Roth Conversions: Is This the Year to Make the Move?

If you have money sitting in a traditional IRA or 401(k), there's a question worth asking every single year — especially around tax season: should I convert some of this to a Roth?

It's one of the most effective planning moves available to pre-retirees and retirees. It's also one of the most misunderstood. Some people convert too much, too fast, and get hit with a tax bill they weren't prepared for. Others wait too long and miss a window that won't come back.

Here's what a Roth conversion actually is, when it makes sense, and why tax season is the right time to have this conversation.

What Is a Roth Conversion?

A Roth conversion is the process of moving money from a traditional IRA or 401(k) — where contributions were made pre-tax — into a Roth IRA, where growth and qualified withdrawals are tax-free.

When you convert, you pay income tax on the amount converted in the year of the conversion. In exchange, that money grows tax-free and is never subject to Required Minimum Distributions. When you withdraw it in retirement, you owe nothing to the IRS.

That's the trade: pay taxes now, never pay taxes on that money again.

Whether that trade makes sense depends entirely on your situation — specifically, what tax rate you're paying today versus what you expect to pay in the future.

The Core Question: Now or Later?

The logic behind a Roth conversion is straightforward: if you expect to be in a higher tax bracket in the future than you are today, it makes sense to pay taxes now at the lower rate.

This comes up most often in a few specific situations.

The years between retirement and RMDs. If you retire at 62 but don't start taking Social Security until 67 and RMDs don't kick in until 73, you may have a window of 5–10 years where your taxable income is unusually low. That window is a prime opportunity to convert — filling up lower tax brackets at today's rates before RMDs force distributions at potentially higher rates later.

Before tax laws change. For years, a key argument for Roth conversions was the looming sunset of the Tax Cuts and Jobs Act — the concern that rates would jump in 2026. That sunset didn't happen. The One Big Beautiful Bill Act, signed in July 2025, permanently extended the current rate structure, including the 37% top rate. That removes some of the urgency around conversions, but doesn't eliminate the case for them. If your income is lower now than it will be when RMDs begin, converting at today's rate still makes sense. The tax insurance argument has shifted from 'rates may rise soon' to 'rates may rise eventually, and your RMDs will almost certainly push your income higher.'

When your income dips. A job transition, a slow business year, a sabbatical — any year your income is lower than usual is a potential conversion opportunity. Lower income means lower tax rate means a cheaper conversion.

When your portfolio has dropped in value. Converting during a market downturn means you're paying taxes on a smaller balance. When the market recovers, that growth happens inside the Roth — tax-free.

The Benefits of a Roth IRA in Retirement

Beyond the tax-free growth, Roth IRAs offer several advantages that become increasingly valuable as you approach and enter retirement.

No Required Minimum Distributions. Traditional IRAs force you to take taxable withdrawals starting at age 73, whether you need the money or not. Roth IRAs have no RMD requirement during your lifetime. That gives you more control over your taxable income — and more flexibility in how you manage Medicare premiums, Social Security taxation, and estate planning.

Tax diversification. Most people retire with the majority of their savings in pre-tax accounts. That means every dollar they withdraw is taxable. A Roth IRA gives you a tax-free bucket to draw from, allowing you to manage your tax bracket strategically in retirement rather than being forced into a single tax outcome.

A better inheritance for your heirs. When your heirs inherit a Roth IRA, withdrawals are still tax-free. When they inherit a traditional IRA, every dollar is taxable income. For families thinking about legacy, a Roth is almost always the more valuable asset to pass on.

The Risks of Converting Too Much

A Roth conversion isn't a free lunch. Done carelessly, it can create real problems.

Jumping tax brackets. Converting a large amount in a single year can push you into a higher bracket, meaning you pay more in taxes than necessary. The goal is to convert strategically — filling up your current bracket without spilling into the next one.

Triggering Medicare premium increases. Medicare Part B and D premiums are based on your income from two years prior (IRMAA). A large conversion in 2026 could increase your premiums in 2028. This doesn't mean you shouldn't convert — it means the timing and amount need to be planned carefully.

Increasing Social Security taxation. Up to 85% of your Social Security benefit can be taxable, depending on your combined income. A large conversion can push more of your Social Security into the taxable column — an unintended side effect that a well-planned conversion avoids.

Paying taxes with IRA funds. If you pay the tax bill from the converted funds themselves rather than from an outside account, you lose the compounding benefit on the amount used for taxes. Ideally, conversion taxes are paid from a taxable account — preserving the full converted amount inside the Roth.

Why Tax Season Is the Right Time to Evaluate This

April isn't when you execute a Roth conversion — it's when you review whether you should have done one last year and start planning for this year.

When your tax return comes together, you get a clear picture of:

• Your actual taxable income for the prior year
• How much bracket headroom you had (and left unused)
• Whether you're on track to owe more in future years
• How close you are to IRMAA thresholds or Social Security taxation triggers

That information is the foundation of a smart conversion strategy. Once you can see exactly where you landed, you and your advisor can plan how much to convert this year — and in which months — to optimize the outcome.

The worst Roth conversion decisions happen reactively, in December, without a full picture of the year's income. The best ones are planned in the first half of the year, with room to adjust.

Is This the Year for You?

There's no universal answer to whether a Roth conversion makes sense. But here are some signals that it's worth a serious conversation:

• You're in a lower-income year than usual
• You're between retirement and age 73 with limited taxable income
• You have a large traditional IRA that will generate significant RMDs
• You're concerned about future tax rate increases
• You want to leave a tax-efficient inheritance
• You have cash in a taxable account to pay the conversion tax

If several of these apply to you, a Roth conversion could be one of the better planning decisions you make this year. The key is running the numbers carefully — and doing it before the window closes.

Let's Run the Numbers for Your Situation

At Sage Street Wealth, Roth conversion planning is part of how we think about every client's long-term tax picture. If you're wondering whether this is the year to make the move, let's find out together.

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