 55, and leave recent conversions untouched.
A Hypothetical Couple, Four Conversion Sizes
This illustration is hypothetical and simplified. It uses 2026 brackets, the standard deduction and 2026 IRMAA thresholds, assumes no other income or deductions, and is not a recommendation.
A married couple, both 63 in 2026, has retired. Their only income is a $40,000 pension; both are deferring Social Security. They hold $1.2 million in traditional IRAs and enough cash to pay tax on a conversion. Because of the two-year look-back, their 2026 income will set their Medicare premiums in 2028, the year both turn 65.
| Conversion | MAGI | Taxable income | Tax on the conversion | Average rate on converted dollars | IRMAA in 2028? |
|---|---|---|---|---|---|
| $0 | $40,000 | $7,800 | $0 | n/a | No |
| $93,000 (top of 12%) | $133,000 | $100,800 | $10,820 | 11.6% | No |
| $174,000 (stops $4,000 below the IRMAA line) | $214,000 | $181,800 | $28,640 | 16.5% | No |
| $203,600 (top of 22%) | $243,600 | $211,400 | $35,152 | 17.3% | Yes, first tier |
The arithmetic behind the second row: the conversion is taxed at 10 percent on $17,000 (from $7,800 to $24,800) and 12 percent on $76,000 (from $24,800 to $100,800), or $1,700 + $9,120 = $10,820.
The last row is where the thresholds show. Moving from $174,000 to $203,600 converts another $29,600. The income tax on it is 22% × $29,600 = $6,512, and crossing $218,000 of MAGI adds about $2,297 of 2028 surcharges for the couple (at 2026 thresholds, which will be indexed by then). Together that is $8,809, or about 29.8 percent on those final dollars, well above the 22 percent bracket rate they appear to be taxed at.
Whether $93,000 or $174,000 is the better choice depends on the rate those IRA dollars would face later. With $1.2 million in pre-tax accounts, RMDs beginning at 75 plus two Social Security benefits could place this couple in the 22 or 24 percent bracket for decades, and a surviving spouse filing alone would reach those rates at roughly half the income. If so, converting at 16.5 percent on average looks favorable. If the couple plans to leave much of the IRA to charity, the case weakens, because a charity pays no income tax on what it receives.
The bracket table understates the cost of the last converted dollars. An IRMAA line can turn a 22 percent conversion into a 30 percent one, which is why the threshold, not the bracket, often sets the size.
How We Approach This in a Plan
We evaluate conversions as a multi-year schedule, not a single transaction, and rerun it each year once actual income is known. The coordination points:
- Brackets, year by year. We project taxable income from retirement through the RMD years and identify which years sit in low brackets. Our guide to where the 12 percent bracket ends shows the 2026 room in detail.
- Social Security timing. Deferring benefits widens the conversion window, and claiming changes how much conversion income becomes taxable. We model the interaction described in the tax torpedo alongside the household’s claiming strategy.
- Medicare. From 63 onward, each year’s conversion is tested against the IRMAA tiers two years out; see the IRMAA cliff.
- RMDs and charitable giving. Conversions shrink the pre-tax balance that future RMDs are calculated on. For charitably inclined households past 70½, a qualified charitable distribution of up to $111,000 in 2026 can satisfy RMDs without adding to income, which sometimes makes a smaller conversion program the better fit. (IRS Notice 2025-67)
- Estate. Beneficiaries under the 10-year rule who inherit from an owner who had already begun RMDs must also take annual distributions in years one through nine under final regulations issued in July 2024, with missed payments enforced from 2025. (IRS Publication 590-B; IRS Notice 2024-35) An inherited Roth is still subject to the ten-year deadline, but its distributions are generally tax-free. The inherited IRA 10-year rule explains the timing.
Questions Worth Answering Before You Decide
- What marginal rate applies this year, and what rate is realistic once RMDs and Social Security begin, including for a surviving spouse filing alone?
- Is there cash outside the IRA to pay the conversion tax, including estimated payments due during the year?
- How close will MAGI be to the next IRMAA tier two years from now, or to the phase-out of the senior deduction?
- Who will inherit the IRA, and what bracket are they likely to be in during the ten years after inheriting?
- Is any Roth money likely to be needed before 59½, and have both five-year clocks been mapped?
What This Does Not Mean
- It does not mean everyone should convert. When today’s rate is equal to or higher than the future rate, a conversion pays tax early without a corresponding gain.
- It does not mean converting everything at once. A single large conversion usually runs through several brackets and IRMAA tiers. Spreading conversions over the window generally costs less.
- It does not mean a conversion can be reversed. Since 2018, recharacterization is unavailable, so the amount should be settled once the year’s income is reasonably known.
- It is not personalized advice. Conversion amounts and tax payments should be confirmed with a tax professional who can see the full return.
Frequently Asked Questions
Q: When does a Roth conversion pay off?
When the tax rate paid on the conversion is lower than the rate that would apply when the money comes out later, to you or to your heirs. Paying the tax from cash outside the IRA and having a long horizon both strengthen the case.
Q: Is there an income limit on Roth conversions?
No. The $100,000 income cap on conversions was removed in 2010. Any traditional IRA owner can convert any amount; income limits apply only to direct Roth IRA contributions.
Q: How much should we convert each year?
A common approach is to fill a target bracket, such as the 12 or 22 percent bracket, and then check the result against Medicare IRMAA tiers two years out. In 2026 the first joint IRMAA tier begins above $218,000 of MAGI, and we often stop a few thousand dollars below it.
Q: Why does IRMAA matter for someone who is only 63?
Medicare premiums are generally based on income from two years earlier. A conversion at 63 can raise premiums at 65, when Medicare typically begins.
Q: Can converted money be withdrawn right away?
At 59½ or older, converted amounts can be withdrawn without penalty at any time. Under 59½, each conversion has its own five-year period, and converted dollars withdrawn before it ends carry the 10 percent additional tax. Earnings need both 59½ and the five-year earnings clock.
Q: Why can a Roth be better for heirs than a traditional IRA?
Most non-spouse heirs must empty either type of inherited account within ten years. Traditional IRA withdrawals are taxed as ordinary income, often in the heir's peak earning years, while inherited Roth withdrawals are generally tax-free once the owner's five-year clock is met.
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Sources and further reading
- IRS Publication 590-A
- IRS Publication 590-B
- IRS Rev. Proc. 2025-32 (2026 brackets and standard deduction)
- IRS Notice 2025-67 (2026 QCD limit)
- CMS, 2026 Medicare Parts A & B premiums and deductibles
- 20 CFR §418.1135 (IRMAA look-back)
- 26 U.S.C. §151(d)(5) (deduction for seniors)
- IRS Tax Topic 423
- IRS Notice 2024-35
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The views and opinions expressed here are those of The Financial Sciences Company as of the publish date and are provided for informational and educational purposes only. They are not personalized investment, tax, or legal advice. The Financial Sciences Company, LLC is a registered investment adviser. Registration does not imply a certain level of skill or training. Additional information is available in our Form ADV at adviserinfo.sec.gov.
General educational information, current as of 2026. Figures and rules change. For guidance specific to your situation, speak with a qualified professional.