If you have meaningful balances in a Traditional IRA, a 401(k), or another pre-tax retirement account, you’ve probably heard about Roth conversions. This post explains what a conversion is, what it can and cannot do, and the questions worth working through before deciding whether one fits your situation. 

What a Roth Conversion Is 

A Roth conversion moves money from a pre-tax retirement account, such as a Traditional IRA or pre-tax 401(k), into a Roth IRA. The pre-tax portion of the amount converted is added to your taxable income in the year of the conversion and taxed at ordinary income rates¹. Once the money is in the Roth IRA, future qualified withdrawals are generally tax-free, and the original owner is not required to take minimum distributions from a Roth IRA during their lifetime². 

Three points are worth knowing up front. There is no income limit on Roth conversions; even high earners who cannot contribute directly to a Roth IRA can convert. There is no annual dollar cap on the amount you can convert in a given year. And, since the elimination of recharacterization in 2018, a conversion is irrevocable. Once executed, it cannot be reversed³. 

Why People Consider Them 

The most common reason is tax-rate arbitrage. If your marginal tax bracket is lower today than you expect it to be later in retirement, paying tax on a slice of your pre-tax balance now may be less expensive than paying tax on the eventual Required Minimum Distributions (RMDs) at higher rates. Said differently, a known cost today can be preferable to an uncertain, possibly larger cost later. 

Three other goals come up regularly. A Roth IRA has no lifetime RMDs for the original owner, so converting can give you more flexibility over which accounts you draw from in retirement. Roth balances passed to most non-spouse heirs generally must be distributed within 10 years under current law, but those distributions can be tax-free if the account meets the five-year holding requirement. And building a Roth balance creates “tax diversification,” giving you pre-tax, taxable, and tax-free buckets to draw from depending on what any given year’s tax picture calls for. 

A note on the legislative backdrop: conversions still rely on assumptions about your future income and future tax law, which Congress or your state can change at any time. 

When the Timing Tends to Get Examined 

Conversions get the closest look in years when taxable income is lower than usual. For many households, that window opens after the last paycheck stops and before Social Security and RMDs begin adding to the tax return. As of 2026, RMDs for most pre-tax retirement accounts begin at age 73 for those born between 1951 and 1959, and at age 75 for those born in 1960 or later⁴. The years between retirement and RMD age can be the lowest-bracket years a household will see. 

Other situations that often prompt the analysis: a year with unusually low income because of a sabbatical, business loss, or job transition; a year with large itemized deductions that can absorb additional taxable income; or a year before a known income event, such as a deferred compensation payout or an inherited IRA distribution, makes future bracket space tighter. 

What to Weigh on the Cons Side 

A Roth conversion is not without cost. The tax bill is real, due in the year of the conversion, and may require quarterly estimated payments to avoid an underpayment penalty. Several second-order effects can quietly raise the true cost: 

Medicare IRMAA surcharges. Higher modified adjusted gross income (MAGI) can trigger Income-Related Monthly Adjustment Amount (IRMAA) surcharges on Medicare Part B and Part D premiums two years later⁵. A conversion done in 2026 affects 2028 premiums. 

Social Security taxation. Adding conversion income can push more of your Social Security benefits into the taxable portion of your return⁶. 

Affordable Care Act (ACA) premium tax credits. This consideration carries more weight in 2026 than it has in recent years. The enhanced premium tax credits enacted in 2021 expired on December 31, 2025, and the original 400% Federal Poverty Level cliff is back. A pre-Medicare household relying on marketplace coverage whose MAGI exceeds roughly $62,600 for a single filer or $84,600 for a two-person household loses the entire credit, not a portion. A conversion that nudges MAGI a single dollar over the threshold can wipe out the year’s subsidy entirely⁷. 

Paying the tax with converted dollars. If you use IRA money to cover the conversion tax, less ends up in the Roth, and if you are under age 59½, the portion withheld for taxes is treated as a distribution that can trigger a 10% early withdrawal penalty. 

Five-year rules. Each conversion has its own five-year clock for penalty-free withdrawals of the converted amount if you are under 59½. A separate five-year clock applies to tax-free withdrawal of earnings. 

Pro-rata rule. If you have after-tax (basis) money mixed with pre-tax money across your Traditional, SEP, and SIMPLE IRAs, the IRS requires you to treat any conversion as a proportional share of each. A conversion intended to be partially tax-free may end up mostly taxable. Worth knowing: this aggregation rule applies only to IRA accounts. Balances held in 401(k), 403(b), and similar employer-sponsored plans are not aggregated with your IRAs for pro-rata purposes⁸. For some households with after-tax IRA basis, that distinction creates planning room worth exploring. 

None of these mean a conversion is the wrong move. They mean the right answer depends on more than this year’s federal bracket alone. 

State Taxes Matter Too 

Where you live can change the planning picture. Washington has no general personal income tax in 2026, so a conversion adds nothing to a Washington resident’s state liability today. That changes in 2028, when Washington imposes a 9.9% tax on personal income above $1 million, effective for tax years beginning January 1, 2028⁹. The law is expected to face constitutional challenges, and a referendum or ballot initiative is possible, so the planning picture for 2028 and beyond is not yet settled. While this threshold sits well above most conversions, for a high earner doing a large conversion in 2028 or later, the excess over $1 million could carry a meaningful state tax cost. Oregon’s top marginal rate, 9.9% in 2026, is among the highest in the country, so a large conversion can carry a meaningful Oregon tax bill on top of the federal cost. Arizona’s flat rate of 2.5% in 2026 sits much lower. If you are contemplating a multi-year conversion strategy and a move between states is on the horizon, that timing can change the after-tax outcome substantially. 

Questions Worth Working Through 

A short list tends to surface the right direction for any given household: 

• What is your projected marginal bracket this year, and what does it look like in the years RMDs begin? 

• Do you have non-retirement assets available to pay the conversion tax? 

• Are you within two years of starting Medicare, where IRMAA cliffs come into play? 

• Are you currently using ACA marketplace coverage, where the 400% FPL cliff is back in effect? 

• Do you have any after-tax basis sitting in Traditional, SEP, or SIMPLE IRAs that would trigger pro-rata treatment? 

• What are your legacy goals, and who would inherit the account? 

A Roth conversion is a tool, not a strategy by itself. It tends to add the most value when it is part of a multi-year tax projection that maps out brackets, IRMAA thresholds, and other income events across the years before and after the conversion year. 

If this applies to your situation, we’d welcome a conversation. 

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This content is for educational purposes only and does not constitute personalized investment, tax, or legal advice. Third Stanza Group LLC is a registered investment adviser in the states of Arizona, Oregon, and Washington. Registration does not imply a certain level of skill or training. Please consult a qualified professional regarding your specific situation. 

References 

1. IRS Publication 590-A, Contributions to Individual Retirement Arrangements (IRAs) (covers conversion mechanics, taxation as ordinary income, and the absence of income limits on conversions). https://www.irs.gov/publications/p590a ↩ 

2. IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) (covers Roth IRA lifetime RMD exemption, the 10-year rule for inherited accounts, the additional tax on early distributions, and the five-year holding requirements). https://www.irs.gov/publications/p590b ↩ 

3. Internal Revenue Service, Retirement Plans FAQs Regarding IRAs (recharacterization of IRA conversions made on or after January 1, 2018, prohibited under the Tax Cuts and Jobs Act). https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras ↩ 

4. SECURE 2.0 Act of 2022 §107 (Public Law 117-328); Internal Revenue Service, Retirement Plan and IRA Required Minimum Distributions FAQs. https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs ↩ 

5. Centers for Medicare & Medicaid Services, Monthly Premium for Drug Plans, https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/monthly-premium-for-drug-plans; Social Security Administration, Medicare Premiums: Rules for Higher-Income Beneficiaries, https://www.ssa.gov/benefits/medicare/medicare-premiums.html ↩ 

6. IRS Publication 915, Social Security and Equivalent Railroad Retirement Benefits. https://www.irs.gov/publications/p915 ↩ 

7. Congressional Research Service Report R48290, Enhanced Premium Tax Credit and 2026 Exchange Premiums: Frequently Asked Questions, https://www.congress.gov/crs-product/R48290; Kaiser Family Foundation, “ACA Marketplace Premium Payments Would More Than Double on Average Next Year If Enhanced Premium Tax Credits Expire,” https://www.kff.org/affordable-care-act/aca-marketplace-premium-payments-would-more-than-double-on-average-next-year-if-enhanced-premium-tax-credits-expire/ ↩ 

8. Internal Revenue Code §408(d)(2), https://www.law.cornell.edu/uscode/text/26/408; IRS Form 8606 and instructions, https://www.irs.gov/forms-pubs/about-form-8606 ↩ 

9. Washington ESSB 6346 (2025-2026 Regular Session), Washington State Legislature. https://app.leg.wa.gov/billsummary?BillNumber=6346&Year=2025 ↩