A Roth conversion can be a valuable tax strategy, or a very expensive lesson in unintended consequences.
A Roth IRA is a retirement account funded with after-tax dollars, where investments can grow tax-free and qualified withdrawals in retirement are generally tax-free.
There is a lot of Roth conversion FOMO (fear of missing out) out there. Like if you are not converting retirement assets into a Roth IRA, you are somehow missing the boat.
And I get it.
Who wouldn’t want tax-deferred growth and potentially tax-free withdrawals later in life?
But a Roth conversion is not a free ride.
At some point, you still have to pay the ferryman to cross the river. Every dollar you convert from an IRA or other retirement plan today generally creates taxable income in the year of conversion.
Decisions made with good intentions can create unintended consequences like:
- Higher marginal tax brackets
- Higher Medicare Part B and Part D premiums
- Liquidity strain from paying taxes upfront
- Potential early withdrawal penalties if handled incorrectly
I am not saying that Roth conversions are bad. But I am saying that context matters.
What Is a Roth Conversion?
A Roth conversion occurs when money is moved from a traditional IRA or 401(k) into a Roth IRA.
The tradeoff is simple: you pay taxes on the converted amount today in exchange for the potential for future tax-free growth and tax-free withdrawals later.
For many retirees and pre-retires, Roth conversions can be an extremely valuable retirement tax planning strategy.
But they are not universally beneficial.
The effectiveness of a Roth conversion depends on your:
- Current tax bracket
- Future income expectations
- Medicare situation
- Required Minimum Distribution (RMD) exposure
- Overall balance sheet
- Liquidity and ability to pay taxes from non-retirement assets
The mainstream thinking on Roth conversions follows a storyline something like this. During your high-income earning years, when your income puts you in the 32% federal bracket (not even factoring in state tax here), you plow as much money as possible into your traditional 401(k) to reduce your taxable income. You sock it away because conventional wisdom says that when you retire, you will be in a lower tax bracket. So you defer higher taxes today for lower taxes tomorrow. Otherwise, you would just contribute to a Roth 401(k) during your working years.
How Roth Conversion Taxes Actually Work
One of my favorite explanations of marginal tax brackets comes from Jason Toole, CPA, who I personally refer to as “the ultimate tax tool.”
Jason explains tax brackets like buckets.
We all start in the 10% bucket, where 10 cents of every dollar is paid to the IRS. For tax year 2026, the capacity of this first bucket is $12,400 for single filers and $24,800 for married couples filing jointly (MFJ). Once you fill that bucket, the next dollars spill into the 12% bucket, with 12 cents of every dollar being paid to the IRS. Then 22%. Then 24%. And eventually all the way up to 37% (37 cents of every dollar).
That matters because Roth conversions stack taxable income on top of your existing income sources including things like:
- Wages and tips
- Social Security
- Pensions
- Annuities
- Interest
- Dividends
- Capital gains
- Rental income
- RMDs
It all counts. A Roth conversion does not exist in isolation, which is why many retirees are surprised when a Roth conversion pushes them into a higher marginal tax bracket than expected.
Roth Conversions and Medicare Premiums
One of the most overlooked Roth conversion consequences involves Medicare.
Medicare Part B and Part D premiums are income tested.
That means a large Roth conversion can increase your Modified Adjusted Gross Income (MAGI).
Higher MAGI can trigger the Income-Related Monthly Adjustment Amount (IRMAA).
In simple terms: higher income could lead to higher Medicare premiums.
And here is what catches retirees off guard. Medicare premium calculations are based on prior-year tax returns and are subject to a two-year lookback. So a large Roth conversion in the current tax year may increase Medicare premiums two years in the future.
Should You Do Roth Conversions Before RMD Age?
In many cases, yes.
Why?
Because once you reach Required Minimum Distribution age, the IRS requires you to satisfy the RMD first.
A Roth conversion does not count toward your RMD. You first recognize taxable RMD income, and then any Roth conversion stacks on top of it.
That can create several problems including higher marginal tax brackets and higher Medicare premiums. This is why many financial advisors evaluate Roth conversion opportunities during the years between retirement and RMD age, when taxable income may temporarily be lower.
Lower-income years can create valuable Roth conversion planning opportunities.
Roth Conversions and Overall Balance Sheet Planning
Another major factor is tax diversification.
If most of your liquid net worth sits inside traditional IRAs and 401(k)s, Roth conversions may deserve serious consideration.
Large retirement account balances can eventually result in large RMDs later in life.
Those distributions can potentially push retirees into higher taxable income levels and higher Medicare premiums whether they need the money or not.
But if you already have large Roth balances, taxable brokerage or trust assets, cash reserves, and charitable planning opportunities, then aggressive Roth conversions may not be necessary.
Again, context matters.
A Roth Conversion Example
Recently, I sat down with a client I will call Presley and her CPA, Tommy.
Presley came into the meeting assuming Roth conversions were the “smart” thing to do because that is what she kept hearing online and within her social circles. But once we reviewed the details, the answer became much more nuanced.
Presley is 67 (pre-RMD age), single, retired, and already has:
- Strong liquidity
- A good balance of accounts: 50% after-tax, 35% IRA, and 15% Roth
- Existing retirement income from Social Security, annuities, dividends, and interest totaling about $110,000 annually (right at the top end of the 22% marginal tax bracket for a single filer)
- Charitable intent
- Meaningful annuity exposure
Tommy and I determined that her projected income levels, with inflation, will likely keep her inside the 22% federal tax bracket if managed carefully.
We discussed the possibility of converting approximately $25,000 to her Roth IRA based on her projected MAGI.
Could Presley complete a Roth conversion and stay within both her current marginal tax bracket and her IRMAA bracket? Probably. Would it ruin the retirement plan? Not at all.
But was a Roth conversion necessary right now? Probably not.
What would it cost her in federal taxes? According to Tommy, 22 cents of every dollar converted, or about $5,500 on a $25,000 conversion. That was a tough pill for Presley to swallow. She already had a six-figure Roth IRA, so increasing the balance now felt more like a nice-to-have than a must-have.
On top of that, state income taxes did not provide any additional tax liability. Although she is in the 22% federal bracket, Presley lives in Georgia. Her Social Security income is not included in Georgia state taxable income, and the Peach State also provides a $65,000 exclusion on retirement income per individual age 65 or older (including dividends, interest, annuities, pensions, and IRA distributions). In other words, she does not have to kick in additional tax dollars to the state on much of the income that drives her retirement plan. If she lived in a higher-tax state like New York, New Jersey, or California, where those kinds of exclusions do not apply, the state tax math around Roth conversions could look very different.
By the end of the meeting, Presley realized something important: a Roth conversion should not be driven by FOMO. Once Medicare premium thresholds were layered into the analysis, the value of a larger Roth conversion became even less compelling.
Presley’s balance sheet already had enough diversification that forcing a large Roth conversion did not materially improve the long-term plan. Again, not because Roth conversions are bad, but because retirement tax planning is interconnected. It should be driven by actual retirement planning analysis, not rules of thumb.
QCDs: An Often Overlooked Retirement Tax Strategy
One of the most effective retirement income tax planning tools later in life may not involve Roth conversions at all.
It may involve a Qualified Charitable Distribution (QCD).
Once you reach age 70½, you can distribute money directly from an IRA to a qualified 501(c)(3) charity.
The QCD:
- Counts toward satisfying your RMD (up to 100%)
- Is excluded from AGI for tax calculations
- Is excluded from MAGI for Medicare calculations
That combination can potentially reduce taxes while also helping retirees manage Medicare premium exposure.
For retirees with charitable intent like Presley, QCDs can become an extremely effective strategy as RMDs increase over time.
Important Roth Conversion Risks People Ignore
There are also technical details many online conversations ignore:
- The Roth IRA five-year rule
- Early withdrawal penalties
- Tax withholding mistakes
- Improper sequencing of distributions
- Liquidity strain from paying taxes
The devil is in the details.
Roth conversions are not just about “getting money tax-free later.” They are about coordinating tax strategy, retirement income planning, Medicare planning, and long-term cash flow together.
Final Thoughts on Roth Conversions
A Roth conversion can be the right move based on your circumstances.
But it should never be done blindly.
Before you convert retirement assets into a Roth IRA, sit down with your financial advisor and tax professional.
Review:
- Tax brackets
- MAGI projections
- Medicare premium thresholds
- RMD exposure
- Liquidity needs
- Long-term estate planning goals
This is not about chasing Roth conversion FOMO.
It is about understanding the tradeoffs before you pull the trigger.
Is a Roth Conversion Right for You?
This information is provided to you as a resource for informational purposes only. This information is not intended to, and should not, form a primary basis for any decision that you may make. This information is not a specific recommendation, individualized tax, legal, or investment advice. Tax laws are subject to change, either prospectively or retroactively. Where specific advice is necessary or appropriate, individuals should contact their own professional tax and investment advisors or other professionals to help answer questions about specific situations or needs prior to taking any action based upon this information. Any examples discussed are provided for illustrative purposes only. Individual situations will vary. The views and opinions expressed are for educational purposes only as of the date of production and may change without notice at any time based on numerous factors.
Withdrawals from a Roth IRA are tax-free if you are over age 59½ and have held the account for at least five years; withdrawals taken prior to age 59½ or five years may be subject to ordinary income tax or a 10% federal penalty tax, or both. (A separate five-year period applies for each conversion and begins on the first day of the year in which the conversion contribution is made).
